General. Concurrent with this rights offering, the LLC will grant at no charge purchase privileges to the record holders (other than BioFuel Energy Corp.) of membership interests in the LLC as of 5:00 p.m., New York City time, on , the record date, to purchase a new class of preferred membership interests in the LLC (which we refer to as the “LLC’s concurrent private placement”). Each LLC purchase privilege will permit the holder of such privilege to acquire, at a rights price equal to $0.56, one preferred membership interest in the LLC under the LLC basic purchase privilege and will ~~be increased. These increases in tax basis~~also provide the holder of such LLC basic purchase privilege with an LLC additional purchase privilege. The LLC additional purchase privilege will ~~result in a tax benefit to BioFuel that would not have been available but for~~entitle the ~~future exchanges~~holder of the LLC purchase privilege to purchase an additional amount of preferred membership interests for shares of our common stock. These increases in tax basis would reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of the tax basis increases, and a court could sustain such a challenge.

We intend to enter into a tax benefit sharing agreement with our historical LLC equity investors that will provide for a sharing of these tax benefits between the company and the historical LLC equity investors. Under this agreement, BioFuel will make a payment to an exchanging LLC member of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that we actually realize as a result of this increase in tax basis. BioFuel and its common stockholders will benefit from the remaining 15% of cash savings, if any, in income tax that is realized by BioFuel. For purposes of the tax benefit sharing agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase in the tax basis of the tangible and intangible assets of the LLC as a result of the exchanges and had we not entered into the tax benefit 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.

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

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

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

~~Subordinated loan agreement~~

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

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

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

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

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

~~Tax increment financing~~

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

~~Off-balance sheet arrangements~~

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

~~Contractual obligations~~

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

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Type of obligation
(in thousands) 2007 2008 2009 2010 2011 Thereafter Total
Construction contracts⁽¹⁾ $ 177,479 $ 33,454 $ — $ — $ — $ — $ 210,933
Operating leases⁽²⁾ 811 10,120 10,284 10,284 10,284 77,177 118,960
Capital lease obligation⁽³⁾ 50 300 300 300 300 7,750 9,000
Minimum energy charges⁽³⁾ 50 300 300 300 300 7,750 9,000
Puchase obligations⁽⁴⁾ 772 2,100 2,400 2,400 2,400 38,700 48,772
Loan commitment fees⁽⁵⁾ 3,643 65 — — — — 3,708
Minimum commissions⁽⁶⁾ — — — — — — —
Total contractual obligations $ 182,805 $ 46,339 $ 13,284 $ 13,284 $ 13,284 $ 131,377 $ 400,373

⁽¹⁾

We have entered into engineering, procurement and construction contracts covering the construction of our Wood River and Fairmont plants. The obligations reported are the remaining amounts payable under the existing contracts and include the retainage reported in our consolidated balance sheet. We are responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator improvements. We expect to enter into contracts with respect to the construction of this infrastructure and do not anticipate the process will affect our scheduled production start dates.


⁽²⁾	We have entered into agreements with Cargill to lease corn storage facilities adjacent to our Wood River and Fairmont plants. We expect to pay Cargill approximately $800,000 per year to lease each of these storage facilities provided the applicable corn supply agreement remains in effect.

⁽³⁾

We have entered into an agreement for electrical service for our Fairmont plant under which we will pay, beginning in the fourth quarter of 2007, a monthly facilities charge of approximately $25,000 and a minimum monthly electric service charge of $25,000 for the 30-year term of the agreement to cover the investment expected to be made by the utility in order to provide electrical service to the plant.


⁽⁴⁾	~~We have corn supply agreements with Cargill for our Wood River and Fairmont plants under which we will pay Cargill minimum origination fees of $1.2 million annually for each plant.~~

⁽⁵⁾

Under our bank facility we will pay a commitment fee of 0.50% per annum, payable quarterly, on the daily average unused portion of the facility. Under our subordinated loan agreement, we are required to pay takedown fees, at the time of borrowing, equal to 5.0% of the principal amount of each borrowing made under the subordinated loan agreement. The obligations are based on estimated timing of funding under the facilities, which we expect will commence in 2007.

