November 17, 2010
333-169982
Delaware | ||||||
(State or other jurisdiction of incorporation or organization) | 2869 (Primary Standard Industrial Classification Code Number) | 20-5952523 (I.R.S. Employer Identification Number) | ||||
1801 Broadway, Suite 1060
(Address, including zip code, and telephone number,including area code, of registrant’s principal executive offices)
1600 Broadway, Suite 2200 Denver, CO 80202 Telephone: (303) | 640-6500 | |||||
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
Mark L. Zoeller 1600 Broadway, Suite 2200 Denver, CO 80202 Telephone: (303) 640-6500 | |||
(Name, address, including zip code, and telephone number, including area code, of agents for service) | |||
Craig F. Arcella Cravath, Swaine & Moore LLP 825 Eighth Avenue New York, NY 10019 Telephone: (212) 474-1000 Fax: (212) 474-3700 | |||
Registration Statement.registration statement becomes effective.box: box. xoffering: offering.¨offering: offering. ¨offering: offering. ¨Title of class of
securitiesAmount to be
registered(1)Proposed maximum
offering price
per unitProposed maximum
aggregate offering
price(1)(2)Amount of
registration fee(3)Title of class of Proposed Proposed maximum securities to be Amount to be maximum offering aggregate offering Amount of registered registered price per unit price registration fee(4) Subscription rights to purchase depositary shares 29,773,422 (1 ) (1 ) (1 ) 29,773,422 $ 0.56 $ 16,673,116 $ 1,188.79(4 ) 2,000,000 (2 ) (2 ) (2 ) Common stock, $0.01 par value per share 10,925,000 shares $18.00 $196,650,000 $21,042 29,773,422 (3 ) (3 ) (3 )
November 17, 2010
9,500,000 shares
This is as of 5:00 p.m., New York City time, on , which we refer to as the record date, non-transferable subscription rights to purchase depositary shares representing an initial publicaggregate of 2,000,000 shares of the Series A Non-Voting Convertible Preferred Stock. The number of subscription rights distributed in this rights offering will be . The subscription rights will be distributed pro rata to the holders of our common stock based on the number of shares of common stock by BioFuel Energy Corp.
Priorheld on the record date. Each subscription right will permit the holder of such right to this offering, there has been no public market for our common stock. We are selling 9,500,000 sharesacquire, at a rights price equal to $0.56, one depositary share under the basic subscription privilege and will also provide an over-subscription privilege. This rights price represents a % discount to the closing price of common stock. The estimated initial public offering price is between $16.00 and $18.00 per share.
We have applied to list our common stock on . The over-subscription privilege will entitle the holder of the subscription right to subscribe for an additional amount of depositary shares equal to up to 100% of the depositary shares for which the holder was otherwise entitled to subscribe. The subscription rights will expire and have no value if they are not exercised by 5:00 p.m., New York City time, on , the expiration date. The subscription rights may not be sold or transferred. All exercises of subscription rights are irrevocable. Subject to certain conditions and possible reductions as described in more detail herein, the total proceeds expected to be raised in the rights offering is $ .
We have granted the underwriters an option for a period of 30 days to purchase up to 1,425,000 additional shares of our common stock on was $ per share. The depositary shares will be transferable following the same terms and conditions set forth above to cover over-allotments, if any.
initial issuance of the depositary shares. The depositary shares will not be listed for trading on any stock exchange. The depositary shares are a new issue of securities for which there currently is no market.
23 before buying any of the depositary shares offered hereby.
9 | ||||||
Risk Factors | 23 | |||||
Forward-Looking Statements | 47 | |||||
Use of Proceeds | 48 | |||||
Market Price and Dividends on Common Stock | 49 | |||||
Capitalization | 51 | |||||
Selected Financial Data | 52 | |||||
The Rights Offering | 54 | |||||
Description of Capital Stock | 71 | |||||
Security Ownership of Certain Beneficial Owners and Management | 84 | |||||
Material U.S. Federal Income Tax Consequences | 87 | |||||
Plan of Distribution | 92 | |||||
Legal Matters | 92 | |||||
Experts | 92 | |||||
Incorporation by Reference | 92 | |||||
Where You Can Find More Information | 93 |
, 2007
You should rely only on the information contained in this prospectus or incorporated by reference into this prospectus or to which we have referred you, including any free writing prospectus that we file with the Securities and Exchange Commission relating to this prospectus. We have not and the underwriters have not, authorized any personanyone to provide you with different information. This prospectus isany other information, and we take no responsibility for any other information that others may provide you. We are not making an offer to sell, nor is it an offer to buy, theseof securities in any state or other jurisdiction where the offer or sale is not permitted. TheTo the extent that any facts or events arising after the date of this prospectus, individually or in the aggregate, represent a fundamental change in the information presented in this prospectus, is complete and accurate as of the date on the front cover, but the information may have changed since that date.
‘‘BioFuel Energy Corp.’’ and our logo are trademarks for which we have applied for federal trademark protection. Other products, services and company names mentioned in this prospectus arewill be updated to the service marks or trademarks of their respective owners.
i
Industryextent required by law to contain all material information. We encourage you to consult your own counsel, accountant and market data
We obtained the industry, marketother advisors for legal, tax, business, financial and competitive datarelated advice regarding an investment in our securities.
Ethanol units and ethanol production capacities
All references to gallons of ethanol refer to denatured ethanol, a blend of pure ethanol and approximately 5% unleaded gasoline. The gasoline is added as a denaturant, rendering the ethanol undrinkable and therefore not subject to alcoholic beverage taxes.
Each of our planned ethanol plants will have a production capacity specified in the applicable construction agreement. The Wood River and Fairmont plants will each have a production capacity of 115 million gallons per year, or Mmgy, of ethanol. We also expect our planned Alta facility to have a 115 Mmgy production capacity. ‘‘Mmgy’’ means millions of gallons per year, ‘‘Bgpy’’ means billions of gallons per year and ‘‘Mmbtu’’ means millions of British Thermal Units.
ii
Summary
This summary highlights certain information in the prospectus. It does not contain all information that may be important to you. You should carefully read the entire prospectus, including ‘‘Risk factors’’ before making an investment decision. Unlessunless the context requires otherwise, ‘‘BioFuel’’, ‘‘we’’, ‘‘our’’“BioFuel,” “we,” “our,” “us” and ‘‘us’’the “Company” refer to BioFuel Energy Corp. and its subsidiaries, after giving effect to the recapitalization described below.subsidiaries. References to ‘‘Cargill’’“Cargill” refer to Cargill, Incorporated and its subsidiaries or affiliates.
Overview
We are
From inception, we have worked closelyunique partnership with Cargill, one of the world’s leading agribusiness companies.
a 20-year lease.
Fixed-price, turnkey construction contractsour operating facilities, having made significant investments to both maintain and improve upon the basic Delta-T platform. The Fairmont and Wood River facilities, for example, have achieved conversion yields of approximately 2.8 gallons/bushel year-to-date in 2010 (through August 31, 2010). Based on recent operating data, we believe this places us in the top quadrant for corn-to-ethanol conversion yields in the ethanol industry today.
The following table provides an overview of ethanol plants we have under construction or in development.
Industry overview
Ethanol is a clean-burning, high-octane fuel produced from renewable sources. In the United States, ethanol is produced primarily from corn. It is used primarily as a gasoline additive to increase octane ratings and comply with air emissions regulations. According to the RFA, ethanol is blended into 30%almost every aspect of the gasoline soldcorn industry in the United States. Ethanol blends of up to 10% are approved for use by major motor vehicle manufacturers.
We believe that the ethanol industry currently lacks sufficient capacity to meet anticipated demand. Driversour relationship with Cargill provides us with a number of substantial growth prospects in the market include:
Competitive strengths
We believe we have the following competitive strengths:
Logistics and |
Ethanol and |
Strategy
Risk factors
Our relationship with Cargill subjects our company to certain risks that are more fully described in the ‘‘Risk Factors’’ and ‘‘Business’’ sections. These risks include the following.
risk management. In addition, we will face other significant challenges.our board of directors includes executives vastly experienced in agriculture and finance.
Any of the above risks could adversely affect our financial condition, results of operations and profitability. Investment in our common stock involves significant risks. You should read and consider the information set forth in ‘‘Risk factors’’ and all other information set forth in this prospectus before investing in our stock.
Organizational structure
Immediately prior to this offering we will effect the recapitalization described in ‘‘Organizational structure’’.
Holdersshare of shares of Classclass B common stock will have no economic rights because they will not be entitled to any monetary rights, including rights to receive dividends or to receive a distribution upon a dissolution, liquidation or winding upheld; and
Our historical LLC equity investors may exchange their LLC membership interests for shares of our common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. We expect that, asIf a resultholder of theseclass B common stock exchanges in the future, the tax basis of the LLC’s assets attributable to our interest in the LLC will be increased. These increases in tax basis will result in a tax benefit to BioFuel that would not have been available but for the future exchanges of theany LLC membership interests for shares of common stock, the shares of class B common stock held by such holder and attributable to the exchanged LLC membership interests will automatically be transferred to BioFuel Energy Corp. and be retired.
line of business.
common stockholders will benefit from the remaining 15% of cash savings, if any, in income tax that is realized by BioFuel. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxestime that we would have sufficient liquidity to both repay these loans when due and to maintain our operations. If we had been unable to repay the working capital loans at maturity, it would have resulted in an event of default under our Senior Debt Facility and a cross-default under our Subordinated Debt Agreement, and would have allowed the lenders to accelerate repayment of amounts outstanding. In that event, the Company may have had to seek relief from its creditors under Chapter 11 of the U.S. Bankruptcy Code.
Immediately followingpreferences as the depositary shares that will be issued upon expiration of this offering our public stockholdersrights offering. The depositary shares to be issued to Cargill are not being registered or sold in this rights offering. In order to issue the depositary shares that will own approximately 29%make up the Cargill Stock Payment, we expect to issue and deposit with the depositary a number of our equity and our historical equity investors will own approximately 71%. If the underwriters exercise in full their option to purchase additional shares immediately following this offering, public stockholders will own approximately 32% of our equity and historical equity investors will own approximately 68%.
Corporate information
BioFuel Energy Corp. was formed as a Delaware corporation in April 2006 as a holding company through which certain of our historical equity investors hold membershipSeries A Non-Voting Convertible Preferred Stock that corresponds to the aggregate fractional interests in shares of Series A Non-Voting Convertible Preferred Stock that the LLC. newly issued depositary shares represent.
Our principal executive offices are located at 1801 Broadway, Suite 1060, Denver, Colorado 80202. Our telephone number is (303) 592-8110. Our website address is www.bfenergy.com. The content of our website is not a partthe terms and conditions of this prospectus.
The offering
The Subscription Rights | We are distributing at no charge to the record holders of our common stock as of 5:00 p.m., New York City time, on , the record date, non-transferable subscription rights to purchase depositary shares representing an aggregate of 2,000,000 shares of Series A Non-Voting Convertible Preferred Stock. Each subscription right will permit the holder of such right to acquire, at a rights price equal to $0.56, one depositary share under the basic subscription privilege and will also provide the holder of such right with an over-subscription privilege. | |
The subscription rights will be distributed pro rata to the holders of our common stock based on the number of shares of common stock | ||
Concurrent Private Placement | General. Concurrent with this rights offering, the LLC will | |
this rights offering. |
Grant of | ||
Issuance of Preferred Membership Interests. Immediately prior to the consummation of this rights offering and the LLC’s concurrent private placement, the LLC will amend and restate its limited liability company agreement to add the preferred membership interests as a new class of LLC membership interest. Immediately following the consummation of the LLC’s concurrent private placement, the holders of membership interests in the LLC (other than BioFuel Energy Corp.) will be entitled to receive preferred membership interests in amounts to be determined in accordance with their exercise of LLC basic purchase privileges and LLC additional purchase privileges (and, in the case of the Backstop Parties, determined in accordance with their exercise of the Backstop Commitment for preferred membership interests). Immediately following the consummation of this rights offering, BioFuel Energy Corp. will contribute all proceeds of this rights offering to the LLC, and the LLC will issue to BioFuel Energy Corp. a number of preferred membership interests equal to the number of depositary shares that BioFuel Energy Corp. issued in this rights offering. The LLC will then apply the proceeds of this rights offering, the LLC’s concurrent private placement and the Backstop Commitment as described under “—Use of Proceeds.” Concurrent with the making of the Cargill Stock Payment, the LLC will issue to BioFuel Energy Corp. a number of preferred membership interests equal to the number of depositary shares issued to Cargill in the Cargill Stock Payment. Terms of Preferred Membership Interests. The preferred membership interests will (i) be automatically convertible as described immediately below, (ii) be entitled to pro rata distributions from the LLC, on an equivalent one-to-one basis with the membership interests, (iii) have a liquidation preference in the LLC equal to $0.56 per preferred membership interest and (iv) have only limited voting rights in the LLC. For a full description of the preferred membership interests, see “Description of Capital Stock— LLC Preferred Membership Interests; Amended and Restated Limited Liability Company Agreement.” |
Conversion of Preferred Membership Interests. Following the requisite stockholder approval, all preferred membership interests will automatically convert into membership interests on a one-for-one basis and the holders of the preferred membership interests (other than BioFuel Energy Corp.) will also receive one share of Purpose of LLC’s Concurrent Private Placement. The LLC’s concurrent private placement has been structured so as to provide the holders of membership interests in the LLC (other than BioFuel Energy Corp.), who hold membership interests that are exchangeable on a one-for-one basis for shares of | ||
Number of Rights; Number of LLC Purchase Privileges | The number of subscription rights distributed in this rights offering will be determined by dividing the Offering Size (as defined below) by $0.56. The number of LLC purchase privileges granted in the LLC’s concurrent private placement will be determined by dividing the Private Placement Size (as defined below) by $0.56. | |
Rights Price | The “rights price” for this rights offering and the LLC’s concurrent private placement means $0.56, which was calculated pursuant to the Rights Offering Letter Agreement as the dollar amount equal to 25% of the average per share closing price of our common stock for the five trading days immediately following the date of the initial filing of the registration statement of which this prospectus is a part. | |
The rights price of $0.56 represents a significant discount to the market price of our common stock at the time of determination. This rights price represented a % discount to the closing price of our common stock on . | ||
Aggregate Size; Offering Size; Private Placement Size | The “Aggregate Size” of this rights offering and the LLC’s concurrent private placement will be an aggregate amount sufficient to (i) repay all amounts owed at the time of consummation of this rights offering, including accrued and unpaid interest, under the Bridge Loan Agreement and the Subordinated Debt Agreement (for more information about our Subordinated Debt Agreement, see “Use of Proceeds”), (ii) make the Cargill Cash Payment and (iii) pay certain fees and expenses incurred in connection with this rights offering and the LLC’s concurrent private placement, but is subject to reduction as described under “—Reduction by Backstop Parties.” The Aggregate Size (subject to any such reduction) will be determined prior to commencement of this rights offering, will be included in an amendment to the registration statement of which this prospectus is a part and is currently anticipated to be approximately $44,000,000. |
The “Offering Size” of this rights offering will be an amount equal to the Aggregate Size multiplied by a fraction, the numerator of which is the total number of shares of common stock outstanding as of the record date and the denominator of which is the total number of shares of common stock outstanding as of the record date plus the total number of membership interests in the LLC held by the holders of membership interests in the LLC (other than BioFuel Energy Corp.) as of the record date. The “Private Placement Size” of the LLC’s concurrent private placement will be an amount equal to the Aggregate Size multiplied by a fraction, the numerator of which is the total number of membership interests in the LLC held by the holders of membership interests in the LLC (other than BioFuel Energy Corp.) as of the record date and the denominator of which is the total number of shares of common stock outstanding as of the record date plus the total number of membership interests in the LLC held by the holders of membership interests in the LLC (other than BioFuel Energy Corp.) as of the record date. The Aggregate Size will equal the Offering Size plus the Private Placement Size. Assuming that from November 12, 2010 until the record date there are no changes in the total number of shares of common stock outstanding or the total number of membership interests in the LLC held by the holders of membership interests in the LLC (other than BioFuel Energy Corp.), we expect the Offering Size to be $34,394,435 and the Private Placement Size to be $9,605,565. | ||
Basic Subscription Privilege | The basic subscription privilege of each subscription right will entitle you to purchase one depositary share per subscription right at a rights price per depositary share equal to $0.56. Under the Rights Offering Letter Agreement described below, the Backstop Parties have | |
Over-Subscription Privilege | If you fully exercise your basic subscription privilege, you will be entitled to subscribe for additional depositary shares that remain unsubscribed as a result of any unexercised basic subscription privileges pursuant to your over-subscription privilege. The over-subscription privilege allows a holder to subscribe for an additional amount of depositary shares equal to up to 100% of the depositary shares for which such holder was otherwise entitled to subscribe. The Backstop Parties may exercise their over-subscription privileges in this rights | |
If there is a sufficient number of depositary shares available to fully satisfy the over-subscription privilege requests of all holders following the exercise of subscription rights under their basic subscription privileges, all over-subscription requests will be honored in full. If insufficient depositary shares are available to fully satisfy the over-subscription privilege requests of all holders, the available unsubscribed depositary shares will be distributed proportionately among those holders who exercised their over-subscription privilege based on the number of depositary shares each holder subscribed for pursuant to their over-subscription privilege. Fractional depositary shares resulting from the proportionate distribution of unsubscribed depositary shares pursuant to the over-subscription privilege will be eliminated by rounding down to the nearest whole share. |
If and to the extent that the Backstop Parties determine, after consultation with us, that the exercise of over-subscription privileges would result in adverse tax, legal or regulatory consequences to us or any of the Backstop Parties, we may reduce or eliminate, pro rata for all holders of subscription rights, the exercise of over-subscription privileges. In the event that the exercise of over-subscription privileges is so reduced, the available unsubscribed depositary shares will be distributed proportionately among those holders who exercised their over-subscription privilege based on the number of depositary shares each holder subscribed for pursuant to their over-subscription privilege. | ||
The Depositary Shares | General. Each depositary share will represent a fractional interest in a share of Series A Non-Voting Convertible Preferred Stock equal to the fraction determined by dividing 2,000,000 by the total number of depositary shares actually purchased in this rights offering and pursuant to the Backstop Commitment and will entitle the holder of such depositary share, through the depositary, to a proportional fractional interest in the rights and preferences of such share of Series A Non-Voting Convertible Preferred Stock, including conversion, dividend, liquidation and voting rights, subject to the terms of the deposit agreement. | |
The Depositary. The holders of depositary shares will exercise their proportional rights in the Series A Non-Voting Convertible Preferred Stock through the depositary. The depositary for the depositary shares will be BNY Mellon Shareowner Services. | ||
Dividends. The depositary will deliver any cash it receives in respect of dividends or other distributions on the Series A Non-Voting Convertible Preferred Stock to the holders of the depositary shares in proportion to the number of outstanding depositary shares held by such holders, on the date of receipt or as soon as practicable thereafter. | ||
Voting. To the extent practicable, the depositary will vote the amount of the Series A Non-Voting Convertible Preferred Stock represented by any depositary shares in accordance with the voting instructions it receives (if any) from holders of such depositary shares. As described immediately below, the Series A Non-Voting Convertible Preferred Stock have only limited voting rights. | ||
Distribution of Common Stock. As described below, upon conversion of the Series A Non-Voting Convertible Preferred Stock, each depositary share shall entitle the holder thereof to receive one | ||
The Series A Non-Voting Convertible Preferred Stock | General. Upon the consummation of this rights offering, our board of directors will designate and issue 2,000,000 shares of Series A Non-Voting Convertible Preferred Stock which we will deposit with the depositary. The depositary will be the sole holder of shares of the Series A Non-Voting Convertible Preferred Stock. Twelve business days after the consummation of this rights offering, we expect to issue additional depositary shares to Cargill in order to make the Cargill Stock Payment. In order to issue the depositary shares that will make up the Cargill Stock Payment, we expect to issue and deposit with the depositary a number of additional shares of Series A Non-Voting Convertible Preferred Stock that corresponds to the aggregate fractional interests in shares of Series A Non-Voting Convertible Preferred Stock that the newly issued depositary shares represent. |
Dividends. The holders of the Series A Non-Voting Convertible Preferred Stock will be entitled to receive dividends or distributions when, as and if such dividends or distributions are paid to the holders of our common stock; provided that each share | ||
Liquidation Preference. In the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of the Series A Non-Voting Convertible Preferred Stock will be entitled to receive, before any payment or distribution is made to holders of common stock, a liquidation preference in an amount equal to $0.56 multiplied by the quotient obtained by dividing the total number of depositary shares actually purchased in this rights offering and pursuant to the Backstop Commitment by 2,000,000. | ||
Voting. The Series A Non-Voting Convertible Preferred Stock will have no voting rights except that we will not, without the approval of at least a majority of the shares of the Series A Non-Voting Convertible Preferred Stock then outstanding, (i) authorize or issue additional shares of Series A Non-Voting Convertible Preferred Stock of the same series (provided that no such approval shall be required in respect of any shares of Series A Non-Voting Convertible Preferred Stock to be authorized and issued in connection with the Cargill Stock Payment), (ii) authorize or issue any other series of preferred equity securities which are senior or on | ||
Conversion. The Series A Non-Voting Convertible Preferred Stock is automatically convertible into shares of common stock as described immediately below. | ||
Conversion of Series A Non-Voting Convertible Preferred Stock into Common Stock | Each share of Series A Non-Voting Convertible Preferred Stock shall, following the requisite stockholder approval, automatically convert into a |
Upon conversion of the Series A Non-Voting Convertible Preferred Stock, each depositary share shall entitle the holder thereof to receive one share of common stock and, upon the distribution of one share of common stock to the holder of | ||
Requisite Stockholder Approval | The requisite stockholder approval means the approval by the holders of our common stock and class B common stock Unless and until the requisite stockholder approval is obtained, (i) no shares of Series A Non-Voting Convertible Preferred Stock will convert into shares of common stock (and therefore no shares of common stock will be available for distribution by the depositary to the holders of the depositary shares) and (ii) no preferred membership interests in the LLC will convert into membership interests or, in the case of holders other than BioFuel Energy Corp., the corresponding shares of class B common stock. We intend to seek the requisite stockholder approval as soon as practicable. | |
Shares of Common Stock Outstanding Before this Rights Offering | 25,465,728 shares of our common stock and 7,111,985 shares of our class B common stock were outstanding as of November 12, 2010. | |
Shares Outstanding After Completion of this Rights Offering | Immediately following the consummation of this rights offering and the LLC’s concurrent private placement and before the conversion of any shares of Series A Non-Voting Convertible Preferred Stock into shares of common stock, assuming that neither the size of this rights offering nor the size of the Basic Commitment or Backstop Commitment is reduced by the Backstop Parties, assuming that there is no LLC Backstop Reallocation (as defined below) and before giving effect to the Cargill Stock Payment, we expect that depositary shares will be issued in this rights offering representing 2,000,000 shares of Series A Non-Voting Convertible Preferred Stock. Following the consummation of this rights offering and the LLC’s concurrent private placement and upon the conversion of all shares of Series A Non-Voting Convertible Preferred Stock into shares of common stock, assuming that neither the size of this rights offering nor the size of the Basic Commitment or Backstop Commitment is reduced by the Backstop Parties, assuming that there is no LLC Backstop Reallocation (as defined below) and before giving effect to the Cargill Stock Payment, we expect that additional shares of common stock will be issued in connection with the conversion of all 2,000,000 shares of Series A Non-Voting Convertible Preferred Stock (resulting in there being total shares of common stock outstanding). |
Preferred Membership Interests in the LLC Outstanding After Completion of this Rights Offering and the LLC’s Concurrent Private Placement | Immediately following the consummation of this rights offering and the LLC’s concurrent private placement and before conversion of any preferred membership interests into common membership interests, assuming that neither the size of this rights offering nor the size of the Basic Commitment or Backstop Commitment is reduced by the Backstop Parties, assuming that there is no LLC Backstop Reallocation and before giving effect to the Cargill Stock Payment, we expect that preferred membership interests will be issued, with being issued to BioFuel Energy Corp. and being issued to the holders of membership interests in the LLC (other than BioFuel Energy Corp.). Following the consummation of this rights offering and the LLC’s concurrent private placement and upon the conversion of all preferred membership interests into common membership interests, assuming that neither the size of this rights offering nor the size of the Basic Commitment or Backstop Commitment is reduced by the Backstop Parties, assuming that there is no LLC Backstop Reallocation and before giving effect to the Cargill Stock Payment, we expect that additional common membership interests will be issued and that additional shares of class B common stock will be issued to the holders of membership interests in the LLC (other than BioFuel Energy Corp.) (resulting in there being total shares of class B common stock outstanding). | |
Rights Offering Letter Agreement | In connection with this rights offering and the LLC’s concurrent private placement, we have entered into a Rights Offering Letter Agreement with the Backstop Parties. The Rights Offering Letter Agreement, as amended, sets forth, among other things, the terms and conditions of this rights offering and the LLC’s concurrent private placement, including the participation and backstop commitments of the Backstop Parties. | |
Backstop Parties’ Basic Commitment and Backstop Commitment | Subject to the terms and conditions set forth in the Rights Offering Letter Agreement, as amended, the Backstop Parties have agreed to (i) participate in this rights offering and the LLC’s concurrent private placement for their full basic subscription privilege and full LLC basic purchase privilege (which we refer to as the “Basic Commitment”) and (ii) purchase immediately prior to expiration of this rights offering and the LLC’s concurrent private placement (x) all of the available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and over-subscription privileges and (y) all of the available preferred membership interests in the LLC not otherwise sold in the LLC’s concurrent private placement following the exercise of all LLC basic purchase privileges and LLC additional purchase privileges of all other holders of membership interests in the LLC (other than BioFuel Energy Corp.) (which we refer to as the “Backstop Commitment”). The price per depositary share or preferred membership interest paid by the Backstop Parties pursuant to the Backstop Commitment will be equal to $0.56 (and therefore will be equal to the price paid by the other holders in this rights offering and in the LLC’s concurrent private placement). The Backstop Parties may exercise their over-subscription privileges in this rights offering and LLC additional purchase privileges in the LLC’s concurrent private placement. Any depositary shares purchased by the Backstop Parties pursuant to the Basic Commitment or the Backstop Commitment will be purchased directly from us on a private basis and are not being registered pursuant to the registration statement of which this prospectus is a part. | |
Reduction by Backstop Parties | Notwithstanding the foregoing, the Rights Offering Letter Agreement provides that the Backstop Parties may (i) reduce the number of depositary shares that they would otherwise be obligated to purchase pursuant to the Basic Commitment or Backstop Commitment or (ii) cause us to reduce the aggregate number of depositary shares offered in this rights offering, in the event that the Backstop Parties determine, in their sole discretion, that the consummation of this rights offering, the Basic Commitment or the Backstop Commitment would result in adverse tax, legal or regulatory consequences to us or any of |
In the event that the Backstop Parties cause us to reduce the aggregate number of depositary shares offered in this rights offering or reduce the number of depositary shares that they would otherwise be obligated to purchase pursuant to the Basic Commitment or Backstop Commitment, this rights offering would proceed with us and the Backstop Parties using commercially reasonable best efforts to structure and consummate an alternative transaction to take the place of the issuance of the depositary shares not purchased in this rights offering or pursuant to the Basic Commitment or Backstop Commitment. The alternative transaction would be structured so as to preserve the economic benefits to the parties to the Rights Offering Letter Agreement as if this rights offering had been consummated in full without giving effect to such reduction. Nevertheless, it is not certain that we would be able to consummate an alternative transaction to raise additional proceeds. If we cannot consummate such an alternative transaction following a reduction of this rights offering, we may not have sufficient funds available to repay the Bridge Loan at maturity or to make the other payments contemplated by the use of proceeds of this rights offering. See “Risk Factors—Risks Related to Our Business and Industry—The pending maturity of our Bridge Loan, unless extended, raises substantial doubt about our ability to continue as a going concern.” In addition, one or more of the Backstop Parties may elect either (i) to exercise their respective Backstop Commitments with respect to all or a portion of the available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and over-subscription privileges by purchasing a new class of class B preferred membership interests in the LLC (instead of purchasing such available depositary shares) in the event that such Backstop Parties determine, in their sole discretion, that the purchase of such available depositary shares would result in adverse tax, legal or regulatory consequences to us or such Backstop Parties, which we refer to as a “LLC Backstop Reallocation,” or (ii) to not exercise their respective Backstop Commitments with respect to all or a portion of the available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and over-subscription privileges in the event that such Backstop Parties determine, in their sole discretion, that the purchase of such available depositary shares would result in adverse tax, legal or regulatory consequences to us or such Backstop Parties. Any election contemplated by clause (ii) of the prior sentence would reduce the proceeds of this rights offering. In the event of a LLC Backstop Reallocation, the LLC will issue such class B preferred membership interests to the applicable Backstop Parties (in equal number to the number of available depositary shares not purchased because of such LLC Backstop Reallocation) in exchange for payment of $0.56 for each class B preferred membership interest purchased. The class B preferred membership interests, if issued, would have the same terms as the preferred membership interests (including as to conversion, distribution, liquidation and other rights), except that, upon conversion of such class B preferred membership interests, holders of such class B preferred membership interests would receive membership interests in the LLC that would not be exchangeable (together with the corresponding shares of our class B common stock) for shares of our common stock. |
Conditions to Backstop Parties’ Obligations | The Backstop Parties’ obligations to purchase any depositary shares pursuant to the Basic Commitment or the Backstop Commitment are subject to various conditions as described under “The Rights Offering—Rights Offering Letter Agreement—Conditions to Backstop Parties’ Obligations.” | |
Termination | The obligations of the Backstop Parties under the Rights Offering Letter Agreement are subject to termination immediately, upon the election of the Greenlight Parties, at any time prior to the consummation of this rights offering upon the occurrence of any of the following: (i) the termination of the Bridge Loan Agreement; (ii) us entering into a definitive agreement with respect to a Substitute Transaction; (iii) the Greenlight Parties, in their reasonable judgment, determining that the conditions to the Backstop Parties’ obligations are incapable of being satisfied by January 24, 2011; (iv) there having occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or properties of us and our subsidiaries, taken as a whole; (v) the breach of any covenant or other provision of the Rights Offering Letter Agreement by us that has occurred and cannot be cured or satisfied with the passage of time or, if capable of being cured or satisfied, cannot be cured or satisfied prior to March 24, 2011; (vi) our common stock no longer being listed on a national securities exchange; or (vii) our adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy. Additionally, the Rights Offering Letter Agreement provides that the obligations of the parties to the Rights Offering Letter Agreement may be terminated by either the Greenlight Parties or us upon the occurrence of (a) another party’s material breach of any of the representations, warranties or covenants where such breach remains uncured for a period of five days after receipt of notice of such breach or (b) the issuance by any governmental authority of any ruling or order enjoining the consummation of a material portion of the rights offering or any related transactions. As described under “—Substitute Transaction,” we also have the ability to terminate the Rights Offering Letter Agreement in certain circumstances in connection with a Substitute Transaction. |
Substitute Transaction | While the Rights Offering Letter Agreement generally requires us to consummate this rights offering and the LLC’s concurrent private placement, the Rights Offering Letter Agreement permits us to solicit or participate in discussions concerning any alternative equity financing or other transaction that would result in the (a) repayment in full of all amounts outstanding under the Bridge Loan Agreement, (b) repayment in full of all amounts under the Subordinated Debt Agreement and (c) satisfaction of all obligations under the Cargill Letter (which we refer to as a “Substitute Transaction”). If our board of directors determines that (i) we have the opportunity to enter into a Substitute Transaction that will be consummated within a timeframe that is not materially longer than the anticipated timeframe for this rights offering and the LLC’s concurrent private placement but in no event later than February 1, 2011, and (ii) such Substitute Transaction is more favorable to the holders of our common stock than this rights offering and the LLC’s concurrent private placement and is reasonably likely to be consummated prior to February 1, 2011, then we will be permitted to enter into such Substitute Transaction and terminate the Rights Offering Letter Agreement. In the event that we do so, we will be required to repay all amounts owed under the Bridge Loan Agreement and the Subordinated Debt Agreement and satisfy all of our obligations under the Cargill Letter on or before the earlier of February 1, 2011 and the closing date of such Substitute Transaction. We will also be required to pay to the Backstop Parties an aggregate break-up fee in cash equal to $350,000. | |
Backstop Parties | The Backstop Parties are Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd. (which we refer to collectively as the “Greenlight Parties”) and Third Point Loan LLC (which we refer to as “Third Point”). David Einhorn is the principal of the Greenlight Parties and is a member of our board of directors. The Backstop Parties or their affiliates own a significant number of shares of our common stock and class B common stock. The Greenlight Parties are affiliates of Greenlight Capital, Inc., which, as of November 12, 2010, owned 7,542,104 shares of common stock and 4,311,396 shares of class B common stock, which together represented 36.4% of our outstanding total voting stock (composed of our common stock and class B common stock) on that date. Third Point is an affiliate of Third Point Funds, which as of November 12, 2010, owned 5,578,800 shares of common stock, which represented 17.1% of our outstanding total voting stock on that date. Collectively, the Backstop Parties owned 53.5% of our outstanding total voting stock on that date. | |
The Backstop Parties’ aggregate ownership of our issued and outstanding equity may increase substantially as a result of this rights offering. See “Risk Factors—Risks Related to the Rights Offering—The Backstop Parties control a substantial equity interest in us and may own an even greater equity interest in us following this rights offering. Their interests may not coincide with yours and they may make decisions with which you disagree.” | ||
Record Date | 5:00 p.m., New York City time, on . | |
Expiration Date of this Rights Offering | 5:00 p.m., New York City time, on . | |
Use of Proceeds | We intend to use the proceeds from this rights offering, the LLC’s concurrent private placement and the Backstop Commitment: (i) first, to pay off the Bridge Loan; (ii) second, to pay off all indebtedness under the Subordinated Debt Agreement; (iii) third, to make the Cargill Cash Payment; (iv) fourth, to pay certain fees and expenses incurred in connection with this rights offering and the LLC’s concurrent private placement; and (v) fifth, the remainder, if any, for general corporate purposes. For a full description, including possible adjustments, see “Use of Proceeds.” |
Transferability of Rights | The subscription rights granted to you are non-transferable and, therefore, you may not sell, transfer or assign your subscription rights to anyone. | |
Listing | Shares of our common stock are currently listed on The Nasdaq Global Market under the symbol “BIOF.” | |
The depositary shares will not be listed for trading on any stock exchange. | ||
No Board Recommendation | Our board of directors is making no recommendation regarding your exercise of the subscription rights. You are urged to make your decision based on your own assessment of our business and this rights offering. Please see “Risk Factors” for a discussion of some of the risks involved in investing in the depositary shares. | |
No Revocation or Change | Once you submit the rights certificate to exercise any subscription rights or, if you are a beneficial owner of shares of common stock that are registered in the name of a broker, dealer, custodian bank or other nominee, your subscription rights are exercised on your behalf by your nominee, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you subsequently learn information about us that you consider to be unfavorable. | |
Extension, Cancellation and Amendment | Subject to the prior consent of the Backstop Parties, our board of directors may extend the subscription period, and thereby postpone the expiration date. Subject to the terms and conditions of the Rights Offering Letter Agreement, we reserve the right to amend or modify any other terms of this rights offering. This rights offering and the LLC’s concurrent private placement may only be terminated with the consent of the Backstop Parties or after termination of the Rights Offering Letter Agreement. In the event that this rights offering is terminated, all subscription payments received by the subscription agent will be returned, without interest, as soon as practicable. | |
Material U.S. Federal Income Tax Consequences | You should not recognize income, gain or loss for U.S. federal income tax purposes in connection with the receipt or exercise of subscription rights to purchase depositary shares in this offering. You are urged to consult your own tax advisor regarding the specific tax consequences to you in connection with your participation in this rights offering. See “Material U.S. Federal Income Tax Consequences.” | |
Registration Rights | In connection with our initial public offering, we entered into a registration rights agreement pursuant to which we may be required to register the sale of shares of our common stock held by the Backstop Parties and our other historical equity investors (or to be acquired by such investors upon exchange of their membership interests in the LLC for shares of our common | |
time over an extended period. |
Record Holders. Subscription rights may be exercised by registered holders of shares of our common stock by completing and signing the rights certificate and delivering the completed and duly executed rights certificate, together with any required signature guarantees and the full subscription payment, to the subscription agent at the address set forth below under “The Rights Offering—Subscription Agent.” Completed rights certificates and related payments must be received by the subscription agent prior to 5:00 p.m., New York City time, on the expiration date. Beneficial Owners. If you are a beneficial owner of shares of our common stock that are registered in the Nominees. Nominees, such as brokers, dealers, custodian banks or other nominees, who hold shares of common stock for the account of others, should notify the respective beneficial owners as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions with respect to the subscription rights. If the beneficial owner so instructs, the nominee should exercise the subscription rights on behalf of the beneficial owner and deliver all documents and payment prior to 5:00 p.m., New York City time, on the expiration date. | ||
Subscription Agent | BNY Mellon Shareowner Services. |
Fees and Expenses | We will pay all fees and expenses of the subscription agent and the information agent. You are responsible for paying any other commissions, fees, taxes or other expenses incurred in connection with the exercise of the subscription rights. | |
Fees and Expenses Paid or Payable to the Backstop Parties | On September 24, 2010, we paid the Backstop Parties $743,795 in consideration of the Backstop Commitment and a fee of $776,825 in consideration of the funding of the Bridge Loan. If the aggregate amount of this rights offering plus the LLC’s concurrent private placement is greater than $40,000,000, an additional fee of 4% of the excess will be payable to the Backstop Parties as additional consideration for the Backstop Commitment (excluding for calculation purposes any additional depositary shares or preferred membership interests purchased by the Backstop Parties pursuant to their Basic Commitment or their over-subscription privileges or LLC additional purchase privileges). Further, if we sign a definitive agreement relating to a Substitute Transaction, we will also be required to pay the Backstop Parties a break-up fee equal to $350,000. In addition, we have agreed to pay the reasonable fees and expenses of the Backstop Parties incurred in connection with the Rights Offering Letter Agreement and the transactions contemplated hereby (including the reasonable fees and expenses of legal counsel to the Backstop Parties) and to indemnify the Backstop Parties against losses arising out of this rights offering. | |
Risk | ||
depositary shares offered hereby. |
Other information about this prospectus
Unless specifically stated otherwise, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option.
Risk factors
Investing in our common stock involveson a high degree of risk. Before making an investment in our common stock, you should carefully consider the following risks, as well as other information contained in this prospectus, including ‘‘Management’s discussion and analysis of financial condition and results of operations’’. The risks described below are those that we believe are the material risks we face. Any of these risks could significantly and adversely affect our business, prospects, financial condition and results of operations. As a result,one-for-one basis, the trading price of our common stock couldwill directly affect the market price of the depositary shares. Any decline in the market price of shares of our common stock and any related decline in value of the depositary shares may be substantial and, depending on the extent of the decline, you could lose all or partsubstantially all of your investment.
investment in the depositary shares.
We domust receive any dividends or distributions in respect of the Series A Non-Voting Convertible Preferred Stock only through the depositary. As a result, holders of the depositary shares will not have an operating historythe right to vote on actions customarily subject to stockholder vote or approval, including the election of directors, the approval of significant transactions and amendments to our certificate of incorporation that would not adversely affect the rights, preferences or privileges of the Series A Non-Voting Convertible Preferred Stock. As a result, such holders’ ability to exercise influence over us is extremely limited. Upon conversion, you will be entitled to exercise your rights as a holder of our common stock only as to matters for which the record date occurs after the close of business on the relevant date that you received shares of common stock.
Webe illiquid.
Some of these risks relatesignificant risk to our potential inability to:
If we cannot successfully manage these risks,ability to service our business anddebt.
Wedepend substantially on the price of our main commodity input, corn, relative to the price of our main commodity product, ethanol, which is known in the industry as the “crush spread.” The prices of these commodities are volatile and beyond our control. For example, from July 1, 2008 through June 30, 2010, spot corn prices on the Chicago Board of Trade (CBOT) ranged from $3.01 to $7.49 per bushel, with an average price of $3.99 per bushel, while CBOT ethanol prices ranged from $1.40 to $2.86 per gallon, with an average price of $1.77 per gallon. However, the volatility in corn prices and the volatility in ethanol prices are not correlated, and as a result, the crush spread fluctuated widely throughout 2009, ranging from $0.06 per gallon to $0.68 per gallon, and during the first half of 2010, ranging from $0.15 to $0.47. Since we commenced operations, we have from time to time entered into derivative financial instruments such as futures contracts, swaps and option contracts with the objective of limiting our exposure to changes in commodities prices. However, we are currently able to engage in such hedging activities only on a limited basis due to our lack of financial resources, and we may not be ablehave the financial resources to implement our strategy as plannedincrease or at all.
Our strategy depends on our ability to develop and construct ethanol production facilities. While we currently have two facilities under construction, we have not yet begun constructionconduct any of our third plant under development. The construction of this facility is contingent on a number of significant uncertainties, including those described below.these hedging activities in the future. In addition, the two facilities thatif geographic basis differentials are currently under construction may encounter difficultiesnot hedged, they could cause our hedging programs to be ineffective or delays during the construction process. As a result, we may be unable to construct our facilities as planned or at all.
We may not be able to secure sites for our plants. We have entered into option agreements to purchase land for our third plant in Alta, Iowa and for our other development sites, but we have not yet secured property for any plant under evaluation. less effective than anticipated.
Wewe may not be able to obtainprice a material amount of our future production so as to permit us to hedge a material portion of our commodities price risks.
with respect to our Alta plant and our other plants under development, we have not yet obtained allus or any of the required permits for the operation of Alta and the construction of these other plants. Before we begin construction of these plants, we will need to obtain a number of required permits, which is often a time-consuming process. If we experience delays in obtaining the required approvals and permits for our plants under development, our expected construction start dates may be delayed.Backstop Parties. If we are unable to obtaingenerate sufficient proceeds from this rights offering and the required approvals and permits forLLC’s concurrent private placement to repay the Bridge Loan, we may seek new capital from other sources. We cannot assure you that we will be successful in achieving any of these initiatives or, even if successful, that these initiatives will be sufficient to address our plantslimited liquidity and the pending maturity of the Bridge Loan. If we are unable to raise sufficient proceeds from this rights offering, the LLC’s concurrent private placement or from other sources, we may be unable to continue as a going concern, which could potentially force us to seek relief through a filing under development,the U.S. Bankruptcy Code.
· | require us to dedicate all of our cash flow from operations (after the payment of operating expenses) to payments with respect to our indebtedness, thereby reducing the availability of our cash flow for working capital, capital expenditures and other general corporate expenditures; |
· | restrict our ability to take advantage of strategic opportunities; |
· | limit our flexibility in planning for, or reacting to, competition or changes in our business or industry; |
· | limit our ability to borrow additional funds; |
· | increase our vulnerability to adverse general economic or industry conditions; |
· | restrict us from expanding our current facilities, building new facilities or exploring business opportunities; and |
· | place us at a competitive disadvantage relative to competitors that have less debt or greater financial resources. |
position.