⁽⁶⁾

We have marketing agreements with Cargill for the ethanol and distillers grain that will be produced by our Wood River and Fairmont plants. Pursuant to these agreements we are required to pay a minimum commission to the extent either plant fails to produce 82.5 million gallons of ethanol or 247,500 tons of distillers grain for the twelve-month period beginning with the start of commercial operations and each anniversary thereafter. If the number of gallons of ethanol actually produced by a plant is less than 82.5 Mmgy, the minimum commission will be the deficiency multiplied by the average selling price of our ethanol during such period, multiplied by 1%. If the number of tons of distillers grain produced is less than 247,500 tons, the minimum commission will be equal to the sum of the deficiency applicable to dry distillers grain multiplied by $2/ton and the deficiency applicable to wet distillers grain multiplied by $3/ton. The deficiency volume applicable to dry and wet distillers grain will be determined based on the ratio of dry products to wet products produced at the relevant plant during the applicable year.

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~~Quantitative and qualitative disclosures about market risk~~

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

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

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

To reduce the risks implicit in price fluctuations of the four principal commodities we will use or sell and variations in interest rates, we plan to continuously monitor these markets and to hedge a portion of our exposure. Specifically, when we can reduce volatility through hedging on an attractive basis, we expect to do so. It is unlikely that we will enter into material commodity hedging until production at our plants begins or is imminent. Thereafter, we currently anticipate hedging between 40% and 80% of our commodity price exposure on a rolling 12 to 36 month basis. This range would include the effect of intermediate to longer-term purchase and sales contracts we may enter into, which act as de facto hedges. In hedging, we may buy or sell exchange-traded commodities futures or options, or enter into swaps or other hedging arrangements. In doing so, we may access Cargill’s risk management and futures advisory services and utilize its trading 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

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

~~Summary of critical accounting policies~~

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

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

~~Recoverability of property, plant and equipment~~

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

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

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

~~Share-based compensation~~

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

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

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

~~Inflation~~

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

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~~Industry outlook~~

~~General~~

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

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

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

~~Environmental benefits~~

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

~~Favorable tax treatment~~

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

~~Replacement of MTBE~~

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

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

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~~Geopolitical concerns~~

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

~~Ethanol as a gasoline substitute~~

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

~~Supply of ethanol~~

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

Despite the geographic concentration, production in the ethanol industry remains fragmented. According to the RFA, while domestic ethanol production increased from 1.3 billion gallons in 1997 to 4.9 billion gallons in 2006, the top ten producers accounted for approximately 45% of the industry’s total estimated production capacity as of April 2007. More than 50 smaller producers and farmer-owned cooperatives, most with production of 50 Mmgy or less, generate the remaining production. Since a typical ethanol facility can be constructed in approximately 18 months from groundbreaking to operation, the industry is able to forecast capacity additions for up to 18 months in the future. As of April 2007, the RFA estimates that approximately 6.2 Bgpy of additional production capacity is under construction at 85 new or existing ethanol facilities. This estimate does not include our construction plans or certain expansion plans of other ethanol 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.

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

~~Legislation~~

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

~~Energy Policy Act~~

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

~~Federal blenders’ credit~~

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

~~State and local incentives~~

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

~~State legislation banning or significantly limiting the use of MTBE~~

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

~~Federal tariff on imported ethanol~~

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

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

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~~Business~~

~~Overview~~

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

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

~~Under Construction~~

~~Under~~
~~Development~~

~~Additional Development Sites~~

~~Wood~~
~~River,~~
~~Nebraska~~

~~Fairmont,~~
~~Minnesota~~

~~Alta,~~
~~Iowa~~

~~Gilman,~~
~~Illinois~~

~~Atchison,~~
~~Kansas~~

~~Litchfield,~~
~~Illinois~~

~~Capacity~~

~~115 Mmgy~~

~~Rail transportation~~

~~Union~~
~~Pacific~~

~~CN and TPW~~

~~Union~~
~~Pacific~~

~~Norfolk~~
~~Southern~~
~~and BNSF~~

~~Site~~

~~Owned~~

~~Optioned~~

~~Construction start~~

~~Begun~~

~~Q3/Q4 2007~~

—

~~Expected completion~~

~~Q1 2008~~

~~Q2 2009~~

—

~~Company history~~

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

~~Competitive strengths~~

~~We believe that we have the following competitive strengths:~~

•

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

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	production facilities. Our Executive Vice President and Chief Financial Officer, David J. Kornder, has extensive senior management experience operating public energy companies. Our Vice President–Operations, Timothy S. Morris, brings significant leadership and experience in the operations and management of ethanol production facilities.

•

~~Plant locations.~~ We have selected our plant locations based on an in-depth analysis designed to maximize profitability, particularly by minimizing the costs of corn, natural gas and electricity, and assuring adequate rail access. For example, the sites of our Wood River and Fairmont plants were selected by us with input from Cargill based on, among other factors, the surplus corn supply in the surrounding areas, as well as the availability of local acreage that may be converted to corn production as demand for corn increases. For these reasons, we expect the price of corn supplied to our Wood River and Fairmont plants to be materially lowe r than prevailing CBOT corn prices. We also expect that our Alta plant and additional sites under development will benefit from surplus corn supply and additional local acreage available for future corn production. Because geography is critical in siting ethanol plants, due to corn supply, access to ethanol and distillers grain markets and the ability of management to efficiently oversee multiple facilities, we believe opportunities to sell certain of our plants or plant sites, exchange them or buy those built by others are likely to arise. We intend to actively pursue such opportunities.

•

~~Relationship with Cargill.~~ We have entered into a number of long-term contracts with Cargill, which will provide us access to corn supply, an extensive logistics and transportation network and an experienced marketer of ethanol and distillers grain. We will also have the opportunity to utilize Cargill’s risk management services. Cargill participates in almost every aspect of the corn industry in the United States, including operation of grain elevators, management of export facilities, transportation, ethanol production and livestock nutrition. Pursuant to 10-year ethanol marketing agreements and 10-year distillers grain marketing ag reements, Cargill has agreed to market 100% of the ethanol and distillers grain, respectively, produced at our Wood River and Fairmont facilities and, under 20-year corn supply agreements, has agreed to supply 100% of our corn for these facilities. For our additional plants under development, we expect to enter into similar contractual arrangements with Cargill for the supply of corn as well as for the logistics, transportation and marketing of our ethanol and distillers grain. In addition, Cargill has made an equity investment in our company. We are aware of only one other ethanol company with which Cargill has this type of commercial relationship. We believe that our relationship with Cargill will provide us with a number of competitive advantages:


	•	~~Reliable corn supply.~~ We expect to benefit from Cargill’s expertise in corn origination services and extensive experience with corn supply in the areas of our facilities. Pursuant to our corn supply agreements for our Wood River and Fairmont plants, Cargill will supply our corn requirements during the 20-year term of the contracts, regardless of local supply and demand. In addition, we have leased corn elevators from Cargill adjacent to each of the Wood River and Fairmont plants, providing us with significant corn storage and handling capacity.


	•	~~Logistics and transportation.~~ We believe that our access to Cargill’s expertise, through its extensive network of rail and trucking relationships and an array of logistical and scheduling tools, will minimize the risk of disruption or unexpected additional transportation costs for the delivery of corn and the transportation of the ethanol and distillers grain produced by our Wood River and Fairmont plants to our end markets.


	•	~~Ethanol and distillers grain marketing.~~ Because of Cargill’s significant historical experience marketing ethanol and feed ingredients, including distillers grain, Cargill will provide immediate access to a broad customer base. Under 10-year agreements,

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		Cargill will be responsible for maintaining a continuous outlet for the marketing, sale and distribution of all ethanol and distillers grain produced by our Wood River and Fairmont plants, eliminating the need for us to hire marketing personnel. Under the terms of our agreements, we will receive the same average price for our ethanol that Cargill receives for all ethanol that it produces. In addition, we believe our relationship with Cargill positions us well with large end-users of ethanol due to the size and reliability of Cargill compared to other small ethanol marketers and producers that market ethanol directly or through other marketing channels.


	•	~~Risk management services.~~ We will have the opportunity to utilize Cargill’s comprehensive risk management platform to help manage our commodity risks relating to corn, ethanol and natural gas prices and may hedge through them.

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

•

~~Close relationship with TIC.~~ We are one of TIC’s strategic ethanol accounts and have a priority relationship with them. We believe this will enable us to add new ethanol production capacity faster than many of our competitors. We believe that TIC is one of the largest heavy industrial contractor engaged in the production of ethanol facilities in the United States. Daniel J. Simon, our Executive Vice President and Chief Operating Officer, formerly led TIC’s Renewable Energy Development subsidiary and co-founded and served as the executive sponsor of a joint venture between TIC and Delta-T. We have entered into EPC cont racts with TIC Wyoming, a subsidiary of TIC, for our Wood River and Fairmont facilities. We have received a committed project slot for our Alta plant under development, and we believe that our relationship with TIC will provide us access to additional construction slots as needed for future plant development. We believe this is a key advantage over our competitors that have not secured construction commitments for their announced capacity expansions.