We may not be able to obtainDecember 31, 2010. It is possible that the financing necessary to complete construction of our Alta plant under development or to complete future acquisitions. In addition to the net proceeds of this offering, we estimate that we will need up to approximately $125 million in additional financing to construct our Alta plant currently under development. This amount assumes the full utilization of our current bank facility. This amount may be partially offset by cash flow generated by our first two plants. We intend to raise part or all of these necessary funds through additional debt financing. We may also need further funding if there are delays in construction or increased construction costs at any of our planned construction sites or to complete any acquisitions that we may identify from time to time. We may finance unanticipated construction costs or acquisitions with additional indebtedness or by issuing additional equity securities. We may not have access to the required funding, or funding may not be available to us on acceptable terms.
Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility for the construction of our Wood River and Fairmont plants remains subject to the satisfaction of a number of additional conditions precedent, including, among other considerations, the provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, weblenders’ credit will not be renewed beyond 2010 or will be renewed on different terms. If the blenders’ credit is not renewed, or is renewed at a reduced rate, it may decrease the demand for ethanol, which is likely to result in lower prices for ethanol, or it may result in a decrease in the price that gasoline blenders and marketers are able to borrowpay for ethanol. In such event, there would likely be a material adverse affect on our results of operations, liquidity and financial condition.
We may encounter unanticipated difficulties in constructing our plants. The TIC subsidiary that has agreed to construct our Wood River and Fairmont plants has not previously constructed an entire ethanol plant7.0% of the size and type we are constructing. U.S. production per year. In addition, the Delta-T technologyNorth American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new plants under development. The tariff is scheduled to expire on December 31, 2010. If it is not extended by Congress, imports of ethanol from non-exempt countries may increase. Production costs for ethanol in these countries can be significantly less than in the United States and the duty-free import of lower price ethanol through the countries exempted from the tariff may reduce the demand for domestic ethanol and the price at which we plan to utilize atsell our plants is currently in use only in ethanol plants with capacities of 60 Mmgy or less. Further, we remain responsible for the construction of certain infrastructure outsideethanol.
may encounter unanticipated difficultiesSecurity Act signed into law in December 2007 and the constructionEnergy Policy Act signed into law in August 2005 is uncertain.
Competition for qualified personnel in the ethanol industry is intense, and we may not be able to hire and retain qualified personnel to operate ourare uncertain. In addition, the favorable ethanol plants. Our success depends in part on our ability to attract and retain competent personnel. For each of our plants, we must hire qualified managers, engineers and operations and other personnel, which can be challenging in a rural community. Competition for both managers and plant employeesprovisions in the ethanol industry is intense,2007 Act and we may not be able to attract and maintain qualified personnel. If we are unable to hire and maintain productive and competent personnel, our strategy2005 Act may be adversely affected by the enactment of additional legislation.
Delays and defects may cause our costs to increase to levels that would make our new facilities too expensive to construct or unprofitable. We may suffer significant delays or cost overruns at our sites that could prevent us from commencing operations as expected assell a result of various factors. These factors include shortages of workers or materials, construction and equipment cost escalation, transportation constraints, adverse weather, unforeseen difficulties or labor issues, or changes in political administrations at the federal, state or local levels that result in policy change towards ethanol in general or our projects in particular. Defects in materials or workmanship could also delay the commencement of operations of our planned facilities, increase production costs or negatively affect the qualityportion of our ethanol and distillers grain. Duegrain production or to purchase a portion of our corn or natural gas requirements on a forward basis to offset some of the effects of volatility of ethanol prices and costs of commodities. From time to time, we may also engage in other hedging transactions involving exchange-traded futures contracts for corn and natural gas. The financial statement impact of these activities will depend upon, among other things, the prices involved, changes in the underlying market price and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts or our ability to sell excess corn or natural gas purchased in hedging transactions. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us.
Excess production capacity As a result, our results of operations and financial condition may be adversely affected by increases in our industry resulting from new plants under constructionthe price of corn or natural gas or decreases in the demand forprice of ethanol. In addition, our significant indebtedness and debt service requirements increase the effect of changes in commodities prices on our cash flow, and may limit our ability to sustain our operations in the future.
AccordingQuarterly Report on Form 10-Q for the period ended September 30, 2010 incorporated by reference in this prospectus. On January 16, 2009, the Company announced that it had finalized an agreement with Cargill resolving matters related to these unpaid losses. Following a $3.0 million payment in early December 2008, the RFA, domestic ethanol production capacity has increased from approximately 1.8 Bgpy,remaining balance due to Cargill totaled $14.4 million and interest began accruing at a 5% annual rate, with future payments to Cargill being contingent on available cash flow, as defined in 2001,the agreement. Although we intend to an estimated 5.9 Bgpy at April 2007. The RFA estimates that, as of April 2007, approximately 6.2 Bgpy of additional production capacity, an increase of approximately 106% over current production levels, is under construction at 85 new and existing facilities. This estimate does not include our construction plans or certain expansion plans of other ethanol producers. In particular, Archer Daniels Midland Company, the largest domestic ethanol producer, has announced plans to increase its production capacity by approximately 51% by mid-2008. Asuse a result of this increase in production, the ethanol industry faces the risk of excess capacity. In a manufacturing industry with excess capacity, producers have an incentive to continue manufacturing products for so long as the priceportion of the product exceedsproceeds from this rights offering and the marginal costLLC’s concurrent private placement to make a payment to Cargill and thereafter issue depositary shares to Cargill in settlement of production (i.e.,all further obligations under the costSettlement Agreement, if we do not generate sufficient proceeds to pay Cargill, the Settlement Agreement will remain in effect and will limit the Company’s use of producing onlycertain future cash flows that would otherwise have been available for other purposes, including pursuit of business opportunities, plant expansion or acquisitions.
Excess ethanol production capacity also may result from decreases in the demand for ethanol, which could result from a number of factors, including regulatory developments and reduced gasoline consumption in the United States. Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and
consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or as a result of technological advances, such as the commercialization of hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs. There is some evidence that reduced gasoline consumption has occurred in the recent past as gasoline prices have increased in the United States.
In addition, because ethanol production produces distillers grain as a co-product, increased ethanol production will also lead to increased supplies of distillers grain. An increase in the supply of distillers grain, without corresponding increases in demand, could lead to lower prices.
Increased acceptance of ethanol as a fuel and construction of additional ethanol production plants could lead to shortages of availability and increases in the price of corn.
We anticipate that the expansion
marketing agreements with Cargill, under which Cargill has agreed to market and distribute 100% of the ethanol and distillers grain produced at our Wood River and Fairmont production plants. We have also entered into corn supply agreements with Cargill, under which Cargill will supplysupplies 100% of the corn for our Wood River and Fairmont plants. We intend to enter into ethanol and distillers grain marketing agreements and corn supply agreements with Cargill for our Alta plant under development, although we cannot assure you that we will be able to enter into these agreements or that they will be on the same terms as the agreements currently in place with respect to our Wood River and Fairmont plants. The success of our business will dependdepends on Cargill’s ability to provide our production plants with the required corn supply in a cost-effective manner and to market and distribute our products successfully. If Cargill defaults on payments owed to us, fails to perform any of its responsibilities or does not perform i tsits responsibilities as effectively as we expect them to under our agreements, our results of operations will be adversely affected.
Cargill may terminate its arrangements with us in the event that certain parties acquire 30% or more of our common stock or the power to elect a majority of the Board. Cargill has the right to terminate its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires 30% or more of our common stock or the power to elect a majority of our Boardboard of Directors.directors. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of identified parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited. Cargill’s termination right may have the effect of deferring, delaying or discouraging transactions with these parties and their affiliates that might otherwise be beneficial to us. If Cargill were to terminate any of our goods and services agreements, it would have a significant negative impact on our business and we would be unable to continue our operations at each affected facility until alternative arrangements were made. If we were required to make alternative arrangements, we may not be able to make such arrangements or, if we are able to make such arrangements, they may not be on terms as favorable as our agreements with Cargill. We currently have no agreements or structure in place that would prohibit any of the parties identified by Cargill from acquiring 30% or more of our common stock and we do not expect to have any such agreements or structures in the future. However, we have no expectation that any of these parties would have an interest in acquiring stockshares of the company.our common stock. We will implement a procedure upon initiat ion of public trading to monitor Schedule 13D filings so that we will be informed of any parties accumulating ownership of our stock. If any identified party accumulates a significant amount of stock, our Boardboard of Directorsdirectors will address the matter at that time consistent with its fiduciary duties under applicable law.
responsible for all reasonable costs associated with the recall. If we fail to produce a sufficient amount of ethanol or distillers grain and, as a result, Cargill is required to purchase replacement products from third parties at a higher purchase price to meet sale commitments, we must pay Cargill the price difference plus a commission on the deficiency volume. Our failure to meet the quality and quantity standards in our marketing agreements with Cargill could adversely affect our results of operations.
We may not be able to enter into definitive agreements with Cargill with respect to our additional plants under development. Although we have entered into a letter agreement with Cargill with respect to our additional plants under development, we cannot assure you that we will be able to enter into definitive commercial agreements with Cargill relating to our planned Alta plant or any future plants on commercially reasonable terms or at all. If we are unable to enter into definitive commercial arrangements with Cargill with respect to these plants, we cannot assure you that we will be able to enter into replacement agreements with another party on commercially reasonable terms or at all.
New, more energy-efficient technologies for producing ethanol could displace corn-based ethanol and materially harm our results of operations and financial condition.
We expect to incur a significant amount of indebtedness to construct our facilities, a substantial portion of which will be secured by our assets.
Assuming that this offering generates net proceeds to us of $147 million as set forth under ‘‘Use of proceeds’’, we expect to borrow up to approximately $340 million in order to finance the construction of our three planned facilities. A $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the mid-point of the price range on the cover page of this prospectus, would decrease or increase the amount we expect to borrow by approximately $9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise by the underwriters of their over-allotment option. Under our current bank facility and our subordinated loan agreement, we have commitments in place for up to an aggregate of $210 million of construction loans for our Wood River and Fairmont plants. In addition, up to $20 million in working capital loans wil l be available to pay the operating expenses of these plants, with up to $5 million becoming available upon mechanical completion of a plant, up to $10 million becoming available upon provisional acceptance of a plant and the full $20 million becoming available if certain conditions precedent, including completion of the plants, are satisfied prior to June 30, 2009. We may also borrow additional amounts in order to finance construction or acquisition of, or investment in, additional ethanol production projects.
Our substantial indebtedness could have important consequences by adversely affecting our financial position.
Our substantial indebtedness could:
Our ability to make payments on and refinance our indebtedness will depend on our ability to generate cash from our operations. Our ability to generate cash from operations is subject, in large part, to general economic, competitive, legislative and regulatory factors and other factors that are beyond our control. We may not be able to generate enough cash flow from operations or obtain enough capital to service our debt or fund our planned capital expenditures.
If we do not have sufficient cash flow to service our debt, we would need to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, any or all of which we may not be able to do on commercially reasonable terms or at all.
We are subject to risks associated with our existing debt arrangements.
Our bank facility. The subsidiaries that own our Wood River and Fairmont plants have entered into a bank facility with a group of financial institutions that is secured by substantially all of those subsidiaries’ assets. Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility remains subject to the satisfaction of a number of additional conditions precedent, including the provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders, which could result in a delay of our construction.
The terms of the bank facility include customary events of default and covenants that limit the applicable subsidiaries from taking certain actions without obtaining the consent of the lenders. In particular, our bank facility places significant restrictions on the ability of those subsidiaries to distribute cash to the LLC, which limits our ability to use cash generated by those subsidiaries for other purposes. In addition, the bank facility restricts those subsidiaries’ ability to incur additional indebtedness.
Under our bank facility, if Cargill, or as long as any warranty obligations remain outstanding under our Wood River or Fairmont EPC contracts, TIC or Delta-T admits in writing its inability to, or is generally unable to, pay its debts as such debts become due, we will be deemed to be in default.
In addition, the construction loans for our Wood River and Fairmont plants under our bank facility will become due and payable on June 30, 2009, unless certain conditions precedent are met by that date, including the substantial completion of those plants. If our Wood River and Fairmont plants are not substantially complete by June 30, 2009, any outstanding borrowings under our bank facility will be immediately due and payable, and we may not have sufficient funds to repay the borrowings.
Moreover, because the bank facility only contains limits on the amount of indebtedness that certain of our subsidiaries may incur, we have the ability to incur substantial additional indebtedness, and any additional indebtedness we incur could exacerbate the risks described above.
Our subordinated loan agreement. The LLC has entered into a subordinated loan agreement with entities affiliated with Greenlight Capital, Inc. and entities and individuals affiliated with Third Point LLC. Subordinated borrowings are secured by the subsidiary equity interests owned by the LLC.
A default under our senior debt would also constitute a default under our subordinated debt and would entitle the lenders to accelerate the repayment of amounts outstanding. Moreover,
these lenders would have the option to terminate any obligation to make further extensions of credit. In the event of a default, the lenders could also proceed to foreclose against the assets securing such obligations. Because the debt under our existing arrangements subjects substantially all of our assets to liens, there may be no assets left for stockholders in the event of a liquidation. In the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to operate as a going concern.
Our future debt facilities will likely be secured by substantially all our assets.
We expect that the debt we will incur to finance our plants under development or evaluation will be incurred either pursuant to a new corporate credit facility that would replace our current bank facility and would be secured by substantially all of our assets or, in the alternative, by different, newly-formed subsidiaries, secured by substantially all of the assets related to those additional plants. Because the debt under these facilities may subject substantially all of our assets to liens, there may be no assets left for stockholders in the event of a liquidation.
Our profit margins may be adversely affected by fluctuations in the selling price and production cost of gasoline.
Any facility that we complete may not operate as planned. A disruption in our operations could result in a reduction of sales volume and could cause us to incur substantial losses.
Our revenues will be derived from the sale of ethanol and distillers grain that we produce at our facilities. Any facility we construct may have operational problems preventing production at its expected capacity or requiring halts in production. Furthermore, local water, electricity and gas utilities may not be able to reliably supply the resources that our facilities will need or may not be able to supply them on acceptable terms. Our operations may be subject to significant interruption if any of our facilities experiences a major accident or is damaged by severe weather or other natural disasters. In addition, our operations may be subject to labor disruptions, unscheduled downtime or other operational hazards inherent in our industry. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of c ivil or criminal penalties. Our insurance may not be adequate to cover the potential operational hazards described above and we may not be able to renew our insurance on commercially reasonable terms or at all. In addition, until our Alta plant under development is operational, we will be particularly dependent on our Wood River and Fairmont plants, and the effects of a disruption at these plants could have a more significant effect on our business.
Our results of operations depend substantially on the prices of various commodities, particularly the prices for ethanol, corn, natural gas and unleaded gasoline. The prices of these commodities are volatile and beyond our control. See ‘‘Management’s discussion and analysis of financial condition and results of operations — Components of revenues and expenses’’ for information regarding changes in the prices of ethanol, corn and natural gas during the period since 2000. As a result of the volatility of the prices for these items, our results may fluctuate substantially. We may experience periods during which the prices of our products decline and the
costs of our raw materials increase, which in turn may result in operating losses and hurt our financial condition. If a substantial imbalance occurred, we may take actions to mitigate the effect of the imbalance, such as storing our uncontracted ethanol for a period of time. These actions could involve additional costs and could have a negative impact on our operating results.
Our business will beis highly sensitive to corn prices, and we generally cannot pass along increases in corn prices to our customers.
The price spread between ethanol and corn can vary significantly.
Our gross profit will depend principally on the spread — referred to as the ‘‘crush spread’’ — between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol. During the period from September 1997 to April 2007, ethanol prices, based on average U.S. ethanol rack prices reported by Bloomberg, L.P., have ranged from a low of $0.94 per gallon in February 2002 to a high of $3.98 per gallon in July 2006, averaging $1.53 per gallon during this period, and the spot price of Chicago No. 2 yellow corn has ranged from $1.51 to $4.19. From 2005 to 2007, this spread has fluctuated widely, as average U.S. ethanol rack prices, reported by Bloomberg, have ranged from $1.18 to $3.98, and Chicago No. 2 yellow corn spot prices have ranged from $1.64 to $4.19. As of April 17, 2007, based on these same sources, the ethanol rack price was $2.36 per gallon, the spot price of corn was $3.39 per b ushel and the spread between the average U.S. rack price for a gallon of ethanol and the amount of corn required to produce a gallon of ethanol was $2.99 per bushel. We expect fluctuations in the crush spread to continue. Any reduction in the crush spread, whether as a result of an increase in corn prices or a reduction in ethanol prices, would adversely affect our results of operations. A prolonged significant reduction in the crush spread could affect our ability to obtain financing for our planned Alta plant or our additional plants under development.
conditions. Depending upon business conditions, we anticipate using approximately 7,920,000 MmbtuLocal variation in the cost or supply of natural gas annually whenat either plant may also negatively impact our Wood River and Fairmont plants are fully operational and approximately 11,880,000 Mmbtu when all three of our proposed plants are fully operational.operations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol for our customers. Furthermore, increases in natural gas prices could adversely affect our results of operations.
Our results may be adversely affected by hedging transactions and other strategies.
We may enter into contracts to supply a portion of our ethanol and distillers grain production or to purchase a portion of our corn or natural gas requirements on a forward basis to offset some of the effects of volatility of ethanol prices and costs of commodities. From time to time, we may also engage in other hedging transactions involving exchange-traded futures contracts for corn and natural gas. The financial statement impact of these activities will depend upon, among other things, the prices involved and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts or our ability to sell excess corn or natural gas purchased in hedging transactions. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. Hedging activities can result in losses when a position is purchased in a declining market or a position is sold in a rising market. A hedge position is often settled when the physical commodity is either purchased (corn and natural gas) or sold (ethanol or distillers grain). We may experience hedging losses in the future. We may also vary the amount of hedging or other price mitigation strategies we undertake, and we may choose not to engage in hedging transactions at all. As a result, our results of operations and financial condition may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol.
Upon completion and successful operation of our ethanol plants, we expect to
In addition, Cargill has entered into arrangements similar to ours with at least one other ethanol producer and has announced plans to expand production at an existing ethanol facility by 110 Mmgy and to develop four new 100 Mmgy ethanol plants in the Midwestern United States. If Cargill decides to forgo future opportunities to do business with us, or chooses to give these opportunities to our competitors or to retain them for itself, whether due to our performance or for reasons beyond our control, our business may not perform as expected.
lower than ours. Although there is a $0.54 per gallon tariff on foreign-produced ethanol that is approximately equal to the federal blenders’ credit, ethanol imports equivalent to up to 7% of total domestic production in any given year from various countries were exempted from this tariff under the Caribbean Basin Initiative in order to spur economic development in Central America and the Caribbean. In addition, this tariff is currently scheduled to expire in January 2009,on December 31, 2010, and there can be no assurance that it will be renewed beyond that time. Any increase in domestic or foreign competition could force us to reduce our prices and take other steps to compete effectively, which may adversely affect our results of operations and financial position.
additional rail car capacity; |
additional storage facilities for ethanol; |
increases in truck fleets capable of transporting ethanol within localized markets; |
investment in refining and blending infrastructure to handle |
· | growth in service stations equipped to handle ethanol fuels; and |
· | growth in the fleet of flexible fuel vehicles capable of using E85 fuels. |
followed this pattern in 2006 and to date in 2007.November. The price for natural gas, however, tends to move inversely to that of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition, our ethanol prices arehave historically been substantially correlated with the price of unleaded gasoline. The price of unleaded gasoline tends to rise during each of the summer and winter. Due to the blenders’ credit, ethanol historically has traded at a per gallon premium to gasoline, although there have been times that ethanol has traded at a discount to gasoline. This discount, or price inversion, is believed to be the result of the rapid growth in the supply of ethanol compounded by the limited infrastructure and blending capacity required for distribution. Given our lack oflimited operating history, we do not know yet how these seasonal fluctuations will affect our operating results over time.
In addition, the completion of any acquisition may result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our currently planned operations. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing equity securities or debt that is convertible into equity securities, our existing stockholders may be diluted, which could affect the market price of our common stock. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.
The domestic ethanol industry is highly dependent upon
The eliminationthe imposition of civil or criminal penalties. Our insurance may not be adequate to cover the potential operational hazards described above and we may not be able to renew our insurance on commercially reasonable terms or at all. Any cessation of operations due to any significant reduction in,of the blenders’ credit couldabove factors would cause our sales to decrease significantly, which would have a material impactadverse effect on our results of operationsoperation and financial position. The cost of production of ethanol is made significantly more competitive with that of gasoline as a result of federal tax incentives. Before January 1, 2005, the federal excise tax incentive program allowed gasoline distributors that blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sold. If the fuel was blended with 10% ethanol, the refiner/marketer paid $0.052 per gallon less tax, which amounted to an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon incentive for ethanol was reduced to $0.51 per gallon in 2005 and is scheduled
to expire in 2010. It is possible that the blenders’ credit will not be renewed beyond 2010 or will be renewed on different terms. In addition, the blenders’ credit, as well as other federal and state programs benefiting ethanol (such as tariffs), generally are subject to U.S. government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, and may be the subject of challenges, in whole or in part. If the blenders’ credit is not extended by June 30, 2009, or is scheduled to expire less than 18 months from any date after June 30, 2009, the amounts we will be required to deposit into an excess cash flow sweep account under our bank facility will increase.
The elimination of or significant changes to the Freedom to Farm Act could reduce corn supplies. In 1996, Congress passed the Freedom to Farm Act, which allows farmers continued access to government subsidies while reducing restrictions on farmers’ decisions about land use. This act not only increased acreage dedicated to corn crops but also allowed farmers more flexibility to respond to increases in corn prices by planting greater amounts of corn. The elimination of this act could reduce the amount of corn available in future years and could reduce the farming industry’s responsiveness to the increasing corn needs of ethanol producers.
Ethanol can be imported into the United States duty-free from some countries, which may undermine the domestic ethanol industry. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.51 per gallon ethanol incentive available under the federal excise tax incentive program for refineries that blend ethanol in their gasoline. A special exemption from the tariff exists for ethanol imported from 24 countries in Central America and the Caribbean Islands, which is limited to a total of 7.0% of U.S. production per year. In addition, the North American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new plants under development. Production costs for ethanol in these countries can be significantly less than in the United States and the duty-free import of lower price ethanol through the countries exempted from the tariff may reduce the demand for domestic ethanol and the price at which we sell our ethanol.
The effect of the Renewable Fuels Standard in the recent Energy Policy Act is uncertain. The use of fuel oxygenates, including ethanol, was mandated through regulation, and much of the forecasted growth in demand for ethanol was expected to result from additional mandated use of oxygenates. Most of this growth was projected to occur in the next few years as the remaining markets switch from MTBE to ethanol. The recently enacted Energy Policy Act, however, eliminated the mandated use of oxygenates and instead established minimum nationwide levels of renewable fuels — ethanol, biodiesel or any other liquid fuel produced from biomass or biogas — to be included in gasoline. The legislation also included provisions for trading of credits for use of renewable fuels and authorized potential reductions in the RFS minimum by action of a governm ental administrator. The rules for implementation of the RFS and the energy bill are still under development, and the favorable ethanol provisions in the energy bill may be adversely affected by these rules or the enactment of additional legislation.
The legislation did not include MTBE liability protection sought by refiners. Ethanol producers predict that this lack of protection will result in accelerated removal of MTBE and increased demand for ethanol. Refineries, however, may use replacement additives other than ethanol, such as iso-octane, iso-octene and alkylate. Accordingly, the actual demand for ethanol may increase at a lower rate than previously estimated, resulting in excess production capacity in our industry, which would negatively affect our business.
Under the Energy Policy Act, the U.S. Department of Energy, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the Environmental Protection Agency determines that implementing the requirements would severely harm the economy or the environment of a state, a region or the nation, or that there is inadequate supply to meet the requirement. Any waiver of the RFS with respect to one or more states would reduce demand for ethanol and could cause our results of operations to decline and our financial condition to suffer.
We may be adversely affected by environmental, health and safety laws, regulations and liabilities.
New laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controlsexpand capacity at our production facilities. Environmental laws and regulations applicable to our operations now or in the future, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a negative impact on our results of operations and financial position. For example, carbon dioxide is a co-product of the ethanol manufacturing process and may be released into the atmosphere. Emissions of carbon dioxide are not currently subject to applicable permit requirements. If new laws or regulations are passed relating to the production, disposal or emissions of carbon dioxide ,plants, we may be required to incur significant costs to comply with such new laws or regulations.
The hazards and risks,obtain additional permits, install advanced technology such as fires, natural disasters, explosions and abnormal pressures and blowouts, associated with producing and transporting ethanol also may resultcorn oil extraction, or reduce drying of certain amounts of distillers grains.
Risks relating to our organizational structure
Our only material asset after completion of this offering will be our interest in BioFuel Energy, LLC, and we are accordingly dependent upon distributions from BioFuel Energy, LLC to pay dividends, taxes and other expenses.
BioFuel Energy Corp. will be a holding company and will have no material assets other than its ownership of membership interests in the LLC. BioFuel Energy Corp. has no independent means of generating revenue. We intend to cause the LLC to make distributions to its members in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. Our bank facility contains negative covenants, which limit the ability of our operating subsidiaries to declare or pay dividends or distributions. To the extent that BioFuel Energy Corp. needs funds, and the LLC is restricted from making such distributions under applicable law or regulations, or is otherwise unable to provide such funds due, for example, to the restrictions in our bank facility that limit the ability of our operating subsidiaries to distribute funds, our liquidity and financial condition could be materially harmed.
We will be required to pay our historical LLC equity investors for a portion of the benefits relating to any additional tax depreciation or amortization deductions we may claim as a result of tax basis step-ups we receive in connection with future exchanges of BioFuel Energy, LLC membership interests for shares of our common stock.
The membership interests in the LLC held by our historical LLC equity investors upon consummation of the recapitalization and this offering mayeffect in the future be exchanged for shares of rendering our common stock. The exchanges may result in increasesethanol unsaleable in the tax basisstate of the assets of the LLC that otherwise would not have been available. These increasesCalifornia and, if adopted in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge.
We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for the payment by us to our historical LLC equity investors of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of these increases in tax basis. The increase in tax basis, as well as the amount and timing of any payments under this agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our common stock at the time of the exchange, the extent to which such exchanges are taxable,other states, elsewhere.
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors will not reimburse us for any payments that may previously have been made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit sharing agreement in excess of our cash tax savings. Our ability to achieve benefits from any tax basis increase, and the payments to be made under the tax benefit sharing agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.
If BioFuel Energy Corp. were deemed an ‘‘investment company’’ under the Investment Company Act of 1940 as a result of its ownership of BioFuel Energy, LLC, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
If BioFuel Energy Corp. were to cease participation in the management of the LLC, its interest in the LLC could be deemed an ‘‘investment security’’ for purposes of the Investment Company Act of 1940, or the 1940 Act. Generally, a person is deemed to be an ‘‘investment company’’ if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive
of U.S. government securities and cash items), absent an applicable exemption. Following this offering, BioFuel Energy Corp. will have no material assets other than its equity interest in the LLC. A determination that this interest was an investment security could result in BioFuel Energy Corp. being an investment company under the 1940 Act and becoming subject to the registration and other requirements of the 1940 Act.
The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to conduct our operations so that BioFuel Energy Corp. will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause BioFuel Energy Corp. to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among BioFuel Energy Corp., the LLC or our historical equity investors, or any combination thereof and materially adversely affect our business, financial condition and results of operations.
Risks relating to the offering and ownership of our common stock
There is no existing market for our common stock, and we do not know whether a market will develop.
Prior to this offering, our common stock has not been traded on a public market, and there are few public companies with substantial ethanol operations. Although we have applied to list our common stock on Nasdaq, we cannot assure you that a liquid trading market for the shares will develop. The liquidity of any market for the shares of our common stock will depend on a number of factors, including the number of stockholders of our common stock, our operating performance and financial condition and the market for similar securities. An illiquid market will limit your ability to resell shares of our common stock. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering .
The price of our common stock may be volatile.
The trading price of our common stock following this offering is likely to be highly volatile and could be subject to fluctuations in response to a number of factors beyond our control. Some of these factors are:
In recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance, and those fluctuations could materially reduce our common stock price.
Certain stockholders’ shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decrease significantly.
After this offering, we will have outstanding 14,268,044 shares of common stock (15,693,044 shares if the underwriters exercise their over-allotment option in full) and 18,231,956 shares of Class B common stock. Of these shares, the 9,500,000 shares we are selling in this offering (10,925,000 shares if the underwriters exercise their over-allotment option in full) will be freely tradable without restriction under the Securities Act of 1933, as amended, orwhich we refer to as the Securities“Securities Act, except for any shares purchased by one of our ‘‘affiliates’’ as defined in Rule 144 under the Securities Act. All of the shares outstanding other than the shares sold in this offering will be ‘‘restricted securities’’ within the meaning of Rule 144 under the Securities Act.
In connection with this offering, we, our executive officers” and Directors and the holders of substantially all of our outstanding capital stock have entered into lock-up agreements with the underwriters. Under these agreements, subject to exceptions, we may not issue any new shares of common stock, and those holders of stock may not, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of or hedge any shares of common stock or any securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without the prior written consent of J.P. Morgan Securities Inc., for a period of 180 days from the date of this prospectus. After the expiration of these lock-up agreements, all of the shares subject to the lock-up agreements will become eligible for sale in the public market over time under Rule 144Section 21E of the Securities Exchange Act subjectof 1934, as amended, which we refer to volume limitations and other restrictions contained in Rule 144. In addition, holders of these shares will have the right to require us to register the resale of their shares. If any of these holders sell their shares after the lock-up period, the price of our common stock could decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional equity securities.
Our historical equity investors, including some of our officers and Directors, will exert significant influence over us after the completion of this offering. Their interests may not coincide with yours and they may make decisions with which you may disagree.
Our certificate of incorporation provides that the holders of shares of our Class B common stock will be entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Accordingly, immediately following this offering, Greenlight Capital, Inc. and its affiliates, Third Point LLC and its affiliates and Cargill will each control approximately 27%, 14% and 5% of the voting power in BioFuel Energy Corp., respectively, and our officers and Directors will together control approximately 59% of the voting power in BioFuel Energy Corp. The shares of common stock and Class B common stock held by affiliates of Greenlight Capital, Inc. and Third Point LLC, which are controlled by our Directors David Einhorn and Daniel S. Loeb, respectively, were included in the calculation of voting power attributable to our officers and Directors. Our historical equity investors, acting together, could effect substantially all matters requir ing stockholder approval, including the election of Directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent a change in control of our company and make some transactions more difficult or impossible without the support of these stockholders. The interests of these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that you would not approve or make decisions with which you may disagree.
We do not intend to pay dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund the development and operation of our business. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the Board of Directors deems relevant. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.
You will experience immediate and significant dilution in the tangible book value of the shares you purchase in this offering.
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock after this offering. Based upon the issuance and sale of 9,500,000 shares of our common stock at the assumed offering price of $17.00 per share, the mid-point of the price range on the cover page of this prospectus, you will incur immediate dilution of approximately $9.72 in the net tangible book value per share if you purchase common stock in the offering. See ‘‘Dilution’’.
Provisions in our charter documents and our organizational structure may delay or prevent our acquisition by a third party or may reduce the value of your investment.
Some provisions in our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder may deem to be in his or her best interest. For example, our Board may determine the rights, preferences, privileges and restrictions of unissued series of preferred stock without any vote or action by our stockholders. In addition, stockholders must provide advance notice to nominate Directors or to propose business to be considered at a meeting of stockholders and may not take action by written consent. Our corporate structure, which provides our historical LLC equity investors, through the shares of Class B common stock they will hold, a number of votes equal to the number of shares of common stock issuable upon exchange of their membership interests in the LLC, may also have the effect of delaying, deferring or preventing a future takeover or change in control of our company. The existence of these provisions and this structure could also limit the price that investors may be willing to pay in the future for shares of our common stock.
Management and our auditors have identified material weaknesses in the design or operation of our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods.
In connection with the audit of our consolidated financial statements as of December 31, 2006, and for the period from April 11, 2006 through December 31, 2006, our management and our independent registered public accounting firm, Deloitte & Touche LLP, identified certain material weaknesses related to our internal control over financial reporting. A material weakness is defined by the Public Company Accounting Oversight Board as a significant deficiency, or
combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The identified material weaknesses consisted of the following:
If we are unable to implement an accounting system, hire adequate staff and document our policies and procedures in a timely and effective manner, we will be unable to establish an adequate system of internal control over our financial reporting and our ability to comply with the accounting and financial reporting requirements and other rules that apply to public companies would be impaired.
We have begun to address these material weaknesses, although they have not been completely remediated. We have identified an integrated accounting and financial reporting software package. We anticipate that the implementation of this system will take approximately 60 days. We have also hired David J. Kornder to serve as our Executive Vice President and Chief Financial Officer. Mr. Kornder has substantial experience acting as Chief Financial Officer of public companies. We have begun recruiting additional accounting staff and have reached agreement with a new Controller who is scheduled to commence employment on May 1, 2007. Finally, we have continued with the documentation of accounting policies and procedures, although our limited accounting staff to date has restricted our ability to complete this task. We intend to accelerate this process significantly with the addition of our new CFO and staff.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
When our common stock is publicly traded, we will need to comply with laws, regulations and requirements, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 and related regulations of the SEC and requirements of Nasdaq, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our Board of Directors and management. We will need to:
If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired, and we may be subject to sanctions or investigation by regulatory authorities such as the SEC or Nasdaq. In addition, failure to comply with Section 404 or a report of a material weakness may cause investors to lose confidence in us and may have a material adverse effect on our stock price.
Forward-looking statements
This prospectus contains ‘‘forward-looking statements’’ that represent our beliefs, projections and predictions about future events.“Exchange Act.” All statements other than statements of historical fact are ‘‘forward-looking statements’’,“forward-looking statements,” including any projections of earnings, revenue or other financial items, any statements concerning future commodity prices and their effect on the Company, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘predicts’’, ‘‘p otential’’, ‘‘continue’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘future’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’“may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.
Organizational structure
Incorporation of BioFuel Energy Corp.
BioFuel Energy Corp. wasthe risks or uncertainties described above or elsewhere in this prospectus or in the information incorporated as a Delaware corporation in April 2006. BioFuel Energy Corp. has not engagedby reference herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any businessforward-looking statements. Except as required by law, we disclaim all responsibility to publicly update any information contained in a forward-looking statement or other activities except in connection with its formationany forward-looking statement and its holdingtherefore disclaim any resulting liability for potentially related damages. To the extent that any facts or events arising after the date of intereststhis prospectus, individually or in the LLC. Immediately prioraggregate, represent a fundamental change in the information presented in this prospectus, this prospectus will be updated to the consummationextent required by law to contain all material information.
Recapitalization
Immediately prior to the consummation of this offering, the LLC will amend and restate its limited liability company agreement to replace the various classes of its existing membership interests with a single class of membership interests. As partsize of the amendment and restatement ofBasic Commitment or Backstop Commitment is reduced by the limited liability company agreement, BioFuel Energy Corp. will become the sole managing member of the LLC. Our historical LLC equity investors and BioFuel Energy Corp. will exchange their existing membership interests in the LLC for new membership interests in amounts to be determined in accordance with the existing limited liability company agreement and based on the initial public offering price of our shares of common stock issued in this offering. BioFuel Energy Corp. will amend and restate its certificate of incorporation to create two classes of common stock as described above and will issue a number of shares of common stock to Greenlight Capital Offshore, Ltd. and Greenli ght Reinsurance, Ltd., the historical investors in BioFuel Energy Corp., equal to the number of membership interests held by BioFuel Energy Corp. in the LLC. In addition, BioFuel Energy Corp. will issue to each historical LLC equity investor shares of our Class B common stock, which will entitle each holder to a number of votes that is equal to the total number of shares of common stock issuable upon exchange of all of such holder’s membership interests in the LLC.
BioFuel Energy Corp. will contribute all of the net proceeds from this offering to the LLC, and the LLC will issue to BioFuel Energy Corp. a number of membership interests equal to the number of shares of common stock that BioFuel Energy Corp. has issued in this offering.
As a result of the transactions described above, whichBackstop Parties, we collectively refer to as the ‘‘recapitalization’’, immediately following this offering:
The diagram below depicts our organizational structure following this offering.
Holding company structure
BioFuel Energy Corp. will be a holding company and its sole asset will be a controlling equity interest in the LLC. As the sole managing member of the LLC, BioFuel Energy Corp. will operate and control all of the business and affairs of the LLC and its subsidiaries. BioFuel Energy Corp. will consolidate the financial results of the LLC and its subsidiaries and the ownership interest of the historical LLC equity investors in the LLC will be reflected as a minority interest in BioFuel Energy Corp.’s consolidated financial statements.
Pursuant to the amended limited liability company agreement of the LLC, BioFuel Energy Corp. will have the right to determine when distributions will be made to the members of the LLC and the amounts of any such distributions. If BioFuel Energy Corp. authorizes a distribution, such distribution will be made to the members of the LLC (1) in the case of a tax distribution (as described below), to the holders of membership interests in proportion to the amount of taxable income of the LLC allocated to such holder and (2) in the case of other distributions, pro rata in accordance with the percentages of their respective membership interests.
The holders of membership interests in the LLC, including BioFuel Energy Corp., will incur U.S. federal, state and local income taxes on their proportionate shares of any net taxable income of the LLC. Net profits and net losses of the LLC will generally be allocated to its members, including BioFuel Energy Corp., the managing member, pro rata in accordance with the percentages of their respective membership interests. Because BioFuel Energy Corp. will own approximately 44% of the total membership interests in the LLC (or approximately 46% if the underwriters exercise in full their option to purchase additional shares), BioFuel Energy Corp. will generally be allocated approximately 44% of the net profits and net losses of the LLC (or approximately 46% if the underwriters exercise in full their option to purchase additional shares). The remaining net profits and net losses will generally be allocated to the other historical members of the LLC. These percentages a re subject to change, including upon an exchange of membership interests for shares of our common stock and upon issuance of additional shares to the public. The amended limited liability company agreement will provide for cash distributions to the holders of membership interests of the LLC if BioFuel Energy Corp. determines that the taxable income of the LLC will give rise to taxable income for its members. In accordance with the amended limited liability company agreement, we will generally intend to cause the LLC to make cash distributions to the holders of its membership interests for purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the LLC allocable to such holders of membership interests multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income).
BioFuel Energy Corp. does not intend to pay any dividends on its common stock. If, however, BioFuel Energy Corp. declares dividends on its common stock, the LLC will make distributions to BioFuel Energy Corp. in order to fund any dividends. If BioFuel Energy Corp. declares dividends, our historical LLC equity investors will be entitled to receive equivalent distributions pro rata based on their membership interests in the LLC.
Company history
BioFuel Energy Corp. was formed as a Delaware corporation in April 2006 as a holding company through which certain of our historical equity investors hold membership interests in the LLC. The LLC was organized as a Delaware limited liability company in January 2006.
BioFuel Solutions Delaware, our predecessor for accounting purposes, was formed in 2005 and held a minority interest in Bio Fuel Solutions Colorado until October 2005 when the remaining interest of Bio Fuel Solutions Colorado was acquired by BioFuel Solutions Delaware. In September 2006, BioFuel Solutions Delaware was contributed to the LLC and BioFuel Solutions Delaware was dissolved. The LLC, Bio Fuel Solutions Colorado and BioFuel Solutions Delaware have conducted all of our business to date.
To date, all of our activity has been focused on the acquisition of real property for our first two facility sites, commencing construction at these sites, arranging for approximately $390 million in equity and debt financing and entering into certain construction and operating agreements with respect to our first two facilities, as well as other site development activities related to our facilities under development. This prospectus includes the audited consolidated balance sheet of BioFuel Energy Corp. and its subsidiaries as of December 31, 2006, and related consolidated statements of loss, stockholders’ equity and cash flows for the period from inception on April 11, 2006 through December 31, 2006, audited consolidated balance sheets of BioFuel Solutions Delaware as of June 30, 2006 and December 31, 2005, and related consolidated statements of income (loss), members’ equity and cash flows for the six months ended June 30, 2006, the year ended Dec ember 31, 2005 and from inception on January 1, 2005 through June 30, 2006, and the audited balance sheet of Bio Fuel Solutions Colorado as of October 31, 2005, and related statement of loss, members’ equity and cash flows from inception on January 1, 2005 through October 31, 2005.
Use of proceeds
We estimate that the net proceeds from the sale of 9,500,000the depositary shares offered in this rights offering and from the preferred membership interests offered in the LLC’s concurrent private placement, after deducting estimated offering expenses, will be approximately $ million. We intend to, or will cause the LLC to, use the proceeds from the sale of securities in this offering, the LLC’s concurrent private placement and the Backstop Commitment to, promptly upon consummation: (i) first, pay off the Bridge Loan, which we estimate would use $ of the proceeds; (ii) second, pay off all indebtedness under the Loan Agreement, dated as of September 25, 2006, by and among the LLC and certain of the Backstop Parties and their affiliates (which we refer to as the “Subordinated Debt Agreement”), which we estimate would use $ of the proceeds; (iii) third, make the Cargill Cash Payment, which would use $2,800,829 of the proceeds; (iv) fourth, to pay certain fees and expenses incurred in connection with this rights offering and the LLC’s concurrent private placement, which we estimate would use $ of the proceeds; and (v) fifth, use the remainder, if any, for general corporate purposes.
Year ended, December 31, 2008 | High | Low | ||||||
First Quarter | $ | 7.31 | $ | 3.82 | ||||
Second Quarter | $ | 4.96 | $ | 2.55 | ||||
Third Quarter | $ | 2.67 | $ | 0.54 | ||||
Fourth Quarter | $ | 0.73 | $ | 0.31 |
Year ended December 31, 2009 | High | Low | ||||||
First Quarter | $ | 0.47 | $ | 0.26 | ||||
Second Quarter | $ | 1.45 | $ | 0.25 | ||||
Third Quarter | $ | 0.77 | $ | 0.57 | ||||
Fourth Quarter | $ | 3.77 | $ | 0.84 |
Year ending December 31, 2010 | High | Low | ||||||
First Quarter | $ | 4.13 | $ | 2.75 | ||||
Second Quarter | $ | 3.14 | $ | 1.33 | ||||
Third Quarter | $ | 2.22 | $ | 1.10 |
We intend to use up to $50 million of the net proceeds to repay all outstanding subordinated debt. Upon consummation of this offering and any such repayment, we will permanently terminate the subordinated loan agreement.
We expect that all remaining proceeds will ultimately be used to fund the equityrecord holders because a large portion of the construction costsour outstanding common stock is held of our Alta plant. However, prior to the time funds are required at Alta, we may use them to repay or defer borrowing under our bank construction loansrecord in broker “street names” for the Wood River and Fairmont plants.
We intend to borrow up to approximately $125 millionbenefit of additional debt to finance the remaining costs of construction of our Alta plant. As funds are required for the construction, we expect to borrow these funds under existing or subsequent bank facilities, which, in combination with proceeds from this offering and internal cash flow, would fund such expenditures.
Borrowings under our bank facility will bear interest at a variable rate based upon LIBOR or an alternate base rate, at our option, and will mature in 2014, assuming timely completion of our Wood River and Fairmont facilities. Borrowings under our subordinated loan agreement will bear interest at an annual rate of 15.0% and will mature in 2015. See ‘‘Risk factors — We expect to incur a significant amount of indebtedness to construct our facilities, a substantial portion of which will be secured by our assets’’.individual investors. As of March 31, 2007, we had noNovember 12, 2010, there were 25,465,728 common shares outstanding, borrowings undernet of 809,606 shares held in treasury, and 7,111,985 class B common shares outstanding.