•

~~State-of-the-art production technology and operational scale.~~ We expect each of our plants will utilize state-of-the-art ethanol production technology designed to produce the highest corn-to-ethanol conversion yields in the industry today, in addition to higher throughput, lower production costs and higher operating efficiency than smaller and older plants, which currently comprise the vast majority of industry capacity. While the average size of an ethanol production facility in the United States, according to the Renewable Fuels Association, or RFA, is approximately 50 Mmgy, we expect each of our plants to generate 115 Mmgy, thereby gene rating significant cost efficiencies and other economies of scale. For example, the scale of our facilities will enable us to transport our ethanol with dedicated unit trains, which we believe is the most cost-effective method available to deliver ethanol to customers.

~~Strategy~~

•

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

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•

~~Dedication to cost control and efficiency.~~ We are developing and constructing our ethanol facilities with focus on minimizing cost inputs such as corn, natural gas and transportation. We have chosen the sites for our Wood River and Fairmont plants in part because of their access to significant local corn production, their proximity to competitive natural gas supplies and their access to transportation infrastructure, each of which we expect to keep costs lower than industry averages. Once our plants are operational, we will continue to promote a culture of cost control and efficiency regardless of the economic cycle. We will strive to be o ne of the lowest cost ethanol producers in the industry through the application of the latest technology, strict attention to cost efficiencies and, where appropriate, long-term contracts for the supply of inputs such as corn and natural gas.

•

~~Evaluate alternative production technologies.~~ We will continually review new technological developments that could result in more efficient methods of ethanol production. We intend to maintain continued access to emerging ethanol technology. We believe that our sites will accommodate modifications to utilize alternative feedstock supplies or production technologies that may become available in the future, including ethanol from corn stover, cellulosic biomass and switchgrass.

•

~~Flexibility to capitalize on market opportunities.~~ Because of the unpredictability of energy markets and commodity prices, we believe it is important to be prepared to respond quickly to strategic opportunities presented by changes in market conditions. We plan to maintain an appropriate capital structure that will enable us to respond to changing market conditions rapidly and opportunistically. While we believe that industry conditions are currently very attractive for domestic producers of ethanol, the energy business is often cyclical and there remains the possibility of a future downturn. We intend to be well-positioned to withsta nd and capitalize on opportunities presented by changes in industry conditions. We will focus on maintaining the flexibility to either build production facilities, make disciplined and opportunistic acquisitions or enter into strategic alliances or joint ventures, in each case based on market opportunities and industry conditions.

•

~~Consider possible sales of plants or plant sites.~~ We believe that because of certain competitive advantages of our plants, particularly their locations, there may be opportunities to sell individual plants or plant sites on favorable terms under certain market conditions. Being dedicated to maximizing our stockholders’ returns, we expect to actively seek such opportunities on a regular basis and to consider the sale of one or more plants or plant sites, particularly if the resultant proceeds can be redeployed at a higher potential return elsewhere in our business. Mr. Edelman has extensive experience in buying and selling compan ies and/or their assets and senior management expects to actively seek and assess such opportunities.

•

~~Risk management.~~ We intend to utilize risk mitigation techniques. We will seek to eventually hedge a majority of our corn and natural gas costs, as well as our primary product, ethanol. To this end, we will participate in the futures and derivatives markets and, where appropriate, enter into long-term purchase and sale contracts. By doing so, we expect to limit our exposure to commodity price fluctuations and reduce earnings volatility. We also will have the benefit of significant corn storage facilities, which should allow us to purchase and store corn opportunistically.

~~Facilities~~

~~Headquarters~~

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

~~Table of Contents~~

~~Facilities under construction~~

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

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

~~Wood River plant~~

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

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

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

~~Fairmont plant~~

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

TIC is guaranteeing the timely construction and performance of the Fairmont plant under a turnkey EPC contract pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol. The contract provides for liquidated damages that are capped at 100% of the contract price until substantial completion of the facility, and 30% of the contract price thereafter. Pursuant to our EPC contract, TIC has obtained a performance bond from three major insurance companies in an amount equal to 100% of the contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plant will be free of defects in parts and workmanship. We remain responsible for the construction of certain infrastructure outside the Wood River and Fairmont plants, such as a rail loop and rail connections, natural gas interconnect pipelines and grain elevator 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 all~~the 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’’.

~~Table of Contents~~

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

~~Alta plant~~

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

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

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

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

~~Gilman site~~

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

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~~Atchison site~~

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

~~Litchfield site~~

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

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

~~Potential future facility sites and acquisitions~~

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

~~Corn supply~~

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

~~Under our corn supply agreements, Cargill~~LLC’s concurrent private placement will be the ~~exclusive supplier~~same as those of ~~corn to our Wood River and Fairmont facilities for a period~~this rights offering.

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

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

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

~~Sales logistics~~

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

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

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

~~Marketing arrangements~~

~~Ethanol marketing~~

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

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

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

~~Our agreements with Cargill~~

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

~~Master agreement~~

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

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

~~Corn supply agreements~~

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

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

~~Grain facility leases~~

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

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

~~Distillers grain marketing agreements~~

With respect to each of our Wood River and Fairmont facilities, we have entered into a distillers grain marketing agreement with Cargill. These agreements have a term of ten years. Cargill will be the exclusive purchaser and marketer of the facilities’ distillers grain production. In addition, Cargill will be responsible for the logistics and transportation relating to the marketing of the distillers grain produced at our facilities. Cargill will purchase and take title to the distillers grain at the time it is loaded for transport at each plant. For dried distillers grain, we will pay Cargill a set commission equal to the greater of 3% of the sale price or $2.00 per ton, after transportation and storage costs. For wet distillers grain, we will pay Cargill a commission of $3.00 per ton. We are required to pay a minimum commission to Cargill to the extent either plant fails to produce 247,500 tons of distillers grain for the twelve-month period beginning 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.

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~~Additional agreement with Cargill~~

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

~~Engineering, procurement and construction contracts and technology licenses~~

~~Engineering, procurement and construction contracts~~

Each of our first two facilities is being constructed by TIC—The Industrial Company Wyoming, Inc., a subsidiary of TIC, a well-established industrial general contracting firm, under engineering, procurement and construction, or EPC, contracts, utilizing an operations and process technology licensed from Delta-T Corporation, an experienced engineering and design firm in the ethanol industry. The contracts provide that provisional acceptance of each facility will occur within a specified number of days after we have given notice to proceed with all work and services under the relevant EPC contract. In the event that TIC does not achieve provisional acceptance or substantial completion of a facility within the required timeframe, weBioFuel Energy Corp.) will be entitled to receive ~~liquidated damages from TIC. Under certain circumstances, we~~the LLC purchase privileges. The LLC purchase privileges will ~~pay an early completion bonus to TIC for every day that substantial completion is achieved prior~~be 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 performance~~holders of the Fairmont and Wood River plants under turnkey EPC contracts pursuant to which TIC guarantees production of 110 Mmgy of anhydrous ethanol, which will equate to 115 Mmgy of fuel grade ethanol at each plant. The contracts provide for liquidated damages that are capped at 100% of the contract price until substantial completion of the relevant facility, and 30% of the contract price thereafter. Pursuant to our EPC contracts, TIC has obtained performance bonds from three major insurance companies in an amount equal to 100% of each contract price in order to ensure that any such liquidated damages will be available to us. TIC has also provided a one-year warranty that the plants will be free of defects in parts and workmanship.

~~Delta-T technology licenses~~

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

~~Competition~~

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

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

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

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~~Ethanol production process~~

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

~~Step one: grain receiving, storing and milling~~

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

~~Step two: conversion and liquefaction, fermentation and evaporation systems~~

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

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

~~Step three: distillation and molecular sieve~~

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

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

~~Step four: liquid — solid separation system~~

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

~~Step five: product storage~~

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

~~Co-products of ethanol production~~

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

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

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

~~Carbon dioxide.~~ ~~Carbon dioxide, or CO~~₂~~, is also a by-product of our dry-mill ethanol production process. While the CO~~₂ ~~produced will most likely be of sufficient quality to be collected and sold, we do not currently plan to market our CO~~₂~~. Currently, we plan to scrub the CO~~₂ ~~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 CO~~₂ into the atmosphere may be limited by laws or regulations in the future. See ‘‘Risk factors’’. In the future, we also may explore the possibility of collecting and disposing of or marketing the CO₂.