Dividend policy
We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes, including to service our debt and to fund the development and operation of our business. Payment of future dividends, if any, will be at the discretion of our Boardboard of Directorsdirectors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors as our Boardboard of Directorsdirectors deems relevant. In addition, our bank facilitySenior Debt Facility imposes restrictions on the ability of the subsidiaries that will own our Wood River and Fairmont plants to pay dividends or make other distributions to us, which will restrict our ability to pay dividends.
Capitalization
September 30, 2010 on an actual basis and on an as adjusted basis to give effect to this rights offering and the LLC’s concurrent private placement and the application of the net proceeds therefrom (including the payoff of the Bridge Loan and the Subordinated Debt Agreement and the making of the Cargill Cash Payment and Cargill Stock Payment (assuming a per share value of our common stock used to determine the number of Series A Non-Voting Convertible Preferred Shares representing depositary shares to be issued in satisfaction of the Cargill Stock Payment equal to $ , which was the closing sales price of our common stock on The Nasdaq Global Market on , the last trading day before the commencement of this rights offering)), after deducting the estimated fees and offering expenses. Please see “Use of Proceeds.” The following table does not give effect to the automatic conversion of shares of Series A Non-Voting Convertible Preferred Stock into shares of common stock that will occur following the requisite stockholder approval. The following table assumes that the size of this rights offering is not reduced by the Backstop Parties.
As of December 31, 2006 (dollars in thousands) | BioFuel Energy Corp. Actual | BioFuel Energy Corp. Pro forma as adjusted | ||||
Cash and equivalents | $27,239 | $174,738 | ||||
Total debt | $ — | $ — | ||||
Minority interest(1) | 74,027 | 75,355 | ||||
Stockholders’ equity(2): | ||||||
Preferred stock ($1.00 par value per share; no shares authorized, issued or outstanding, actual; 5 million shares authorized and no shares issued or outstanding, pro forma as adjusted) | — | — | ||||
Common stock ($0.01 par value per share; 1,000 shares authorized, issued and outstanding, actual; 100 million shares authorized and 14,268,044 shares issued and outstanding, pro forma as adjusted) | — | 143 | ||||
Class B common stock ($0.01 par value per share; no shares authorized, issued or outstanding, actual; 50 million shares authorized and 18,231,956 shares issued and outstanding, pro forma as adjusted) | — | 182 | ||||
Additional paid-in capital | 26,953 | 174,127 | ||||
Deficit accumulated during development stage(1) | (2,334) | (3,662) | ||||
Total stockholders’ equity | 24,619 | 170,790 | ||||
Total capitalization | $98,646 | $246,145 | ||||
As of September 30, 2010 | ||||||||
Actual | As adjusted | |||||||
(unaudited) (dollars in thousands) | ||||||||
Cash and equivalents | $ | 10,895 | $ | |||||
Total debt | 256,877 | |||||||
Stockholders’ equity: | ||||||||
Preferred stock (5.0 million shares authorized and no shares issued or outstanding, actual; 5.0 million shares authorized and 2.0 million shares of Series A Non-Voting Convertible Preferred Stock, $0.01 par value per share, issued and outstanding, as adjusted) | — | |||||||
Common stock, $0.01 par value per share (100.0 million shares authorized and 26,275,334 shares issued and outstanding, actual; 100.0 million shares authorized and 26,275,334 million shares issued and outstanding, as adjusted) | 262 | |||||||
Class B common stock, $0.01 par value per share (50.0 million shares authorized and 7,111,985 shares issued and outstanding, actual; 50.0 million shares authorized and 7,111,985 million shares issued and outstanding, as adjusted) | 71 | |||||||
Less common stock held in treasury, at cost, 809,606 shares at September 30, 2010 | (4,316 | ) | ||||||
Additional paid-in capital | 138,322 | |||||||
Accumulated deficit | (79,513 | ) | ||||||
Total BioFuel Energy Corp. stockholders’ equity | 54,826 | |||||||
Noncontrolling interest | 268 | |||||||
Total equity | 55,094 | |||||||
Total capitalization | $ | 322,866 | $ |
The table above excludes the following:
Dilution
If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. Dilution results from the fact that the per share initial public offering price of our common stock is in excess of the book value per share attributable to our historical equity investors. We calculate net tangible book value per share of our common stock by dividing our net tangible book value, which equals total book value of tangible assets plus minority interest less total liabilities, by the number of shares outstanding. Our pro forma net tangible book value at December 31, 2006, was $87.8 million, or $3.82 per share of our common stock, based upon 23,000,000 shares outstanding, which gives pro forma effect to the recapitalization and an assumed exchange of all outstanding units for shares of our common stock .
After giving effect to the sale of 9,500,000 shares of our common stock in this offering at an assumed offering price of $17.00 per share (the mid-point of the price range on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book valueBioFuel Energy Corp. (i) as of December 31, 2006, would have been approximately $236.7 million, or $7.28 per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $3.46 per share of our common stock to our historical equity investors,2009 and an immediate dilution in pro forma net tangible book value of $9.72 per share of our common stock to new investors, or approximately 57% of the offering price of $17.00 per share of our common stock. The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional sh ares:
Assumed initial public offering price per share | $ | 17.00 | ||||||||||
Pro forma net tangible book value per share at December 31, 2006 before giving effect to the offering | $ | 3.82 | ||||||||||
Increase in pro forma net tangible book value per share attributable to this offering | 3.46 | |||||||||||
Pro forma as adjusted net tangible book value per share after giving effect to this offering | 7.28 | |||||||||||
Dilution per share to new investors | $ | 9.72 | ||||||||||
Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount2008 and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $17.00 per share would increase (decrease) the increase in pro forma as adjusted net tangible book value attributable to this offering by $0.28 per share and the dilution to new investors by $0.72 per share and increase (decrease) the pro forma as adjusted net tangible book value after this offering by $0.28 per share.
The following table sets forth, on the same pro forma as adjusted basis as of December 31, 2006, the number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share paid by our historical equity investors and by new investors, at the initial public offering price of $17.00 per share, which is the mid-point of the price range set forth on the cover of this prospectus, before deducting the underwriting discount and estimated offering expenses payable by us, assuming that all our historical equity investors exchanged their membership interests in the LLC for shares of our common stock on a one-for-one basis:
Shares purchased | Total consideration | Average price per share | ||||||||||||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||||||||||||
(dollars in millions, except per share) | ||||||||||||||||||||||||||||||
Historical equity investors | 4,768,044 | 14.7 | % | $ | 27.0 | 10.0 | % | $ | 5.65 | |||||||||||||||||||||
Minority interest | 18,231,956 | 56.1 | 81.3 | 30.1 | 4.46 | |||||||||||||||||||||||||
New investors | 9,500,000 | 29.2 | 161.5 | 59.9 | 17.00 | |||||||||||||||||||||||||
Total | 32,500,000 | 100.0 | % | $ | 269.8 | 100.0 | % | |||||||||||||||||||||||
The discussion and the table above assume no exercise of outstanding stock options. As of the date of closing of this offering, there will be options outstanding to purchase a total of 370,950 shares of our common stock at an exercise price equal to the offering price. Assuming the exercise of all the outstanding options, there would be no dilution to new investors in net tangible book value per share.
If the underwriters’ over-allotment option is exercised in full, (1) the pro forma as adjusted net tangible book value per share of common stock would be approximately $7.64 and (2) the dilution to new investors in pro forma as adjusted net tangible book value per share would be reduced to $9.36.
Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the total consideration paid by new investors by $8.9 million and the total consideration paid by all stockholders by $8.9 million.
Selected financial data
BioFuel Energy Corp. was formed in April 2006 to hold certain membership interests in BioFuel Energy, LLC, which was formed in January 2006 to build and operate our ethanol production facilities. BioFuel Energy Corp. has consolidated BioFuel Energy, LLC. BioFuel Solutions Delaware, which was formed in January 2005, is considered the predecessor to BioFuel Energy, LLC for accounting purposes. The following tables set forth certain consolidated financial data for the periods and at the dates indicated. The information presented wasyears then ended has been derived from the audited consolidated financial statements included elsewhere inof BioFuel Energy Corp. incorporated by reference into this prospectus and (ii) as of September 30, 2010 and for the nine months ended September 30, 2009 and 2010 has been derived from the unaudited consolidated financial statements of BioFuel Energy Corp. incorporated by reference into this prospectus.
Year Ended December 31, 2008 | Year Ended December 31, 2009 | Nine Months Ended September 30, 2009 | Nine Months Ended September 30, 2010 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||
Net sales | $ | 179,867 | $ | 415,514 | $ | 295,096 | $ | 312,031 | ||||||||
Cost of goods sold | 199,163 | 404,750 | 298,911 | 318,336 | ||||||||||||
Gross profit (loss) | (19,296 | ) | 10,764 | (3,815 | ) | (6,305 | ) | |||||||||
General and administrative expenses: | ||||||||||||||||
Compensation expense | 8,063 | 6,160 | 4,551 | 5,152 | ||||||||||||
Other expense | 8,981 | 9,327 | 8,210 | 4,642 | ||||||||||||
Other operating expense | 1,350 | 150 | — | — | ||||||||||||
Operating loss | (37,690 | ) | (4,873 | ) | (16,576 | ) | (16,099 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest income | 1,087 | 78 | 74 | — | ||||||||||||
Interest expense | (5,831 | ) | (14,906 | ) | (12,036 | ) | (8,061 | ) | ||||||||
Other non-operating expense | (1,781 | ) | (1 | ) | (1 | ) | — | |||||||||
Loss on derivative financial instruments | (39,912 | ) | — | — | — | |||||||||||
Loss before income taxes | (84,127 | ) | (19,702 | ) | (28,539 | ) | (24,160 | ) | ||||||||
Less: Net loss attributable to the noncontrolling interest | 43,262 | 6,072 | 8,061 | 5,224 | ||||||||||||
Net loss attributable to BioFuel Energy Corp. common shareholders | $ | (40,865 | ) | $ | (13,630 | ) | $ | (20,478 | ) | $ | (18,936 | ) | ||||
Loss per share—basic and diluted attributable to BioFuel Energy Corp. common shareholders | $ | (2.65 | ) | $ | (0.57 | ) | $ | (0.87 | ) | $ | (0.75 | ) | ||||
Basic and diluted weighted average number of common shares | 15,419 | 23,792 | 23,418 | 25,411 |
As of December 31, 2008 | As of December 31, 2009 | As of September 30, 2010 | ||||||||||
(Unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data | ||||||||||||
Cash and equivalents | $ | 12,299 | $ | 6,109 | $ | 10,895 | ||||||
Total current assets | 46,865 | 53,593 | 55,428 | |||||||||
Property, plant and equipment, net | 305,350 | 284,362 | 266,364 | |||||||||
Total assets | 365,724 | 346,775 | 329,703 | |||||||||
Total current liabilities | 38,157 | 40,830 | 46,428 | |||||||||
Long-term debt, net of current portion | 226,351 | 220,754 | 218,377 | |||||||||
Total liabilities | 270,965 | 268,880 | 274,609 | |||||||||
Noncontrolling interest | 14,069 | 5,660 | 268 | |||||||||
BioFuel Energy Corp. stockholders’ equity | 80,690 | 72,235 | 54,826 | |||||||||
Total liabilities and equity | 365,724 | 346,775 | 329,703 |
(in thousands, except per share amount) | BioFuel Solutions Delaware | BioFuel Energy Corp. | |||||||
Inception on January 1, 2005 through December 31, 2005 | Six months ended June 30, 2006 | Inception on April 11, 2006 through December 31, 2006 | |||||||
Selected income statement data: | |||||||||
Advisory fees | $1,044 | $ — | $ — | ||||||
General and administrative expenses | 154 | 375 | 9,162 | ||||||
Minority interest in BioFuel Energy, LLC | (6,818) | ||||||||
Net income (loss) | 416 | (396) | (2,334) | ||||||
Net loss per share – basic and diluted | (2,334)(1) | ||||||||
Selected cash flow data: | |||||||||
Net cash flow provided by (used in): | |||||||||
Operating activities | 22 | 275 | (3,225) | ||||||
Investing activities | (144) | (363) | (60,153) | ||||||
Financing activities | 225 | 207 | 90,616 | ||||||
Selected balance sheet data (at end of period): | |||||||||
Total current assets | 27,708 | ||||||||
Property, plant and equipment, net | 82,892 | ||||||||
Total assets | 121,481 | ||||||||
Total current liabilities | 19,818 | ||||||||
Total liabilities | 22,835 | ||||||||
Minority interest | 74,027 | ||||||||
Total members’ equity/stockholder’s equity | 24,619 | ||||||||
Total liabilities and members’ equity/stockholder’s equity | 121,481 | ||||||||
Management’s discussion and analysis of financialcondition and results of operations
The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewheredepositary shares offered in this prospectus, particularly in ‘‘Risk factors’’.
Overview
rights offering or our common stock. We are a development stage company whose goal iscannot assure you that the market price of our common stock will not decline during or after this rights offering. We also cannot assure you that you will be able to become a leading ethanol producer insell the United States. We are currently constructing two 115 Mmgy ethanol plants indepositary shares, or the Midwestern corn belt. In addition, we expect to commence construction of a third 115 Mmgy ethanol plant later this year. At each location, Cargill has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities. Three similar sites are being developed in anticipationcommon stock that you will receive upon the automatic conversion of the possible constructionSeries A Non-Voting Convertible Preferred Stock represented by such depositary shares, purchased during this rights offering at a price that is equal to or greater than $0.56.
Upon completion of the recapitalization, which is described under ‘‘Organizational structure’’, weLLC’s concurrent private placement will be a holding company with no operationsan aggregate amount sufficient to (i) repay all amounts owed at the time of our own,consummation of this rights offering, including accrued and will beunpaid interest, under the sole managing member of the LLC, which will itself be a holding company and will indirectly own all of our operating assets. The financial statements contained elsewhere in this prospectus primarily reflect certain start-up costs, fees and expenses incurred by the LLC, the initial costs incurred in connection with the preparation for, and commencement of, construction of our Wood River and Fairmont ethanol facilitiesBridge Loan Agreement and the equity contributions received bySubordinated Debt Agreement, (ii) make the LLC. The financial statements of Bio Fuel Solutions ColoradoCargill Cash Payment and BioFuel Solutions Delaware contained elsewhere in this prospectus primarily reflect(iii) pay certain unrelated ethanol development activities conducted during 2005, as well as certain activities related to the development of our Wood Riverfees and Fairmont facil ities. We believe that the results of operations of our predecessor should not be relied upon as an indication of our future performance.
In September 2006, certain of our subsidiaries entered into a credit agreement with a syndicate of financial institutions, and the LLC entered into a subordinated loan agreement with certain of our major stockholders, to fund the construction of our Wood River and Fairmont facilities. See ‘‘Description of indebtedness’’. We expect to incur additional indebtedness in connection with the construction of our Alta facility under development.
We have engineering, procurement and construction, or EPC, contracts with TIC for the construction of our Wood River and Fairmont ethanol plants pursuant to which the timely construction and performance of the two plants is guaranteed by TIC. Construction of both plants has begun, and as of December 31, 2006, we had invested approximately $46.8 million in the financing and construction of the Wood River plant and approximately $45.1 million in the financing and construction of the Fairmont plant. Spending on the actual construction of the Wood River and Fairmont plants (excluding related financing costs) is expected to total approximately $310 million. We currently anticipate that both plants will be completed and begin commercial operation during the first quarter of 2008 and will generate net cash inflows in 2008. If we encounter significant difficulties or delays in constructing our plants as described under ‘‘Risk Factors’’, our resul ts of operations and financial condition could be materially harmed. We may also be required to borrow additional funds to replace lost revenues in the event of such delay. Furthermore, if provisional acceptance of a facility does not occur by December 31, 2009, Cargill may terminate, or seek to renegotiate the terms of, its commercial agreements with us with respect to the relevant facility.
Components of revenues and expenses
Total revenues
Our primary source of revenue will be the sale of ethanol. We will also receive revenue from the sale of distillers grain, which is a residual co-product of the processed corn and is sold as animal feed.
The selling prices we realize for our ethanol are largely determined by the market supply and demand for ethanol, which, in turn, is influenced by industry factors over which we have little if any control. See ‘‘Industry outlook’’.
Ethanol prices are extremely volatile. In early 2005, ethanol prices decreased due to a perceived over-supply of ethanol. During the summer of 2006, ethanol prices rose due to increased gasoline prices and legislative changes, resulting in an average realized price for the first six months of 2006 that was $0.56 per gallon higher than for the comparable period of the prior year. From September 2006 through April 2007, however, ethanol prices have declined from the levels prevailing in the summer of 2006. The ethanol Bloomberg rack price rose from $1.18 per gallon at April 29, 2005 to a high of $3.98 per gallon at July 3, 2006 and has subsequently declined to $2.36 at April 17, 2007. The following table provides information on ethanol rack prices for the periods shown.
Ethanol Rack Prices $/Gallon (September 12, 1997 — April 17, 2007)
Source: Bloomberg; U.S. average ethanol rack prices.
Cost of goods sold and gross profit
Our gross profit will be derived from our total revenues less our cost of goods sold. Our cost of goods sold will be affected primarily by the cost of corn and natural gas. Both corn and natural gas are subject to volatile market conditions as a result of weather, market demand, regulation and general economic conditions.
Corn will be our most significant raw material cost. In general, rising corn prices result in lower profit margins because ethanol producers are unable to pass along increased corn costs to customers. The price of corn is influenced by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. Historically, the spot price of corn tends to rise during the Spring planting season in May and June and tends to decrease during the Fall harvest in October and November. From November 18, 2005 to April 17, 2007, the spot price of corn has risen from $1.83 per bushel to $3.39 per bushel. The following table provides information on corn prices for the periods shown.
Corn $/Bushel (April 17, 1997 — April 17, 2007)
Source: Bloomberg; Chicago No. 2 yellow corn spot prices.
We will purchase natural gas to power steam generation in our ethanol production process and fuel for our dryers to dry our distillers grain. Natural gas will represent our second largest operating cost after corn, and natural gas prices are extremely volatile. The following table provides information on natural gas prices for the periods shown.
Natural Gas $/Mmbtu (April 17, 1997 — April 17, 2007)
Source: Bloomberg; Henry Hub spot prices.
We will include corn procurement fees that we pay to Cargill in our cost of goods sold. Other cost of goods sold will primarily consist of our cost of chemicals, depreciation, manufacturing overhead and rail car lease expenses.
Spread between ethanol and corn prices
Our gross profit will depend principally on our ‘‘crush spread’’, which is the difference between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol. Using our dry-mill technology, each bushel of corn produces approximately 2.7 gallons of fuel grade ethanol.
During the first half of 2006, the spread between ethanol and corn prices reached historically high levels, driven in large part by high oil prices and historically low corn prices resulting from continuing record corn yields and acreage, although the spread has since fallen back to $2.99 as of April 17, 2007. Any increase or decrease in the spread between ethanol and corn prices, whether as a result of changes in the price of ethanol or corn, will have an effect on our financial performance.
The following graph sets forth the crush spread for recent periods and illustrates the impact of the volatility of corn and ethanol market prices on the crush spread.
Crush Spread $/Bushel (September 12, 1997 — April 17, 2007)
Source: Bloomberg; Chicago No. 2 yellow corn spot prices, U.S. average ethanol rack prices.
Selling, general and administrative expenses
Selling, general and administrative expenses will consist of salaries and benefits paid to our management and administrative employees, expenses relating to third-party services, insurance, travel, marketing and other expenses, including certain expenses associated with being a public company, such as costs associated with compliance with Section 404 of the Sarbanes-Oxley Act and listing and transfer agent fees.
Results of operations
We are a new company with no material operating results to date.
BioFuel Solutions Delaware is considered our predecessor for accounting purposes. The aggregate revenues of our predecessor from its inception through December 31, 2005 were $1,043,707 earned for development services provided in connection with ethanol projects that were unrelated to our planned business. There were no revenues earned by our predecessor in 2006. Costs incurred from inception through December 31, 2005 related to expenses incurred in connection with this rights offering and the initial developmentLLC’s concurrent private placement, but is subject to reduction as described under “—Rights Offering Letter Agreement—Reduction by Backstop Parties.” The Aggregate Size (subject to any such reduction) will be determined prior to commencement of our Wood River and Fairmont facilities. Expenses incurredthis rights offering, will be included in 2006 were related primarilyan amendment to the development of our Wood River and Fairmont facilities. We believe that the results of operations of our predecessor are not meaningful and should not be relied upon as an indication of our future performance.
The LLC, which has been consolidated for accounting purposes by BioFuel Energy Corp., has been arranging financing for and initiating construction of our first two ethanol plants as well as development work on our planned Alta facility and our three additional plant sites. From its inception through December 31, 2006, the LLC incurred a loss of $9,151,306. This loss was primarily due to general and administrative expenses of $9,162,618,registration statement of which $7,712,371 was compensation. Compensation expense includesthis prospectus is a non-cash charge of $6,094,615 related to share-based payments awarded to our founderspart and certain key employees. These share-based payments include issuance of membership interests (considered profits interests under the LLC agreement and for tax puposes) which are requiredis currently anticipated to be expensed under generally accepted accounting principles. Compensation expense also includesapproximately $44,000,000.
Liquidity and capital resources
Our cash flows from operating, investing and financing activities during the period from inception through December 31, 2006 are summarized below (in thousands):
Cash provided by (used in): | ||||||
Operating activities | $ | (3,225 | ) | |||
Investing activities | (60,153 | ) | ||||
Financing activities | 90,616 | |||||
Cash used in operating activities consisted primarily of compensation paid to our employees and expenses incurred by our corporate office. Expenditures incurred under investing activities relate primarily to the construction of our Wood River and Fairmont ethanol plants. Cash provided by financing activities consisted of proceeds of equity investments made by our historical equity investors less equity and debt issuance costs and distributions to certain owners of our predecessor company. We expect to fund the completion of our Wood River and Fairmont plants with our available capital resources as summarized in the following table:
Our principal sources of liquidity consist of cash and equivalents and available borrowings under our bank facility and our subordinated loan agreement. Our existing balance of cash and equivalents consists entirely of proceeds of equity investments made by our historical equity investors.
Our principal liquidity needs are expected to be the construction of our planned production facilities, debt service requirements of our indebtedness and general corporate purposes.
We believe that our cash and equivalents, the net proceeds of this offering and borrowings under our bank facility, together with certain tax incentive financing, will be sufficient to meet our cash requirements for the next twelve months. We have sufficient cash or other means to fund our operations for the next 12 monthsrecord date and the costsdenominator of constructing our Wood River and Fairmont plants, but we are dependent onwhich is the proceedstotal number of shares of common stock outstanding as of the offering to fund the equity portion of the cost to construct our Alta plant under development.
Ethanol plant construction
We currently have two ethanol plants under construction and expect to commence construction of a third ethanol plant later in 2007. Furthermore, we have three additional sites in development in anticipation of the possible construction of additional plants. We estimate that total project costs to complete our two facilities under construction and our planned Alta facility will be approximately $565 million, of which we expect approximately $285 million and $171 million will be incurred during 2007 and 2008, respectively. We expect the remaining total project costs related to our Wood River and Fairmont plants, in the amount of approximately $260 million, to be funded through borrowings under our bank facility. We expect to fundrecord date plus the total project costs attributable to our Alta plant, in the amount of approximately $226 million, using the net proceeds from this offering, after repayment of subordinated debt, and borrowings u nder new or amended credit facilities. See ‘‘Use of proceeds’’.
We have entered into a bank facility and a subordinated loan agreement in connection with the construction of our Wood River and Fairmont facilities. Upon completion of this offering, we intend to repay any outstanding borrowings under our subordinated loan agreement and permanently terminate the subordinated loan agreement. We intend to obtain additional debt financing for the construction of our Alta plant under development. We cannot assure you that we will be able to obtain the required funding on terms acceptable to us or at all.
We expect to complete the construction of our Wood River facility in the first quarter of 2008. We have spent approximately $58 million on total project costs relating to the Wood River facility from May 1, 2006, to March 31, 2007. We expect to make additional capital expenditures in 2007 and 2008 of approximately $93 million in connection with the total project costs relating to our Wood River facility. We expect to complete the construction of our Fairmont facility in the first quarter of 2008. We have spent approximately $50 million on total project costs relating to the Fairmont facility from June 1, 2006, to March 31, 2007. We expect to make additional capital expenditures in 2007 and 2008 of approximately $113 million in connection with the total project costs relating to our Fairmont facility. To date, we have used the net proceeds of equity investments by our historical equity investors to finance the construction of the Wood River an d Fairmont facilities. As of March 31, 2007, no amounts were outstanding under our bank facility and $18 million was outstanding under our subordinated loan agreement.
Tax and our tax benefit sharing agreement
We expect that, as a result of future exchangesnumber of membership interests in the LLC forheld by the holders of membership interests in the LLC (other than BioFuel Energy Corp.) as of the record date.
We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits between the company and the historical LLC equity investors. Under this agreement, BioFuel will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a result of this increase in tax basis. BioFuel and its common stockholders will benefit from the remaining 15% of cash savings, if any, in income tax that is realized by BioFuel. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of the LLC as a result of the exchanges and had we not entered into the tax benefit shar ing agreement. The term of the tax benefit sharing agreement will commence upon consummation of this offering and will continue until all such tax benefits have been utilized or expired, unless a change of control occurs and we exercise our resulting right to terminate the tax benefit sharing agreement for an amount based on agreed payments remaining to be made under the agreement.
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors will not reimburse us for any payments previously made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit sharing agreement in excess of our cash tax savings. Our historical LLC equity investors will receive 85% of our cash tax savings, leaving us with 15% of the benefits of the tax savings. The actual amount and timing of any payments under the tax benefit sharing agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income. We expect that, as a result of the size of the increases of the tangible and intangible assets of the LLC attributable to our interest in the LLC, during the
expected term of the tax benefit sharing agreement, the payments that we may make to our historical LLC equity investors could be substantial.
Bank facility
In September 2006, certain of our subsidiaries entered into a $230 million bank facility with BNP Paribas and a syndicate of lenders to finance the construction of our Wood River and Fairmont plants. Upon completion of this offering, and subject to lender consent, borrowings under our bank facility may also be applied to our other ethanol plants under development. Neither BioFuel Energy Corp. nor the LLC is a party to the bank facility, although the equity interests and assets of our subsidiaries are pledged as collateral to secure the debt under the bank facility.
Our bank facility consists of $210 million of non-amortizing construction loans, which will convert into term loans amortizing in an amount equal to 6.0% of the outstanding principal amount thereof per annum and maturing in September 2014, if certain conditions precedent, including the completion of our Wood River and Fairmont plants, are satisfied prior to June 2009. The construction loans otherwise mature in June 2009. Once repaid, the construction loans may not be reborrowed in whole or in part.
Our bank facility also includes working capital loans of up to $20 million, a portion of which may be available to us in the form of letters of credit. The working capital loans will be available to pay certain operating expenses of the Wood River and Fairmont plants, or alternative plants, as the case may be, with up to $5 million becoming available upon mechanical completion of a plant, up to $10 million becoming available upon provisional acceptance of a plant and the full $20 million becoming available upon conversion of the construction loans to term loans. The working capital loans will mature in September 2010 or, with consent from two-thirds of the lenders, in September 2011.
Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility remains subject to the satisfaction of a number of additional conditions precedent, including provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders.
The obligations under the bank facility are secured by first priority liens on all assets of the borrowers and a pledge of all of our equity interests in our subsidiaries. In addition, substantially all cash of the borrowers is required to be deposited into blocked collateral accounts subject to security interests to secure any outstanding obligations under the bank facility. Funds will be released from such accounts in accordance with the terms of the bank facility.
Interest rates on each of the loans under our bank facility will be, at our option, (a) a base rate equal to the higher of (i) the federal funds effective rate plus 0.5% and (ii) BNP Paribas’s prime rate, in each case, plus 2.0% or (b) a Eurodollar rate equal to LIBOR adjusted for reserve requirements plus 3.0%. Interest periods for loans based on a Eurodollar rate will be, at our option, one, three or six months, or, if available, nine or twelve months. Accrued interest is due quarterly in arrears for base rate loans, on the last date of each interest period for Eurodollar loans with interest periods of one or three months, and at three month intervals for Eurodollar loans with interest periods in excess of three months. Overdue amounts will bear additional interest at a default rate of 2.0%.
The bank facility includes certain limitations on, among other things, the ability of our subsidiaries to incur additional indebtedness, grant liens or encumbrances, declare or pay dividends or distributions, conduct asset sales or other dispositions, mergers or consolidations, conduct transactions with affiliates and amend, modify or change the scope of the projects, the project agreements or the budgets relating to the projects.
We are required to pay certain fees in connection with our bank facility, including a commitment fee equal to 0.50% per annum on the daily average unused portion of the construction loans and working capital loans and letter of credit fees.
As of March 31, 2007, we had no outstanding balance under our bank facility.
For a more detailed description of our bank facility, see ‘‘Description of indebtedness’’.
Subordinated loan agreement
In September 2006, the LLC entered into a subordinated loan agreement with certain affiliates of Greenlight Capital, Inc. and Third Point LLC. The subordinated loan agreement provides for up to $50 million of non-amortizing loans, all of which must be used for general corporate purposes, working capital or the development, financing and construction of our Wood River and Fairmont Plants. The entire principal balance, if any, plus all accrued and unpaid interest will be due in March 2015.
The payments due under our subordinated loan agreement are secured by the subsidiary equity interests owned by the LLC and are fully and unconditionally guaranteed by all of the LLC’s subsidiaries. The guarantees are subordinated to the obligations of these subsidiaries under our bank facility.
Interest on outstanding borrowings under our subordinated loan agreement accrues at a rate of 15.0% per annum and is due on the last day of each calendar quarter. If an event of default occurs, interest will accrue at a rate of 17.0% per annum.
We are required to pay certain fees in connection with our subordinated loan agreement, including an initial aggregate fee of $2.5 million and takedown fees equal to 5.0% of the principal amount of each borrowing made under the subordinated loan agreement.
As of March 31, 2007, there was $18 million outstanding under our subordinated loan agreement. We expect to incur up to an additional $32 million in subordinated borrowings by May 31, 2007. Upon completion of this offering, we intend to repay any outstanding indebtedness under our subordinated loan agreement and permanently terminate the subordinated loan agreement. See ‘‘Use of proceeds’’.
Tax increment financing
We have entered into an arrangement with the City of Wood River pursuant to which the City of Wood River has issued approximately $6.0 million in tax increment financing notes, or TIF notes, maturing in 2021, and bearing interest at an initial rate of 7.85%, subject to reset every five years, based upon specified prevailing market rates. The subsidiary constructing our Wood River plant is obligated to service and repay the TIF notes through property tax payments we make to the City of Wood River over the fifteen-year term of the TIF notes. The amount of the property tax payments will be based on the value of our land and buildings in Wood River. The TIF notes are guaranteed by the LLC.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual obligations
The following summarizes our significant contractual obligations with respect to our Wood River and Fairmont plants, in thousands, as of December 31, 2006. No obligations relating to our Alta plant under development are reflected in the table because we have not yet entered into definitive agreements with respect to this plant.
Type of obligation (in thousands) | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
Construction contracts(1) | $ | 177,479 | $ | 33,454 | $ | — | $ | — | $ | — | $ | — | $ | 210,933 | ||||||||||||||||||||||||||||
Operating leases(2) | 811 | 10,120 | 10,284 | 10,284 | 10,284 | 77,177 | 118,960 | |||||||||||||||||||||||||||||||||||
Capital lease obligation(3) | 50 | 300 | 300 | 300 | 300 | 7,750 | 9,000 | |||||||||||||||||||||||||||||||||||
Minimum energy charges(3) | 50 | 300 | 300 | 300 | 300 | 7,750 | 9,000 | |||||||||||||||||||||||||||||||||||
Puchase obligations(4) | 772 | 2,100 | 2,400 | 2,400 | 2,400 | 38,700 | 48,772 | |||||||||||||||||||||||||||||||||||
Loan commitment fees(5) | 3,643 | 65 | — | — | — | — | 3,708 | |||||||||||||||||||||||||||||||||||
Minimum commissions(6) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Total contractual obligations | $ | 182,805 | $ | 46,339 | $ | 13,284 | $ | 13,284 | $ | 13,284 | $ | 131,377 | $ | 400,373 | ||||||||||||||||||||||||||||
Quantitative and qualitative disclosures about market risk
We will be subject to significant risks relating to the prices of four commodities: corn and natural gas, our principal production inputs, and ethanol and distillers grain, our principal products. In recent years, ethanol prices have been primarily influenced by gasoline prices, the availability of other gasoline additives and federal, state and local laws and regulations. Distillers grain prices tend to be influenced by the prices of alternative animal feeds. However, in the short to intermediate term, logistical issues may have a significant impact on ethanol prices. In addition, the anticipated sharp increase in distillers grain production as new ethanol plants become operational could significantly depress its price.
Higher corn prices will tend to result in lower profit margins, as it is unlikely that such an increase in costs can be passed on to ethanol customers. The availability as well as the price of corn are subject to wide fluctuations due to weather, carry-over supplies from the previous year or years, current crop yields, government agriculture policies, international supply and demand and numerous other factors. We estimate that corn will represent approximately 63% of our operating costs. Over the period from April 1997 through April 2007, corn prices (based on the CBOT daily futures data) have ranged from a low of $1.83 per bushel in July 2000 to a high of $4.48 per bushel in February 2007, with prices averaging $2.43 per bushel during this period. As of April 17, 2007, the CBOT spot price of corn was $3.39 per bushel.
Higher natural gas prices will tend to reduce our profit margin, as it is unlikely that such an increase in costs can be passed on to ethanol customers. Natural gas prices and availability are affected by weather, overall economic conditions, oil prices and numerous other factors. We estimate that natural gas will represent approximately 15% of our operating costs. The price of natural gas over the period from April 1997 through April 2007, based on the NYMEX daily futures data, has ranged from a low of $1.66 per Mmbtu in February 1999 to a high of $15.36 per Mmbtu in December 2005, averaging $4.88 per Mmbtu during this period. As of April 17, 2007, the NYMEX spot price of natural gas was $7.50 per Mmbtu.
To reduce the risks implicit in price fluctuations of the four principal commodities we will use or sell and variations in interest rates, we plan to continuously monitor these markets and to hedge a portion of our exposure. Specifically, when we can reduce volatility through hedging on an attractive basis, we expect to do so. It is unlikely that we will enter into material commodity hedging until production at our plants begins or is imminent. Thereafter, we currently anticipate hedging between 40% and 80% of our commodity price exposure on a rolling 12 to 36 month basis. This range would include the effect of intermediate to longer-term purchase and sales contracts we may enter into, which act as de facto hedges. In hedging, we may buy or sell exchange-traded commodities futures or options, or enter into swaps or other hedging arrangements. In doing so, we may access Cargill’s risk management and futures advisory services and utilize its trading capabili ties. It should be recognized that while there is an active futures market for corn and natural gas, the futures market for ethanol is still in its infancy and we do not believe a futures market for distillers grain currently exists. Consequently, our hedging of ethanol and distillers grain may be limited by the market.
We believe that managing our commodity price exposure will reduce the volatility implicit in a commodity-based business. However, it will also tend to reduce our ability to benefit from favorable commodity price changes. Finally, hedging arrangements expose us to risk of financial loss if a counterparty defaults. Furthermore, if geographic basis differentials are not hedged, they could cause our hedging programs to be ineffective or less effective than anticipated.
We will be subject to interest rate risk in connection with our bank facility. Under the facility, our bank borrowings will bear interest at a floating rate based, at our option, on LIBOR or an alternate base rate. Pursuant to our bank facility, we are required to hedge no less than 50% of our interest rate risk until all obligations and commitments under the facility are paid and terminated. Borrowings under our subordinated loan agreement bear interest at a fixed annual rate of 15%. As of March 31, 2007, we had no borrowings outstanding under our bank facility
and $18 million of borrowings outstanding under our subordinated loan agreement. Consequently, a hypothetical 100 basis points increase in interest rates would not have any effect on our annual interest expense.
Summary of critical accounting policies
The consolidated financial statements of BioFuel Energy Corp. included in this prospectus have been prepared in conformity with accounting principles generally accepted in the United States. Note 2 to these financial statements is a summary of our significant accounting policies, certain of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based on judgments by management using its knowledge and experience about the past and current events and assumptions regarding future events, all of which we consider to be reasonable. These judgments and estimates reflect the effects of matters that are inherently uncertain and that affect the carrying value of our assets and liabilities, the disclosure of contingent liabilities and reported amounts of expenses during the reporting period.
The accounting estimates and assumptions discussed in this section are those that involve significant judgments and the most uncertainty. Changes in these estimates or assumptions could materially affect our financial position and results of operations and are therefore important to an understanding of our consolidated financial statements.
Recoverability of property, plant and equipment
We are in the process of making a significant investment in property, plant and equipment and will continue to make significant investments over the next several years. We are currently developing three ethanol production facilities. Two facilities are under construction, and we have acquired land options and are permitting the property on which up to four additional plants may be constructed. We evaluate the recoverability of property, plant and equipment whenever events or changes in circumstances indicate that the carrying value of our property, plant and equipment may not be recoverable.
Management must exercise judgment in assessing whether or not circumstances require a formal evaluation of the recoverability of our property, plant and equipment. If an impairment test is required, management must estimate future sales volume, prices, inflation and capital spending, among other factors. These estimates involve inherent uncertainties, and the measurement of the recoverability of the cost of our property, plant and equipment is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to our future operating performance. Certain of the operating assumptions will be particularly sensitive to the development of the ethanol industry.
We have not recognized an impairment loss on any of our property, plant and equipment from our inception through December 31, 2006.
Share-based compensation
We account for the exchanges of equity instruments for employee services in accordance with Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payments (‘‘SFAS 123R’’). For the period from inception of the LLC to December 31, 2006, we issued 425,000 Class M units, 2,103,118 Class C units and 676,039 Class D units to our founding members and key employees and recorded compensation expense of $6,094,615. To determine the amount of compensation expense associated with the issuance of these membership units, we engaged an independent valuation firm to assist in determining the estimated fair value of the Class M, C and D Units. The non-contemporaneous valuation of the membership units required an estimation of the fair value of the company’s total invested capital at each date the membership units were awarded to management. These estimates of the fair value of the company’s total invested capital were made by discounting projected cash flows through December 2014. These cash flows
were based on estimates made by management of future sales volume, prices, inflation and capital spending requirements. The rates used to discount the cash flows at each valuation date were based on a projected weighted average cost of capital. The projected weighted average cost of capital required estimates of the required rates of return on equity and debt and projections of our capital structure. Once the fair value of the total invested capital at each valuation date was determined, it was allocated among our debt and equity holders through a series of call options. The Black-Scholes option pricing model was used to value these call options. The key assumptions used in the Black-Scholes calculation were the expected time to a liquidity event, the implied volatilities of comparable companies and the risk-free rate of return during the expected term of the options.
The amount of compensation expense recorded as a result of the issuance of equity membership units to members of management involved a significant number of estimates. Due to the uncertainties inherent in these estimates, the accuracy of the amount of compensation expense recorded is dependent on the accuracy of the assumptions used in making the estimates and how these estimates compare to the company’s future operating performance and our ability to raise debt and additional equity. Certain of the operating assumptions will be particularly sensitive to the development of the ethanol industry and the attractiveness of ethanol companies to the capital markets.
Inflation
Due to our lack of operating history, inflation has not yet affected our operating results. However, construction costs, costs of goods sold, taxes, repairs, maintenance and insurance are all subject to inflationary pressures and could adversely affect our ability to construct our planned ethanol production facilities, our ability to maintain our facilities adequately once built and our business and results of operations.
Industry outlook
General
Ethanol is a clean-burning, high-octane fuel that is produced from the fermentation of carbohydrates such as grains, starches and sugars. In the United States, ethanol is produced primarily from corn. It is used primarily as a gasoline additive to increase octane rating and to comply with air emissions regulations by reducing emissions of carbon monoxide and nitrogen oxide. The RFS mandated that ethanol comprise a minimum of 4.0 billion gallons of the U.S. fuel supply as of January 1, 2006, rising to 7.5 billion gallons in 2012. According to the RFA, ethanol is blended into 30% of the gasoline sold in the United States. Fuel blended with up to 10% ethanol, also referred to as E10 fuel, is approved for use by major motor vehicle manufacturers and is often recommended as a result of ethanol’s clean burning characteristics. Ethanol comprises up to 85% of E85 fuel. E85 fuel currently represents a relatively small portion of the U.S. gasoline sup ply. Approximately six million vehicles out of more than 200 million vehicles in the United States today are Flexible Fuel Vehicles, or FFVs, capable of using E85 fuel.
The ethanol industry has grown significantly over the last few years, expanding production capacity at a compound annual growth rate of approximately 20% from 2000 to 2006, according to the RFA. We believe the ethanol market will continue to grow as a result of its favorable production economics relative to gasoline, a shortage of domestic petroleum refining capacity, federally-mandated renewable fuel usage, favorable tax treatment, ethanol’s clean-burning characteristics and geopolitical and environmental concerns with petroleum-based fuels. Reasons for substantial growth prospects in the ethanol market include:
Favorable production economics
Based on data provided by the RFA, the costs ethanol producers incur in producing a gallon of ethanol currently are significantly lower than the costs refiners incur in producing a gallon of petroleum-based gasoline.
Blending benefits
Ethanol has an octane rating of 113, and is added to gasoline to raise the octane level of gasoline. Unblended gasoline typically has a base octane level of approximately 84. Gasolines blended with ethanol have typical octane ranges of 87 to 93 octane. Higher octane gasoline has the benefit of reducing engine knocking. Gasoline with higher octane typically has been sold at a higher price per gallon than lower octane gasoline.
Expansion of gasoline supply
By blending ethanol with gasoline, refiners can expand the volume of fuel available for sale. As a result, refiners can produce more fuel from a barrel of oil and expand their ability to meet consumer demand, especially when refinery capacity and octane sources are limited. According to the Energy Information Administration, between 1980 and 2005, petroleum refining capacity in the United States decreased approximately 5% while domestic demand increased approximately 21%. We believe that increased pressure on domestic fuel refining capacity will result in greater demand for ethanol.
Strong legislative and government policy support
In August 2005, the President signed the Energy Policy Act, which established the RFS. The RFS mandates minimum annual use of 7.5 billion gallons per year of renewable fuels in the United States by 2012. We believe that the RFS sets a floor on the amount of ethanol to be consumed. The RFS requires motor fuels sold in the United States to contain in the aggregate the following minimum volumes of renewable fuels in future years:
Year | Renewable fuel usage | |||||
(in billions of gallons) | ||||||
2006 | 4.0 | |||||
2007 | 4.7 | |||||
2008 | 5.4 | |||||
2009 | 6.1 | |||||
2010 | 6.8 | |||||
2011 | 7.4 | |||||
2012 | 7.5 | |||||
The Energy Policy Act also proposed a credit trading program to facilitate meeting the industry-wide renewable fuels requirements. The Environmental Protection Agency has proposed a rule for issuing and trading the credits. In addition, the President and members of Congress have on numerous occasions expressed their support of the use of ethanol in major vehicles as a clean, renewable fuel to replace foreign crude oil and to diversify the U.S. fuel supply. Finally, many farm state legislators are extremely supportive of the ethanol industry due to its perceived favorable impact on corn prices and local employment and tax base.