~~Environmental matters~~

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

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

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

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our ongoing operations. Present and future environmental laws and regulations and related interpretations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial capital and other expenditures. Our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. The U.S. EPA has promulgated National Emissions Standards for Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could apply to facilities that we own or 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

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

~~Legal proceedings~~

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

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~~Management~~

~~Directors and executive officers~~

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


~~Name~~	~~Age~~	~~Position~~
~~Thomas J. Edelman~~	56	~~Chairman and Chairman of the Board~~
~~Scott H. Pearce~~	41	~~President, Chief Executive Officer and Director~~
~~David J. Kornder~~	46	~~Executive Vice President and Chief Financial Officer~~
~~Daniel J. Simon~~	37	~~Executive Vice President and Chief Operating Officer~~
~~Timothy S. Morris~~	47	~~Vice President — Operations~~
~~JonAlan Page~~	37	~~Vice President — Project Development~~
~~Michael N. Stefanoudakis~~	35	~~Vice President and General Counsel~~
~~Eric D. Streisand~~	36	~~Vice President — Corporate Development~~
~~David Einhorn~~	38	~~Director~~
~~Daniel S. Loeb~~	45	~~Director~~
~~Alexander P. Lynch~~	54	~~Director~~

~~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

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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

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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.

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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:


•	retaining, compensating, overseeing and terminating any registered public accounting firm in connection with the preparation or issuance of an audit report, and approving all audit services and any permissible nonaudit services provided by the independent registered public accounting firm;


•	~~receiving direct reports from any registered public accounting firm engaged to prepare or issue an audit report;~~


•	~~reviewing and discussing annual audited and quarterly unaudited financial statements with management and the independent registered public accounting firm;~~


•	~~reviewing with the independent registered public accounting firm any audit problems and management’s response;~~


•	~~discussing earnings releases, financial information and earnings guidance provided to analysts and rating agencies;~~


•	~~periodically meeting separately with management, internal auditors and the independent registered public accounting firm;~~


•	~~establishing procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters;~~


•	obtaining and reviewing, at least annually, an independent registered public accounting firm report describing the independent registered public accounting firm internal quality-control procedures and any material issues raised by the most recent internal quality-control review of the independent registered public accounting firm or any inquiry by governmental authorities;


•	~~approve and recommend to the Board of Directors the hiring of any employees or former employees of the independent registered public accounting firm;~~

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•	~~retaining independent counsel and other outside advisors, including experts in the area of accounting, as it determines necessary to carry out its duties; and~~


•	~~reporting regularly to our full Board of Directors with respect to any issues raised by the foregoing.~~

~~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:


•	~~reviewing key employee compensation policies, plans and programs;~~


•	~~reviewing and approving the compensation of our chief executive officer and the other executive officers of the company and its subsidiaries;~~


•	~~reviewing and approving any employment contracts or similar arrangements between the company and any executive officer of the company;~~


•	~~reviewing and consulting with our Chairman and our Chief Executive Officer concerning performance of individual executives and related matters; and~~


•	administering our stock plans, incentive compensation plans and other similar plans that the Board may from time to time adopt and exercising all the powers, duties and responsibilities of the Board of Directors with respect to the plans.

~~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:


•	recommending to our Board of Directors proposed nominees for election to the Board of Directors by the stockholders at annual meetings, including an annual review as to the renominations of incumbents and proposed nominees for election by the Board of Directors to fill vacancies that occur between stockholder meetings; and


•	~~making recommendations to the Board of Directors regarding corporate governance matters and practices.~~

~~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.~~

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~~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.

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~~Compensation discussion and analysis~~

~~Objectives of our executive compensation program~~

~~The principal objectives of our current executive compensation program are:~~


•	~~attract and retain experienced and well-qualified executives;~~


•	~~recognize and reward the contributions each executive makes to our company; and~~


•	~~motivate our executives to meet the short- and long-term objectives of the company.~~

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:~~


•	~~the roles and responsibilities of our executives;~~


•	~~the individual experience and skills of, and expected contributions from, our executives;~~


•	~~the amount of compensation generally paid by similarly situated companies to their executives with similar roles and responsibilities;~~


•	~~the negotiations relating to the hiring of our executives; and~~


•	~~the amounts of compensation being paid to our other executives.~~

~~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.

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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.


~~Name and principal position~~	~~Salary~~
~~Thomas J. Edelman,~~ ~~Chairman and Chairman of the Board~~		$	~~275,000~~⁽¹	⁾
~~Scott H. Pearce,~~ ~~President and Chief Executive Officer~~		$	~~300,000~~⁽²	⁾
~~David J. Kornder,~~ ~~Executive Vice President and Chief Financial Officer~~		$	~~250,000~~⁽³	⁾
~~Daniel J. Simon,~~ ~~Executive Vice President and Chief Operating Officer~~		$	~~250,000~~⁽⁴	⁾
~~Timothy S. Morris,~~ ~~Vice President — Operations~~		$	~~200,000~~⁽⁵	⁾
~~JonAlan Page,~~ ~~Vice President — Project Development~~		$	~~175,000~~⁽⁶	⁾
~~Michael N. Stefanoudakis,~~ ~~Vice President and General Counsel~~		$	~~225,000~~⁽⁷	⁾
~~Eric D. Streisand,~~ ~~Vice President — Corporate Development~~		$	~~240,000~~⁽⁸	⁾

~~(1)~~

~~Mr. Edelman has received this salary since May 2006.~~

~~(2)~~

~~Mr. Pearce has received this salary since May 2006.~~

~~(3)~~

~~Mr. Kornder has received this salary since February 2007.~~

~~(4)~~

~~Mr. Simon has received this salary since May 2006.~~

~~(5)~~

~~Mr. Morris has received this salary since February 2007.~~

~~(6)~~

~~Mr. Page has received this salary since May 2006.~~

~~(7)~~

~~Mr. Stefanoudakis has received this salary since September 2006.~~

~~(8)~~

~~Mr. Streisand has been employed since August 2006. Greenlight Capital, one of our stockholders, paid his salary through December 31, 2006.~~

~~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

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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.

Information Not Required in ~~2006, 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 Pronouncements~~

~~In 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.

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~~BioFuel 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, LLC~~

BioFuel 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 Interest~~

Minority 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.

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~~BioFuel 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.

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~~BioFuel Energy Corp. (a development stage company)~~
~~Notes to Consolidated Financial Statements~~ ~~— (Continued)~~

~~The minority interest in Energy LLC is summarized as follows:~~

Prospectus

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 Debt~~

In 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. No

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~~BioFuel 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 Payments~~

In 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 the

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~~BioFuel 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 Taxes~~

The 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 Contents~~

~~BioFuel 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 to~~ ~~December 31, 2006~~
~~Statutory U.S. federal income tax rate~~		~~(34.0~~	)%
~~Expected state tax benefit, net~~		~~(2.6~~	)
~~Valuation allowance~~		~~36.6~~
		—


9.	~~Employee Benefits Plan~~

Energy 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 Contingencies~~

In 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 Contents~~

~~BioFuel 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 average

~~Table of Contents~~

~~BioFuel 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 Transaction~~

Energy 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 Financing~~

In 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 Contents~~

~~Schedule I~~
~~BioFuel Energy Corp.~~

~~Condensed Financial Information of Registrant~~
~~(Parent company information – See notes to consolidated financial statements)~~

~~Condensed Balance Sheet~~
~~December 31, 2006~~

Assets
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 Loss~~
~~From inception on April 11, 2006 to December 31, 2006~~

Equity in loss of BioFuel Energy, LLC $ (2,333,622 )
Net loss $ (2,333,622 )

~~Condensed Statement of Cash Flows~~
~~From inception on April 11, 2006 through December 31, 2006~~

Cash 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 stock 26,953,035
Net cash provided by financing activities 26,953,035

Cash and equivalents at December 31, 2006 $ –

~~Table of Contents~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Members of~~
~~BioFuel Solutions, LLC~~
~~Denver, Colorado~~

We 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 LLP~~

~~Denver, Colorado~~
~~December 8, 2006~~

~~Table of Contents~~

~~BioFuel Solutions, LLC (a Delaware limited liability company)~~
~~(a development stage company)~~
~~Consolidated balance sheets~~

June 30,
2006 December 31,
2005
Assets
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 Contents~~

~~BioFuel 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, 2006 From Inception on
January 1, 2005
through
December 31, 2005 From Inception on
January 1, 2005
through
June 30, 2006
Advisory 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 Contents~~

~~BioFuel Solutions, LLC (a Delaware limited liability company)~~
~~(a development stage company)~~
~~Consolidated statements of cash flows~~

For the Six Months
ended
June 30, 2006 From Inception on
January 1, 2005
through
December 31, 2005 From Inception on
January 1, 2005
through
June 30, 2006
Cash 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 Contents~~

~~BioFuel Solutions, LLC (a Delaware limited liability company)~~
~~(a development stage company)~~
~~Notes to consolidated financial statements~~


1.	~~Organization and nature of operations~~

BioFuel 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 policies~~

~~The 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.