Environmental benefits
Ethanol, as an oxygenate, reduces tailpipe emissions when added to gasoline. The additional oxygen in the ethanol results in a more complete combustion of the fuel in the engine cylinder, resulting in reduced carbon monoxide and nitrogen oxide emissions. Prior federal programs that mandated the use of oxygenated gasoline in areas with high levels of air pollution spurred widespread use of ethanol in the United States.
Favorable tax treatment
One factor contributing to ethanol’s attractive economics is the availability of a partial exemption from the federal fuel excise tax for ethanol blended fuels. We believe that ethanol’s favorable production economics, further enhanced by the blenders’ tax credit, will enable ethanol to comprise an increasingly larger portion of the U.S. fuel supply. The benefit of the blenders’ tax credit can be captured by refiners or passed on to consumers. Due to this credit, ethanol historically has traded at a per gallon premium to gasoline.
Replacement of MTBE
Because of their blend characteristics, availability and cost, ethanol and MTBE were the two primary additives used to meet the Clean Air Act’s oxygenate requirements. Because MTBE could be produced and blended with gasoline at the refinery and transported through a pipeline, it was initially the preferred oxygenate ingredient used by the petroleum industry in most reformulated gasoline. Before 2003, ethanol was used primarily as a fuel extender and octane enhancer, predominantly in the Midwest.
In recent years, health and environmental concerns have arisen from the discovery of the presence of MTBE, a suspected carcinogen, in ground water supplies. As a result, 25 states, including California, New York and Connecticut, have banned or significantly limited the use of MTBE. These states accounted for more than half of the MTBE consumed in the US. Product liability concerns regarding MTBE increased following passage of the Energy Policy Act, which did not contain limitations on product liability claims relating to MTBE use. As a result, refiners have been phasing out MTBE, creating additional demand for ethanol outside of the Midwest and California. Ethanol has served as a replacement for much of the MTBE volume eliminated because of its favorable production economics, high octane rating and clean burning characteristics.
Geopolitical concerns
The United States is dependent on foreign oil. Political unrest and attacks on oil infrastructure in the major oil-producing nations, particularly in the Middle East, have periodically disrupted the flow of oil. Fears of terrorist attacks have added a ‘‘risk premium’’ to world oil prices. At the same time, developing nations such as China and India have increased their demand for oil. As a result, NYMEX oil prices ranged from $50 to $70 per barrel at times during 2005 and averaged above $60 a barrel during 2006 and 2007, reaching record highs above $78 a barrel during July 2006. As a domestic, renewable source of energy, ethanol can help to reduce the United States’ dependence on foreign oil by increasing the amount of fuel that can be consumed for each barrel of imported crude oil.
Ethanol as a gasoline substitute
Automakers in the United States have been accelerating work on their E85 FFV programs, according to the American Coalition for Ethanol. Motorists may increasingly choose FFVs due to their lower greenhouse gas emissions, flexibility and performance characteristics. Future widespread adoption of FFVs could significantly boost ethanol demand and reduce the consumption of gasoline. Currently, however, only a small percentage of automobiles and gasoline stations in the United States are E85-compatible.
Supply of ethanol
The primary feedstock for ethanol production in the United States is corn. Proximity to corn supplies is a crucial factor in the economics of ethanol plants, as transporting corn is much more expensive than transporting finished ethanol product. As such, the ethanol industry is geographically concentrated in the Midwest based on the proximity to the highest concentration of corn supply. According to the RFA, approximately 79% of the ethanol produced in the United States comes from five Midwestern states, with the corn-rich state of Iowa alone possessing nearly 32% of the total U.S. ethanol capacity. In addition to corn, the ethanol production process requires natural gas or, in some cases, coal in order to power the facility and dry distillers grain.
Despite the geographic concentration, production in the ethanol industry remains fragmented. According to the RFA, while domestic ethanol production increased from 1.3 billion gallons in 1997 to 4.9 billion gallons in 2006, the top ten producers accounted for approximately 45% of the industry’s total estimated production capacity as of April 2007. More than 50 smaller producers and farmer-owned cooperatives, most with production of 50 Mmgy or less, generate the remaining production. Since a typical ethanol facility can be constructed in approximately 18 months from groundbreaking to operation, the industry is able to forecast capacity additions for up to 18 months in the future. As of April 2007, the RFA estimates that approximately 6.2 Bgpy of additional production capacity is under construction at 85 new or existing ethanol facilities. This estimate does not include our construction plans or certain expansion plans of other ethanol pr oducers, particularly Archer Daniels Midland Company, the largest domestic ethanol producer, which has announced plans to increase its production capacity by approximately 51% by mid-2008. As a result of this projected increase in production, the ethanol industry faces the risk of excess capacity. See ‘‘Risk factors’’.
Ethanol is typically either produced by a dry-milling or wet-milling process. Although the two processes feature numerous technical differences, the primary operating trade-off of the wet-milling process is a higher co-product yield in exchange for a lower ethanol yield. Dry-milling ethanol production facilities constitute the substantial majority of new ethanol production facilities constructed in the past five years because of the increased efficiencies and lower capital costs of dry-milling technology. Older dry-mill ethanol facilities typically produce between five and 50 Mmgy, with newer dry-mill facilities producing over 100 Mmgy and enjoying economies of scale in both construction and operating costs per gallon. According to the RFA, 82% of the ethanol production capacity in 2006 was generated from dry-mill facilities, with only 18% coming from wet-mill facilities.
With the largest proportion of ethanol production, the Midwest is also one of the largest consumers of ethanol fuel in the United States. After California, which is the largest consumer of ethanol, Midwestern states such as Minnesota, Illinois and Ohio are the largest consumers of ethanol. Additionally, the state MTBE bans in Connecticut and New York have increased the ethanol consumption in these states. Various states have mandated ethanol use, including Minnesota, Ohio and Hawaii. These state policies require the use of ethanol above what is required by federal regulations, including the RFS.
Legislation
There have been various legislative incentives that have spurred growth in the ethanol industry. These incentives include:
Energy Policy Act
The Energy Policy Act of 2005 established the Renewable Fuels Standard that mandates minimum annual volumes of renewable fuel to be used by petroleum refiners in the fuel supply. The annual requirement grows from 4.0 billion gallons of renewable fuels mandated usage per year in 2006 to 7.5 billion gallons per year by 2012. The Energy Policy Act also removed the oxygenate requirements that were put in place by the Clean Air Act. The Energy Policy Act included anti-backsliding provisions, however, that require refiners to maintain emissions quality standards in the fuels that they produce, thus providing continued opportunities for ethanol.
Federal blenders’ credit
The federal government also supports ethanol by offering refiners and blenders volumetric ethanol excise tax credits, or VEETCs, that entitle them to $0.51 a gallon — $0.051 a gallon of gasoline for a 10% ethanol blend — tax credit against the excise tax they pay on gasoline. This tax credit was first implemented in 1979 and is scheduled to expire in 2010, unless otherwise extended. The federal VEETC incentives, which are intended to make refiners indifferent to the transportation and other costs of blending ethanol as opposed to other additives, support the refiners’ practice of supplementing gasoline with ethanol.
State and local incentives
Twenty-one states have implemented incentives to encourage ethanol production and use. These incentives include tax credits, producer payments, loans, grants, tax exemptions and other programs. Midwestern states have initiated most of the programs and policies to promote ethanol production and development. States on the East and West Coasts also are beginning to initiate ethanol production programs in connection with drives to construct ethanol plants in these states.
State legislation banning or significantly limiting the use of MTBE
In recent years, due to environmental concerns, 25 states, including California, Connecticut and New York, have banned, or significantly limited, the use of MTBE. Ethanol has served as a replacement for much of the discontinued MTBE volumes and is expected to continue to serve as a primary replacement product in the future for MTBE volumes that are removed from the fuel supply.
Federal tariff on imported ethanol
In 1980, Congress imposed a tariff on foreign produced ethanol, which typically is produced at significantly lower cost from sugar cane, to encourage the development of a domestic, corn-derived ethanol supply. This tariff was designed to prevent the federal tax incentive from benefiting non-U.S. producers of ethanol. The tariff is $0.54 per gallon and is scheduled to expire in January 2009. In addition, there is a flat 2.5% ad valorem tariff on all imported ethanol.
Ethanol imports from 24 countries in Central America and the Caribbean Islands are exempt under the Caribbean Basin Initiative from the tariff. The Caribbean Basin Initiative provides that specified nations may export an aggregate of 7.0% of U.S. ethanol production per year into the United States, with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit. In addition, the North American Free Trade Agreement, which went into effect on January 1, 1994, allows Canada and Mexico to import ethanol duty-free. Imports from the exempted countries may increase as a result of new plants under development.
Business
Overview
We are a development stage company whose goal is to become a leading ethanol producer in the United States. We are currently constructing two 115 Mmgy ethanol plants in the Midwestern corn belt. In addition, we expect to commence construction of a third 115 Mmgy ethanol plant later this year. At each location, Cargill has a strong local presence and, directly or through affiliates, owns adjacent grain storage facilities. Three similar sites are being developed in anticipation of the possible construction of additional plants. All six sites were selected primarily based on access to favorably priced corn as well as availability of rail transportation and natural gas. We ultimately expect to grow, at least in part, through acquisitions. However, in current market conditions, we believe it is more attractive financially to build rather than buy. We will continue to assess the build versus acquire trade-off as w e consider initiating construction on one or more of our next three sites.
From inception, we have worked closely with Cargill, one of the world’s leading agribusiness companies. Cargill will handle corn procurement, marketing of ethanol and distillers grain and transportation logistics for our two initial plants under long-term contracts. In addition, they will lease us their adjacent grain storage and handling facilities. We expect to enter into similar agreements for our third plant. Finally, we will have access to Cargill’s risk management services, which we believe to be particularly attractive with regard to corn given their virtually unique position in that market.
The Wood River, Nebraska and Fairmont, Minnesota plants are currently under construction and should be operational in the first quarter of 2008. Plans to construct a third plant in Alta, Iowa are being finalized and engineering and construction contracts relating to that facility should be finalized within 90 to 120 days. In the interim, site preparation in Alta will begin so that construction can proceed promptly once agreements are finalized. Sites in Gilman, Illinois, Atchison, Kansas and Litchfield, Illinois have been selected as the locations for possible additional plants. Land has been optioned and permit filings have begun at each of these sites.
Fixed-price, turnkey construction contracts are in place covering the Wood River and Fairmont plants with The Industrial Company, or TIC, of Steamboat Springs, Colorado, a leading industrial general contractor. We have a construction time slot confirmed and a preliminary agreement with TIC to build our Alta plant. Groundbreaking for the facility is currently expected late in the third quarter or early in the fourth quarter of 2007. Technology for the Wood River and Fairmont plants is being provided by Delta-T Corporation of Williamsburg, Virginia, a company with extensive experience in ethanol process technology and plant operation. We have not yet reached a commercial understanding with Delta-T for using its technology at Alta. If we are unable to reach an agreement, we will need to engage an alternative technology firm for that plant before construction there can begin. Once complete, the initial three plants are expected to produce 345 Mmgy of fuel grade ethanol and 1.1 million tons of distillers grain annually.
The following table provides an overview of ethanol plants we have under construction or in development.
Company history
In January 2005, Scott H. Pearce, our President and Chief Executive Officer, together with TIC and Delta-T, formed Bio Fuel Solutions Colorado, and throughout 2005 and early 2006, worked to develop plans for our Wood River and Fairmont plants. In January 2006, Mr. Pearce and Daniel J. Simon, our Executive Vice President and Chief Operating Officer, together with Thomas J. Edelman, our Chairman and Chairman of the Board, and his partner Irik P. Sevin, co-founded BioFuel Energy, LLC to take over development and construction of the plants from Biofuel Solutions Delaware. In August 2006 we began construction of our Wood River plant, and in October 2006 we began construction of our Fairmont plant. In July 2006, we commenced development of our planned Alta plant and our additional development sites.
Competitive strengths
We believe that we have the following competitive strengths:
We have entered into a letter agreement with Cargill with respect to our planned Alta plant and anticipate entering into long-term commercial agreements with Cargill for this facility similar to those described above.
Strategy
Facilities
Headquarters
Our corporate headquarters are located in Denver, Colorado, where we currently lease approximately 6,000 square feet of office space.
Facilities under construction
The table below provides an overview of our Wood River and Fairmont ethanol plants, which are under construction.
Wood River plant | Fairmont plant | |||||
Location | Wood River, Nebraska | Fairmont, Minnesota | ||||
Expected date of completion | Q1 2008 | Q1 2008 | ||||
Annual ethanol production capacity (Mmgy) | 115 | 115 | ||||
Ownership | 100% | 100% | ||||
Production process | Dry-Milling | Dry-Milling | ||||
Primary energy source | Natural Gas | Natural Gas | ||||
Estimated distillers grain production (dry equivalents) per year | 360,000 tons | 360,000 tons | ||||
Transportation | Union Pacific | Union Pacific | ||||
Wood River plant
Our Wood River production plant is expected to begin operations in the first quarter of 2008 with an initial production capacity of 115 Mmgy. The plant will be located on an approximately 125-acre site owned by us approximately 100 miles west of Lincoln, Nebraska. The site is immediately adjacent to an existing Cargill grain elevator, which will be upgraded during the construction of the plant. The grain elevator will provide all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased, effective upon provisional acceptance of the plant, from Cargill pursuant to a 20-year lease.
TIC is guaranteeing the timely construction and performance of the Wood River plant under a turnkey EPC contract pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol. The contract provides for liquidated damages that are capped at 100% of the contract price until substantial completion of the facility and 30% of the contract price thereafter. Pursuant to our EPC contract, TIC has obtained a performance bond from three major insurance companies in an amount equal to 100% of the contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warrantypreferred membership interests that the plant will be free of defects in parts and workmanship. We remain responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural g as interconnect pipelines and grain elevator improvements. We expectholder was otherwise entitled to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start date.
Our Wood River plant will transport ethanol primarily by rail and is adjacent to a rail mainline operated by the Union Pacific Railroad. A unit train loading facility (75-110 cars) will be constructed at the plant. The site is also readily accessible by road for transport of large equipment, supplies and products, and we may transport ethanol from the facility by truck, as needed.
Natural gas distribution to the site’s lateral pipeline will be provided from the Kinder Morgan Interstate Pipeline. We have entered into an agreement for the construction of the lateral gas pipeline to the plant. Electricity to the site will be provided by the City of Wood River. We will drill our own wells for water needed at our Wood River facility.
The Wood River plant is well-located for the sale of distillers grain. Because of the sizeable cattle herd in the area of Wood River, we estimate that up to 40% of the plant’s distillers grain
will be sold in wet form, which will substantially reduce natural gas requirements. The remainder of the distillers grain sold from the plant will be dried distillers grain.
Fairmont plant
Our Fairmont production plant is expected to begin operations in the first quarter of 2008 with an initial production capacity of 115 Mmgy. The plant will be located on an approximately 200-acre site owned by us approximately 150 miles southwest of Minneapolis, Minnesota. The site is immediately adjacent to an existing Cargill grain elevator. The grain elevator will provide all required corn storage and handling capacity for the plant and, together with the site on which it sits, has been leased, effective upon provisional acceptance of the plant, from Cargill pursuant to a 20-year lease.
TIC is guaranteeing the timely construction and performance of the Fairmont plant under a turnkey EPC contract pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol. The contract provides for liquidated damages that are capped at 100% of the contract price until substantial completion of the facility, and 30% of the contract price thereafter. Pursuant to our EPC contract, TIC has obtained a performance bond from three major insurance companies in an amount equal to 100% of the contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plant will be free of defects in parts and workmanship. We remain responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvemen ts. We expect to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start date.
Our Fairmont plant will transport ethanol primarily by rail and is adjacent to a rail mainline operated by the Union Pacific Railroad. A unit train loading facility (75-110 cars) will be constructed at the plant. The site is also readily accessible by road for transport of large equipment, supplies and products, and we may transport ethanol from the facility by truck, as needed.
Natural gas distribution will be provided to the plant’s lateral pipeline from the Northern Border Interstate pipeline. We have issued a limited notice to proceed and are in the process of finalizing an agreement for the construction of the lateral gas pipeline to the plant. Electricity to the site will be provided by Federated Rural Electric Association. Wells on the site will provide water needed at our Fairmont facility.
purchase. We expect that substantially allthe record date, term and expiration date of the distillers grain sold from the Fairmont plant will be dried distillers grain.
Facilities under development
The table below provides an overview of our planned Alta, Iowa plant, as well as our additional development sites in Gilman, Illinois, Atchison, Kansas and Litchfield, Illinois. We have entered into a preliminary agreement with TIC regarding the construction of our planned Alta facility. Completion of this facility is contingent on permitting, financing and other factors. We plan to finance the costs of design and construction of the Alta plant using a portion of the proceeds of this offering and our excess cash flow as well as with the issuance of additional debt. Our Gilman, Atchison and Litchfield sites are in various stages of permitting and development. See ‘‘Risk factors — We may not be able to implement our strategy as planned or at all’’ and ‘‘Description of indebtedness’’.
Under Development | Additional Development Sites | |||||||||||
Location | Alta, Iowa | Gilman, Illinois | Atchison, Kansas | Litchfield, Illinois | ||||||||
Annual ethanol production capacity (Mmgy) | 115 | 115 | 115 | 115 | ||||||||
Ownership | 100% | 100% | 100% | 100% | ||||||||
Production process | Dry-Milling | Dry-Milling | Dry-Milling | Dry-Milling | ||||||||
Primary energy source | Natural Gas | Natural Gas | Natural Gas | Natural Gas | ||||||||
Rail transportation | CN | CN and TPW | Union Pacific | Norfolk Southern and BNSF | ||||||||
Expected construction start date | Q3/Q4 2007 | — | — | — | ||||||||
Expected completion date | Q2 2009 | — | — | — | ||||||||
Alta plant
We expect to construct a 115 Mmgy dry-mill plant located in Alta, Iowa, to be fueled by natural gas. Land options have been secured for the facility site covering approximately 212 acres. We have received a commitment from TIC to construct our Alta plant and anticipate entering into engineering and construction agreements within 90 to 120 days. We are evaluating alternative construction approaches with respect to construction of our Alta facility, including a design, bid, build approach and a traditional EPC approach. We will make our determination depending upon which approach allows us to optimize plant quality while controlling construction costs in a competitive construction environment. We have received an air permit and are currently engaged in the process of obtaining remaining permits. We have also completed a preliminary environmental Phase I analysis. We expect to enter into ethanol and distillers grain marketing agreements for our Alta plant with Cargill, a corn supply agreement with Cargill and corn storage agreement with a joint venture in which Cargill is a member, which collectively are similar to those we have entered into with respect to our Wood River and Fairmont plants.
The Alta site has been approved by the Iowa Department of Economic Development for an estimated $19.3 million in refunds of sales tax during construction, investment tax credits and local value-added property tax exemptions under the High Quality Jobs Creation program. We are in the process of negotiating the final documentation with Buena Vista County and the Iowa Department of Economic Development for this program.
The Canadian National Rail Road has approved our conceptual rail design for the Alta plant. This rail design will accommodate a 75-car unit train and has sufficient track to permit the Canadian National Rail Road to increase the unit train program to 100 cars.
We have evaluated electric service, natural gas supply, water supply and waste discharge for the Alta plant and believe that they can be obtained without material difficulty on commercially reasonable terms.
Gilman site
We are developing a site in Gilman, Illinois for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas. Land options have been secured for the facility site covering approximately 100 acres. We are currently engaged in the permitting process. We have also completed a preliminary environmental Phase I analysis.
Atchison site
We are developing a site in Atchison, Kansas for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas. Land options have been secured for the facility site covering approximately 140 acres. We are currently engaged in the permitting process.
Litchfield site
We are developing a site in Litchfield, Illinois for the potential future construction of a 115 Mmgy dry-mill plant to be fueled by natural gas . A land option has been secured for a 200-acre parcel that would serve as the site for this plant. We are currently engaged in the permitting process.
Upon commencement of construction of any of our plants in development, we would expect to enter into corn supply and ethanol and distillers grain marketing agreements with Cargill, similar to those we have entered into with respect to our Wood River and Fairmont plants.
Potential future facility sites and acquisitions
In addition, we expect to consider and evaluate additional projects from time to time. We also may consider purchasing existing ethanol facilities or plants in development if we believe such acquisitions would enhance our business or our strategic position in the industry. We also intend to evaluate opportunities to acquire additional ethanol storage or distribution facilities and related infrastructure.
Corn supply
Our Wood River and Fairmont facilities collectively will require approximately 82 million bushels of corn per year in order to produce the 230 Mmgy of expected ethanol output. During the last three crop years, approximately 1.1 billion bushels of corn were grown in the 125-mile radius surrounding our Wood River plant and approximately 2.4 billion bushels of corn were grown in the 125-mile radius surrounding our Fairmont plant.
Under our corn supply agreements, CargillLLC’s concurrent private placement will be the exclusive suppliersame as those of corn to our Wood River and Fairmont facilities for a periodthis rights offering.
We have also entered into concurrent 20-year leases of Cargill’s existing grain elevators at each of our Wood River and Fairmont sites. These elevators will provide sufficient corn storage capacity to service the plants at normal operating levels plus excess capacity to allow us to purchase corn opportunistically, for example, based on seasonality.
Our planned Alta facility will require approximately 41 million bushels of corn per year in order to produce the 115 Mmgy of expected ethanol output. During the last three crop years, a total of approximately 552 million bushels of corn were grown in the 75-mile radius surrounding our planned facility in Alta, Iowa.
Sales logistics
Both our Wood River and Fairmont ethanol plants will be located adjacent to a rail mainline operated by the Union Pacific Railroad. A railcar unit train loading facility handling 75 to 110 cars will be constructed at each of the plants. A 110-car unit train will hold approximately 3.3 million gallons of ethanol, roughly equivalent to nine days of ethanol production at each of these plants. We will have tank storage capacity to accommodate 10 days of ethanol production and 10 days of dried distillers grain production at each of these plants.
Each of the Wood River and Fairmont ethanol plants will also have road access for delivery of ethanol and distillers grain by truck, as needed.
Under our ethanol marketing agreements and distillers grain marketing agreements with Cargill, Cargill will perform a number of logistics functions relating to the ethanol and distillers grain produced at our Wood River and Fairmont facilities, utilizing its extensive network of rail and trucking relationships. These functions will include arranging for rail and truck freight, bills of lading and scheduling pick-up appointments. Under the ethanol marketing agreements, we will be responsible for providing a minimum of 550 tank railcars to service these facilities, and under the distillers grain marketing agreements, we will be responsible for providing a minimum of 465 covered hopper railcars to service these facilities. In that regard, we have entered into 10-year leases for approximately 590 tank railcars and 475 hopper railcars from Trinity Industries Leasing Company.
Marketing arrangements
Ethanol marketing
We expect all of our ethanol to be sold to Cargill as our third party marketer and distributor. Cargill has established relationships with many of the leading end-users of ethanol products such as major oil companies and refiners, as well as independent jobbers, storage companies and transportation companies. Our ethanol will be ‘‘pooled’’ into a cooperative system whereby we will receive the average price of the ethanol sold for all producers in the marketing group, which includes all ethanol produced by Cargill in the United States.
Under our existing ethanol marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to purchase from us, 100% of the fuel grade ethanol produced at our Wood River and Fairmont facilities, including as a result of any expansion of these facilities, for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive marketer of the ethanol produced at these facilities. We have agreed to pay Cargill a commission for its ethanol marketing. Cargill will market and distribute our ethanol pursuant to a common marketing pool program, under which Cargill currently markets its own ethanol and ethanol for third parties. Each participant in the pool will receive the same price for its share of ethanol sold, net of freight and other agreed costs incurred by Cargill with respect to the pooled ethanol. Freight and other charges will be divided among pool participants based upon each participant’s ethanol volume in the pool ratherLLC (other than the location of the plant or the delivery point of the customer.
Under our arrangements with Cargill, we have the ability to opt out of the marketing pool described above. In order to opt out of the marketing pool, we would need to provide six-months notice prior to the date on which ethanol will first be delivered under the contract or any anniversary of that date, except that we may be obligated to participate in the pool for up to 18 months to the extent necessary to allow Cargill to fulfill contractual commitments to deliver ethanol from the pool. We will also have the ability to sell ethanol directly to end-customers on a long-term basis, using Cargill as an agent, and in the future we may do so if an attractive opportunity arises. In these circumstances, Cargill would continue to provide transportation and logistics services, would act as a contracting agent and would continue to be paid commissions by us. We will evaluate the desirability of selling ethanol directly to end-customers on an ongoing basis.
Distillers grain marketing
We expect all of our distillers grain to be sold to Cargill as our third party marketer and distributor. Our dried distillers grain will be primarily marketed nationally to agricultural customers for use as an animal feed ingredient. Due to its limited shelf life and high freight costs, our wet distillers grain will be sold to local agricultural customers for use as an animal feed ingredient.
Under our existing distillers grain marketing agreements with Cargill, we have agreed to sell to Cargill, and Cargill has agreed to purchase from us, all of the distillers grain produced at our Wood River and Fairmont facilities for a period of 10 years. Except in the case of certain force majeure events, Cargill will be the exclusive marketer of the distillers grain produced at these facilities. We have agreed to pay Cargill a commission for its distillers grain marketing.
Our agreements with Cargill
Pursuant to the contracts described below, which we have entered into with Cargill with respect to each of our Fairmont and Wood River facilities, Cargill will provide each of these facilities with corn procurement services and ethanol and distillers grain marketing services, as well as management services in connection with the transportation of the ethanol and distillers grain. In addition, Cargill will provide corn risk management advisory services. We have entered into a letter agreement with Cargill with respect to our Alta plant in development and we anticipate entering into similar long-term commercial agreements with Cargill relating to this facility. The following is a summary of our agreements with Cargill.
Master agreement
In addition to the agreements described below, our relationships with Cargill with respect to our Wood River and Fairmont facilities are each governed by a master agreement. Each of these master agreements provides certain terms and conditions that apply to all of our agreements with Cargill with respect to the relevant plant. The master agreements contain a right of first negotiation in favor of Cargill in the event we subsequently acquire or construct additional ethanol facilities. Under this right, Cargill and we have agreed to negotiate in good faith for Cargill to provide all of the commercial arrangements covered by the agreements described below with respect to any additional facilities.
The master agreements allow for payments due and owing to each party under all of our agreements with Cargill to be netted and offset by the parties. Pursuant to the master agreements, if provisional acceptance of a facility does not occur by December 31, 2009, Cargill may, upon written notice, terminate the master agreement and all (but not less than all) the goods and services agreements with respect to the facility.
Corn supply agreements
With respect to each of our Wood River and Fairmont facilities, we have entered into a corn supply agreement with Cargill. These agreements have a term of twenty years from provisional acceptance of the relevant facility. Pursuant to the agreements, Cargill will be the exclusive supplier of corn to each facility. If Cargill fails to make a confirmed delivery, we are entitled to purchase replacement corn from third parties. Under the agreements, we pay Cargill the weighted average ‘‘basis’’ price paid by Cargill to purchase corn on our behalf, plus the applicable corn futures price then in effect. In addition, we pay an origination fee per bushel of corn that is delivered to the facility. While we are not required to purchase a minimum amount of corn, we are required to pay a set minimum origination fee for each contract year of $1.2 million per plant. Based on the production capacity of our plants and our intent to operate at full capacit y, we expect that our level of corn purchases will be in excess of the level below which this minimum fee obligation would be triggered.
Cargill will be in default under our corn supply agreements if it fails, under certain circumstances, to deliver corn on five occasions within any 12-month period, engages in certain acts of willful misconduct, is subject to certain events of bankruptcy or insolvency, fails to comply with any final and binding arbitration award rendered pursuant to the master agreements, fails to pay us any amounts due under the agreements within five days of receiving written notice from us of the failure to pay or permits the grain facility leases to expire or terminate. We will be in default if we fail to pay Cargill any amounts due under the agreements within 30 days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful
misconduct, procure corn or an alternative feedstock from a third party except as permitted by the agreements, are subject to certain events of bankruptcy or insolvency, sell, lease, assign or otherwise transfer the Wood River of Fairmont plant or any rights in the corn supply or marketing agreements or grain facility leases related to those plants to a third party except as permitted by the agreements between Cargill and us, permit the grain facility leases to expire or terminate or fail to comply with any final and binding arbitration award rendered pursuant to the master agreements. If a default occurs, the non-defaulting party may terminate the relevant corn supply agreement.
Grain facility leases
In addition, with respect to each of our Wood River and Fairmont facilities, we have leased Cargill’s grain facility, located adjacent to each plant, for the purpose of receiving, storing and transferring corn to each ethanol facility. Under each of these leases, which have an initial term of twenty years, the annual rental amount is $1.2 million and increases annually based on the percentage change in the Consumer Price Index. The fees we pay to Cargill under the corn supply agreements are deemed to satisfy one-third of the rental amounts due under the leases for so long as the corn supply agreement with respect to a particular facility is still in place. Under the lease agreements, we are responsible for the maintenance and repair of the premises. We will be in default under the leases, and Cargill will have the right to terminate the relevant lease, if we fail to pay any rent or other amounts due to Cargill within 30 days following written notice that s uch amounts are due and payable, default in any non-monetary obligation under the lease and fail to cure such default within a specified time, become subject to certain events of bankruptcy or insolvency or permit the relevant lease to be sold under any attachment or execution.
Ethanol marketing agreements
With respect to each of our Wood River and Fairmont facilities, we have entered into an ethanol marketing agreement with Cargill. These agreements have a term of ten years. Cargill will be the exclusive purchaser and marketer of the facilities’ ethanol production. In addition, Cargill will be responsible for the logistics and transportation relating to the marketing of the ethanol produced at our facilities and we will provide Cargill with at least 550 rail cars for the facilities. We have elected to participate in Cargill’s marketing pool program whereby a facility’s ethanol is marketed in a common pool with other ethanol under Cargill’s management and all pool participants receive the same net price for ethanol sold from the pool. We have the ability to opt out of such election with advance notice. We will pay Cargill a set commission of 1% on our net proceeds from ethanol sales, subject to minimum volumes of 82.5 Mmgy for each plant. I f the number of gallons of ethanol actually produced by a plant is less than 82.5 Mmgy, the minimum commission will be the deficiency multiplied by the average selling price of our ethanol during such period, multiplied by 1%. Our facilities must deliver ethanol in accordance with certain specifications, and Cargill takes title to the product at the inlet flange into railcars or tank trucks at our facilities. The agreements require Cargill to market our ethanol using the same standards that Cargill uses to market its own ethanol and all other ethanol that Cargill markets. Cargill may sell and market its own and/or third parties’ ethanol into the same markets in which it sells our ethanol. We have waived any claims of conflicts of interest against Cargill for failure by it to maximize the economic benefits of the agreement for us, but we may terminate the relevant ethanol marketing agreement if the conflict of interest results in a material quantifiable pecuniary loss to us. Cargill will have the author ity to make all final determinations regarding sales, strategy and marketing decisions for all ethanol; provided that we must consent to any sales agreement proposed to be entered into by Cargill with a term of more than 12 months.
Cargill will be in default if it fails, under certain circumstances, to purchase ethanol from our Wood River or Fairmont facility on three separate occasions in any 12-month period and as a result we are forced to suspend operations due to excess quantities of ethanol at the relevant facility, fails to pay us any amounts due under the agreements within seven days of receiving written notice from us of the failure to pay, engages in certain acts of willful misconduct or is
subject to certain events of bankruptcy or insolvency. We will be in default if we fail to pay Cargill any amounts due under the agreements within seven days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful misconduct or are subject to certain events of bankruptcy or insolvency. If either Cargill or we are in default under the agreement, the non-defaulting party may terminate the agreement.
Distillers grain marketing agreements
With respect to each of our Wood River and Fairmont facilities, we have entered into a distillers grain marketing agreement with Cargill. These agreements have a term of ten years. Cargill will be the exclusive purchaser and marketer of the facilities’ distillers grain production. In addition, Cargill will be responsible for the logistics and transportation relating to the marketing of the distillers grain produced at our facilities. Cargill will purchase and take title to the distillers grain at the time it is loaded for transport at each plant. For dried distillers grain, we will pay Cargill a set commission equal to the greater of 3% of the sale price or $2.00 per ton, after transportation and storage costs. For wet distillers grain, we will pay Cargill a commission of $3.00 per ton. We are required to pay a minimum commission to Cargill to the extent either plant fails to produce 247,500 tons of distillers grain for the twelve-month period beginning wi th the start of commercial operations and each anniversary thereafter. If the number of tons of distillers grain produced is less than 247,500 tons, the minimum commission will be equal to the sum of the deficiency applicable to dry distillers grain multiplied by $2/ton and the deficiency applicable to wet distillers grain multiplied by $3/ton. The deficiency volume applicable to dry and wet distillers grain will be determined based on the ratio of dry products to wet products produced at the relevant plant during the applicable year. We must deliver distillers grain meeting certain specifications. Cargill has agreed to market our distillers grain using the same standards that Cargill uses to market its own distillers grain and all other distillers grain that Cargill markets. Cargill may sell and market its own and/or third parties’ distillers grain into the same markets in which it sells our distillers grain. We have waived any claims of conflicts of interest against Cargill for failure by it to maxim ize the economic benefits of the agreement for us, but we may terminate the relevant distillers grain marketing agreement if the conflict of interest results in a material pecuniary loss to us. Cargill will have the authority to make all final determinations regarding sales, strategy and marketing decisions for distillers grain under the agreement; provided that we must consent to any sales agreement proposed to be entered into by Cargill with a term in excess of 32 weeks or for quantities of dried distillers grain exceeding 25,000 tons or wet distillers grain exceeding 75,000 tons.
Cargill will be in default if it fails, under certain circumstances, to purchase distillers grain from our Wood River or Fairmont facility on three separate occasions in any 12-month period and as a result we are forced to suspend operations due to excess quantities of distillers grain at the relevant facility, fails to pay us any amounts due under the agreements within seven days of receiving written notice from us of the failure to pay, engages in certain acts of willful misconduct or is subject to certain events of bankruptcy or insolvency. We will be in default if we fail to pay Cargill any amounts due under the agreements within seven days of receiving written notice from Cargill of our failure to pay, engage in certain acts of willful misconduct or are subject to certain events of bankruptcy or insolvency. If either Cargill or we are in default under the agreement, the non-defaulting party may terminate the agreement.
Corn risk management services
We have entered into a futures advisory agreement with Cargill for each of our Wood River and Fairmont facilities. Pursuant to these agreements, which have initial terms of ten years, Cargill will provide us with its hedging and other risk management services for corn purchasing. Pursuant to the futures advisory agreements, we will pay Cargill a flat fee per bushel per calendar month based on the projected number of bushels of corn that are hedged. In addition, we have agreed to negotiate in good faith a performance incentive payable to Cargill prior to commercial operation of each facility.
Additional agreement with Cargill
Cargill has made an equity investment in our company. Under the terms of an agreement with Cargill, Cargill has the right to terminate any or all of its arrangements with us for any or all of our facilities if any of five identified parties or their affiliates acquires 30% or more of our common stock or the power to elect a majority of our Board. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of designated parties, so long as the list does not exceed five entities and the affiliates of such entities. The five parties currently identified by Cargill are Archer Daniels Midland Company, CHS Inc., Tate & Lyle PLC, The Scoular Company and Bunge Limited.
Engineering, procurement and construction contracts and technology licenses
Engineering, procurement and construction contracts
Each of our first two facilities is being constructed by TIC—The Industrial Company Wyoming, Inc., a subsidiary of TIC, a well-established industrial general contracting firm, under engineering, procurement and construction, or EPC, contracts, utilizing an operations and process technology licensed from Delta-T Corporation, an experienced engineering and design firm in the ethanol industry. The contracts provide that provisional acceptance of each facility will occur within a specified number of days after we have given notice to proceed with all work and services under the relevant EPC contract. In the event that TIC does not achieve provisional acceptance or substantial completion of a facility within the required timeframe, weBioFuel Energy Corp.) will be entitled to receive liquidated damages from TIC. Under certain circumstances, wethe LLC purchase privileges. The LLC purchase privileges will pay an early completion bonus to TIC for every day that substantial completion is achieved priorbe granted pro rata to the scheduled date. The EPC contract s include customary default, cure and termination provisions.
TIC is guaranteeing the timely construction and performanceholders of the Fairmont and Wood River plants under turnkey EPC contracts pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol at each plant. The contracts provide for liquidated damages that are capped at 100% of the contract price until substantial completion of the relevant facility, and 30% of the contract price thereafter. Pursuant to our EPC contracts, TIC has obtained performance bonds from three major insurance companies in an amount equal to 100% of each contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plants will be free of defects in parts and workmanship.
Delta-T technology licenses
In connection with each of the EPC contracts described above, Delta-T is granting to us limited licenses to use Delta-T’s proprietary technology and information in connection with the operation, maintenance, optimization, enhancement and expansion of each of our Wood River and Fairmont facilities up to the designed limits. Consideration for the licenses is built into the payments under the EPC contracts described above. If we terminate or materially breach one of the EPC contracts, the related license will automatically terminate. The licenses will also terminate upon termination of the relevant EPC contract for any reason other than the fault of Delta-T if the license fee has not been paid to Delta-T, provided that we will have the option to cure any such payment defaults to Delta-T and complete construction of the facility covered by the license.
Competition
The markets where our ethanol will be sold are highly competitive. According to the RFA, world ethanol production rose to 13.5 billion gallons in 2006. The United States and Brazil are the world’s largest producers of ethanol. According to the RFA, industry capacity in the United States was approximately 4.9 Bgpy in 2006, with an additional 6.2 Bgpy of capacity under construction as of April 2007. The ethanol industry in the United States consists of more than 100 production facilities and is primarily corn-based, while ethanol production in Brazil is primarily sugar cane-based.
We will compete with Archer Daniels Midland Company, the largest ethanol producer in the United States. According to the RFA, as of April 2007, Archer Daniels had 1,070 Mmgy of current annual capacity, representing approximately 18% of total production capacity in the United States. Historically, Archer Daniels’ ethanol plants have used wet-mill technology with a focus on the co-products of ethanol production. Archer Daniels has announced that it intends to increase its ethanol production capacity by approximately 51% by mid-2008 through the construction of new dry-mill ethanol plants. According to the RFA, as of April 2007, the next nine largest domestic ethanol producers accounted for approximately 26% of domestic production capacity.
We also will compete with other large ethanol producers such as VeraSun Energy Corporation, ASAlliances Biofuels, Inc., Aventine Renewable Energy, Inc., Abengoa Bioenergy Corporation, US BioEnergy Corporation and Hawkeye Holdings Inc. One such competitor, ASAlliances Biofuels, Inc., has commercial arrangements in place with Cargill similar to ours and Cargill, through a subsidiary, has made an equity investment in that company. In addition, Cargill has announced plans to expand production at an existing ethanol facility by approximately 110 Mmgy and to develop four new 100 Mmgy ethanol plants in the Midwestern United States. A number of our competitors have substantially greater financial and other resources than we do. The industry is highly fragmented, with many small, independent firms and farmer-owned cooperatives constituting the rest of the mark et. We will compete with our competitors primarily on a national basis.
Ethanol is a commodity and as such is priced on a very competitive basis. We believe that our ability to compete successfully in the ethanol production industry depends on many factors, including price, reliability of our production processes and delivery schedule and volume of ethanol produced and sold. We expect to differentiate ourselves from our competition through continuous focus on cost control and production efficiency, pursuit of acquisition opportunities through our expertise in consolidation, aggressive hedging of market risk and by utilization of Cargill’s expertise in ethanol marketing and corn supply.
With respect to distillers grain, we will compete with other ethanol producers as well as a number of large and smaller suppliers of competing animal feed. We believe the principal competitive factors are price, proximity to purchasers and, especially, product quality. We expect to differentiate ourselves from our competition through high product quality, strategic plant locations and access to Cargill’s expertise in feed merchandising and corn supply.
Ethanol production process
The dry-mill process of using corn to produce ethanol and co-products that we will implement at our plants is illustrated in the following chart and described below.
Step one: grain receiving, storing and milling
Corn is delivered by rail and by truck, at which point it is inspected, weighed and unloaded in a receiving building and then transferred to storage bins. On the grain receiving system, a dust collection system limits particulate emissions. Truck scales and a rail car scale weigh delivered corn. The corn is then unloaded to the storage systems consisting of concrete and steel storage bins. From its storage location, corn is conveyed to cleaning machines called scalpers to remove debris from the corn before it is transferred to hammermills or grinders where it is ground into a flour, or ‘‘meal.’’
Step two: conversion and liquefaction, fermentation and evaporation systems
The meal is conveyed into slurry tanks for processing. The meal is mixed with water and enzymes and heated to break the ground grain into a fine slurry. The slurry is routed through pressure vessels and steam flashed in a flash vessel. This liquefied meal, now called ‘‘mash’’, reaches a temperature of approximately 200ºF, which reduces bacterial build-up. The sterilized mash is then pumped to a liquefaction tank where additional enzymes are added. This cooked mash continues through liquefaction tanks and is pumped into one of the fermenters, where propagated yeast is added, to begin a batch fermentation process.
The fermentation process converts the cooked mash into carbon dioxide and beer, which contains ethanol as well as all the solids from the original corn feedstock. The mash is kept in a fermentation tank for approximately two days. Circulation through heat exchangers keeps the mash at the proper temperature.
Step three: distillation and molecular sieve
After batch fermentation is complete, the fermented mash, now called ‘‘beer’’, is pumped to an intermediate tank called the beer well and then to the columnar distillation tank to vaporize
and separate the alcohol from the mash. The distillation results in a 96%, or 190-proof, alcohol. This alcohol is then transported through a system of tanks and sieves where it is dehydrated to produce 200-proof anhydrous ethanol. The 200-proof ethanol is then mixed with approximately 5% unleaded gasoline to prepare it for sale.
Step four: liquid — solid separation system
The residue corn mash from the distillation stripper, called ‘‘stillage’’, is pumped into one of several decanter type centrifuges for dewatering. The water, or thin stillage, is then pumped from the centrifuges back to mashing or to an evaporator where it is dried into a thick syrup. The solids that exit the centrifuges, known as ‘‘wet cake’’, are conveyed to the wet cake storage pad or the gas-fired rotary dryer for removal of residual water. Syrup is added to the wet cake. The result is wet distillers grain with solubles. The wet distillers grain is then placed into a dryer, where moisture is removed. The end result of the process is dried distillers grain.
Step five: product storage
Storage tanks hold the denatured ethanol product prior to being transferred to loading facilities for truck and rail car transportation. Our plants will each have approximately 3.1 million gallons of ethanol tank storage capacity, which will accommodate nine days of ethanol production per plant.
Co-products of ethanol production
Dried distillers grain with solubles. A co-product of dry-mill ethanol production, dried distillers grain is a high-protein and high-energy animal feed that is sold primarily as an ingredient in beef and dairy cattle rations. Dried distillers grain consists of the concentrated nutrients (protein, fat, fiber, vitamins and minerals) remaining after starch in corn is converted to ethanol. Over 85% of the dried distillers grain is fed to cattle. It is also used in poultry, swine and other livestock feed.
Our facilities will utilize the latest dried distillers grain production technology and produce high quality dried distillers grain, which commands a premium over products from older plants. This dried distillers grain will have higher nutrient content and will be more easily digested than other products produced from older plants.
Wet distillers grain with solubles. Wet distillers grain is similar to dried distillers grain except that the final drying stage of dried distillers grain is bypassed and the product is sold as a wet feed containing 25% to 35% dry matter, as compared to dried distillers grain, which contains about 90% dry matter. Wet distillers grain is an excellent livestock feed with better nutritional characteristics than dried distillers grain because it has not been exposed to the heat of drying. The sale of wet distillers grain is usually more profitable because the plant saves the cost of natural gas for drying. The product is sold locally because of its limited shelf life and the higher cost of transporting the product to distant markets.
Carbon dioxide. Carbon dioxide, or CO2, is also a by-product of our dry-mill ethanol production process. While the CO2 produced will most likely be of sufficient quality to be collected and sold, we do not currently plan to market our CO2. Currently, we plan to scrub the CO2 during the production process and release it to the atmosphere, which will be allowed under the air permits obtained for each of our facilities. However, our ability to release the CO2 into the atmosphere may be limited by laws or regulations in the future. See ‘‘Risk factors’’. In the future, we also may explore the possibility of collecting and disposing of or marketing the CO2.
Environmental matters
We are, and will be upon completion of our ethanol production facilities, subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and the health and safety of our employees.
These laws and regulations can require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damage claims, criminal sanctions, permit revocations and facility shutdowns. We do not anticipate a material adverse impact on our business or financial condition as a result of our efforts to comply with these requirements. We also do not expect to incur material capital expenditures for environmental controls in this or the succeeding fiscal year.
There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under CERCLA or other environmental laws for all or part of the costs of investigation or remediation and for damage to natural resources. We also may be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from these properties. Some of these matters may require us to expend significant amounts for investigation and/or cleanup or other costs. We do not have material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances.
In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our ongoing operations. Present and future environmental laws and regulations and related interpretations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial capital and other expenditures. Our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. The U.S. EPA has promulgated National Emissions Standards for Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could apply to facilities that we own or opera te if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we would be required to comply with the NESHAP related to our manufacturing process and would be required to come into compliance with another NESHAP applicable to boilers and process heaters. Although expected emissions from our plants are not expected to exceed the relevant threshold levels, new or expanded facilities would be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards also may limit our operating flexibility. Because other domestic ethanol manufacturers will have similar restrictions, however, we believe that compliance with more stringent air emission control or other environmental laws and regulations is not likely to materially affect our competitive position.
The hazards and risks associated with producing and transporting our products, such as fires, natural disasters, explosions, abnormal pressures, blowouts and pipeline ruptures also may result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. Our coverage includes physical damage to assets, employer’s liability, comprehensive general liability, automobile liability and workers’ compensation. We believe that our insurance is adequate and customary for our industry, but losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. We do not currently have pending material claims for damages or liability to third parties relating to the hazards or risks of our business.
Employees
As of April 15, 2007, we had 19 full-time employees, who are responsible for our management and development. None of these employees is subject to a collective bargaining agreement. We expect the number of our employees to increase significantly as we transition
from construction of our ethanol facilities to operation of those facilities. Upon completion, each of our ethanol production facilities is expected to employ approximately 50 people.
Legal proceedings
From time to time, we may be involved in litigation and administrative proceedings that arise in the course of our business. We are not currently party to any legal proceeding.
Management
Directors and executive officers
The following table identifies our executive officers and Directors who will be serving upon completion of this offering, and their ages as of April 15, 2007.
Each officer serves at the discretion of our Board of Directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
The following sets forth certain biographical information with respect to our executive officers and Directors who will be serving upon completion of this offering.
Thomas J. Edelman co-founded BioFuel Energy, LLC and has been our Chairman and Chairman of the Board from inception. In 1981, Mr. Edelman co-founded Snyder Oil Corporation, or SOCO, serving as its President from 1981 to 1997. From 1988 to 2003, Mr. Edelman served initially as Chairman, President and Chief Executive Officer of Range Resources Corporation, a company he acquired for SOCO in 1988, later turning over his President and CEO titles to his then-deputy at the company. SOCO divested its interest in Range Resources in 1995. Mr. Edelman stepped down as Chairman of Range Resources in 2003, serving as an advisor to its board until mid-2006. In 1996, Mr. Edelman founded Patina Oil & Gas Corporation, serving as its Chairman and Chief Executive Officer until it merged into Noble Energy, Inc. in mid-2005. In 2000, Mr. Edelman co-founded Bear Paw Energy, LLC, a private natural gas gathering and processing company, serving as its Chairman until it was sold to Northern Borders Pipeline, LLC in 2001. In 2001, he co-founded Bear Cub Energy, LLC, a private successor to Bear Paw Energy also engaged in gas gathering, processing and the marketing of natural gas liquids.
From 1980 to 1981, Mr. Edelman was with The First Boston Corporation and from 1975 through 1980, with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman received a BA from Princeton University and an MBA from the Harvard Graduate School of Business Administration. Mr. Edelman has been a director of Noble Energy, Inc. since May 2005. He also serves as Chairman of Bear Cub Energy, LLC and of Berenson & Company, LLC, an independent investment banking firm.
Scott H. Pearce has been our President and Chief Executive Officer and Director since May 2006. In January 2005, Mr. Pearce co-founded Bio Fuel Solutions Colorado and Biofuel Solutions Delaware, the predecessor of BioFuel Energy, LLC. From 2002 to 2003, Mr. Pearce was a
Senior Vice President of Corporate Planning at Bank of America. In 1997, Mr. Pearce joined Poseidon Resources Corporation, a Warburg Pincus portfolio company that partnered with energy companies to build and operate water and environmental systems for large industrial and government clients, and served as its President and Chief Executive Officer from 2001 to 2002. From 1988 to 1992, Mr. Pearce served in various leadership positions in the U.S. Army, including Cobra Helicopter Pilot and Attack Platoon Officer. Mr. Pearce attained the rank of captain. Mr. Pearce received a BS in Mechanical Engineering from Auburn University and an MBA from the MIT Sloan School of Management.
David J. Kornder has been our Executive Vice President and Chief Financial Officer since February 2007. Mr. Kornder served as Senior Vice President and Chief Financial Officer of Petrie Parkman & Co., Inc., an energy investment bank, from May 2006 until its acquisition by Merrill Lynch in December 2006 and as a consultant to Merrill Lynch until February 2007. Previously, Mr. Kornder served as a Director, Executive Vice President and Chief Financial Officer of Patina Oil & Gas Corporation from 1996 through its acquisition by Noble Energy, Inc. in May 2005 and as a consultant to Noble Energy until May 2006. Prior to that time, he served as Vice President — Finance of Gerrity Oil & Gas Corporation, a predecessor of Patina, from 1993 through 1996. From 1989 through 1992, Mr. Kornder was Assistant Vice President of Gillett Group Manageme nt, Inc. and prior to 1989, he was with Deloitte & Touche LLP. Mr. Kornder received a BA in Accounting from Montana State University. Mr. Kornder serves as a Director of Bear Cub Investments, LLC, a private gas gathering and processing company.
Daniel J. Simon has been our Executive Vice President and Chief Operating Officer since May 2006. In 1999, Mr. Simon joined TIC Holdings, Inc., where he served as Director of International Development from 1999 to 2003 and as Vice President of International Business Development from 2003 to 2005. In 2004, Mr. Simon led TIC’s Renewable Energy Development subsidiary and co-founded and served as the executive sponsor of TIC’s joint venture with Delta-T. From 1994 to 1999, Mr. Simon built and led the Technology Solutions Group in the Asia Pacific region and Western United States for NCH Corporation, which at the time was a public holding company with 34 industrial and maintenance related companies. Mr. Simon received a BS in Economics from the University of Colorado.
Timothy S. Morris has been our Vice President — Operations since February 2007. From January 2006 to February 2007, Mr. Morris served as Chief Executive Officer of American Ethanol, Inc., a private ethanol production company. From 2005 to January 2006, Mr. Morris was an independent consultant, providing operations management expertise to various companies in the ethanol and other continuous process industries. From 2002 to 2005, he served as Vice President of United Bio Energy, LLC, overseeing the operations of multiple ethanol plants. From 1993 to 2002, Mr. Morris served as Plant Manager for a wet corn ethanol facility of Minnesota Corn Processors, LLC. Between 1981 and 1993, he served in various capacities at Coors Brewing Company, Manna Pro Corporation and Cargill, Incorporated. Mr. Morris received a BS in Feed Science and Management from Kansas State Universit y.
JonAlan Page has been our Vice President — Project Development since May 2006. Mr. Page joined Messrs. Pearce and Simon at BioFuel Solutions, LLC in February 2005. From 2002 to 2005, Mr. Page served as Vice President of Project Finance and Planning of Baard Energy, a company that develops ethanol plants. Following the sale by Baard of a majority interest in Nordic Biofuels of Ravenna, LLC to Abengoa Bioenergy in 2004, he served on the Board of Nordic Biofuels of Ravenna, LLC until February 2005. From May 2000 to February 2002, Mr. Page worked at Enron Corp. as a Director of the Transaction Group for Enron’s Western U.S. Origination and from 1998 to May 2000 he held a variety of other positions at Enron. From 1994 to 1997, he was with Banco Santiago. Mr. Page received a BA in Political Science and a BS in Latin American Studies from Oregon State University and an MBA from the University of Notre Dame.
Michael N. Stefanoudakis has been our Vice President and General Counsel since September 2006. In 2005, Mr. Stefanoudakis founded Candia Investments LLC, a private investment company, and has served as its President since then. From 2004 to 2005, Mr. Stefanoudakis was Vice
President and General Counsel of Patina Oil & Gas Corporation. From 2003 to 2004, Mr. Stefanoudakis was an associate with Hogan & Hartson L.L.P., focusing on corporate and securities matters. From 2000 to 2003, Mr. Stefanoudakis was an associate with Brobeck, Phleger & Harrison LLP, and from 1996 to 2000 he was an associate with Davis, Graham & Stubbs LLP. Mr. Stefanoudakis received a BA in Economics from the University of San Diego and a JD from Harvard Law School. Mr. Stefanoudakis is a member of the Colorado Bar.
Eric D. Streisand has been our Vice President — Corporate Development since August 2006. From 2002 to August 2006, he was a principal of Greenlight Private Equity Partners, L.P., an affiliate of Greenlight Capital, Inc., one of our principal stockholders. In 1999, he co-founded Signeta Holdings, a private equity-backed advertising company, and served as Chief Executive Officer from 1999 to 2001 and subsequently as President of Corporate Image, an acquisition target of Signeta Holdings. From 1998 to 1999, Mr. Streisand worked at Seneca Capital Partners, a leveraged buyout firm focused on establishing consolidation platforms in a variety of manufacturing and service industries. Mr. Streisand began his career at McKinsey & Company Inc., where he worked from 1992 to 1994, and again from 1996 to 1998. He received a BA with honors in Applied Mathematics from Brown University and an MBA from Stanford University.
David Einhorn has been one of our Directors since May 2006. Since 1996, Mr. Einhorn has been the President of Greenlight Capital, Inc., one of our principal stockholders and an investment management company he co-founded. Mr. Einhorn received a BA in Government from Cornell University.
Daniel S. Loeb has been one of our Directors since May 2006. He is the Chief Executive Officer of Third Point LLC, one of our principal stockholders and an investment management company that he founded in 1995. He received an AB in Economics from Columbia University. He is currently a Director of Ligand Pharmaceuticals Inc., Massey Energy Company and American Restaurant Group, Inc.
Alexander P. Lynch has been one of our Directors since April 2007. Mr. Lynch has been a Managing Director of J.P. Morgan Securities, Inc., a subsidiary of JPMorganChase, Inc., since July 2000. From 1997 to July 2000, Mr. Lynch was a General Partner of The Beacon Group, a private investment and financial advisory firm, which was merged with Chase Securities in July 2000. From 1995 to 1997, Mr. Lynch was Co-President and Co-Chief Executive Officer of The Bridgeford Group, a financial advisory firm, which was merged into the Beacon Group. From 1991 to 1994, he served as Senior Managing Director of Bridgeford. From 1985 until 1991, Mr. Lynch was a Managing Director of Lehman Brothers, a division of Shearson Lehman Brothers Inc. Mr. Lynch received his Bachelor of Arts Degree from the University of Pennsylvania and his M.B.A. from the Wharton School of Business at the University of Pennsylvania. Mr. Lynch will serve on the audit committee, the compensation committee and the nominating and corporate governance committee.
Board structure
Our business and affairs are managed under the direction of our Board of Directors. Our Board of Directors currently comprises seven members. At the consummation of this offering, we expect that our Board will comprise five members, one of whom will have been determined by our Board to be an independent Director according to the rules and regulations of the SEC and Nasdaq listing standards. Within one year following consummation of this offering, we anticipate having a majority of independent Directors on our Board.
Committees of the Board
Upon completion of this offering, our Board of Directors will conduct its business through three standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee. In addition, from time to time, special committees may be established under the direction of the Board of Directors when necessary to address specific issues.
Under the applicable rules of Nasdaq, a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent committee requirements set forth in Nasdaq Rule 4350(c) on the same schedule as it is permitted to phase in its compliance with the independent audit committee requirement pursuant to applicable SEC rules. Accordingly, a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent committee requirements set forth in Nasdaq Rule 4350(c) as follows: (1) one independent member on each committee at the time of listing; (2) a majority of independent members on each committee within 90 days of listing; and (3) exclusively independent members on each committee within one year of listing.
Our audit committee, our compensation committee and our nominating and corporate governance committee will each initially be composed of one independent Director and two other Directors. Within 90 days following consummation of this offering, we expect to have two independent Directors who would both serve on these committees and comprise a majority thereof. We anticipate that these committees will be composed entirely of independent Directors as promptly as possible thereafter in accordance with the phase in schedule permitted by Nasdaq and SEC rules.
Audit committee
Initially, our audit committee will consist of three Directors, one of whom will have been determined by our Board of Directors to be an independent Director according to the rules and regulations of the SEC and Nasdaq listing standards, and at least one of whom will have been determined by our Board of Directors to be an ‘‘audit committee financial expert’’ as such term is defined in the rules and regulations of the SEC. Within 90 days following consummation of this offering, we anticipate that the audit committee will be comprised of a majority of independent Directors. As promptly as practicable thereafter, and in any event within one year following completion of this offering, we anticipate that the audit committee will be comprised entirely of independent Directors. The audit committee will have responsibility for, among other things:
Prior to the completion of this offering, our Board of Directors will adopt a written charter for the audit committee, which will be available on our website upon the consummation of this offering.
Compensation committee
Initially, our compensation committee will consist of three Directors, one of whom will have been determined by our Board of Directors to be an independent Director according to the rules and regulations of the SEC and Nasdaq listing standards. Within 90 days following consummation of this offering, we anticipate that the compensation committee will be comprised of a majority of independent Directors. As promptly as practicable thereafter, and in any event within one year following completion of this offering, we anticipate that the compensation committee will be comprised entirely of independent Directors. The compensation committee will have responsibility for, among other things:
Prior to the completion of this offering, our Board of Directors will adopt a written charter for the compensation committee, which will be available on our website.
Nominating and corporate governance committee
Initially, our nominating and corporate governance committee will consist of three Directors, one of whom will have been determined by our Board of Directors to be an independent Director according to the rules and regulations of the SEC and Nasdaq listing standards. Within 90 days following consummation of this offering, we anticipate that the nominating and corporate governance committee will be comprised of a majority of independent Directors. As promptly as practicable thereafter, and in any event within one year following completion of this offering, we anticipate that the nominating and corporate governance committee will be comprised entirely of independent Directors. The nominating and corporate governance committee will have responsibility for, among other things:
Prior to the completion of this offering, our Board of Directors will adopt a written charter for the nominating and corporate governance committee, which will be available on our website.
Compensation committee interlocks and insider participation
None of our executive officers will serve as a member of our compensation committee, and none of them has served, or will be permitted to serve, on the compensation committee (or any committee serving a similar function) of any other entity of which an executive officer serves, or is expected to serve, as a member of our compensation committee.
Codes of conduct and ethics and corporate governance guidelines
Prior to the offering, our Board of Directors will adopt (1) a code of business conduct and ethics applicable to our Directors, officers and employees and (2) corporate governance guidelines, each in accordance with applicable rules and regulations of the SEC and Nasdaq. Prior to completion of this initial offering, the code of business conduct and ethics and the corporate governance guidelines will be available on our website.
Director compensation
Directors who are also full-time officers or employees of our company will receive no additional compensation for serving as Directors. All other Directors will receive an annual retainer of $30,000. Each non-employee Director will receive a fee of $2,500 for each Board meeting attended in person and $1,000 each committee meeting attended in person if such committee meeting is held on a day different than a Board meeting. In addition, the chairman of the audit committee will receive an annual retainer of $15,000 and the chairmen of the nominating and corporate governance committee and the compensation committee will each receive an annual retainer of $7,500. Effective upon and subject to completion of this offering, we plan to grant to each existing non-employee Director 7,500 shares of restricted stock and options to purchase 5,000 shares of our common stock under our 2007 Plan. The exercise price per share of the stock options granted at the closing of th is offering will be the public offering price per share indicated on the cover of this prospectus. Non-employee Directors who join the Board after our initial public offering will receive 2,500 shares of restricted stock and options to purchase 5,000 shares of common stock upon their appointment. All continuing non-employee Directors will receive an additional 2,500 shares of restricted stock and options to purchase 5,000 shares of common stock immediately following the Annual Meeting of stockholders. All restricted stock and options granted to non-employee Directors will vest one year following the date of grant. Mr. Einhorn intends to assign his Director compensation to Greenlight Capital, Inc.’s affiliated funds and Mr. Loeb intends to assign his Director compensation to the Third Point funds.
Compensation discussion and analysis
Objectives of our executive compensation program
The principal objectives of our current executive compensation program are:
We intend to continually evaluate and, if necessary, change from time to time our executive compensation program in order to ensure that it supports our business strategy, is competitive with the executive compensation programs of our peer group of companies and aligns the interests of our executive officers with those of our stockholders.
Elements of our compensation program
Our executive compensation primarily consists of base salary and broad-based benefits programs. We have also granted fully vested equity awards to our executive officers upon the commencement of their employment with the company. Following completion of our Wood River and Fairmont plants, our executives will also be eligible for cash bonuses.
We determined the specific amounts of compensation to be paid to each of our executives in 2006 based on a number of factors including:
Annual cash compensation
Base salary
We pay base salaries that we believe are competitive with similar positions at our peer group companies and that provide for equitable compensation among executives of our company. The base salaries of all executive officers will be reviewed annually and adjusted to reflect individual roles and performance as well as company performance. We may increase the base salary of an executive officer if a change in the scope of the officer’s responsibilities justifies such consideration or to reward executives for exceptional performance. We believe that a competitive base salary is a necessary element of any compensation program designed to attract and retain talented and experienced executives.
In 2006, we hired Thomas J. Edelman as our Chairman and Chairman of the Board, Scott H. Pearce as our President and Chief Executive Officer, Daniel J. Simon as our Executive Vice President and Chief Operating Officer, JonAlan Page as our Vice President – Project Development, Michael N. Stefanoudakis as our Vice President and General Counsel and Eric D. Streisand as our Vice President — Corporate Development. In 2007, we hired David J. Kornder as our Executive Vice President and Chief Financial Officer and Timothy S. Morris as our Vice President — Operations. The table below shows the current annual salaries of each of our executive officers.
Cash incentive bonuses
Following substantial completion of our Wood River and Fairmont plants, we intend to commence a program of annual cash bonuses for our executive officers. The target amounts of such bonuses will be a specified percentage of each executive officer’s annual salary, although the final amounts of any such bonuses will be subject to the approval of the Board or its compensation committee in their discretion. Pursuant to Mr. Pearce’s employment agreement, his target bonus will be 200% of his base salary, and pursuant to Mr. Simon’s employment agreement, his target bonus will be 175% of his base salary, in each case based on performance parameters established by the Board each year in consultation with the executive, provided that no bonus will accrue or be paid prior to the time that our first two ethanol plants have become
operational. The bonuses are intended to reward executive officers for attaining company goals, to align our executives’ goals with our interests and the interests of our stockholders and to enable us to attract and retain highly qualified individuals. In 2006, no cash bonuses were paid to our executive officers.
Equity incentive compensation
In 2006 and 2007, we granted fully vested profit sharing membership interests in the LLC consisting(other than BioFuel Energy Corp.) based on the number of ‘‘C units’’, ‘‘D units’’ and ‘‘M units’’, to our executive officers in consideration for their services and in order to more directly align their economic interest with the performance of our company. See ‘‘Certain relationships and related party transactions—Issuances of equity interests to our promoters, executive officers, directors and principal stockholders’’ for details regarding the various issuances of profit sharing membership interests held by them on the record date. The number of LLC purchase privileges granted to our executive officers.
the holders of membership interests in the LLC (other than BioFuel Energy Corp.) in the LLC’s concurrent private placement will be determined as described under “—Number of Rights; Number of LLC Purchase Privileges.” Fractional LLC purchase privileges resulting from such pro rata distribution will be eliminated by rounding up to the nearest whole purchase privilege.
Prior to the consummation of this offering, we will adopt our 2007 Equity Incentive Compensation Plan, or the 2007 Plan, which will provide for the grant of stock options intended to qualify as incentive stock options under Section 422 of the Code, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units and other equity-based or equity-related awards. Awards to executive officers under the 2007 Plan will be intended to attract and retain exceptional executive officers and enable our executive officers to participate in our long-term growth and financial success.
Our Board or our compensation committee will approve all awards under the 2007 Plan. Our decisions regarding the amount and type of equity incentive compensation and relative weighting of these awards among total executive compensation will be based on our understanding of market practices of similarly situated companies and negotiations with our executives in connection with their initial or continued employment by our company. Other factors, including the amount and percentage of our total equity on a diluted basis held by our executive officers, will also be considered.
Effective upon and subject to the consummationterms and conditions described under “—Rights Offering Letter Agreement—Basic Commitment and Backstop Commitment,” to exercise their basic subscription privileges in full (subject to reduction in certain circumstances as described in therein).
Although we encourage our executives to hold a significant equity interest in our company, we do not have specific share retention and ownership guidelines for our executive officers.
For further details regarding our 2007 Plan, see ‘‘—2007 Equity Incentive Compensation Plan’’.
Other compensation
General benefits
All of our executive officers are eligible for benefits offered to employees generally, including life, health, disability and dental insurance and our profit sharing and 401(k) plan (the ‘‘401(k) Plan’’). These benefits are designed to provide a stable array of support to employees and their families and are provided to all employees regardless of their individual performance levels.
Eligible employees may make voluntary contributions to the 401(k) Plan up to limits permitted under law. In addition,Backstop Parties, we may at our discretion, make profit sharing contributions toreduce or eliminate, pro rata for all holders of subscription rights, the 401(k) Plan. All full-time employeesexercise of over-subscription privileges. In the event that the exercise of over-subscription privileges is so reduced, the available unsubscribed depositary shares will be distributed proportionately among those holders who have completed one monthexercised their over-subscription privilege based on the number of service are eligible to participate in the 401(k) Plan. Profit sharing contributions made by us are subject to vesting restrictions as follows: Employees with less than one year of service are 0% vested, employees with between one and two years of service are 34% vested, employees with between two and three years of service are 67% vested and employees with greater than three years of service are 100% vested. For the year ended December 31, 2006, we made a profit sharing contribution of $60,799, or 5% of 2006 salary amounts (subject to social security integration), to the 401(k) accounts of all of our eligible employees. As of December 31, 2006, none of our employees, including our executive officers, were vested in the profit sharing contribution.
In addition, all of our executive officers are eligible to participate in our deferred compensation plan. The plan allows participants to defer all or a portion of their salary and annual bonuses. Participants have the ability to direct the plan administrator to invest their salary and bonus deferrals into pre-approved mutual funds . Please see ‘‘—BioFuel Energy Deferred Compensation Plan’’ belowdepositary shares each holder subscribed for a more detailed explanation of this plan.
Perquisites
We do not believe it is necessary for the attraction or retention of management talent to provide our executive officers with a substantial amount of compensation in the form of perquisites. In 2006, we did not provide any perquisites to our executive officers.
Relocation expenses
We offer reimbursement of relocation expenses to our officers from time to time. In 2006, we reimbursed Mr. Pearce for $87,336 of relocation expenses. We expect to pay Mr. Pearce approximately $34,000 in 2007 for a tax gross up payment relating to his relocation expense reimbursement. In 2007, in connection with the hiring of Mr. Morris, we agreed to reimburse him up to $25,000 of his relocation expenses.
Role of executives in executive compensation decisions
Our Board of Directors and our compensation committee generally seek input from Mr. Edelman, our Chairman, and Mr. Pearce, our President and Chief Executive Officer, when discussing the performance of, and compensation levels for, executives. The compensation committee also consults with Mr. Kornder in evaluating the financial, accounting, tax and retention implications of our various compensation programs. None of our other executives participates in deliberations relating to his own compensation.
Officer salaries are generally subject to Board approval. Base salaries paid to our executive officers in 2006 were generally the result of negotiations between such executive officers and our company at the time of commencement of employment.
Summary compensation table
The following table provides compensation information for our chief executive officer, chairman and our three other most highly compensated executive officers as of December 31, 2006. We refer to these executive officers as our Named Executive Officers.
Name and Principal Position | Year | Salary (1) | Bonus (2) | Stock Awards ($)(3) | All Other Compen- sation ($)(4) | Total Compensation ($) | ||||||||||||||||||||||||||||||
Thomas J. Edelman, Chairman and Chairman of the Board (Acting Chief Financial Officer in 2006) | 2006 | $ | 179,806 | – | $ | 2,506,982 | $ | 13,624 | $ | 2,700,412 | ||||||||||||||||||||||||||
Scott H. Pearce, President and Chief Executive Officer | 2006 | 221,154 | – | 1,269,557 | 102,626 | 1,593,337 | ||||||||||||||||||||||||||||||
Daniel J. Simon, Executive Vice President and Chief Operating Officer | 2006 | 163,461 | – | 1,217,692 | 11,958 | 1,393,111 | ||||||||||||||||||||||||||||||
JonAlan Page, Vice President — Project Development | 2006 | 114,423 | – | 48,187 | 6,957 | 169,567 | ||||||||||||||||||||||||||||||
Eric D. Streisand, Vice President — Corporate Development | 2006 | 100,000 | – | 192,750 | – | 292,750 | ||||||||||||||||||||||||||||||
Grants of plan-based awards
There were no plan based awards made in 2006.
Narrative disclosure to the summary compensation table and grants of plan based awards
Our executive compensation policies and practices, pursuant to whichtheir over-subscription privilege. Any excess payments received by the compensation set forth insubscription agent will be returned, without interest, as soon as practicable.
Employment agreements
As a general policy, we do not enter into employment agreements with our executive officers or other employees. However, in connection with our formation, we entered into an employment agreement with each of Mr. Pearce and Mr. Simon.
Mr. Pearce’s employment agreement
In April 2006, we entered into an executive employment agreement with Mr. Pearce. The agreement provides that Mr. Pearce will serve as President and Chief Executive Officer for an initial term of three years. The agreement will automatically renew for successive one year terms, unless either party provides notice of its intent notsubscription payment related to renew the agreement at least 60 daysyour over-subscription privilege prior to the endexpiration of any term. The agreement provides for a base salarythis rights offering. Because we will not know the total number of not less than $300,000 per year and an annual incentive target bonus of 200% of Mr. Pearce’s base salary, except that no bonus will accrue or be paidunsubscribed depositary shares prior to the time that at least two ethanol facilities have become operational. The agreement also provides thatexpiration of this rights offering, if we terminate Mr. Pearce’s employment without cause or he terminates his employment for ‘‘good reason’’ (as such terms are defined inyou wish to maximize the agreement), and upon executionnumber of a severance agreement and a customary release of future claims, wedepositary shares you purchase pursuant to your over-subscription privilege, you will pay Mr. Pearce all accrued unpaid base salary and bonus from the previous year, un-reimbursed expenses and a severance payment equalneed to 18 months of his then-current base salary. We will also provide him with 18 months of health benefit coverage. Mr. Pearce has agreed to maintain our confidential information in strictest confidence and not to use or disclose to any third party our confidential information, except as we may permit from time to time. Mr. Pearce has agreed not to compete with us during his employment, and if the agreement expires or he terminates the agreement for any reason, for a period of one year following the termination or expiration date of the agreement. During the non-compete period, Mr. Pearce will not solicit or persuade any of our employees to leave us or hire any employee that we have terminated. Mr. Pearce has also agreed that, during the non-comp ete period, he will not divert any business away from us or from customers of ours. The agreement also provides that we will indemnify him against any claims or judgments that result by reason of his employment with us. In addition, during Mr. Pearce’s term of employment, and for a period of three years following employment, we must maintain officers’ and Directors’ liability insurance for Mr. Pearce at least equal to the coverage that we provide for any other present or former senior executive or Director.
Mr. Simon’s employment agreement
In April 2006, we entered into an executive employment agreement with Mr. Simon. The agreement provides that Mr. Simon will serve as Executive Vice President and Chief Operating Officer for an initial term of three years. The agreement will automatically renew for successive one year terms, unless either party provides notice of its intent not to renew the agreement at least 60 days prior to the end of any term. The agreement provides for a base salary of not less than $250,000 per year and an annual incentive target bonus of 175% of Mr. Simon’s base salary, except that no bonus will accrue or be paid prior to the time that at least two ethanol facilities have become operational. The agreement also provides that if we terminate Mr. Simon’s employment without cause or he terminates his employment for ‘‘good reason’’ (as such terms are defined in the agreement), and upon exe cution of a severance agreement and a customary release of future claims, we will pay Mr. Simon all accrued unpaid base salary and bonus from the previous year, un-reimbursed expenses and a severance payment equal to 18 months of his then-current base salary. We will also provide him with 18 months of health benefit coverage. Mr. Simon has agreed to maintain our confidential information in strictest confidence and not to use or disclose to any third party our confidential information, except as we may permit from time to time. Mr. Simon has agreed not to compete with us during his employment, and if the agreement expires or he terminates the agreement for any reason, for a period of one year following the termination or expiration date of the agreement. During the non-compete period, Mr. Simon will not solicit or persuade any of our employees to leave us or hire any employee that we have terminated. Mr. Simon has also agreed that, during the non-com pete period, he will not divert any business away from us or from customers of ours. The agreement also provides that we will indemnify him against any claims or judgments that result by reason of his employment with us. In addition, during Mr. Simon’s term of employment, and for a period of three years following
employment, we must maintain officers’ and Directors’ liability insurance for Mr. Simon at least equal to the coverage that we provide for any other present or former senior executive or Director.
Potential payments upon termination or a change in control
Mr. Pearce’s potential post-employment payments
Under the terms of Mr. Pearce’s employment agreement, assuming that we terminated Mr. Pearce’s employment without cause or he terminated his employment for ‘‘good reason’’ on December 31, 2006, upon execution of a severance agreement and a customary release of future claims, we would have paid Mr. Pearce a severancedeliver payment in an amount equal to $450,000the aggregate rights price for the maximum number of depositary shares available to you, assuming that no holders other than you and provided health benefit coverage equalthe Backstop Parties (who have agreed, subject to approximately $25,000.
Mr. Simon’s potential post-employmentcertain exceptions, to exercise their basic subscription privileges in full) have purchased any depositary shares pursuant to their basic subscription privileges or over-subscription privileges.
· | To the extent that the aggregate rights price of the maximum number of unsubscribed depositary shares available to you pursuant to your over-subscription privilege is less than the amount you actually paid in connection with the exercise of your over-subscription privilege, you will be allocated only the number of unsubscribed depositary shares available to you, and any excess payments received by the subscription agent will be returned, without interest, as soon as practicable. |
· | To the extent the amount you actually paid in connection with the exercise of your over-subscription privilege is less than the aggregate rights price of the maximum number of unsubscribed depositary shares available to you pursuant to your over-subscription privilege, you will be allocated the number of unsubscribed depositary shares for which you actually paid in connection with the exercise of your over-subscription privilege. |
Under received by the subscription agent will be returned, without interest, as soon as practicable.
Potential post-employment paymentsthe price paid by the other holders in this rights offering and in the LLC’s concurrent private placement).
We maintainare not being registered pursuant to the registration statement of which this prospectus is a Changepart.
The COC Plan covers all of our employees other than Messrs. Edelman, Pearce and Simon. The COC Plan will establish three levels of severance benefits inBackstop Parties. We expect that any such reduction would reduce the proceeds available to us from this rights offering.
Assuming termination within one year of a change of control, or resignation within 30 days after a Material Change occurring within one year of a change of control, we would potentially pay Messrs. Page and Streisand $262,500 and $480,000, respectively, andBackstop Parties may elect either (i) to exercise their non-vested rights under the 401(k) Plan and the Deferred Compensation Plan would vest.
Non-Qualified Deferred Compensation
The company maintains a deferred compensation plan. This plan is availablerespective Backstop Commitments with respect to executive officers of the company and certain key managers of the company and its subsidiaries, as designated by the Board or the compensation committee of the Board from time to time. The plan allows participants to defer all or a portion of their salarythe available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and annual bonuses. The company may make discretionary matching contributionsover-subscription privileges by purchasing a new class of a percentageclass B preferred membership interests in the LLC (instead of the participant’s salary
deferral and those assets are invested in instruments as directed by the participant. The deferred compensation plan does not have dollar limits on tax-deferred contributions. The assets of the deferred compensation plan are held in a ‘‘rabbi’’ trust and, therefore, may bepurchasing such available to satisfy the claims of the company’s creditorsdepositary shares) in the event that such Backstop Parties determine, in their sole discretion, that the purchase of bankruptcysuch available depositary shares would result in adverse tax, legal or insolvency. Participantsregulatory consequences to us or such Backstop Parties, which we refer to as a “LLC Backstop Reallocation,” or (ii) to not exercise their respective Backstop Commitments with respect to all or a portion of the available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and over-subscription privileges in the event that such Backstop Parties determine, in their sole discretion, that the purchase of such available depositary shares would result in adverse tax, legal or regulatory consequences to us or such Backstop Parties. Any election contemplated by clause (ii) of the prior sentence would reduce the proceeds of this rights offering.
Director Compensation
There was no director compensation program in place for 2006. In connection with the offering, we are implementingtheir affiliates own a compensation program for all of our non-employee Directors. See ‘‘— Director compensation’’ above for a description of the terms of the compensation program.
2007 Equity Incentive Compensation Plan
Prior to the consummation of this offering, we will adopt our 2007 Equity Incentive Compensation Plan, or the 2007 Plan. The purpose of the 2007 Plan is to promote our interests and the interests of our stockholders by (1) attracting and retaining exceptional Directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) and (2) enabling such individuals to participate in our long-term growth and financial success.
Types of awards
The 2007 Plan provides for the grant of options intended to qualify as incentive stock options, or ISOs under Section 422 of the Code, non-qualified stock options, or NSOs, stock appreciation rights, or SARs, restricted stock awards, restricted stock units, or RSUs, performance units, and other equity-based or equity-related awards.
Plan administration
The 2007 Plan is administered by the compensation committee of our Board of Directors. Subject to the terms of the 2007 Plan and applicable law, the committee has sole authority to administer the 2007 Plan, including, but not limited to, the authority to (1) designate plan participants, (2) determine the type or types of awards to be granted to a participant, (3) determine thesignificant number of shares of our common stock and class B common stock. David Einhorn is the principal of the Greenlight Parties and is a member of our board of directors. The Greenlight Parties are affiliates of Greenlight Capital, Inc., which, as of November 12, 2010, owned 7,542,104 shares of common stock and 4,311,396 shares of class B common stock, which together represented 36.4% of our outstanding total voting stock (composed of our common stock and class B common stock) on that date. Third Point is an affiliate of Third Point Funds, which as of November 12, 2010, owned 5,578,800 shares of common stock, which represented 17.1% of our outstanding total voting stock on that date. Collectively, the Backstop Parties owned 53.5% of our outstanding total voting stock on that date.
in and supply any omission in, the 2007 Plan and any instrument or agreement relating to, or award made under, the 2007 Plan, (9) establish, amend, suspend or waiveenter into such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the 2007 Plan, (10) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards, (11) amend an outstanding award or grant a replacement award for an award previously granted under the 2007 Plan if, in its sole discretion, the committee determines that the tax consequences of such award to us or the participant differ from those consequences that were expected to occur on the date the award was granted or that clarifications or interpretations of, or changes to, tax law or regulations permit awards to be granted that have more favorable tax consequences than initially anticipated and (12) make any other determination and take any other action that the committee deems necessary or desi rable for the administration of the 2007 Plan.
Shares available for awards
Subject to adjustment for changes in capitalization and giving effect to the recapitalization described elsewhere in this prospectus, the aggregate number of shares of our common stock that may be delivered pursuant to awards granted under the 2007 Plan is 3,000,000. If an award granted under the 2007 Plan is forfeited, or otherwise expires, terminates or is cancelled without the delivery of shares, then the shares covered by the forfeited, expired, terminated or cancelled award will again be available to be delivered pursuant to awards under the 2007 Plan.
In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, stock split, reverse stock split, split-up or spin-off affecting the shares of our common stock, the committee will make adjustments and other substitutions to awards under the 2007 Plan in order to preserve the value of the awards. In the event of any reorganization, merger, consolidation, combination, repurchase or exchange of shares of the company or other similar corporate transactions, the committee in its discretion may make such adjustments and other substitutions to the 2007 Plan and awards under the 2007 Plan as it deems equitable or desirable in its sole discretion.
Any shares of our common stock issued under the 2007 Plan may consist, in whole or in part, of authorized and unissued shares of our common stock or of treasury shares of our common stock.
Eligible participants
Any of our or our affiliates’ Directors, officers, employees or consultants (including any prospective Directors, officers, employees or consultants) is eligible to participate in the 2007 Plan.
Stock options
The compensation committee may grant both ISOs and NSOs under the 2007 Plan. Except as otherwise determined by the committee in an award agreement, the exercise price for options cannot be less than the fair market value (as defined in the 2007 Plan) of our common stock on the grant date. In the case of ISOs granted to an employee who, at the time of the grant of an option, owns stock representing more than 10% of the voting power of all classes of our stock or the stock of any of our affiliates, the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the grant date. All options granted under the 2007 Plan will be NSOs unless the applicable award agreement expressly states that the option is intended to be an ISO. All terms and conditions of all grants of ISOs will be subject to and comply with Section 422 of the Code and the regulations promulgated thereunder.
Subject to the applicable award agreement, options will vest and become exercisable with respect to 30%, 30% and 40% of the shares of our common stock subject to such options on each of the first three anniversaries of the grant date. Except as otherwise set forth in the applicable
award agreement, each option will expire upon the earlier of (i) the fifth anniversary of the date the option is granted and (ii) either (x) 90 days after the participant who is holding the option ceases to be a Director, officer or employee of us or one of our affiliates for any reason other than the participant’s death or (y) six months after the date the participant who is holding the option ceases to be a Director, officer or employee of us or one of our affiliates by reason of the participant’s death. The exercise price may be paid with cash (or its equivalent) or, in the sole discretion of the committee, with previously acquired shares of our common stock or through delivery of irrevocable instructions to a broker to sell our common stock otherwise deliverable upon the exercise of the option (provided that there is a public market for our common stock at such time), or a combination of any of the foregoing.
Stock appreciation rights
The committee may grant SARs under the 2007 Plan either alone or in tandem with, or in addition to, any other award permitted to be granted under the 2007 Plan. SARs granted in tandem with, or in addition to, an award may be granted either at the same time as the award or at a later time. Subject to the applicable award agreement, the exercise price of each share of our common stock covered by an SAR cannot be less than the fair market value of such share on the grant date. Upon exercise of an SAR, the holder will receive cash, shares of our common stock, other securities, other awards, other property or a combination of any of the foregoing, as determined by the committee, equal in value to the excess over the exercise price, if any, of the fair market value of the common stock subject to the SAR at the exercise date.
Restricted shares and restricted stock units
Subject to the provisions of the 2007 Plan, the committee may grant restricted shares and RSUs. Restricted shares and RSUs may not be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the 2007 Plan or the applicable award agreement, except that the committee may determine that restricted shares and RSUs may be transferred by the participant. Upon the grant of a restricted share, a certificate will be issued and registered in the name of the participant and deposited by the participant,Substitute Transaction, together with a stock power endorsed in blank, with us or a custodian designated by the committee or us. Upon the lapse of the restrictions applicable to such restricted share, we or the custodian, as applicable, will deliver such certificate to the participant or his or her legal representative.
An RSU will be granted with respect to one share of our common stock or have a value equal to the fair market value of one such share. Upon the lapse of restrictions applicable to an RSU, the RSU may be paid in cash, shares of our common stock, other securities, other awards or other property, as determined by the committee, or in accordance with the applicable award agreement. The committee may, on such terms and conditions as it may determine, provide a participant who holds restricted shares or RSUs with dividends or dividend equivalents, payable in cash, shares of our common stock, other securities, other awards or other property.
Performance units
Subject to the provisions of the 2007 Plan, the committee may grant performance units to participants. Performance units are awards with an initial value established by the committee (or that is determined by reference to a valuation formula specified by the committee or the fair market value of our common stock) at the time of the grant. In its discretion, the committee will set performance goals that, depending on the extent to which they are met during a specified performance period, will determine the number and/or value of performance units that will be paid out to the participant. The committee, in its sole discretion, may pay earned performance units in the form of cash, shares of our common stock or any combination thereof that has an aggregate fair market value equal to the value of the earned performance units at the close of the applicable performance period. The determination of the committee with respect to the form and timing of payout of performan ce units will be set forth in the applicable award agreement.
The committee may, on such terms and conditions as it may determine, provide a participant who holds performance units with dividends or dividend equivalents, payable in cash, shares of our common stock, other securities, other awards or other property.
Other stock-based awards
Subject to the provisions of the 2007 Plan, the committee may grant to participants other equity-based or equity-related compensation awards, including vested stock. The committee may determine the amounts and terms and conditions of any such awards provided that they comply with applicable laws.
Amendment and termination of the 2007 Plan
Subject to any applicable law or government regulation and to any additional requirement that must be satisfied if the 2007 Plan is intended to be a stockholder approved plan for purposes of Section 162(m) of the Code and to the rules of Nasdaq, the 2007 Plan may be amended, modified or terminated by our Board of Directors without the approval of our stockholders, except that stockholder approval will be required for any amendment that would (i) increase the maximum number of shares of our common stock available for awards under the 2007 Plan, (ii) increase the maximum number of shares of our common stock that may be delivered pursuant to ISOs granted under the 2007 Plan or (iii) modify the requirements for participation under the 2007 Plan. No modification, amendment or termination of the 2007 Plan that is adverse to a participant will be effective without the consent of the affected participant, unless otherwise provided by the committee in the applicable award agreement.
The committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any award previously granted, prospectively or retroactively. However, unless otherwise provided by the committee in the applicable award agreement or in the 2007 Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely impair the rights of any participant to any award previously granted will not to that extent be effective without the consent of the affected participant.
The committee is authorized to make adjustments inreasonable details concerning the terms and conditions of awardssuch Substitute Transaction. After such three business day period, (x) the board would be permitted to approve the Substitute Transaction, (y) we would be permitted to enter into such Substitute Transaction and (z) we would be permitted to terminate the Rights Offering Letter Agreement, so long as in each case (A) the eventSubstitute Transaction continues to meet the requirements described in clause (ii) above and (B) upon execution of any unusual or nonrecurring corporate event (including the occurrence ofdefinitive documentation relating to a change of control of the company) affecting us, any of our affiliates or our financial statements or the financial statements of any of our affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law whenever the committee, in its discretion, determines that those adjustments are appropriate or desirable, including providing for the substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on, or termination of, awards or providing for a period of time for exercise priorSubstitute Transaction, we pay to the occurrence of such event and, in its discretion,Backstop Parties an aggregate break-up fee (to be allocated among the committee may provide for a cash payment to the holder of an award in consideration for the cancellation of such award.
Change of control
The 2007 Plan provides that in the event of a change of control of the company any options and SARs outstanding as of the date the change of control is determined to have occurred will become fully exercisable and vested, as of immediately prior to the change of control; all performance units will be paid out as if the date of the change of control were the last day of the applicable performance period and ‘‘target’’ performance levels had been attained; and all other outstanding awards will automatically be deemed exercisable or vested and all restrictions and forfeiture provisions related thereto will lapse as of immediately prior to such change of control.
Unless otherwise provided pursuant to an award agreement, a change of control is defined to mean any of the following events, generally:
Term of the 2007 Plan
No award may be granted under the 2007 Plan after the tenth anniversary of the date the 2007 Plan was approved by our stockholders.
Principal stockholders
The following tables set forth information with respect to the beneficial ownership of our common stock before and after the completion of this offering, as adjusted to reflect the recapitalization, by:
Beneficial ownership is determinedBackstop Parties in accordance with their relative Backstop Commitments) in cash equal to $350,000. We will also be required to repay all amounts owed under the SEC rulesBridge Loan Agreement and includes voting or investment power with respect to the securities.
The data set forth below gives effect to the recapitalizationSubordinated Debt Agreement and assumes that the shares issued by us in this offering are issued at the mid-point of the price range on the cover page of this prospectus, assumes that the underwriters’ over-allotment option is not exercised and makes an assumption as to a closing date.
Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse.
Unless otherwise indicated, the address forsatisfy all beneficial owners is c/o BioFuel Energy Corp., 1801 Broadway, Suite 1060, Denver, Colorado 80202.
Shares beneficially owned after the recapitalization and prior to the offering | Shares beneficially owned after the offering | |||||||||||||||||||||||||||||||||||
Name of beneficial owner | Number of shares of common stock | Number of shares of Class B common stock | Percentage of total voting power | Number of shares of common stock | Number of shares of Class B common stock | Percentage of total voting power | ||||||||||||||||||||||||||||||
Greenlight Capital, Inc. and its affiliates 2 Grand Central Tower 140 East 45th Street 24th Floor New York, NY 10017(1) | 4,768,044 | 4,077,052 | 38.5 | 4,768,044 | 4,077,052 | 27.2 | ||||||||||||||||||||||||||||||
Third Point funds 390 Park Avenue 18th Floor New York, NY 10022(2) | — | 4,422,547 | 19.2 | — | 4,422,547 | 13.6 | ||||||||||||||||||||||||||||||
Cargill, Incorporated PO Box 9300 Minneapolis, MN 55440-9300 | — | 1,618,975 | 7.0 | — | 1,618,975 | 5.0 | ||||||||||||||||||||||||||||||
Thomas J. Edelman(3) | — | 3,433,817 | 14.9 | — | 3,433,817 | 10.6 | ||||||||||||||||||||||||||||||
Scott H. Pearce | — | 1,154,141 | 5.0 | — | 1,154,141 | 3.6 | ||||||||||||||||||||||||||||||
David J. Kornder(4) | — | 131,645 | 0.6 | 22,059 | 131,645 | 0.5 | ||||||||||||||||||||||||||||||
Daniel J. Simon | — | 1,079,936 | 4.7 | — | 1,079,936 | 3.3 | ||||||||||||||||||||||||||||||
Timothy S. Morris(5) | — | 16,907 | 0.1 | 11,765 | 16,907 | 0.1 | ||||||||||||||||||||||||||||||
JonAlan C. Page(6) | — | 37,333 | 0.2 | 11,765 | 37,333 | 0.2 | ||||||||||||||||||||||||||||||
Michael N. Stefanoudakis(7) | — | 28,488 | 0.1 | 13,235 | 28,488 | 0.1 | ||||||||||||||||||||||||||||||
Eric D. Streisand | — | 113,955 | 0.5 | — | 113,955 | 0.4 | ||||||||||||||||||||||||||||||
David Einhorn(8) | — | — | 0.0 | 7,500 | — | 0.0 | ||||||||||||||||||||||||||||||
Daniel S. Loeb(9) | — | 212,282 | 0.9 | 7,500 | 212,282 | 0.7 | ||||||||||||||||||||||||||||||
Alexander P. Lynch(10) | — | — | — | 7,500 | — | 0.0 | ||||||||||||||||||||||||||||||
All Directors and executive officers as a group (11 persons)(11) | 4,768,044 | 14,469,286 | 83.6 | 4,849,368 | 14,469,286 | 59.4 | ||||||||||||||||||||||||||||||
BioFuel Energy, LLC limited liability company agreement
At the time of formation of the LLC, our founders agreed with certain of our principal stockholders as toobligations under the relative ownership interests in the company of our management members and affiliates of Greenlight Capital, Inc. and Third Point LLC. Certain management members and affiliates of Greenlight Capital, Inc. and Third Point LLC agreed to exchange LLC membership interests, shares of common stockCargill Letter on or cash at a future date, referred to as the ‘‘true-up date’’, depending on the company’s performance. This provision functions by providing management with additional value if the company’s value improves and by reducing management’s interest in the company if its value decreases. In particular, if the value of the company increases between completion of this offering and the ‘‘true-up date’’, the management members will be entitled to receive LLC membership interests, shares of common stock or cash fr om the affiliates of Greenlight Capital, Inc. and Third Point LLC. On the other hand, if the value of the company decreases between completion of this offering and the ‘‘true-up date’’, the affiliates of Greenlight Capital, Inc. and Third Point LLC will be entitled to receive LLC membership interests or shares of common stock from the management members.
The ‘‘true-up date’’ will bebefore the earlier of (1)February 1, 2011 and the closing date on whichof such Substitute Transaction.
Certain relationships and related party transactions
Issuances of equity interests to our promoters, executive officers, directors and principal stockholders
The LLC has issued profit sharing membership interests to each of Thomas J. Edelman, Scott H. Pearce, Daniel J. Simon and Irik P. Sevin for their services in founding and organizing the company. The LLC also issued profit sharing membership interests to Messrs. Simon and Pearce in consideration for their interests in BioFuel Solutions Delaware. In addition, the LLC has issued profit sharing membership interests to each of Messrs. Edelman, Pearce, Simon, Streisand, Page, Stefanoudakis, Huffman, Kornder and Morris in consideration for their services as our executive officers. A summary of these issuances is presented in the table below:
Founder/Executive | Date of Issuance | C units | D units | M units | Total LLC units attributable to C, D and M units following the recapitalization | ||||||||||||||||||||||
Thomas J. Edelman | 5/1/06 | 899,500 | 299,833 | 100,000 | 1,740,137 | ||||||||||||||||||||||
6/30/06 | 19,218 | 5,925 | 5,000 | ||||||||||||||||||||||||
8/4/06 | 2,315 | 714 | — | ||||||||||||||||||||||||
9/14/06 | 41,223 | 13,741 | — | ||||||||||||||||||||||||
4/19/07 | 5,253 | 917 | |||||||||||||||||||||||||
Scott H. Pearce | 5/1/06 | 542,500 | 180,833 | 125,000 | 1,154,141 | ||||||||||||||||||||||
6/30/06 | 9,705 | 3,729 | 10,000 | ||||||||||||||||||||||||
8/4/06 | 1,169 | 449 | — | ||||||||||||||||||||||||
9/14/06 | 78,723 | 26,241 | — | ||||||||||||||||||||||||
4/19/07 | 5,252 | 918 | |||||||||||||||||||||||||
Daniel J. Simon | 5/1/06 | 542,500 | 180,833 | 125,000 | 1,079,936 | ||||||||||||||||||||||
6/30/06 | 8,773 | 3,418 | 10,000 | ||||||||||||||||||||||||
8/4/06 | 1,057 | 412 | — | ||||||||||||||||||||||||
9/14/06 | 78,723 | 26,241 | — | ||||||||||||||||||||||||
4/19/07 | 5,252 | 918 | |||||||||||||||||||||||||
Irik P. Sevin | 5/1/06 | 220,500 | 73,500 | 25,000 | 524,322 | ||||||||||||||||||||||
6/30/06 | 5,879 | 1,453 | 25,000 | ||||||||||||||||||||||||
8/4/06 | 708 | 175 | — | ||||||||||||||||||||||||
Eric D. Streisand | 7/18/06 | 75,000 | 25,000 | — | 113,955 | ||||||||||||||||||||||
JonAlan C. Page | 7/18/06 | 18,750 | 6,250 | — | 28,488 | ||||||||||||||||||||||
Michael N. Stefanoudakis | 9/11/06 | 15,000 | 5,000 | — | 28,488 | ||||||||||||||||||||||
4/19/07 | 3,750 | 1,250 | |||||||||||||||||||||||||
William W. Huffman | 9/14/06 | 9,375 | 3,125 | — | 14,244 | ||||||||||||||||||||||
David J. Kornder | 2/9/07 | 75,000 | 25,000 | — | 113,955 | ||||||||||||||||||||||
Timothy S. Morris | 2/26/07 | 10,000 | 5,000 | — | 16,907 | ||||||||||||||||||||||
In addition, each of Greenlight Capital, Inc., the Third Point funds, Mr. Edelman and Mr. Loeb acquired A units in exchange for the capital commitments presented in the table below. The investment amount was paid to the LLC over five capital calls from May to August of 2006.
Investor | Date of issuance | A units | Investment amount | ||||||||||||
Greenlight Capital, Inc. and its affiliates (1) | 5/1/06 | 5,000,000 | $ | 50,000,000 | |||||||||||
Third Point funds (2) | 5/1/06 | 2,314,000 | $ | 23,140,000 | |||||||||||
Thomas J. Edelman | 5/1/06 | 875,000 | $ | 8,750,000 | |||||||||||
Daniel S. Loeb | 5/1/06 | 120,000 | $ | 1,200,000 | |||||||||||
BioFuel Partners, LLC (3) | 6/30/06 | 157,500 | $ | 1,575,000 | |||||||||||
On September 27, 2006, Cargill acquired an aggregate of 950,000 B units in exchange for a capital contribution of $9,500,000.
Immediately prior to the consummation of this rights offering upon the occurrence of any of the following: (i) the termination of the Bridge Loan Agreement; (ii) us entering into a definitive agreement with respect to a Substitute Transaction; (iii) the Greenlight Parties, in their reasonable judgment, determining that the conditions to the Backstop Parties’ obligations are incapable of being satisfied by January 24, 2011; (iv) there having occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or properties of us and our subsidiaries, taken as a whole; (v) the breach of any covenant or other provision of the Rights Offering Letter Agreement by us that has occurred and cannot be cured or satisfied with the passage of time or, if capable of being cured or satisfied, cannot be cured or satisfied prior to March 24, 2011; (vi) our common stock no longer being listed on a national securities exchange; or (vii) our adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy.
Other transactions with our promoters
In addition to the issuances of equity interests described above, we have entered into the following transactions with our promoters. On September 25, 2006, upon the closing of our bank facility and subordinated loan agreement, the LLC paid Mr. Sevin a transaction fee of $550,000. In
addition, Mr. Sevin received a monthly salary of $20,000 from April 28, 2006 to July 18, 2006 as compensation for services rendered as Managing Director — Corporate Development of BioFuel Energy, LLC. Mr. Sevin resigned as an employee effective July 18, 2006, and was retained as an advisor. From August 2006 through and including February 2008, Mr. Sevin will receive a monthly advisory fee of $20,000.
Transactions with Greenlight and Third Point
Pursuant to our subordinated loan agreement, certain affiliates of Greenlight Capital, Inc. and Third Point LLC will be providing subordinated financing in amounts up to $33,333,333 and $16,666,667, respectively. Borrowings under our subordinated loan agreement will bear interest at a fixed annual rate of 15.0%. For a description of the terms of this financing, see ‘‘Description of indebtedness — Subordinated loan agreement’’. We paid the lenders an initial aggregate fee of $2,500,000 and have agreed to pay takedown fees equal to 5.0% of the principal amount of each borrowing made under the subordinated loan agreement. Upon completion of this offering, we intend to use a portion of the net proceeds of this offering to repay any outstanding indebtedness under our subordinated loan agreement and will permanently terminate the subordinated loan agreement.
Transactions with Cargill
We expect Cargill will be the owner of more than 5% of the voting power
In September 2006, we entered intosymbol “BIOF.”
Cargill has made an equity investment in our company through its wholly-owned subsidiary, Cargill Biofuels Investments, LLC. Undersubscription rights nor the terms of an agreement with us, Cargill has the right to terminatedepositary shares will be listed for trading on any or all of our arrangements with it for any or all of our facilities if any of five designated parties or their affiliates acquires 30% or more of our voting securities or the power to elect a majority of our Board. Cargill has designated five parties, each of which is currently engaged primarily in the agricultural commodities business, and it has the right to annually update this list of identified parties, so long as the list does not exceed five entities and the affiliates of such entities.
For a discussion of our commercial contracts and our relationship with Cargill and certain risks associated therewith, see ‘‘Business’’ and ‘‘Risk factors’’.
Transactions with TIC
Daniel J. Simon, our Executive Vice President and Chief Operating Officer, served as the Vice President of International Business Development of TIC from 2003 to 2005. In 2004, Mr. Simon led TIC’s Renewable Energy Development subsidiary and co-founded and served as the executive sponsor of TIC’s joint venture with Delta-T from June 2004 to December 2005.
In October 2005, BioFuel Solutions Delaware purchased TIC’s 73% interest in Bio Fuel Solutions Colorado for $150,000 in the form of a promissory note plus additional consideration of $420,000 contingent on completion of certain projects. On June 30, 2006, BioFuel Solutions Delaware paid off the promissory note payable to TIC in the amount of $150,000. BioFuel Solutions Delaware received $120,000 from TIC in 2005 and $120,000 in the first four months of 2006 as reimbursement for expenditures made toward the development of the Wood River plant.
Transactions regarding BioFuel Solutions Delaware
From October 2005 to August 2006, Ethanol Business Group, LLC, or EBG, held a 30% interest in BioFuel Solutions Delaware. EBG was not affiliated with our officers or Directors. The remaining 70% interest in BioFuel Solutions Delaware was held by Scott H. Pearce and Daniel J. Simon. In August 2006, EBG transferred its interest in BioFuel Solutions Delaware to the LLC in exchange for cash in the amount of $1,500,000 and 25,000 A Units. As part of the consideration for this transfer, Mr. Edelman transferred 75,000 A Units to EBG and Messrs. Pearce and Simon each transferred 75,000 C Units to Mr. Edelman.
On September 22, 2006, the 70% interest in BioFuel Solutions Delaware that was held by Messrs. Pearce and Simon was transferred to the LLC in exchange for 467,500 C Units and 180,833 D Units in addition to cash reimbursement for expenditures made on behalf of BioFuel Solutions Delaware in the aggregate amount of $1,750,000.
Registration rights agreement
We will enterour initial public offering, we entered into a registration rights agreement pursuant to which we may be required to register the sale of shares of our common stock held by the Backstop Parties and our other historical equity investors (or to be acquired by such investors upon exchange of their membership interests in the LLC for shares of our common stock) and certain of their transferees. Under the registration rights agreement, under certain circumstances and subject to certain restrictions, our historical equity investors will have the right to request us to register the sale of their shares and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period.
Tax benefit sharing agreement
As described in ���‘Organizational structure’’, membership interests held byrespect of any depositary shares that they acquire in this rights offering (or the Backstop Parties acquire upon exercise of their Backstop Commitment) following conversion of the Series A Non-Voting Convertible Preferred Stock, (ii) the Backstop Parties and our other historical LLC equity investors in respect of any membership interests in the LLC that are issued to them following conversion of any preferred membership interests in the LLC that they acquire in the LLC’s concurrent private placement (or the Backstop Parties acquire upon exercise of their Backstop Commitment) and (iii) the Backstop Parties in respect of the warrants that may be exchangedissued to them in the futureevent that the Bridge Loan is not paid in full on or prior to March 24, 2011.
We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits between the company and the
historical LLC equity investors. Under this agreement, BioFuel will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a resultexpiration date of this increase in tax basis. BioFuel and its common stockholders will benefit from the remaining 15%rights offering.
Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our historical LLC equity investors will not reimburse us for any payments previously made under the tax benefit sharing agreement. As a result, in certain circumstances we could make payments to our historical LLC equity investors under the tax benefit sharing agreement in excess of our cash tax savings. Our historical LLC equity investors will receive 85% of our cash tax savings, leaving us with 15% of the benefits of the tax savings. While the actual amount and timing of any payments under the tax benefit sharing agreement will vary depending upon a number of factors, including the timing of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that, as a result of the size of the increases of the tangible and intangible assets of the LLC attributable to our interest in the LLC, during the expected term of the tax benefit sharing agreement, the payments that we may make to our historical LLC equity investors could be substantial.
Amended BioFuel Energy, LLC limited liability company agreement
BioFuel Energy Corp. will, through the LLC and its subsidiaries, operate our business. As the managing member of the LLC, BioFuel Energy Corp. will have unilateral control over all the affairs and decision making of the LLC. As such, BioFuel Energy Corp., through our officers and Directors, will be responsible for all operational and administrative decisions of the LLC and the day-to-day management of the LLC’s business. Furthermore, BioFuel Energy Corp. cannot be removed as the managing member of the LLC without its approval.
Pursuant to the limited liability company agreement of the LLC, BioFuel Energy Corp. will have the right to determine when distributions will be made to the members of the LLC and the amounts of any such distributions. If BioFuel Energy Corp. authorizes a distribution, such distribution will be made to the members of the LLC (1) in the case of a tax distribution (as described below), to the holders of membership interests in proportion to the amount of taxable income of the LLC allocated to such holder and (2) in the case of other distributions, pro rata in accordance with the percentages of their respective membership interests.
The holders of membership interests in the LLC, including BioFuel Energy Corp., will incur U.S. federal, state and local income taxes on their proportionate shares of any net taxable income of the LLC. Net profits and net losses of the LLC will generally be allocated to its members pro rata in accordance with the percentages of their respective membership interests. The limited liability company agreement will provide for cash distributions to the members of the LLC if BioFuel Energy Corp. determines that the taxable income of the LLC will give rise to taxable income for its members. In accordance with the limited liability company agreement, we intend to cause the LLC to make cash distributions to the holders of membership interests of the LLC for purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the LLC a llocable to such holder of membership interests multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income).
All members of the LLC will hold the same class of membership interests. Holders of membership interests in the LLC (other than BioFuel Energy Corp.) may exchange these membership interests for shares of our common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. At any time a share of common stock is redeemed, repurchased, acquired, cancelled or terminated by us, one membership interestthat are registered in the name of BioFuel Energy Corp.a broker, dealer, custodian bank or other nominee and you wish to exercise your subscription rights, you should instruct your broker, dealer, custodian bank or other nominee to exercise your subscription rights and deliver all documents and payment on your behalf prior to 5:00 p.m., New York City time, on the expiration date. We will automaticallyask your record holder to notify you of this rights offering. You should complete and return to your record holder the appropriate subscription documentation you receive from your record holder. Your subscription rights will not be cancelled byconsidered exercised unless the LLC so thatsubscription agent receives from your broker, dealer, custodian bank or other nominee all of the required documents and your full subscription payment prior to 5:00 p.m., New York City time, on the expiration date.
By Mail: | By Hand or Overnight Courier: |
BNY Mellon Shareowner Services | BNY Mellon Shareowner Services |
Attn: Corporate Actions Dept. | Attn: Corporate Actions, 27th Floor |
P.O. Box 3301 | 480 Washington Blvd |
South Hackensack, NJ 07606 | Jersey City, NJ 07310 |
The LLCthat are registered in the name of a broker, dealer, custodian bank or other nominee, your subscription rights are exercised on your behalf by your nominee, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you subsequently learn information about us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish to purchase depositary shares.
Except as otherwise provided by law,connection with your participation in this rights offering. See “Material U.S. Federal Income Tax Consequences.”
A holder of LLC membership interests will not be permitted to transfer its membership interests except (1)investing in the case of an individual, to immediate family members or to trusts or other entities in which all the beneficial interests are held by the individual or immediate family members and (2) in the case of entities, to affiliates.
Review, approval or ratification of transactions with related persons
Our Board of Directors reviews and pre-approves transactions we may enter into with our Directors, executive officers, principal stockholders or persons affiliated with our Directors, executive officers or principal stockholders. While we do not have formal procedures for these reviews, our Board of Directors evaluates and considers these transactions individually on a facts and circumstances basis. Furthermore, our code of business conduct and ethics will require Directors and executive officers to disclose any transaction with us in which they may have a direct or indirect interest. We believe that each of the commercial transactions described above was on terms at least as favorable to us as those that we could have negotiated with a third party.
Capital Stock
Bank facility
In September 2006, certain of our subsidiaries entered into a $230 million bank facility with BNP Paribas and a syndicate of lenders. BioFuel Energy Corp. is not a party to the bank facility and has no obligation under the facility other than the pledge of its equity interest in the subsidiaries that are parties to the facility. The facility consists of non-amortizing construction loans, which will convert into term loans, and working capital loans.
Up to $100.7 million and $109.3 million in construction loans are available for the development, financing and construction of our Wood River and Fairmont plants, respectively. Excess loan funds with respect to one of these plants may be applied to the development, financing and construction of the other plant. Upon completion of this offering, and subject to lender consent, borrowings under our bank facility may be applied to the development, financing and construction of one or more of our additional ethanol plants under development. Once repaid, the construction loans may not be reborrowed in whole or in part.
The outstanding construction loans will convert into term loans maturing in September 2014, if certain conditions precedent, including the completion of our Wood River and Fairmont plants, are satisfied prior to June 2009. Any unconverted construction loans otherwise mature in June 2009.
Working capital loans of up to $20 million will be available to pay the operation and maintenance expenses of the Wood River and Fairmont plants, or alternative plants, as the case may be, with up to $5 million becoming available upon mechanical completion of a plant, up to $10 million becoming available upon provisional acceptance of a plant and up to $20 million becoming available upon conversion of the construction loans to term loans. The working capital loans will mature in September 2010 or, with consent from two-thirds of the lenders, in September 2011. A portion of the working capital facility will be available to us in the form of letters of credit.
Although the material conditions precedent to borrowing have been satisfied, our ability to borrow under our bank facility remains subject to the satisfactionterms of a number of additional conditions precedent, including the provision of engineers’, market consultants’ and environmental reports and legal opinions, in each case satisfactory to the lenders. To the extent that we are not able to satisfy these requirements, we will not be able to borrow under the bank facility without obtaining a waiver or consent from the lenders, which could result in a delay of our construction.
Our bank debt is secured by a first-priority lien on all of our rights, titles and interests in our Wood River and Fairmont plants and any accounts or property associated with those plants. As of March 31, 2007, no bank debt was outstanding.
Interest rates
The interest rates on our bank loans will be, at our option, (a) a base rate equal to the higher of (i) the federal funds effective rate plus 0.5% and (ii) BNP Paribas’s prime rate, in each case, plus 2.0% or (b) a Eurodollar rate equal to LIBOR adjusted for reserve requirements plus 3.0%.
Interest periods for loans based on a Eurodollar rate will be, at our option, one, three or six months, or, if available, nine or twelve months. Accrued interest is due quarterly in arrears for base rate loans, on the last date of each interest period for Eurodollar loans with interest periods of one or three months, and at three month intervals for Eurodollar loans with interest periods in excess of three months. Overdue amounts will bear additional interest at a default rate of 2.0%.
Subject to certain restrictions, we may convert the principal amount of base rate loans to Eurodollar loans and the principal amount of Eurodollar loans to base rate loans.
Amortization
The term loans under our bank facility will amortize in an amount equal to 6.0% of the outstanding principal amount thereof per annum.
Mandatory and voluntary prepayments
Subject to certain restrictions, we may pre-pay the term loans without premium or penalty. In addition, under certain circumstances we are required to make mandatory pre-payments without premium or penalty in the amount of (i) liquidated damages received under EPC contracts or termination payments received under other project documents, (ii) insurance proceeds or other payments for any destruction or loss of property (other than our leased grain facilities) in excess of $5 million, (iii) disposition of property in excess of $500,000 (other than ethanol and distillers grain), (iv) on each principal payment date, an excess cash flow amount described below and (v) the entire outstanding amount of the loans in the event of certain change in control events relating to the Wood River and Fairmont plants or Cargill’s ownership of our common stock. We will be required to deposit at least 40% of our cash flow (or 75% of our cash flow if the volumetric ethanol excise tax credit is not extended by June 30, 2009, or is scheduled to expire less than 18 months from any date after June 30, 2009) into an excess cash flow account, plus additional amounts necessary to meet outstanding target balance amounts under our bank facility. We may also be required to deposit additional amounts into this account if historical debt service coverage ratios are not met.
Covenants
The bank facility contains customary covenants and other requirements. The affirmative covenants provide for, among other requirements, periodic delivery of financial statements, budgets and other information, including notices of certain events and conditions. We are also required to maintain certain hedging agreements. In addition, we are required, among other things, to maintain insurance and comply with applicable laws and material contracts.
The bank facility contains negative covenants, which, among other things, limit the applicable subsidiaries’ ability to:
Events of default
The bank facility contains customary events of default, including, but not limited to:
Fees and expenses
We are required to pay certain fees in connection with our bank facility, including a commitment fee equal to 0.50% per annum on the daily average unused portion of the construction loans and working capital loans and letter of credit fees.
Subordinated loan agreement
In September 2006, the LLC entered into a subordinated loan agreement with certain affiliates of Greenlight Capital, Inc. and Third Point LLC. The subordinated loan agreement provides for up to $50 million of non-amortizing loans, all of which must be used for general corporate purposes, working capital or the development, financing and construction of our Wood River and Fairmont plants. The entire principal balance, if any, plus all accrued and unpaid interest will be due in March 2015.
The payments due under our subordinated loan agreement are secured by the subsidiary equity interests owned by the LLC and are fully and unconditionally guaranteed by the subsidiaries that will own our Wood River and Fairmont plants and the other subsidiaries of BioFuel Energy Corp. The guarantees are subordinated to the obligations of these subsidiaries under our bank facility.
As of March 31, 2007, $18 million of subordinated debt was outstanding. We expect to incur up to an additional $32 million in subordinated borrowings by May 31, 2007. Upon consummation of this offering, we intend to repay any outstanding subordinated debt and terminate the subordinated loan agreement. See ‘‘Use of proceeds’’.
Interest rates
Interest on outstanding subordinated borrowings will accrue at a rate of 15.0% per annum, compounded quarterly, and will be due on the last day of each calendar quarter. If an event of default occurs, that is not cured or waived, interest will accrue at a rate of 17.0% per annum.
Fees and expenses
We are required to pay certain fees in connection with our subordinated loan agreement. An initial fee of $2.5 million was paid in September 2006. Takedown fees equal to 5.0% of any subordinated borrowings will be paid at the time such borrowings are made.
Tax increment financing
We have entered into an arrangement with the City of Wood River pursuant to which the City of Wood River has issued approximately $6.0 million in tax increment financing notes, or TIF notes, maturing in 2021, and bearing interest at an initial rate of 7.85%, subject to reset every five years, based upon specified prevailing market rates. The subsidiary constructing our Wood River plant is obligated to service and repay the TIF notes through property tax payments we make to the City of Wood River over the fifteen-year term of the TIF notes. The amount of the property tax payments will be based on the value of our land and buildings in Wood River. The TIF notes are guaranteed by the LLC.
Description of capital stock
The following describes our common stock, Classclass B common stock, preferred stock, Series A Non-Voting Convertible Preferred Stock, depositary shares, LLC membership interests, LLC preferred membership interests, certificate of incorporation and bylaws that will be in effect following the recapitalization, which will take place immediately prior to this offering. We encourage you to read the complete text of our certificate of incorporation, bylaws and LLC Agreement, which we will file as exhibits to the registration statement of which this prospectus is a part. These documents will become effective at the time of the recapitalization without substantive change.
bylaws.
Assuming a share price at the mid-point of the price range on the cover page of this prospectus, ourCapital
share.
Stock
Stock
Common Stock
Holders of our common stock and Classclass B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.
Stock
· | authorize or issue additional shares of Series A Non-Voting Convertible Preferred Stock of the same series (provided that no such approval shall be required in respect of any shares of Series A Non-Voting Convertible Preferred Stock to be authorized and issued in connection with the Cargill Stock Payment); |
· | authorize or issue any other series of preferred equity securities which are senior or on parity with respect to liquidation or dividend payments to the Series A Non-Voting Convertible Preferred Stock; or |
· | amend our certificate of incorporation and bylaws if the amendment would adversely affect the rights, preferences or privileges of the holders of the Series A Non-Voting Convertible Preferred Stock. |
· | upon deposit of the global security with the depositary as DTC’s custodian, DTC will credit portions of the global security to the accounts of the DTC participants designated by the subscription agent; and |
· | ownership of beneficial interests in the global security will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the global security). |
· | a limited purpose trust company organized under the laws of the State of New York; |
· | a “banking organization” within the meaning of the New York State Banking Law; |
· | a member of the Federal Reserve System; |
· | a “clearing corporation” within the meaning of the Uniform Commercial Code; and |
· | a “clearing agency” registered under Section 17A of the Exchange Act. |
global security for all purposes under the deposit agreement. Except as provided below, owners of beneficial interests in the global security:
· | will not be entitled to have securities represented by the global security registered in their names; |
· | will not receive or be entitled to receive physical, certificated securities; and |
· | will not be considered the owners or holders of the securities under the deposit agreement for any purpose, including with respect to the giving of any direction, instruction or approval to the depositary under the deposit agreement. |
· | DTC notifies us at any time that it is unwilling or unable to continue as depositary for the global security and a successor depositary is not appointed within 90 days; or |
· | DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days. |
Holders of in the LLC membership interests willdo not have any voting rights in the LLC. They will,are, however, be entitled to pro rata economic benefits in the LLC, including the right to receive distributions authorized by the Manager,distributions, including distributions to fund tax liabilities. Upon a dissolution, liquidation or winding up of the LLC, after payment in full of all amounts required to be paid to creditors, holders of LLC membership interests will be entitled to share in the remaining assets of the LLC assets available for distribution. Holders of membership interests in the LLC (other than BioFuel Energy Corp.) may exchange their membership interests for shares of our common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Holders of membership interests (other than BioFuel Energy Corp.) also hold one share of class B common stock for each membership interest held that entitles the holder to the rights described under “—Common Stock—Class B Common Stock.”
Anti-takeover effectsPreferred Membership Interests
to provide for the restriction on exchangeability of the membership interests in the LLC that such holders of class B preferred membership interests would receive upon conversion. Although the membership interests issuable upon conversion of the class B preferred membership interests will not be exchangeable for shares of our common stock, our board of directors and the holders thereof may, in the future, agree to any such exchange.
Stockholders
Notice Procedures
candidates for election to the Boardboard of Directors.directors. Stockholders at an annual meeting will be able to consider only proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the Boardboard of Directorsdirectors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretarysecretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the bylaws willdo not give the Boardboard of Directorsdirectors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise atte mptingattempting to obtain control of BioFuel Energy Corp.
Unissued Shares
Law
any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three years immediately prior to the date of determination; and |
the affiliates and associates of any such person. |
Limitations on liability
Management
damages for breaches of directors’ fiduciary duties. Our certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a directorfollowing tables set forth information with respect to the fullest extent authorized by the DGCL. The DGCL does not permit exculpation for liability:
Our certificate of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by law. We are also expressly authorized to carry directors’ and officers’ insurance providing indemnification for our directors, officers and certain employees and agents for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our certificate of incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, may otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Registration rights
For a description of the registration rights that will be held by our historical equity investors following the recapitalization and this offering, see ‘‘Shares eligible for future sale — Registration rights’’.
Transfer agent and registrar
The transfer agent and registrar for our common stock and class B common stock as of November 12, 2010, by:
· | each person who is known by us to beneficially own 5% or more of any class of our outstanding shares of common stock; |
· | each member of our board of directors who beneficially owns any class of shares of our common stock; |
· | each of our executive officers; and |
· | all members of our board of directors and our executive officers as a group. |
Nasdaq listing
We have applieddetermined in accordance with the SEC rules and includes voting or investment power with respect to havethe securities. Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse.
Beneficial Owner | Number of Shares of Common Stock | Number of Shares of Class B Common Stock | Options Exercisable | Total Number of Shares Beneficially Owned | Percentage of Common Stock Outstanding | |||||||||||||||
Greenlight Capital, Inc. and its affiliates 2 Grand Central Tower 140 East 45th Street, 24th floor New York, NY 10017 (1) | 7,542,104 | 4,311,396 | — | 11,853,500 | 36.4 | % | ||||||||||||||
Third Point Funds 390 Park Avenue, 18th floor New York, NY 10022 (2) | 5,803,284 | — | — | 5,803,284 | 17.8 | % | ||||||||||||||
Cargill, Incorporated P.O. Box 9300 Minneapolis, MN 55440 | 1,675,596 | — | — | 1,675,596 | 5.1 | % | ||||||||||||||
Thomas J. Edelman (3) | 2,090,093 | 1,352,811 | — | 3,442,904 | 10.6 | % | ||||||||||||||
Scott H. Pearce (4) | 465,416 | 478,837 | 45,000 | 989,253 | 3.0 | % | ||||||||||||||
Kelly G. Maguire (5) | 42,000 | — | 70,500 | 112,500 | * | |||||||||||||||
Mark L. Zoeller (6) | — | — | 21,000 | 21,000 | * | |||||||||||||||
Elizabeth K. Blake (7) | 7,500 | — | 15,000 | 22,500 | * | |||||||||||||||
David Einhorn (8) | 12,500 | — | 15,000 | 27,500 | * | |||||||||||||||
Richard I. Jaffee (9) | 7,500 | — | 15,000 | 22,500 | * | |||||||||||||||
John D. March (10) | 7,500 | — | 15,000 | 22,500 | * | |||||||||||||||
Mark W. Wong (11) | 7,500 | — | 135,000 | 142,500 | * | |||||||||||||||
All Directors and Executive Officers as a group, 8 persons (12) | 8,092,020 | 4,790,233 | 331,500 | 13,213,753 | 42.2 | % |
* | less than 1% |
(1) | Greenlight Capital, Inc. (“Greenlight Inc.”) is the investment manager for Greenlight Capital Offshore Partners, and as such has voting and dispositive power over 5,221,530 shares of common stock held by Greenlight Capital Offshore Partners. Greenlight Capital, L.L.C. (“Greenlight L.L.C.”) is the sole general partner of Greenlight Capital, L.P. and Greenlight Capital Qualified, L.P., and as such has voting and dispositive power over 574,226 shares of common stock and 3,885,970 shares of class B common stock held by Greenlight Capital, L.P. and Greenlight Capital Qualified, L.P. DME Advisors, LP (“DME Advisors”) is the investment manager for Greenlight Reinsurance, Ltd., and as such has voting and dispositive power over 1,447,443 shares of common stock held by Greenlight Reinsurance, Ltd. DME Management GP, LLC (“DME Management GP”) is the sole general partner of Greenlight Capital (Gold), LP, and as such has voting and dispositive power over 61,450 shares of common stock and 425,426 shares of class B common stock held by Greenlight Capital (Gold), LP. DME Capital Management, LP (“DME Management”) is the investment manager for Greenlight Capital (Gold), LP, and Greenlight Capital Offshore Master (Gold), Ltd., and as such has voting and dispositive power over 298,905 shares of common stock and 425,426 shares of class B common stock held by Greenlight Capital (Gold), LP and Greenlight Capital Offshore Master (Gold), Ltd. DME Advisors GP, LLC (“DME GP”) is the general partner of DME Advisors and DME Management, and as such has voting and dispositive power over 1,746,348 shares of common stock and 425,426 shares of class B common stock. David Einhorn, one of our directors, is the principal of Greenlight Inc., Greenlight L.L.C., DME Advisors, DME Management GP, DME Management and DME GP, and as such has sole voting and sole dispositive power over 7,542,104 shares of common stock and 4,311,396 shares of class B common stock held by these affiliates of Greenlight, Inc. Mr. Einhorn disclaims beneficial ownership of these shares, except to the extent of any pecuniary interest therein. |
(2) | Includes shares held of record by Third Point Offshore Master Fund, L.P., Third Point Partners LP, Third Point Partners Qualified LP and Third Point Ultra Master Fund L.P., which are investment funds managed by Third Point LLC, and 224,484 shares held by an individual we believe to be affiliated with Third Point LLC. |
(3) | Includes 1,156,834 shares of class B common stock subject to forfeiture under the True-Up Agreement described in our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6, 2010, and 93,534 shares of common stock owned of record by Mr. Edelman’s wife, Ingrid O. Edelman, and trusts for the benefit of Mr. Edelman’s family members, of which he is a trustee. Mr. Edelman disclaims beneficial ownership of these shares of common stock, except to the extent of any pecuniary interest therein. |
(4) | Includes 338,434 shares of class B common stock held in escrow and subject to forfeiture under the True-Up Agreement described in our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6, 2010. Includes options to purchase 45,000 shares of common stock granted to Mr. Pearce under our compensation plan for employees. |
(5) | Includes options to purchase 70,500 shares of common stock granted to Mr. Maguire under our compensation program for employees. |
(6) | Includes options to purchase 21,000 shares of common stock granted to Mr. Zoeller under our compensation program for employees. |
(7) | Includes 7,500 shares of restricted common stock and options to purchase 15,000 shares of common stock granted to Ms. Blake under our compensation program for non-employee directors. |
(8) | Includes 12,500 shares of restricted common stock and options to purchase 15,000 shares of common stock granted to Mr. Einhorn under our compensation program for non-employee directors. Includes only shares of common stock held directly by Mr. Einhorn. See note 1. |
(9) | Includes 7,500 shares of restricted common stock and options to purchase 15,000 shares of common stock granted to Mr. Jaffee under our compensation program for non-employee directors. |
(10) | Includes 7,500 shares of restricted common stock and options to purchase 15,000 shares of common stock granted to Mr. March under our compensation program for non-employee directors. |
(11) | Includes 7,500 shares of restricted common stock and options to purchase 135,000 shares of common stock granted to Mr. Wong under our compensation program for non-employee directors. |
(12) | Includes shares held by Greenlight Capital, Inc., which is controlled by our director, Mr. Einhorn. |
Shares eligible for future sale
Priormembership interests in BioFuel Energy, LLC of the LLC purchase privileges to this offering, there has been no public market forpurchase preferred membership interests granted in connection with the LLC’s concurrent private placement. This discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular holder’s ownership of subscription rights, depositary shares or shares of our common stock. Although we have applied for listing of theThis discussion applies only to holders that hold subscription rights, depositary shares and shares of our common stock on Nasdaq, we cannot assure you that a significant public marketas capital assets for our common stock will develop or be sustained. We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares, other than the shares sold in this offering, will be available for sale shortly after this offering due to contractualtax purposes and legal restrictions on resale. Sales of our common stock in the public market after the restrictions lapse, or the perception that these sales may occur, could cause the market price of our common stock to decline.
Upon completion of this offering, we expect to have 14,268,044 outstanding shares of common stock, (or 15,693,044 shares if the underwriters exercise their over-allotment option in full) and 18,231,956 outstanding shares of Class B common stock. Of these shares, the 9,500,000 shares sold in this offering, or 10,925,00 shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction under the Securities Act except for any shares purchased by one of our ‘‘affiliates’’ as defined in Rule 144 under the Securities Act. Alldoes not address all of the shares outstanding other thantax consequences that may be relevant to holders subject to special rules, such as:
· | regulated investment companies; |
· | real estate investment trusts; |
· | certain financial institutions; |
· | dealers and certain traders in securities or foreign currencies; |
· | insurance companies; |
· | persons holding subscription rights, depositary shares and shares of our common stock as part of a hedge, straddle, conversion transaction or integrated transaction; |
· | persons whose “functional currency” is not the U.S. dollar; |
· | persons liable for the alternative minimum tax; |
· | tax-exempt organizations; and |
· | persons holding subscription rights, depositary shares and shares of our common stock that own or are deemed to own 10% or more of our voting shares. |
In addition, upon consummation of this offering, our historical LLC equity investors will beneficially own membership interests in the LLC. Pursuantamended to the termsdate hereof (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, as of our certificate of incorporation, our historical LLC equity investors could from timethe date hereof. These laws are subject to time exchange their membership interests inchange, possibly with retroactive effect. The discussion does not address U.S. state, local and non-U.S. tax consequences.
Eligibility of restricted shares for sale in the public market
Rule 144
In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner other than an affiliate, and who files a Form 144 with respect to this sale, will be entitled to sell within any three month period a number of shares of common stock that does not exceed the greater of:
Sales under Rule 144 are also subject to restrictions relating to manner of salepartner and the availability of current public information about us.
Rule 144(k)
A person who is not deemed to have been our affiliate at any time during the 90 days immediately preceding a sale and who has beneficially owned his or her shares for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell
these shares of common stock pursuant to Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information or notice requirements of Rule 144. Affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied.
Lock-up agreements
For a descriptiontax treatment of the lock-up agreements with the underwriters that restrict sales ofpartnership. A partner in a partnership holding subscription rights, depositary shares by us, our executive officers and Directors and holders of substantially all of our outstanding capital stock, see ‘‘Underwriting’’.
Registration rights agreement
We will enter into a registration rights agreement pursuant to which we may be required to register the sale ofor shares of our common stock held by our historical equity investors (oris urged to consult its own tax advisor with regard to the U.S. federal income tax treatment of its investment.
Material United States federal tax consequencesfor non-United States stockholders
This is a general summary of material United StatesU.S. federal income and estate tax considerations with respect to your acquisition, ownership and disposition of common stock if you purchase your common stock in this offering, you hold the common stock as a capital asset and you are a beneficial owner of shares other than:
a citizen or resident of the United States; |
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision |
an estate or trust the income of which is subject to |
This summary does not address all
If a partnership holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock,your Original Shares, you should consult your own tax advisor.
WE URGE PROSPECTIVE NON-UNITED STATES STOCKHOLDERS TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME, AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF OUR COMMON STOCK.
Dividends
In general, any distributions we makeadvisor regarding the ability to you with respect torecognize a loss (if any) on the expiration of the subscription rights.
Dividends we pay
United States permanent establishment maintained by you) generally
Sale or other disposition of common stock
You generally will not be subject to United States federal income taxthereof) on any gain realized upon theon a sale or other disposition of your shares ofour common stock by you unless:
the gain is effectively connected with your conduct of a trade or business within the United States (and, |
you are an individual, you hold your shares of common stock as capital assets, you are present in the United States for 183 days or more in the taxable year of disposition and you meet other |
we are or have been a |
If you are described in the second bullet point above, you generally will be subject to United States federal income tax at a rate of 30% on the gain realized, although the gain may be offset by some United States source capital losses realized during the same taxable year.
Any
Information reporting and backupcash or property made with respect to our common stock generally will be subject to withholding
We must report annually tax to the IRS the amountextent paid out of dividends or other distributions we pay to you on your sharesour E&P, if any, at a rate of common stock and the amount of tax we withhold on these distributions regardless of whether withholding is required. The IRS may make copies of the information returns reporting those distributions and amounts withheld available to the tax authorities30% (or a lower rate prescribed in the country in which you reside pursuant to the provisions of an applicable income tax treaty or exchange of information treaty.
The United States imposestreaty). I
Information reporting and backup withholding generally are not required with respect to thestock. The amount of any proceeds from the sale of your shares of common stock outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if you sell your shares of common stock through a United States broker or the United States office of a foreign broker, the brokerbackup withholding will generally be required to report the amount of proceeds paid to you to the IRS and also backup withhold on that amount unless you provide appropriate certification (usually on an IRS Form W-8BEN) to the broker of your statusallowed as a non-United States personrefund or you are an exempt recipient. Information reporting (and backup withholding if the appropriate certification is not provided) will also apply if you sell your shares of common stock through a foreign broker deriving more than a specified percentage of its income from United States s ources or having certain other connections to the United States, unless such broker has documenting evidence in its records that you are a non-U.S. person and certain other conditions are met or you are an exempt recipient.
Any amounts withheld with respect to your shares of common stock under the backup withholding rules will be refunded to you or creditedcredit against your United StatesU.S. federal income tax liability, if any, by the IRS ifprovided that the required information is timely furnished in a timely manner.
Estate tax
Common stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) ofto the United States atIRS.
Underwriting
J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and A.G. Edwards & Sons, Inc. are acting as joint book-runners and joint lead managers, and Bear, Stearns & Co. Inc., and Cowen and Company, LLC are acting as co-managers for this offering.
Weany dividends and the underwriters named below have entered into an underwriting agreement covering the common stock to be sold in this offering. Each underwriter has severally agreed to purchase, and we have agreed to sell to each underwriter, the numberproceeds of shares of common stock set forth opposite its name in the following table.
The underwriting agreement provides that if the underwriters take any of the shares presented in the table above, then they must take all of the shares. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under limited circumstances. The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and our independent registered public accounting firm.
The underwriters are offering the shares of common stock, subject to the prior sale of shares, and when, as and if such shares are delivered to and accepted by them. The underwriters will initially offer to sell shares to the public at the initial public offering price shown on the front cover page of this prospectus. The underwriters may sell shares to securities dealers at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell shares to certainor other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering, the underwriters may vary the public offering price and other selling terms.
If the underwriters sell more shares than the total number shown in the table above, the underwriters have the option to buy up to an additional 1,425,000 shares of common stock from us to cover such sales. They may exercise this option during the 30-day period from the date of this prospectus. If any shares are purchased under this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The following table shows the per share and total underwriting discounts that we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.
The underwriters have advised us that they may make short salesdisposition of our common stock in connection with this offering, resulting inpaid after December 31, 2012 to (i) a foreign financial institution unless such foreign financial institution agrees to verify, report and disclose its U.S. account holders and meets certain other requirements or (ii) a non-financial foreign entity that is the sale bybeneficial owner of the underwriters of a greater number of shares than they are required to purchase pursuant to the underwriting agreement. The short position resulting from those short sales will be deemed a ‘‘covered’’ short position to the extentpayment unless such entity certifies that it does not exceedhave any substantial United States owners or provides the shares subjectname, address and taxpayer identification number of each substantial United States owner and such entity meets certain other requirements.
The underwriters have advised us that, pursuant to Regulation M under the Exchange Act, they may engage in transactions, including stabilizing bids or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the shares of common stock at a level above that which may otherwise prevail in the open market. A ‘‘stabilizing bid’’ is a bid for or the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A ‘‘penalty bid’’ is an arrangement permitting the underwriters to claim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by that underwriter or syndicate member is purchased by the underwriters in the open market pursuant to a stabilizing bid or to cover all or part of a syndicate short positi on. The underwriters have advised us that stabilizing bids and open market purchases may be effected on the Nasdaq Global Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
One or more of the underwriters may facilitate the marketing of this offering online directly or through one of its affiliates. In those cases, prospective investors may view offering terms and a prospectus online and, depending upon the particular underwriter, place orders online or through their financial advisor.
We estimate that our total expenses for this offering, excluding underwriting discounts, will be approximately $3.1 million.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We, our executive officers and Directors and the holders of substantially all of our outstanding capital stock have agreed that for a period ending 180 days after the date of this
prospectus, none of them will, directly or indirectly, offer, sell, offer to sell, contract to sell or otherwise dispose of anyowned shares of our common stock withoutas of 5:00 p.m., New York City time, on , the prior written consentrecord date.
By Mail: | By Hand or Overnight Courier: |
BNY Mellon Shareowner Services | BNY Mellon Shareowner Services |
Attn: Corporate Actions Dept. | Attn: Corporate Actions, 27th Floor |
P.O. Box 3301 | 480 Washington Blvd |
South Hackensack, NJ 07606 | Jersey City, NJ 07310 |
The underwritersExercising Subscription Rights.” If you have informed us that theyany questions, you should contact the information agent, Okapi Partners LLC, at (877) 869-0171 or by e-mail at info@okapipartners.com.
We have applied to list our common stock onSeries A Non-Voting Convertible Preferred Stock which the Nasdaq Global Market under the symbol ‘‘BIOF’’. The underwriters intend to selldepositary shares of our common stock so as to meet the distribution requirements of this listing.
There has been no public market forrepresent fractional interests in or the common stock prior to this offering. We and the underwriters will negotiate the initial public offering price. In determining the initial public offering price, we and the underwriters expect to consider a number of factors in addition to prevailing market conditions, including:
From time to time in the ordinary course of their respective businesses, certainissuable upon conversion of the underwritersSeries A Non-Voting Convertible Preferred Stock and their affiliates perform various financial advisory, investment banking and commercial banking services for us and our affiliates.
Selling restrictions
Notice to prospective investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of securities described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the securities that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any time:
Each purchaser of securities described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a ‘‘qualified investor’’ within the meaning of Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an ‘‘offer to the public’’ in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.
The sellers of the securities have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of the sellers or the underwriters.
Notice to prospective investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (‘‘Qualified Investors’’) that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as ‘‘relevant persons’’). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant persons should not act or rely on this docume nt or any of its contents.
Notice to prospective investors in France
Neither this prospectus nor any other offering material relating to the securities described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or by the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the securities has been or will be
Such offers, sales and distributions will be made in France only
The securities may be resold directly or indirectly, only in compliance with Articles L.411-1°, L.411-2°, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
Advertisement legends
One of the following legends should be inserted at the front of a preliminary offering document if, and only if, (a) either (x) the offering is a public offering in an European Economic Area member state or (y) the securities will be listed on a regulated market in the European Economic Area and (b) the preliminary offering document has not been approved by the relevant regulator.
United Kingdom
This document is an advertisement and not a prospectus approved by the Financial Services Authority. Copies of the prospectus will, following publication, be available from BioFuel Energy Corp.’s registered office. Although it is intended that the prospectus will be approved by the Financial Services Authority as a prospectus prepared in accordance with the prospectus rules made under section 73A of the Financial Services and Markets Act 2000, this document has not been so approved. Similarly, although it is intended that the prospectus will be made available to the public in accordance with the prospectus rules, this document has not been made available in accordance therewith.
Legal matters
Matters Item 13. Other Distribution Officers incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions or (iv) for any transaction from which the director derived an improper personal benefit. expiration of this rights offering all of the available depositary shares not otherwise sold in this rights offering following the exercise of all other holders’ basic subscription privileges and over-subscription privileges (which we refer to as the “Backstop Commitment”). The price per depositary share paid by the Backstop Parties pursuant to the Basic Commitment and the Backstop Commitment will be equal to the price paid by the other holders in this rights offering. Any depositary shares purchased by the Backstop Parties pursuant to the Basic Commitment or the Backstop Commitment will be purchased directly from us on a private basis and are not being registered pursuant to this registration statement. undertakes:underwriters have been represented by Cahill Gordon & Reindel LLP.ExpertsTheaudited consolidated financial statements of BioFuel Energy Corp. as of December 31, 2006 and for the period from April 11, 2006 (inception) through December 31, 2006, and the related financial statement schedule includedincorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are includedso incorporated in reliance upon the report of suchGrant Thornton LLP, independent registered public accountants, upon the authority of said firm given upon their authority as experts in accounting and auditing.The financial statements of BioFuel Solutions, LLC, a Delaware limited liability company, as of June 30, 2006 and December 31, 2005 and for the six months ended June 30, 2006, the period from January 1, 2005 (inception) through December 31, 2005 and for the period from January 1, 2005 (inception) through June 30, 2006, includedauditing in giving said report.have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.The financial statements of Bio Fuel Solutions, LLC, a Colorado limited liability company, as of October 31, 2005 and for the period from January 1, 2005 (inception) through October 31, 2005, included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.Where you can find more informationThis prospectus summarizesspecific documents that are not delivered herewith. Copies of such documents are available at your request, without charge, from BioFuel Energy Corp., 1801 Broadway, Suite 1060, Denver, Colorado 80202, Attention: General Counsel. Our telephone number at that address is (303) 592-8110 and our website is www.bfenergy.com. The content of our website is not part of this prospectus.In addition, we have filed with the Securities and Exchange Commission (the “SEC”) which means that we are disclosing important information to you by referring you to those documents that are considered part of this prospectus. We incorporate by reference the documents listed below. We are not, however, incorporating by reference any documents or portions thereof that are not deemed “filed” with the SEC, a registration statementincluding any information “furnished” pursuant to Item 2.02 or 7.01 of any Current Report on Form S-1 under8-K.Securities Act relating tofollowing documents filed with the sharesSEC:· Annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 30, 2010; · · Current reports on Form 8-K filed with the SEC on April 6, 2010, May 25, 2010, June 3, 2010, July 15, 2010, September 3, 2010, September 27, 2010 and September 30, 2010; and · Definitive proxy statement on Schedule 14A filed with the SEC on April 6, 2010. our common stock being offered by this prospectus. This prospectus, which constitutes part of a registration statement, does not containany or all of the information set forth in thereports or documents that have been incorporated by reference into this registration statement but not delivered with this prospectus at no cost by writing or telephoning us at the exhibits and schedules which are partfollowing address:registration statement. For further information about us and the common stock offered, see the registrationextent that a statement and the exhibits and schedules thereto. The descriptions of each contract and document contained in this prospectus (or in any other subsequently filed document which also is incorporated by reference into this prospectus) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part of this prospectus except as so modified or superseded.and as such, may not provide all of the information necessary to fully evaluate each contract or document described in this prospectus. For this reason, we refer you to the copy of each such contract or document filed as an exhibit to the registration statement.A copymaterial terms of the registration statement,definitive agreements. Copies of the exhibitsdefinitive agreements will be made available without charge to you by making a written or oral request to us in the manner specified above.schedules theretoother filings required to be filed by us as a reporting company under Sections 13 and 15(d) of the Exchange Act. You may read and copy any other documentmaterials we file may be inspected without charge at the public reference facilities maintained bywith the SEC at Station Place,the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from this office upon the payment of the fees prescribed by the SEC.20549. You may obtain information on the operation of the public reference facilities in Washington, D.C.Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also review filings withIn addition, the SEC by accessingmaintains an Internet site at www.sec.gov that contains the SEC’s website at www.sec.gov.Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, accordingly, will file annual reports containingTable of Contentsconsolidated financial statements audited by an independent registered public accounting firm, quarterly reports containing unaudited consolidated financial data, current reports, proxy and information statements, and other information that we file electronically with the SEC.will be ablecan find a link to inspect and copy suchour periodic reports, proxy statementsfilings and other information at the SEC’s public reference room and the website of the SEC referred to above.Index to consolidated financial statementsTable of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofBioFuel Energy Corp.Denver, ColoradoWe have audited the accompanying consolidated balance sheet of BioFuel Energy Corp. and subsidiaries (a development stage company) (the ‘‘Company’’) as of December 31, 2006, and the related consolidated statements of loss, stockholders’ equity, and cash flows for the period from April 11, 2006 (inception) through December 31, 2006. Our audit also included the financial statement schedule listed in the index to the financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BioFuel Energy Corp. and subsidiaries as of December 31, 2006, and the results of their operations and their cash flows for the period from April 11, 2006 (inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein./s/ Deloitte & Touche LLPDenver, ColoradoMarch 14, 2007Table of ContentsBioFuel Energy Corp. (a development stage company)Consolidated balance sheetDecember 31, 2006Assets Current assets: Cash and equivalents $ 27,238,517 Prepaid expenses 469,298 Total current assets 27,707,815 Property, plant and equipment Land 5,166,263 Construction in progress 77,644,044 Furniture and fixtures 87,381 82,897,688 Accumulated depreciation (5,275 ) 82,892,413 Debt issuance costs, net 9,404,273 Deferred offering costs 1,469,638 Other assets 7,273 Total assets $ 121,481,412 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 17,410,701 Accrued legal fees 1,761,515 Other accrued expenses 646,186 Total current liabilities 19,818,402 Construction contract retainage 3,017,087 Total liabilities 22,835,489 Minority interest 74,026,510 Commitments and contingencies (See Note 10) Stockholders’ equity: Common stock, $0.01 par value; 1,000 shares authorized and outstanding at December 31, 2006 10 Additional paid-in capital 26,953,025 Deficit accumulated during development stage (2,333,622 ) Total stockholders’ equity 24,619,413 Total liabilities and stockholders’ equity $ 121,481,412 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Energy Corp. (a development stage company)Consolidated statement of lossfrom inception on April 11, 2006 throughDecember 31, 2006General and administrative expenses Compensation expense $ 7,712,371 Other 1,450,247 Interest income (11,312 ) Minority interest in loss of BioFuel Energy, LLC (6,817,684 ) Net loss $ (2,333,622 ) Loss per share – basic and diluted (1,000 shares) $ (2,334 ) The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Energy Corp. (a development stage company)Consolidated statement of stockholders’ equityfrom inception on April 11, 2006 throughDecember 31, 2006 Common
StockAdditional
Paid-in CapitalDeficit Accumulated
During Development
StageTotal Stockholders’
EquityBalance at inception $ — $ — $ — $ — Sale of common stock 10 26,953,025 — 26,953,035 Net loss — — (2,333,622 ) (2,333,622 ) Balance at December 31, 2006 $ 10 $ 26,953,025 $ (2,333,622 ) $ 24,619,413 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Energy Corp. (a development stage company)Consolidated statement of cash flowsfrom inception on April 11, 2006 throughDecember 31, 2006Cash flows from operating activities Net loss $ (2,333,622 ) Adjustments to reconcile net loss to net cash used in operating activities: Minority interest (6,817,684 ) Share-based compensation expense 6,094,615 Depreciation 5,275 Other 42,281 Changes in operating assets and liabilities, excluding the effects of acquisitions: Increase in prepaid expenses (469,298 ) Increase in accounts payable 148,544 Increase in accrued legal fees 6,840 Increase in other accrued expenses 105,813 Increase in other assets (7,273 ) Net cash used in operating activities (3,224,509 ) Cash flows from investing activities Capital expenditures (58,653,350 ) Cash paid for acquisition, net of cash acquired (1,500,000 ) Net cash used in investing activities (60,153,350 ) Cash flows from financing activities Proceeds from sale of common stock 26,953,035 Proceeds from minority members of BioFuel Energy, LLC 75,170,649 Equity issuance costs (411,582 ) Debt issuance costs (9,104,184 ) Payments to predecessor owners (1,991,542 ) Net cash provided by financing activities 90,616,376 Net increase in cash and equivalents 27,238,517 Cash and equivalents, beginning of period — Cash and equivalents, end of period $ 27,238,517 Non-cash investing and financing activities Non-cash additions to property, plant and equipment $ 22,744,338 Non-cash debt and equity issuance costs 1,761,209 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements1. Organization and Nature of BusinessBioFuel Energy Corp. (the ‘‘Company’’) was incorporated as a Delaware corporation on April 11, 2006 to invest solely in BioFuel Energy, LLC (‘‘Energy LLC’’), a limited liability company organized on January 25, 2006 to develop, build and operate a series of ethanol production facilities in the Midwestern United States. The Company has purchased 28.9% of the Class A Units of Energy LLC. The Company’s headquarters is located in Denver, Colorado.Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46, as revised, Consolidation of Variable Interest Entities (‘‘FIN 46R’’), applies to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties (‘‘variable interest entities’’). Variable interest entities (‘‘VIE’’) arefilings required to be consolidatedfiled by their primary beneficiaries. The Company has determined that Energyus as a reporting company with the SEC on our website at the following URL: www.bfenergy.com/investment.html.is a VIE. Pursuant to FIN 46R the Company has assessed its investment in Energyinformation agent: and has determined that it is the primary beneficiary. The Company has therefore consolidated Energy LLC effective May 1, 2006.The aggregate size of Energy LLC is approximately $121 million, which is the carrying amount of the consolidated assets recorded on the consolidated balance sheet of the Company that are collateral for Energy LLC’s obligations. The nature and purpose of Energy LLC are described below. The beneficial interests of Energy LLC are payable solely from the cash flows of the assets held by Energy LLC.Since its inception, Energy LLC’s operations have primarily involved arranging financing for and initiating construction of its first two ethanol plants in Wood River, Nebraska (‘‘Wood River’’) and Fairmont, Minnesota (‘‘Fairmont’’) and development work on additional ethanol plant sites. Energy LLC is considered development stage as it has not commenced production of ethanol, hired a full complement of personnel or generated revenues. Until ethanol production begins in early 2008, Energy LLC will remain dependent on external financing to execute its business plan.The Company is also considered development stage as its only asset is its investment in Energy LLC.2. Summary of Significant Accounting PoliciesThe financial statements include the Company and Energy LLC and its subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. Preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and disclosures in the accompanying notes. Actual results could differ from those estimates.Cash and equivalents include highly liquid investments with an original maturity of three months or less.Property, plant and equipment, which primarily consists of land and construction in progress, is recorded at cost. All costs related to purchasing and developing land or the engineering, design and construction of a plant are capitalized. Costs not directly related to a site or plant are expensed. At December 31, 2006, accounts payable included approximately $17.1 million related to the Company’s construction activities. Depreciation expense from inception through December 31, 2006 relates to furniture and fixtures which are being depreciated over 3-10 years. Land improvements will be depreciated over 20-30 years. Construction in progress will be categorized as individual assets and depreciated over 5-25 years. The Company will begin depreciation of land improvements and its plant assets once the plants become operational.Table of Contents (a development stage company)Notes to Consolidated Financial Statements — (Continued)The Company capitalizes interest during the period of construction as part of the cost of constructed assets. Interest capitalized2006, which includes commitment fees and amortization of debt issuance costs, totaled $619,658.The recoverability of the carrying value of long-lived assets is evaluated whenever circumstances indicate that value may not be fully recoverable. Recoverability is measured by comparing carrying value of an asset with estimated undiscounted future cash flows. If carrying value exceeds such cash flows, an impairment charge is recognized equal to the amount by which carrying value exceeds fair market value. No impairment has occurred to date.Asset retirement obligations are recognized when a contractual or legal obligation exists and a reasonable estimate of the amount can be made. As of December 31, 2006, the Company had not incurred asset retirement obligations associated with the Wood River or Fairmont plants.Debt issuance costs represent costs incurred related to the Company’s senior and subordinated credit agreements. These costs are being amortized over the term of the related debt using the effective interest method.Equity issuance costs represent costs incurred related to the Company’s planned initial public offering. These costs will be charged against the proceeds of the initial public offering when completed.Expenses associated with stock-based awards and other forms of equity compensation are recorded in accordance with Statement of Financial Accounting Standards (‘‘SFAS’��) 123(R), Share Based Payment (‘‘SFAS 123R’’). The expense associated with these awards is based on fair value at grant and recognized in the financial statements over the required service period, if any.The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Since the Company has incurred a loss since its inception and expects to continue to incur losses until its plants become operational, it will provide a valuation allowance against all deferred tax assets until it is assured that such assets will be realized.The reported values of cash and equivalents, accounts payable and accrued expenses approximate fair value because of their short-term nature.Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the period.3. Recent Accounting PronouncementsIn July 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FIN No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109, (‘‘FIN 48’’). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of FIN 48 are effective for the first fiscal year beginning after Decem ber 15, 2006. The adoption of FIN 48 is not expected to have a material impact on the Company’s consolidated results of operations, cash flows or financial position.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (‘‘SFAS 157’’). SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not currently expect SFAS 157 to have a material impact on its consolidated results of operations, cash flows or financial position.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FAS 115 (‘‘SFAS 159’’). SFAS 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. SFAS 159 is effective for the Company on January 1, 2008. The Company has not assessed the impact of SFAS 159 on its consolidated results of operations, cash flows or financial position.4. BioFuel Solutions, LLCBioFuel Solutions, LLC, a Delaware limited liability company (‘‘Solutions’’), was the predecessor company to Energy LLC. Solutions became a wholly-owned subsidiary of Energy LLC on September 25, 2006 as a result of two transactions.In August 2006, the Company acquired a 30% interest in Solutions for $1,500,000 and 100,000 Class A Units. The Company accounted for this acquisition at fair value. For the period from August 4, 2006 to September 25, 2006, the Company accounted for this investment under the equity method of accounting. The operating results of Solutions for this period were insignificant.On September 25, 2006, certain founders of Energy LLC conveyed the remaining 70% interest in Solutions to Energy LLC in exchange for cash of $1,750,000 and 467,500 Class C and 180,833 Class D Units of Energy LLC. As founders and continuing members of executive management, the 70% contribution of Solutions by the individuals has been recorded at carryover basis and a distribution of equity for the cash received in accordance with Staff Accounting Bulletin Topic 5G, Transfers of Nonmonetary Assets by Promoters or Shareholders.5. Minority InterestMinority interest consists of equity issued to members of Energy LLC. Under its LLC agreement, Energy LLC is currently authorized to issue 9,357,500 Class A, 950,000 Class B, 425,000 Class M, 2,683,125 Class C and 894,375 Class D Units. Class M, C and D Units are considered ‘‘profits interests’’ for which no cash consideration was received upon issuance. The LLC agreement stipulates that upon an initial public offering by the Company, all classes of Energy LLC equity will convert to one class of Energy LLC equity. The LLC agreement contains provisions that set forth the method for determining the exchange ratio of the various existing classes of equity for the single class of equity. The precise exchange ratio will be based on the Company’s initial public offering price and the implied valuation of the Company. Each newly issued unit of LLC equity will be exchangeable at the holder’s option into one share of Company commo n stock.In May 2006, a private placement of 9,175,000 Class A Units in exchange for cash and commitments of $91,750,000 was completed. In June 2006, an additional 157,500 Class A Units were issued in exchange for cash and commitments of $1,575,000. In August 2006, 25,000 Class A Units were issued by Energy LLC and 75,000 Class A Units were transferred by a founder in connection with the purchase of 30% of Solutions. With the exception of the 25,000 newly issued units in connection with the Solutions acquisition, all Class A Units were fully-paid for in cash.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)In September 2006, 950,000 Class B Units were issued to Cargill, Inc. (‘‘Cargill’’) for $8,798,684 of cash plus an in-kind contribution of $701,316, representing actual expenses incurred by Cargill through that date related to the Wood River and Fairmont plants. Of this amount, $544,219 was recorded as land, $106,256 as debt issuance costs and $50,841 as general and administrative expense.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)The minority interest in Energy LLC is summarized as follows:Proceeds from the sale of Class A Units, net of the Company’s investment $ 66,371,965 Proceeds from the sale of Class B Units 8,798,684 75,170,649 In-kind contribution associated with Class B Units 701,316 Class A Units issued to acquire a 30% interest in Solutions 1,000,000 Class C and D Units issued for 70% interest in Solutions 359,714 Equity issued to founders and management 6,094,615 Payments to predecessor owners (1,991,542 ) Equity issuance costs (490,558 ) Minority interest in loss of Energy LLC (6,817,684 ) $ 74,026,510 Energy LLC may make distributions to members as determined by its Board of Managers. Distributions will be made in the following order of priority:• First, Class A unitholders will receive distributions on a per unit basis until their cumulative distributions equal their capital contributions.• Second, the Class B unitholder will receive distributions until its cumulative distributions equal its capital contribution.• Third, Class M unitholders will receive distributions on a per unit basis until their cumulative distributions equal $10 per M Unit.• Fourth, Class A and B unitholders will jointly receive distributions on a per unit basis until they have received a preferred return of 8% per annum compounded annually on their capital contributions.• Fifth, Class M unitholders will receive distributions on a per unit basis until such per unit distributions equal the per unit preferred return previously received by Class A unitholders in the Fourth priority above.• Sixth, Class C unitholders will receive distributions on a per unit basis until their per unit distributions equal the per unit Class A distributions in the Fourth priority above.• Seventh, distributions as to 80% will be made on a per unit basis to Class A, B and M Units combined and as to 20% on a per unit basis to Class C unitholders combined. Such distributions would continue until the compound annual return to Class A unitholders reaches 25%.• Eighth, thereafter all unitholders will receive distributions on a per unit basis. This will entail A, B and M Units combined receiving 75% and Class C and D Units combined receiving 25% of all distributions.6. Long-Term DebtIn September 2006, Energy LLC, through its subsidiaries, entered into a $230,000,000 Senior Secured Credit Facility providing for the availability of $230 million of borrowings (‘‘Senior Debt’’) with BNP Paribas and a syndicate of lenders to finance construction of the Wood River and Fairmont plants. The Senior Debt consists of two construction loans, which together total $210 million of borrowings and convert into term loans upon completion of the plants. NoTable of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)principal payments are required until the construction loans are converted to term loans. Thereafter, principal payments will be payable quarterly at a minimum annual rate of 6% of principal plus a percentage of available cash flow. These term loans mature in September 2014. Senior Debt also includes working capital loans of up to $20 million, a portion of which may be used as letters of credit. The working capital loans mature in September 2010. Interest rates on Senior Debt will, at management’s option, be set at: i) a Base Rate, which is the higher of the federal funds rate plus 0.5% or BNP Paribas’ prime rate, in each case plus a margin of 2.0%; or ii) at LIBOR plus 3.0%. Interest is payable quarterly.Borrowings of Senior Debt are subject to certain conditions including the prior receipt of all committed equity as well as funds available under the subordinated debt agreement described below. The Senior Debt is secured by a first lien on all rights, titles and interests in the Wood River and Fairmont plants and any accounts receivable or property associated with those plants. Senior Debt includes certain limitations on, among other things, the ability of the borrowing subsidiaries to incur additional debt, grant liens or encumbrances, declare or pay dividends or distributions, conduct asset sales or other dispositions, merge or consolidate, conduct transactions with affiliates and amend, modify or change the scope of the Wood River and Fairmont projects, the project agreements or the budgets relating to them. The Senior Debt contains customary events of default including failure to meet payment obligations, failure to complete construction of the Wood River an d Fairmont plants by June 30, 2009, failure to pay financial obligations, failure of Energy LLC or its principal contractors to remain solvent and failure to obtain or maintain required governmental approvals. No such events of default have occurred.A quarterly commitment fee of 0.50% per annum on the unused portion of available Senior Debt is payable. Debt issuance fees and expenses associated with the Senior Debt are approximately $6.8 million. That cost has been deferred and is being amortized over the term of the Senior Debt using the effective interest method.In September 2006, Energy LLC entered into a subordinated debt agreement with certain Class A unitholders providing for up to $50 million of loans (‘‘Subordinated Debt’’) to be used for general corporate purposes including construction of the Wood River and Fairmont plants. The Subordinated Debt must be repaid by no later than March 2015. Interest on Subordinated Debt is payable quarterly in arrears at a 15.0% annual rate. The Subordinated Debt is secured by the member’s equity of the subsidiaries of Energy LLC owning the Wood River and Fairmont plant sites and guaranteed by those subsidiaries on a subordinated basis. The Subordinated Debt may be prepaid at any time in whole or in part without penalty.Debt issuance fees and expenses of $2.9 million have been incurred in connection with the Subordinated Debt. A further 5% fee (up to $2.5 million in total) is payable if and when funds are borrowed. Debt issuance costs associated with the Subordinated Debt are being deferred and amortized over the term of the agreement using the effective interest method.Energy LLC currently has no debt or letters of credit outstanding.7. Share Based PaymentsIn May and June 2006, Energy LLC issued 425,000 Class M Units to its founders. These units vested upon issuance. Compensation expense of $1,062,750 was recorded in connection with the issuance of these units. Between May and December 2006, a total of 2,103,118 Class C and 676,039 Class D Units were issued to Energy LLC’s founders and certain key employees. These units vested upon issuance. Compensation expense of $5,031,865 was recorded in connection with the issuance of these units. Compensation expense was determined based on the estimated fair value of the Class M, C and D Units at the date of grant. Energy LLC considered theTable of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)methodology outlined by the American Institute of Certified Public Accountants in its practice aid,Valuation of Privately-Held Company Equity Securities Issued as Compensation. This methodology included:• Estimating the fair value of Energy LLC at dates approximating the dates units were awarded by discounting estimated cash flows.• Allocating Energy LLC’s fair value to its debt and equity holders through a series of call options on Energy LLC’s value.• Determining the portion of Energy LLC’s value specifically attributed to the Class M, C and D Units.• Discounting the cash flows for lack of marketability to reflect restrictions inherent on the sale of the Class M, C and D Units. The discount rates used for lack of marketability ranged from 32% to 27%.As part of the valuation, the Black-Scholes option pricing model was used to estimate the value the call options on Energy LLC’s value. The assumptions listed below were made in applying this option pricing model.• The underlying security price for the options was assumed to be Energy LLC’s value as determined by discounting its cash flow.• The exercise prices of the options were based on the amounts to which each equity class would be entitled if a liquidation event were to occur.• The terms of the options were based on assumptions of various liquidation dates weighted on the likelihood of the assumed liquidation occurring and ranged from nine months to five years.• Volatility was based on the volatilities of comparable companies and ranged from 60% to 56%.• Risk-free rates were based on US Treasury Strips which corresponded with the assumed terms of the options and ranged from 5.0% to 4.46%.At December 31, 2006, Energy LLC had 112,507 Class C Units and 37,503 Class D Units available for future awards.8. Income TaxesThe Company has no income tax provision (benefit) for the period from inception through December 31, 2006. The Company has a deferred tax asset of $854,632 related to the difference between the book and tax basis of its investment in Energy LLC and has provided a valuation allowance for the full amount of this deferred tax asset since it has no history of generating taxable income.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)The U.S. statutory federal income tax rate is reconciled to the Company’s effective income tax rate as follows:From Inception toDecember 31, 2006Statutory U.S. federal income tax rate(34.0)% Expected state tax benefit, net(2.6) Valuation allowance36.6—9. Employee Benefits PlanEnergy LLC sponsors a 401(k) profit sharing and savings plan for its employees. Employee participation in this plan is voluntary. Contributions to the plan by Energy LLC are at the discretion of its board of managers. Energy LLC contributed $60,799 to the plan in 2006.10. Commitments and ContingenciesIn September 2006, Energy LLC, through its subsidiaries, entered into two operating lease agreements with Cargill, a related party. Cargill’s grain handling and storage facilities, located adjacent to the Wood River and Fairmont plants, are being leased for 20 years from the date the plants become operational. Minimum annual payments under each lease are $800,000 so long as the associated corn supply agreements with Cargill remain in effect. Should the Company not maintain its corn supply agreements with Cargill, the minimum annual payments under each lease increase to $1,200,000. The leases contain escalation clauses which are based on the percentage change in the Midwest Consumer Price Index. The escalation clauses are considered to be contingent rent and, accordingly, are not included in minimum lease payments. The leases do not become effective until the plants become operational. Rent expense will be recognized on a straight line basis over the i nitial terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations and insolvency.In October 2006, subsidiaries of Energy LLC entered into agreements to lease a total of 1,065 railroad cars. Pursuant to these lease agreements, beginning in 2008 these subsidiaries will pay approximately $8.7 million annually for ten years. Monthly rental charges escalate if modifications of the cars are required by governmental authorities or mileage exceeds 30,000 miles in any calendar year. Rent expense will be recognized on a straight line basis over the initial terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations and insolvency.In October 2006, Energy LLC entered into a nineteen month lease for its corporate office in Denver.Table of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)Future minimum lease payments are as follows: Operating Leases 2007 $ 810,783 2008 10,119,816 2009 10,283,500 2010 10,283,500 2011 10,283,500 Thereafter 77,177,375 $ 118,958,474 Rent expense recorded through December 31, 2006 totaled $35,930.In December 2006, Energy LLC, through its subsidiaries constructing the Wood River and Fairmont plants, entered into agreements with electric utilities pursuant to which the electric utilities will build, own and operate substation and distribution facilities in order to supply electricity to the plants. For its Wood River plant, Energy LLC paid the utility $1.5 million for the cost of the substation and distribution facility. For its Fairmont plant, Energy LLC will pay a fixed facilities charge based on the cost of the substation and distribution facility estimated to be approximately $25,000 per month, over the 30-year term of the agreement. The agreement will be accounted for as a capital lease in the fourth quarter of 2007. The agreement also includes a $25,000 monthly minimum energy charge which is expected to begin in the fourth quarter of 2007.Subsidiaries of Energy LLC have entered into engineering, procurement and construction (‘‘EPC’’) contracts with The Industrial Company (‘‘TIC’’) covering the construction of the Wood River and Fairmont plants. Pursuant to these EPC contracts, TIC will be paid a total of $262.7 million, subject to certain adjustments, for the turnkey construction of the two plants. Subsequent to the payment of certain advance payments, the subsidiaries of Energy LLC are permitted to withhold 5% of progress payments billed by TIC as retainage payable at the completion of the plants. Such withholdings are reported as construction contract retainage in the consolidated balance sheet. The subsidiaries of Energy LLC have recorded amounts paid or payable to TIC totaling $72.0 million as of December 31, 2006. For the plants to become operational, it is estimated that a further $38 million in addition to the E PC contract amounts must be spent on plant infrastructure and other construction requirements. Additional expenditures may be necessary to cover changes that may arise during the construction and start-up of the two plants.Pursuant to long-term agreements, Cargill, a related party, will be the exclusive supplier of corn to the Wood River and Fairmont plants for twenty years after they become operational. The price per bushel of corn purchased under these agreements is based on a formula including cost plus an origination fee. The minimum annual origination fee payable to Cargill per plant under the agreements is $1.2 million. The agreements contain events of default that include failure to pay, willful misconduct, purchase of corn from another supplier, insolvency or the termination of the associated grain facility lease.Cargill, a related party, has agreed to market all ethanol and distillers grain produced at the Wood River and Fairmont plants for ten years from the date the plants become operational. Under the terms of the ethanol marketing agreements, the Wood River and Fairmont plants will generally participate in a marketing pool where all parties receive the same net price. That price will be the average delivered price per gallon received by the marketing pool less averageTable of ContentsBioFuel Energy Corp. (a development stage company)Notes to Consolidated Financial Statements — (Continued)transportation and storage charges and less a 1% commission. In certain circumstances, the plants may elect not to participate in the marketing pool. Minimum annual commissions are payable to Cargill and represent 1% of Cargill’s average selling price for 82.5 million gallons of ethanol. Under the distillers grain marketing agreements, the Wood River and Fairmont plants will receive the market value at time of sale less a commission. Minimum annual commissions are payable to Cargill and range from $.5 million to $.7 million depending upon certain factors as specified in the agreement. The marketing agreements contain events of default that include failure to pay, willful misconduct and insolvency.The Company is not currently a party to any material legal, administrative or regulatory proceedings that have arisen in the ordinary course of business or otherwise.11. Related Party TransactionEnergy LLC paid a fee of $550,000 to a founder who elected not to remain an employee for work performed in connection with its formation and initial financing. This fee is reported as a compensation expense in the consolidated statement of loss. In addition, an advisory agreement was entered into with this founder, pursuant to which the founder is paid $20,000 per month for nineteen months from August 1, 2006.12. Tax Increment FinancingIn December 2006, Energy LLC’s subsidiary constructing the Wood River plant entered into an agreement with the City of Wood River, Nebraska (the ‘‘City’’) under which the City agreed to a grant of $6.0 million ($6.5 million net of interest reserve of $0.5 million) from the proceeds of the City’s Tax Increment Revenue Bonds to be used by Energy LLC’s subsidiary in the construction of its plant. The grant was received in February 2007.Table of ContentsSchedule IBioFuel Energy Corp.Condensed Financial Information of Registrant(Parent company information – See notes to consolidated financial statements)Condensed Balance SheetDecember 31, 2006Assets Investment in BioFuel Energy, LLC $ 24,619,413 Total assets $ 24,619,413 Stockholders’ equity Common stock, $0.01 par value; 1,000 shares authorized and outstanding at December 31, 2006 $ 10 Additional paid-in capital 26,953,025 Deficit accumulated during development stage (2,333,622 ) Total stockholders’ equity $ 24,619,413 Condensed Statement of LossFrom inception on April 11, 2006 to December 31, 2006Equity in loss of BioFuel Energy, LLC $ (2,333,622 ) Net loss $ (2,333,622 ) Condensed Statement of Cash FlowsFrom inception on April 11, 2006 through December 31, 2006Cash flows from operating activities Net loss $ (2,333,622 ) Adjustment to reconcile net loss to net cash provided by operating activities Equity in loss of BioFuel Energy, LLC 2,333,622 Net cash provided by operating activities – Cash flows from investing activities
Investment in BioFuel Energy, LLC(26,953,035 ) Net cash used in investing activities (26,953,035 ) Cash flows from financing activities
Proceeds from issuance of common stock26,953,035 Net cash provided by financing activities 26,953,035 Cash and equivalents at December 31, 2006 $ – Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Members ofBioFuel Solutions, LLCDenver, ColoradoWe have audited the accompanying consolidated balance sheets of BioFuel Solutions, LLC and subsidiaries, a Delaware limited liability (development stage) company (the ‘‘Company’’), as of June 30, 2006 and December 31, 2005, and the related consolidated statements of income (loss) and members’ equity and cash flows for the six months ended June 30, 2006, the period from January 1, 2005 (inception) through December 31, 2005 and for the period from January 1, 2005 (inception) through June 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that o ur audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BioFuel Solutions, LLC and subsidiaries at June 30, 2006 and December 31, 2005, and the results of their operations and their cash flows for the six months ended June 30, 2006, the period from January 1, 2005 (inception) through December 31, 2005 and for the period from January 1, 2005 (inception) through June 30, 2006 in conformity with accounting principles generally accepted in the United States of America./s/ Deloitte & Touche LLPDenver, ColoradoDecember 8, 2006Table of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Consolidated balance sheets June 30,
2006December 31,
2005Assets Current assets Cash and equivalents $ 221,210 $ 102,731 Accounts receivable — 914,005 Receivable from BioFuel Energy, LLC 46,815 — Prepaid expenses 6,940 1,487 Total 274,965 1,018,223 Land improvements 465,070 260,580 Deferred financing fees 87,494 — Total assets $ 827,529 $ 1,278,803 Liabilities and members’ equity Current liabilities Accounts payable $ 33,910 $ 369,195 Notes payable, net 157,406 143,074 Accrued legal fees 123,232 36,418 Accrued compensation and related liabilities — 17,225 Total 314,548 565,912 Commitments and contingencies (See Note 6) Members’ equity 512,981 712,891 Total liabilities and members’ equity $ 827,529 $ 1,278,803 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Consolidated statements of income (loss)and members’ equity For the Six Months
ended
June 30, 2006From Inception on
January 1, 2005
through
December 31, 2005From Inception on
January 1, 2005
through
June 30, 2006Advisory fees $ — $1,043,707 $1,043,707 General and administrative expenses 374,796 153,945 528,741 Advisory fee expenses 23,061 358,130 381,191 Interest (income) expense (1,947 ) 2,309 362 Equity in loss of affiliated company — 112,983 112,983 Net (loss) income (395,910 ) 416,340 20,430 Members’ equity: Beginning of period 712,891 — — Member contributions 196,000 296,551 492,551 End of period $ 512,981 $712,891 $512,981 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Consolidated statements of cash flows For the Six Months
ended
June 30, 2006From Inception on
January 1, 2005
through
December 31, 2005From Inception on
January 1, 2005
through
June 30, 2006Cash flows from operating activities Net (loss) income $ (395,910 ) $ 416,340 $ 20,430 Adjustments to reconcile net income to net cash provided by operating activities Non-cash member contribution — 71,551 71,551 Equity in loss of affiliate — 112,983 112,983 Deferred advisory expenses — 87,861 87,861 Imputed interest 6,926 2,309 9,235 Changes in operating assets and liabilities, net of acquisitions Accounts receivable 914,005 (825,000 ) 89,005 Due to BioFuel Energy, LLC (46,816 ) (46,816 ) Accounts payable (180,181 ) 103,337 (76,844 ) Other current assets and liabilities, net (23,356 ) 52,156 28,800 Net cash provided by operating activities 274,668 21,537 296,205 Cash flows from investing activities Investment in equity affiliate — (210,903 ) (210,903 ) Cash received upon acquisition of equity affiliate — 47,106 47,106 Expenditures for land improvements (554,529 ) (28,802 ) (583,331 ) Reimbursement received for expenditures on land 191,207 48,793 240,000 Net cash used in investing activities (363,322 ) (143,806 ) (507,128 ) Cash flows from financing activities Proceeds from note payable 161,133 — 161,133 Payment of note payable (150,000 ) — (150,000 ) Member contributions 196,000 225,000 421,000 Net cash provided by financing activities 207,133 225,000 432,133 Net increase in cash and equivalents 118,479 102,731 221,210 Cash and equivalents, beginning of period 102,731 — — Cash and equivalents, end of period $ 221,210 $ 102,731 $ 221,210 Non-cash investing and financing activities Non-cash additions to land improvements $ 38,911 $ 280,570 $ 38,911 Note issued for purchase of BioFuel Solutions, LLC, a Colorado LLC — 140,765 — Non-cash debt issuance costs 87,494 — 87,494 The accompanying notes are an integral part of these financial statements.Table of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Notes to consolidated financial statements1. Organization and nature of operationsBioFuel Solutions, LLC (the ‘‘Company’’), was organized as a Delaware limited liability company primarily for the development of ethanol production facilities. Since its formation, substantially all of the Company’s activities have been related to securing the capital needed for the construction of two ethanol production facilities, located in Wood River, Nebraska and Fairmont, Minnesota. The Company’s headquarters is located in Denver, Colorado.Prior to October 31, 2005, the Company held a 26.7% interest in Bio Fuel Solutions, LLC (‘‘BFS-CO’’), a Colorado limited liability company. On October 31, 2005, the Company acquired the remaining interest in BFS-CO. See Note 3.The Company is considered development stage as it has not commenced commercial operations, hired the full complement of personnel, or generated revenues from the sale of ethanol. As a development stage enterprise, the Company is dependent on external financing to execute its business plan.During 2005, advisory fees were earned on ethanol project related services provided to two clients under agreements in effect at the time the Company acquired BFS-CO. The Company did not provide advisory services during the six months ended June 30, 2006.2. Summary of significant accounting policiesThe financial statements include the Company and its subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures in the accompanying notes. Actual results could differ from those estimates.Cash and equivalents include highly liquid investments with original maturities of three months or less.Deferred financing fees are related to the Company’s efforts to obtain financing for the construction of its two proposed ethanol plants. The Company will amortize these costs over the term of the financing using the effective interest method.Land improvements are stated at cost and include all costs directly related to, or allocable to, developing a site for the construction of an ethanol production facility. Any cost that is not related to the development of a specific plant site is expensed as incurred. The recoverability of the carrying value of the Company’s investments in land improvements is evaluated whenever circumstances indicate that value may not be fully recoverable. Recoverability is measured by comparing carrying value of an asset with the estimated undiscounted future cash flows. If the carrying value exceeds such cash flows, an impairment charge is recognized equal to the amount by which the carrying value of the asset exceeds its fair value. The Company did not recognize an impairment loss on any of its land improvement assets during the period from inception to December 31, 2005 or during the six months ended June 30, 2006.Advisory fees are generally recognized using the completed contract method of accounting, as prescribed by Statement of Position 81-1 (‘‘SOP 81-1’’), Accounting for Performance of Construction-Type and Certain Production-Type Contracts, due to the lack of dependableTable of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Notes to consolidated financial statements — (Continued)estimates of revenues to be earned and ultimately collected under the Company’s advisory service contracts. In accordance with SOP 81-1, the Company defers advisory costs associated with providing its services to be recognized upon completion of the services and recognition of the related revenues. There were no deferred advisory costs recorded in the balance sheets at December 31, 2005 and June 30, 2006.The Company accounted for its investment in BFS-CO using the equity method since it had the ability to exercise significant influence on how BFS-CO executed its business plans.As a limited liability company, the Company is not subject to federal and state income taxes. Its members are liable for income taxes based on their interest in the Company. Accordingly, the financial statements do not reflect federal and state income tax liabilities or benefits.The reported values of accounts receivable, accounts payable, accrued expenses and notes payable approximate fair value because of their short-term nature.3. AcquisitionOn October 31, 2005, the Company purchased the interest in BFS-CO it did not own by issuing a promissory note for $150,000 and agreeing to pay contingent consideration of up to $520,000. The promissory note was paid in June 2006. The Company was to pay contingent consideration of $100,000 for each of two advisory service contracts in existence at the date of the acquisition to the extent it received compensation. The Company was compensated pursuant to one of these contracts and paid $100,000 of the contingent consideration in June 2006. The remaining contingent consideration of $320,000 was related to completing the financing required for the construction of the Wood River and Fairmont ethanol production facilities and became payable on September 25, 2006. BFS-CO was a development stage company. As such, the acquisition was accounted for as a purchase of assets at fair value.Due to in-kind capital contributions made by both members of BFS-CO, the Company’s ownership interest in BFS-CO was adjusted to 26.7%. Prior to the purchase of the remaining 73.3% interest in BFS-CO, the Company accounted for its investment in BFS-CO using the equity method of accounting. A summary of the operating results of BFS-CO from its inception on January 1, 2005 to October 31, 2005 follows:Advisory fees $ 104,005 General and administrative expenses (398,327 ) Advisory fee expenses (128,737 ) Interest income 453 Net loss $ (422,606 ) 4. Note payableAt December 31, 2005, the Company had a non-interest bearing promissory note payable to the prior 73.3% owner of BFS-CO in the amount of $150,000. This note has been discounted reflecting an imputed interest rate of 10.0% per annum. This note was paid in June 2006.In September 2005, the Company through one of its subsidiaries became a party to an agreement with The Fairmont Economic Development Authority and the City of Fairmont, Minnesota giving the Company the right to borrow up to $225,000 to cover the cost of drilling aTable of ContentsBioFuel Solutions, LLC (a Delaware limited liability company)(a development stage company)Notes to consolidated financial statements — (Continued)well and conducting tests required for permitting the Fairmont plant site. The Company borrowed $149,142 in February 2006 and $11,991 in April 2006 pursuant to this agreement. This loan does not bear interest and has been discounted reflecting an imputed interest rate of 10% per annum. This loan was paid in full in September 2006.5. Members’ equityDuring 2005, the Company’s members made cash and noncash contributions of $225,000 and $71,551, respectively. During the six months ended June 30, 2006, additional cash contributions totaled $196,000.Net income and losses of the Company are allocated to each member in proportion to each member’s ownership interest. The Company has made no distributions to its members to date.6. Commitments and contingenciesThe Company and Cargill, Incorporated (‘‘Cargill’’) entered into two separate agreements with substantially similar terms whereby the Company and Cargill would cooperate with each other on an exclusive basis to develop ethanol production facilities, located in Wood River, Nebraska and Fairmont, Minnesota. Pursuant to these agreements, the Company would arrange the financing and construction for both production facilities, and Cargill would provide corn supply, storage and handling, ethanol and distillers grain marketing, and other services. Both the Company and Cargill agreed to invest a minimum of $4,000,000 in each production facility.The Company is not currently a party to any legal, administrative or regulatory proceedings that have arisen in the ordinary course of business or otherwise.7. Related party transactionsThe Company paid an affiliate of a member $10,500 during the six months ended June 30, 2006 for accounting services provided to the Company.8. Agreement with BioFuel Energy, LLCOn May 1, 2006, the Company effectively ceased its efforts to develop the Wood River and Fairmont ethanol facilities on its own. On August 4, 2006, BioFuel Energy, LLC (‘‘BFE’’) purchased the 30% interest in the Company held by one of its members. On September 25, 2006 members owning the remaining 70% interest in the Company conveyed their interest to BFE. Subsequent to June 30, 2006, the Company distributed cash of $241,542 to these members.Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Members ofBio Fuel Solutions, LLCDenver, ColoradoWe have audited the accompanying balance sheet of Bio Fuel Solutions, LLC, a Colorado limited liability (development stage) company (the ‘‘Company’’), as of October 31, 2005, and the related statements of loss and members’ equity and cash flows for the period from January 1, 2005 (inception) through October 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, such financial statements present fairly, in all material respects, the financial position of Bio Fuel Solutions, LLC at October 31, 2005, and the results of its operations and its cash flows for the period from January 1, 2005 (inception) through October 31, 2005 in conformity with accounting principles generally accepted in the United States of America./s/ Deloitte & Touche LLPDenver, ColoradoDecember 8, 2006Table of ContentsBio Fuel Solutions, LLC(a Colorado limited liability company)(a development stage company)Balance sheetOctober 31, 2005 Assets Current assets Cash and equivalents $ 47,106 Accounts receivable 89,005 Deferred advisory expenses 87,861 Total 223,972 Land improvements 266,061 Total assets $ 490,033 Liabilities and members’ equity Current liabilities Accounts payable $ 75,292 Accounts payable to related parties 16,961 Accrued legal fees 31,516 Total 123,769 Commitments and contingencies (See Note 4) Members’ equity 366,264 Total liabilities and members’ equity $ 490,033 The accompanying notes are an integral part of these financial statements.Table of ContentsBio Fuel Solutions, LLC(a Colorado limited liability company)(a development stage company)Statement of loss and members’ equityfrom inception on January 1, 2005 through October 31, 2005 Advisory fees $ 104,005 General and administrative expenses (398,327 ) Advisory fee expenses (128,737 ) Interest income 453 Net loss (422,606 ) Members’ equity Beginning of period — Members’ contributions 788,870 End of period $ 366,264 The accompanying notes are an integral part of these financial statements.Table of ContentsBio Fuel Solutions, LLC(a Colorado limited liability company)(a development stage company)Statement of cash flowsfrom inception on January 1, 2005 through October 31, 2005Cash flows from operating activitiesNet loss$(422,606) Adjustments to reconcile net loss to net cash used in operating activitiesExpenses paid directly by members521,870Changes in operating assets and liabilitiesIncrease in accounts receivable(89,005) Increase in deferred advisory expenses(87,861) Increase in accounts payable40,732Increase in accrued legal fees31,516Net cash used in operating activities(5,354) Cash flows from investing activitiesExpenditures for land improvements(214,540) Net cash used in investing activities(214,540) Cash flows from financing activitiesMember contributions267,000Net cash provided by financing activities267,000Net increase in cash and equivalents47,106Cash and equivalents, beginning of period—Cash and equivalents, end of period$47,106Non-cash investment itemsNon-cash additions to land improvements$51,521The accompanying notes to are an integral part of these financial statements.Table of ContentsBio Fuel Solutions, LLC (a Colorado limited liability company)(a development stage company)Notes to financial statements1. Organization and nature of operationsBio Fuel Solutions, LLC (the ‘‘Company’’), was organized as a Colorado limited liability company on January 1, 2005 and was engaged primarily in the development of ethanol production facilities. The Company did, however, respond to requests to advise others regarding development of ethanol plants when the occasion arose. The Company was located in Steamboat Springs, Colorado. On October 31, 2005, the Company was acquired by BioFuel Solutions, LLC, a Delaware limited liability company (‘‘BFS-DE’’).At the time of its acquisition, the Company was considered development stage as it had not commenced operations of its ethanol production facilities, hired the full complement of personnel, or generated revenues from the sale of ethanol. As a development stage enterprise, the Company was dependent on external financing to execute its business plan.2. Summary of significant accounting policiesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures in the accompanying notes. Actual results could differ from those estimates.Cash and equivalents include highly liquid investments with original maturities of three months or less.Land improvements are stated at cost and include all costs directly related to, or allocable to, developing a site for the construction of an ethanol production facility. Any cost that is not related to the development of a specific plant site is expensed as incurred. The recoverability of the carrying value of the Company’s investment in land improvements is evaluated whenever circumstances indicate that the value may not be fully recoverable. Recoverability is measured by comparing carrying value of an asset with the estimated undiscounted future cash flows. If the carrying value exceeds such cash flows, an impairment charge is recognized equal to the amount by which the carrying value of the asset exceeds its fair value. The Company did not recognize an impairment loss on any of its land improvement assets during the period from inception through October 31, 2005.Advisory fees are generally recognized using the completed contract method of accounting, as prescribed by Statement of Position 81-1 (‘‘SOP 81-1’’), Accounting for Performance of Construction-Type and Certain Production-Type Contracts, due to the lack of dependable estimates of revenues to be earned and ultimately collected under the Company’s advisory service contracts. In accordance with SOP 81-1, the Company has deferred advisory costs associated with providing its services and will recognize these deferred costs upon completion of the services and recognition of the related revenues. During the period ended October 31, 2005, the Company’s advisory fees were derived from a single customer.As a limited liability company, the Company is not subject to federal and state income taxes. Its members are liable for income taxes based on their interest in the Company. Accordingly, the financial statements do not reflect federal and state income tax liabilities or benefits.The estimated fair values of cash and equivalents, accounts receivable and accounts payable approximate fair value because of their short-term nature.Table of ContentsBio Fuel Solutions, LLC (a Colorado limited liability company)(a development stage company)Notes to financial statements — (Continued)3. Members’ equityThe Company had two members. The members contributed $150,000 and $100,000 for a 60% interest and a 40% interest, respectively. An additional cash contribution of $17,000 was made during the period from inception through October 31, 2005 by the 60% member. Additionally, the Company’s 60% member paid expenses on behalf of the Company totaling $410,967, and its capital account was increased accordingly. The Company’s 40% member paid expenses on behalf of the Company totaling $110,903, and its capital account was also increased accordingly, resulting in ownership interests of 73.27% and 26.73%, respectively.The net loss of the Company was allocated to each member in proportion to each member’s ownership interest after considering all contributions recorded in their capital accounts during the period from inception through October 31, 2005. The Company made no distributions to its members.4. Commitments and contingenciesOn July 20, 2005, the Company and Cargill, Incorporated (‘‘Cargill’’) entered into two separate agreements with substantially similar terms whereby the Company and Cargill would cooperate with each other on an exclusive basis to develop ethanol production facilities, located in Wood River, Nebraska and Fairmont, Minnesota. Pursuant to these agreements, the Company would arrange the financing and construction for both production facilities, and Cargill would provide corn supply, storage and handling, ethanol and distillers grain marketing, and other services. Both the Company and Cargill agreed to invest a minimum of $4,000,000 in each production facility. In connection with the acquisition of the Company on October 31, 2005, BFS-DE assumed the Company’s rights and obligations under these agreements.The Company was not a party to any legal, administrative or regulatory proceedings from its inception through October 31, 2005.5. Related party transactionsThe Company reimbursed its members for expenditures of $132,179 incurred on its behalf from inception through October 31, 2005, of which $63,555 was recorded in land development and $68,624 was charged to expenses related to advisory services. At October 31, 2005, the Company owed its 73.27% and 26.73% members $15,456 and $1,505, respectively.Table of Contents9,500,000 sharesBioFuel Energy Corp.Common StockProspectusJPMorgan CitiA.G. EdwardsBear, Stearns & Co. Inc.Cowen and Company , 2007Until , 2007 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.Table of ContentsPart IIInformation not required in prospectusexpensesExpenses of issuanceIssuance and distributionsaleoffering of the shares of common stock being registered hereby.securities described in this registration statement. All amounts are estimates except for the SEC registration fee and the NASD filing fee. Amount to be
Paid SEC registration fee $ 32,100 $ 1,188.79 NASD filing fee 30,500 Listing fee 125,000 Printing and engraving expenses 275,000 Accounting fees and expenses 410,000 Subscription agent and information agent fees and expenses Depositary, transfer agent and registrar fees and expenses Legal fees and expenses 1,990,000 Transfer agent and registrar fees and expenses 15,000 Miscellaneous expenses 222,400 Total 3,100,000 $ directorsDirectors and officers‘‘DGCL’’“DGCL”) provides in relevant part that a corporation may indemnify any officer or director who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable ca usecause to believe such person’s conduct was unlawful.whi chwhich such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.II-1Table of Contentsalso intend to obtainhave obtained officers’ and directors’ liability insurance which insures against liabilities that officers and directors of the registrant may, in such capacities, incur. Section 145(g) of the DGCL provides that a corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under that section.agreement of eachagreements of Mr. Pearce and Mr. Simon providesMaguire provide for indemnification to the fullest extent permitted by law against any claims or judgments that result by reason of employment with us. In addition, during the term of employment of each of Mr. Pearce and Mr. Simon,Maguire, and for a period of three years following employment, we must maintain officers’ and directors’ liability insurance for each of Mr. Pearce and Mr. Maguire at least equal to the coverage that we provide for any other present or former senior executive or director. The severance agreement of Mr. Simon provides for indemnification as though he continued his employment with us. In addition, for a period of three years after June 30, 2010, we must maintain directors’ and officers’ liability insurance for Mr. Simon at least equal to the coverage that we provide for any other present or former senior executive or director.Section 7(b) of the Underwriting Agreement, filed as Exhibit 1.1, provides that the Underwriters named therein will indemnify us and hold us harmless and each of our directors, officers or controlling persons from and against certain liabilities, including liabilities under the Securities Act. Section 7(d) of the Underwriting Agreement also provides that such Underwriters will contribute to certain liabilities of such persons under the Securities Act.unregisteredthe securitiesOn April 11, 2006, BioFuel Energy Corp. issued 879.6 shares of its common stock, par value $0.01 per share, to Greenlight Capital Offshore, Ltd. and 120.4 shares of its common stock, par value $0.01 per share, to Greenlight Reinsurance, Ltd. in exchange for $1,033,587.17 and $141,477.83, respectively. The issuances of such shares of common stockthe registrant listed below were not registered under the Securities Act because the sharesthey were issuedsold in transactions exempt from registration underpursuant to Section 4(2) of the Securities Act.Since inceptionJanuary 2006, BioFuelthe event the Bridge Loan is not paid in full on or before that date, the Bridge Loan Agreement provides that we will issue warrants to the Backstop Parties exercisable at an exercise price of $0.01 per share for an aggregate of 15% of our common stock on a fully diluted basis as of the date the warrants are issued. A form of warrant is included in the Bridge Loan Agreement, which is included as Exhibit 10.26 to this registration statement.(the ‘‘LLC’’) issuedand Buffalo Lake Energy, LLC (which we refer to as the following securities“Cargill Letter”).transactions described below. The securities were issued in transactions exempt from registration under Section 4(2)Cargill Letter that upon completion of this rights offering (i) we will pay Cargill $2,800,829 (which we refer to as the “Cargill Cash Payment”) pursuant to the terms of the Securities Act.The LLC has issued profit sharing membership interestsagreement dated January 14, 2009 by and between us and Cargill (which we refer to eachas the “Settlement Agreement”) and, as contemplated by the Settlement Agreement, Cargill will forgive a like amount of Thomas J. Edelman, Scott H. Pearce, Daniel J. Simonthe payable under the Settlement Agreement and Irik P. Sevin for their services in founding and organizing(ii) upon receipt of the company. The LLC also issued profit sharing membership interests to Messrs. Simon and Pearce in consideration for their interests in BioFuel Solutions Delaware. In addition,Cargill Cash Payment, Cargill will forgive the LLC has issued profit sharing membership interests to each of Messrs. Edelman, Kornder, Morris, Pearce, Simon, Streisand, Page, Stefanoudakis and Huffman in consideration for their services as executive officers. A summary of these issuances is presented inremaining payable under the table below:II-2Table of ContentsFounder/Executive Date of Issuance C Units D Units M Units Thomas J. Edelman May 1, 2006 899,500 299,833 100,000 June 30, 2006 19,218 5,925 5,000 August 4, 2006 2,315 714 — September 14, 2006 41,223 13,741 — April 19, 2007 5,253 917 — Scott H. Pearce May 1, 2006 542,500 180,833 125,000 June 30, 2006 9,705 3,729 10,000 August 4, 2006 1,169 449 — September 14, 2006 78,723 26,241 — April 19, 2007 5,252 918 — Daniel J. Simon May 1, 2006 542,500 180,833 125,000 June 30, 2006 8,773 3,418 10,000 August 4, 2006 1,057 412 — September 14, 2006 78,723 26,241 — April 19, 2007 5,252 918 — Irik P. Sevin May 1, 2006 220,500 73,500 25,000 June 30, 2006 5,879 1,453 25,000 August 4, 2006 708 175 — Eric D. Streisand July 18, 2006 75,000 25,000 — JonAlan C. Page July 18, 2006 18,750 6,250 — Michael N. Stefanoudakis September 11, 2006 15,000 5,000 — April 19, 2007 3,750 1,250 — William W. Huffman September 14, 2006 9,375 3,125 — David J. Kornder February 9, 2007 75,000 25,000 — Timothy S. Morris February 26, 2007 10,000 5,000 — On May 1, 2006, the LLC issued 9,175,000 A units to various investorsSettlement Agreement in exchange for capital commitments totaling $91,750,000 (all of which have been paid). On June 30, 2006,depositary shares in an amount equal to approximately $6,000,000 (which we refer to as the LLC issued to BioFuel Partners, LLC 157,500 units in exchange for capital commitments totaling $1,570,000 (all of which have been paid)“Cargill Stock Payment”). On September 29, 2006,LLCCargill Stock Payment will be issued to Cargill 950,000 B units in exchangeon the 12th business day following the consummation of this rights offering and will be valued at a per share price equal to the average of the volume weighted averages of the trading prices of our common stock, as such prices are reported on The Nasdaq Global Market, for a capital contribution of $9,500,000. On August 4, 2006, the LLC10 consecutive trading days ending on the second trading day immediately preceding the date such depositary shares are issued to an investor 25,000Cargill. The depositary shares to be issued to Cargill will therefore be issued after the depositary shares that will be issued upon expiration of this rights offering but will have the same rights and preferences as the depositary shares that will be issued upon expiration of this rights offering. The depositary shares to be issued to Cargill are not being registered or sold in this rights offering. In order to issue the depositary shares that will make up the Cargill Stock Payment, we expect to issue and deposit with the depositary a number of additional shares of Series A units in exchange forNon-Voting Convertible Preferred Stock that corresponds to the aggregate fractional interests in another entity.On April 10, 2007,shares of Series A Non-Voting Convertible Preferred Stock that the LLCnewly issued 750 C unitsdepositary shares represent. In the event that an insufficient number of authorized shares of Series A Non-Voting Convertible Preferred Stock are available for such issuance and 250 D unitsdeposit with the depositary, we expect to eachestablish an alternative method for satisfying the Cargill Stock Payment that is satisfactory to us, Cargill and the Backstop Parties.two employees, 2010 (which we refer to as the “Rights Offering Letter Agreement”).services. On April 19, 2007,full basic subscription privilege (which we refer to as the LLC issued 5,000 C units“Basic Commitment”) and 2,500 C units(ii) purchase immediately prior to an employee for services. and financial statement schedulesNumber Description 1 .1 Form of Underwriting Agreement 3 .1 Form of Amended and Restated Certificate of Incorporation 3 .2 Form of Bylaws, as Amended and Restated 4 .1 Specimen Stock Certificate 5 .1 Opinion of Cravath, Swaine & Moore LLP Number Description 3.1 Amended and Restated Certificate of Incorporation of BioFuel Energy Corp. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed June 19, 2007) Number Description 3.2 Amended and Restated Bylaws of BioFuel Energy Corp. dated March 20, 2009 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed March 23, 2009) 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment #3 to Registration Statement to Form S-1 (file no. 333-139203) filed April 23, 2007) 4.2 Specimen Certificate for Shares of Series A Non-Voting Convertible Preferred Stock * 4.3 Certificate of Designations of Series A Non-Voting Convertible Preferred Stock * 4.4 Form of Rights Certificate * 4.5 Form of Depositary Receipt ** 4.6 Form of Deposit Agreement ** 5.1 Opinion of Cravath, Swaine & Moore LLP regarding validity of the securities being issued ** 8.1 Opinion of Cravath, Swaine & Moore LLP regarding certain tax matters ** 10.1 Second Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed August 14, 2007) 10.2 Form of Third Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC * 10.3 Credit Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC and Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, various financial institutions from time to time, as lenders, Deutsche Bank Trust Company Americas, as collateral agent, and BNP Paribas, as administrative agent and arranger * 10.4 Waiver and Amendment dated September 29, 2009, to the Credit Agreement dated September 25, 2006 and Collateral Account Agreement dated September 25, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 30, 2009) 10.5 Collateral Account Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC, Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, Deutsche Bank Trust Company Americas, as collateral agent, and Deutsche Bank Trust Company Americas, as depositary agent and securities intermediary (incorporated by reference to Exhibit 10.3 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.6 Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed August 14, 2007) 10.7 Form of Amended and Restated Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto * 10.8 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) Number Description 10 .1 Form of Second Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC 10 .2 Credit Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC and Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, various financial institutions from time to time, as lenders, Deutsche Bank Trust Company Americas, as collateral agent, and BNP Paribas, as administrative agent and arranger** 10 .3 Collateral Account Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC, Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, Deutsche Bank Trust Company Americas, as collateral agent and Deutsche Bank Trust Company Americas, as depositary agent and securities intermediary** 10 .4 Form of Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto 10 .5 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .6 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .7 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .8 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .9 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** # 10 .10 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** # 10 .11 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Scott H. Pearce** 10 .12 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Daniel J. Simon** 10 .13 Engineering, Procurement and Construction Agreement dated April 28, 2006, between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc.** # 10 .13.1 First Amendment to the Engineering, Procurement and Construction Agreement between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc., dated August 28, 2006** # 10 .14 Engineering, Procurement and Construction Agreement dated June 9, 2006, between Buffalo Lake Energy, LLC and TIC-The Industrial Company Wyoming, Inc.** # 10 .15 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .16 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** Number Description 10.9 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.10 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.11 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.12 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Amendment #5 to Registration Statement to Form S-1 (file no. 333-139203) filed May 15, 2007) 10.13 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.10 to the Company’s Amendment #5 to Registration Statement to Form S-1 (file no. 333-139203) filed May 15, 2007) 10.14 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Scott H. Pearce (incorporated by reference to Exhibit 10.11 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.15 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Daniel J. Simon (incorporated by reference to Exhibit 10.12 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.16 Written Terms of Employment dated March 9, 2010 between BioFuel Energy Corp. and Daniel J. Simon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 1, 2010) 10.17 Executive Severance, Release and Waiver Agreement dated June 2, 2010 between BioFuel Energy Corp. and Daniel J. Simon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 3, 2010) 10.18 Engineering, Procurement and Construction Agreement dated April 28, 2006, between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.19 First Amendment to the Engineering, Procurement and Construction Agreement between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc., dated August 28, 2006 (incorporated by reference to Exhibit 10.13.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) II-4Number Description 10 .17 Grain Facility Lease dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .18 Grain Facility Lease and Sublease dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .19 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Buffalo Lake Energy, LLC** # 10 .20 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Pioneer Trail Energy, LLC** # 10 .21 Loan Agreement dated September 25, 2006, between BioFuel Energy, LLC, the lenders party thereto and Greenlight APE, LLC, as administrative agent** 10 .22 BioFuel Energy, LLC Deferred Compensation Plan for Select Employees** 10 .23 BioFuel Energy, LLC Change of Control Plan** 10 .24 BioFuel Energy Corp 2007 Equity Incentive Compensation Plan 10 .25 BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.1 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.2 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.3 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .26 BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement** 10 .26.1 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement** 10 .27 Form of Tax Benefit Sharing Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto 10 .28 License Agreement dated June 9, 2006 between Delta-T Corporation and Buffalo Lake Energy, LLC** # 10 .29 License Agreement dated April 28, 2006 between Delta-T Corporation and Pioneer Trail Energy, LLC** # 10 .30 Letter Agreement dated July 18, 2006 between Irik P. Sevin and BioFuel Energy, LLC** 10 .31 Assignment and Assumption of Option to Purchase Agreement dated April 6, 2007 10 .31.1 Alta Land Option Agreement dated September 11, 2006 10 .31.2 Amendment dated September 22, 2006 to Alta Land Option Agreement dated September 11, 2006 10 .32 Assignment and Assumption of Option to Purchase Agreement dated April 6, 2007 10 .32.1 Alta Land Option Agreement dated September 18, 2006 10 .33 Form of Stockholders Agreement between BioFuel Energy Corp. and Cargill Biofuels Investments, LLC 21 .1 List of Subsidiaries of BioFuel Energy Corp.** Number Description 10.20 Engineering, Procurement and Construction Agreement dated June 9, 2006, between Buffalo Lake Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.21 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.15 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.22 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.16 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.23 Grain Facility Lease dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.17 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.24 Grain Facility Lease and Sublease dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.18 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.25 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.19 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.26 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.20 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.27 Loan Agreement dated September 25, 2006, between BioFuel Energy, LLC, the lenders party thereto and Greenlight APE, LLC, as administrative agent (incorporated by reference to Exhibit 10.21 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.28 Loan Agreement dated as of September 24, 2010, by and among BioFuel Energy Corp., Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd. and Third Point Loan LLC and Greenlight APE, LLC, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 27, 2010) 10.29 Rights Offering Letter Agreement dated as of September 24, 2010, by and among BioFuel Energy Corp., Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd. and Third Point Loan LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 27, 2010) II-5Number Description 10.30 Form of Amended and Restated Rights Offering Letter Agreement by and among the registrant, BioFuel Energy, LLC, Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd., Third Point Loan LLC and Third Point Advisors, LLC * 10.31 Voting Agreement dated as of September 24, 2010 by Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd. and Greenlight Reinsurance, Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 27, 2010) 10.32 Voting Agreement dated as of September 24, 2010 by Third Point Loan LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 27, 2010) 13.33 Form of Amended and Restated Voting Agreement between BioFuel Energy Corp. and Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd. and Greenlight Reinsurance, Ltd. * 10.34 Form of Amended and Restated Voting Agreement between BioFuel Energy Corp. and Third Point Loan LLC * 10.35 Letter Agreement dated as of September 23, 2010, by and among BioFuel Energy Corp., BFE Operating Company, LLC, Pioneer Trail Energy, LLC, Buffalo Lake Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed September 27, 2010) # 10.36 Waiver Letter, dated September 24, 2010, by Scott H. Pearce, President and Chief Executive Officer, Kelly G. Maguire, Executive Vice President and Chief Financial Officer, Doug Anderson, Vice President of Operations, and Mark Zoeller, Vice President and General Counsel (incorporated by reference to Exhibit 10.1 to the Company’s Current Report filed September 30, 2010) 10.37 BioFuel Energy, LLC Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.38 BioFuel Energy Amended and Restated Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22.1 to the Company’s Annual Report on Form 10-K filed March 12, 2008) 10.39 BioFuel Energy, LLC Change of Control Plan (incorporated by reference to Exhibit 10.23 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.40 BioFuel Energy Corp 2007 Equity Incentive Compensation Plan (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed March 12, 2008) 10.41 BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.42 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.43 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.2 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) Number Description 10.44 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.3 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.45 BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.46 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.47 Tax Benefit Sharing Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed August 14, 2007) 10.48 License Agreement dated June 9, 2006 between Delta-T Corporation and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.28 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.49 License Agreement dated April 28, 2006 between Delta-T Corporation and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.29 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.50 Stockholders Agreement between BioFuel Energy Corp. and Cargill Biofuel Investments, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed August 14, 2007) 10.51 Agreement and Omnibus Amendment dated as of July 30, 2009, among Buffalo Lake Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2009) 10.52 Agreement and Omnibus Amendment dated as of July 30, 2009, among Pioneer Trail Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2009) 21.1 List of Subsidiaries of BioFuel Energy Corp. (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed March 30, 2010) 23.1 Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm * 23.2 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 5.1) 23.3 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 8.1) 24.1 Powers of Attorney (included in signature page to the Registration Statement) 99.1 Form of Instructions as to Use of Rights Certificate * 99.2 Form of Letter to Record Holders * 99.3 Form of Letter to Nominee Holders Whose Clients are Beneficial Owners * 99.4 Form of Letter to Clients of Nominee Holders * * Filed herewith. Number Description 23 .1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm 23 .2 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 5.1) 24 .1 Powers of Attorney** ** Previously filed.To be filed by amendment. *** Filed previously. # Application has been made to the Securities and Exchange Commission for confidential treatment of certain provisions of this exhibit. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. NumberDescription (b) IFinancial Statement Schedule Schedule I of BioFuel Energy Corp. — Condensed Financial Information of Registrant. See page F-17.(incorporated by reference to the Company’s Annual Report on Form 10-K filed March 30, 2010)undertakes as follows:(1) The undersigned will provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.(2) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.(3) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. That, for the purpose of determining liability of the registrant under the Securities Act of 1933, as amended, to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. II-6Table of Contents31 to the Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York,Denver, Colorado, on April 23, 2007.November 17, 2010.BioFuel Energy Corp., By: /s/ Scott H. Pearce Name: Scott H. Pearce Title: President and Chief ExecutiveOfficerCEO31 to the Registration Statementregistration statement has been signed by the following persons in the capacities indicated on April 23, 2007.November 17, 2010.Signature Title *ChairmanPresident, Chief Executive Officer and DirectorScott H. Pearce (Principal Executive Officer) Executive Vice President and Chief Financial Officer Kelly G. Maguire (Principal Financial and Accounting Officer) Director, Chairman of the Board Mark W. WongThomas J. EdelmanDirector Elizabeth K. Blake Signature Title Director David Einhorn Director Richard I. Jaffee Director John D. March Director Ernest J. Sampias *By: /s/ Scott H. Pearce President and Chief ExecutiveOfficer and Director(Principal Executive Officer)Name: Scott H. Pearce Title: Attorney-in-Fact Number Description 3.1 Amended and Restated Certificate of Incorporation of BioFuel Energy Corp. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed June 19, 2007) 3.2 Amended and Restated Bylaws of BioFuel Energy Corp. dated March 20, 2009 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed March 23, 2009) 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment #3 to Registration Statement to Form S-1 (file no. 333-139203) filed April 23, 2007) 4.2 Specimen Certificate for Shares of Series A Non-Voting Convertible Preferred Stock * 4.3 Certificate of Designations of Series A Non-Voting Convertible Preferred Stock * 4.4 Form of Rights Certificate * 4.5 Form of Depositary Receipt ** 4.6 Form of Deposit Agreement ** 5.1 Opinion of Cravath, Swaine & Moore LLP regarding validity of the securities being issued ** 8.1 Opinion of Cravath, Swaine & Moore LLP regarding certain tax matters ** 10.1 Second Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed August 14, 2007) 10.2 Form of Third Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC * 10.3 Credit Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC and Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, various financial institutions from time to time, as lenders, Deutsche Bank Trust Company Americas, as collateral agent, and BNP Paribas, as administrative agent and arranger * 10.4 Waiver and Amendment dated September 29, 2009, to the Credit Agreement dated September 25, 2006 and Collateral Account Agreement dated September 25, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 30, 2009) 10.5 Collateral Account Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC, Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, Deutsche Bank Trust Company Americas, as collateral agent, and Deutsche Bank Trust Company Americas, as depositary agent and securities intermediary (incorporated by reference to Exhibit 10.3 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.6 Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed August 14, 2007) 10.7 Form of Amended and Restated Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto * Number Description 10.8 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.9 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.10 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.11 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.12 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Amendment #5 to Registration Statement to Form S-1 (file no. 333-139203) filed May 15, 2007) 10.13 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.10 to the Company’s Amendment #5 to Registration Statement to Form S-1 (file no. 333-139203) filed May 15, 2007) 10.14 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Scott H. Pearce (incorporated by reference to Exhibit 10.11 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.15 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Daniel J. Simon (incorporated by reference to Exhibit 10.12 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.16 Written Terms of Employment dated March 9, 2010 between BioFuel Energy Corp. and Daniel J. Simon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 1, 2010) 10.17 Executive Severance, Release and Waiver Agreement dated June 2, 2010 between BioFuel Energy Corp. and Daniel J. Simon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 3, 2010) 10.18 Engineering, Procurement and Construction Agreement dated April 28, 2006, between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) Number Description 10.19 First Amendment to the Engineering, Procurement and Construction Agreement between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc., dated August 28, 2006 (incorporated by reference to Exhibit 10.13.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.20 Engineering, Procurement and Construction Agreement dated June 9, 2006, between Buffalo Lake Energy, LLC and TIC-The Industrial Company Wyoming, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.21 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.15 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.22 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.16 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.23 Grain Facility Lease dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.17 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.24 Grain Facility Lease and Sublease dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.18 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.25 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.19 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.26 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.20 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.27 Loan Agreement dated September 25, 2006, between BioFuel Energy, LLC, the lenders party thereto and Greenlight APE, LLC, as administrative agent (incorporated by reference to Exhibit 10.21 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.28 Loan Agreement dated as of September 24, 2010, by and among BioFuel Energy Corp., Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd. and Third Point Loan LLC and Greenlight APE, LLC, as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 27, 2010) Number Description 10.29 Rights Offering Letter Agreement dated as of September 24, 2010, by and among BioFuel Energy Corp., Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd. and Third Point Loan LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 27, 2010) 10.30 Form of Amended and Restated Rights Offering Letter Agreement by and among the registrant, BioFuel Energy, LLC, Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd., Greenlight Reinsurance, Ltd., Third Point Loan LLC and Third Point Advisors, LLC * 10.31 Voting Agreement dated as of September 24, 2010 by Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd. and Greenlight Reinsurance, Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 27, 2010) 10.32 Voting Agreement dated as of September 24, 2010 by Third Point Loan LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 27, 2010) 13.33 Form of Amended and Restated Voting Agreement between BioFuel Energy Corp. and Greenlight Capital, LP, Greenlight Capital Qualified, LP, Greenlight Capital (Gold), LP, Greenlight Capital Offshore Partners, Greenlight Capital Offshore Master (Gold), Ltd. and Greenlight Reinsurance, Ltd. * 10.34 Form of Amended and Restated Voting Agreement between BioFuel Energy Corp. and Third Point Loan LLC * 10.35 Letter Agreement dated as of September 23, 2010, by and among BioFuel Energy Corp., BFE Operating Company, LLC, Pioneer Trail Energy, LLC, Buffalo Lake Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed September 27, 2010) # 10.36 Waiver Letter, dated September 24, 2010, by Scott H. Pearce, President and Chief Executive Officer, Kelly G. Maguire, Executive Vice President and Chief Operating Financial Officer, Doug Anderson, Vice President of Operations, and DirectorDaniel J. Simon/s/ David J. KornderExecutiveMark Zoeller, Vice President andChief Financial Officer(Principal Financial andAccounting Officer) General Counsel (incorporated by reference to Exhibit 10.1 to the Company’s Current Report filed September 30, 2010)10.37BioFuel Energy, LLC Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) David J. Kornder10.38BioFuel Energy Amended and Restated Deferred Compensation Plan for Select Employees (incorporated by reference to Exhibit 10.22.1 to the Company’s Annual Report on Form 10-K filed March 12, 2008) 10.39BioFuel Energy, LLC Change of Control Plan (incorporated by reference to Exhibit 10.23 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.40 BioFuel Energy Corp 2007 Equity Incentive Compensation Plan (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed March 12, 2008) 10.41 BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) Number Description 10.42 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.43 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.2 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.44 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document (incorporated by reference to Exhibit 10.25.3 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.45 BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.46 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference to Exhibit 10.26.1 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.47 Tax Benefit Sharing Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto dated June 19, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed August 14, 2007) 10.48 License Agreement dated June 9, 2006 between Delta-T Corporation and Buffalo Lake Energy, LLC (incorporated by reference to Exhibit 10.28 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.49 License Agreement dated April 28, 2006 between Delta-T Corporation and Pioneer Trail Energy, LLC (incorporated by reference to Exhibit 10.29 to the Company’s Amendment #1 to Registration Statement to Form S-1 (file no. 333-139203) filed January 24, 2007) 10.50 Stockholders Agreement between BioFuel Energy Corp. and Cargill Biofuel Investments, LLC dated June 19, 2007 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed August 14, 2007) 10.51 Agreement and Omnibus Amendment dated as of July 30, 2009, among Buffalo Lake Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2009) 10.52 Agreement and Omnibus Amendment dated as of July 30, 2009, among Pioneer Trail Energy, LLC, Cargill, Incorporated and Cargill Commodity Services, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2009) 21.1 List of Subsidiaries of BioFuel Energy Corp. (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed March 30, 2010) 23.1 Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm * 23.2 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 5.1) 23.3 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 8.1) 24.1 Powers of Attorney (included in signature page to the Registration Statement) 99.1 Form of Instructions as to Use of Rights Certificate * 99.2 Form of Letter to Record Holders * Number Description 99.3 Form of Letter to Nominee Holders Whose Clients are Beneficial Owners * 99.4 Form of Letter to Clients of Nominee Holders * * DirectorDavid Einhorn*DirectorDaniel S. Loeb*DirectorJames Lin*DirectorChristopher M. SommersFiled herewith.*By: /s/ Scott H. Pearce Name: Scott H. PearceTitle: Attorney-in-FactII-7Table of ContentsExhibit indexNumber Description 1 .1 Form of Underwriting Agreement 3 .1 Form of Amended and Restated Certificate of Incorporation 3 .2 Form of Bylaws, as Amended and Restated 4 .1 Specimen Stock Certificate 5 .1 Opinion of Cravath, Swaine & Moore LLP 10 .1 Form of Second Amended and Restated Limited Liability Company Agreement of BioFuel Energy, LLC 10 .2 Credit Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC and Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, various financial institutions from time to time, as lenders, Deutsche Bank Trust Company Americas, as collateral agent, and BNP Paribas, as administrative agent and arranger** 10 .3 Collateral Account Agreement dated September 25, 2006, among BFE Operating Company, LLC, Buffalo Lake Energy, LLC, Pioneer Trail Energy, LLC, as borrowers, BFE Operating Company, LLC, as borrowers’ agent, Deutsche Bank Trust Company Americas, as collateral agent and Deutsche Bank Trust Company Americas, as depositary agent and securities intermediary** 10 .4 Form of Registration Rights Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto 10 .5 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .6 Ethanol Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .7 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .8 Distillers Grains Marketing Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .9 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** # 10 .10 Corn Supply Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** # 10 .11 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Scott H. Pearce** 10 .12 Executive Employment Agreement dated April 28, 2006, between BioFuel Energy, LLC and Daniel J. Simon** 10 .13 Engineering, Procurement and Construction Agreement dated April 28, 2006, between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc.** # 10 .13.1 First Amendment to the Engineering, Procurement and Construction Agreement between Pioneer Trail Energy, LLC and TIC-The Industrial Company Wyoming, Inc., dated August 28, 2006** # II-8Table of ContentsNumber Description 10 .14 Engineering, Procurement and Construction Agreement dated June 9, 2006, between Buffalo Lake Energy, LLC and TIC-The Industrial Company Wyoming, Inc.** # 10 .15 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .16 Master Agreement dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .17 Grain Facility Lease dated September 25, 2006, between Cargill, Incorporated and Buffalo Lake Energy, LLC** 10 .18 Grain Facility Lease and Sublease dated September 25, 2006, between Cargill, Incorporated and Pioneer Trail Energy, LLC** 10 .19 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Buffalo Lake Energy, LLC** # 10 .20 Cargill Direct Futures Advisory Agreement dated September 25, 2006, between Cargill Commodity Services Inc. and Pioneer Trail Energy, LLC** # 10 .21 Loan Agreement dated September 25, 2006, between BioFuel Energy, LLC, the lenders party thereto and Greenlight APE, LLC, as administrative agent** 10 .22 BioFuel Energy, LLC Deferred Compensation Plan for Select Employees** 10 .23 BioFuel Energy, LLC Change of Control Plan** 10 .24 BioFuel Energy Corp 2007 Equity Incentive Compensation Plan 10 .25 BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.1 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.2 Amendment to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .25.3 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Prototype Plan Document** 10 .26 BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement** 10 .26.1 Addendum to BioFuel Energy, LLC 401(k) Profit Sharing Plan Adoption Agreement** 10 .27 Form of Tax Benefit Sharing Agreement between BioFuel Energy Corp. and the parties listed on the signature page thereto 10 .28 License Agreement dated June 9, 2006 between Delta-T Corporation and Buffalo Lake Energy, LLC** # 10 .29 License Agreement dated April 28, 2006 between Delta-T Corporation and Pioneer Trail Energy, LLC** # 10 .30 Letter Agreement dated July 18, 2006 between Irik P. Sevin and BioFuel Energy, LLC** 10 .31 Assignment and Assumption of Option to Purchase Agreement dated April 6, 2007 10 .31.1 Alta Land Option Agreement dated September 11, 2006 10 .31.2 Amendment dated September 22, 2006 to Alta Land Option Agreement dated September 11, 2006 10 .32 Assignment and Assumption of Option to Purchase Agreement dated April 6, 2007 10 .32.1 Alta Land Option Agreement dated September 18, 2006 II-9Table of ContentsNumber Description 10 .33 Form of Stockholders Agreement between BioFuel Energy Corp. and Cargill Biofuel Investments, LLC 21 .1 List of Subsidiaries of BioFuel Energy Corp.** 23 .1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm 23 .2 Consent of Cravath, Swaine & Moore LLP (contained in Exhibit 5.1) 24 .1 Powers of Attorney** ** Previously filed.To be filed by amendment. *** Filed previously. # Application has been made to the Securities and Exchange Commission for confidential treatment of certain provisions of this exhibit. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. II-10