~~Table of Contents~~

~~BioFuel 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.	~~Acquisition~~

On 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 payable~~

At 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 a

~~Table of Contents~~

~~BioFuel 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’ equity~~

During 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 contingencies~~

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.

~~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 transactions~~

~~The 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, LLC~~

On 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 Contents~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Members of~~
~~Bio Fuel Solutions, LLC~~
~~Denver, Colorado~~

We 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 LLP~~

~~Denver, Colorado~~
~~December 8, 2006~~

~~Table of Contents~~

~~Bio Fuel Solutions, LLC~~
~~(a Colorado limited liability company)~~
~~(a development stage company)~~
~~Balance sheet~~
~~October 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 Contents~~

~~Bio Fuel Solutions, LLC~~
~~(a Colorado limited liability company)~~
~~(a development stage company)~~
~~Statement of loss and members’ equity~~
~~from 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 Contents~~

~~Bio Fuel Solutions, LLC~~
~~(a Colorado limited liability company)~~
~~(a development stage company)~~
~~Statement of cash flows~~
~~from inception on January 1, 2005 through October 31, 2005~~



~~Cash flows from operating activities~~
~~Net loss~~	$	~~(422,606~~	)
~~Adjustments to reconcile net loss to net cash used in operating activities~~
~~Expenses paid directly by members~~		~~521,870~~
~~Changes in operating assets and liabilities~~
~~Increase in accounts receivable~~		~~(89,005~~	)
~~Increase in deferred advisory expenses~~		~~(87,861~~	)
~~Increase in accounts payable~~		~~40,732~~
~~Increase in accrued legal fees~~		~~31,516~~
~~Net cash used in operating activities~~		~~(5,354~~	)
~~Cash flows from investing activities~~
~~Expenditures for land improvements~~		~~(214,540~~	)
~~Net cash used in investing activities~~		~~(214,540~~	)
~~Cash flows from financing activities~~
~~Member contributions~~		~~267,000~~
~~Net cash provided by financing activities~~		~~267,000~~
~~Net increase in cash and equivalents~~		~~47,106~~
~~Cash and equivalents, beginning of period~~		—
~~Cash and equivalents, end of period~~	$	~~47,106~~
~~Non-cash investment items~~
~~Non-cash additions to land improvements~~	$	~~51,521~~

~~The accompanying notes to are an integral part of these financial statements.~~

~~Table of Contents~~

~~Bio Fuel Solutions, LLC (a Colorado limited liability company)~~
~~(a development stage company)~~
~~Notes to financial statements~~


1.	~~Organization and nature of operations~~

Bio 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 policies~~

~~Cash and equivalents include highly liquid investments with original maturities of three months or less.~~

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.

~~The estimated fair values of cash and equivalents, accounts receivable and accounts payable approximate fair value because of their short-term nature.~~

~~Table of Contents~~

~~Bio Fuel Solutions, LLC (a Colorado limited liability company)~~
~~(a development stage company)~~
~~Notes to financial statements — (Continued)~~


3.	~~Members’ equity~~

The 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 contingencies~~

On 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 transactions~~

The 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 Contents~~

~~9,500,000 shares~~

~~BioFuel Energy Corp.~~

~~Common Stock~~

~~Prospectus~~

~~, 2007~~

Until , 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 Contents~~

~~Part II~~

~~Information not required in prospectus~~

Item 13. Other ~~expenses~~Expenses of ~~issuance~~Issuance and ~~distribution~~

Distribution


~~Scott H. Pearce~~ ~~BioFuel Energy Corp.~~ ~~1801~~ 1600 Broadway, Suite ~~1060~~ 2200 Denver, CO 80202 Telephone: (303) ~~592-8110~~ ~~Fax: (303) 592-8117~~	~~Thomas J. Edelman~~ ~~BioFuel Energy Corp.~~ ~~667 Madison Avenue~~ ~~New York, NY 10021~~ ~~(212) 371-1117~~ ~~Fax: (212) 888-6877~~	640-6500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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


Title of class of securities	Amount to be registered⁽¹⁾	Proposed maximum offering price per unit	Proposed maximum aggregate offering price⁽¹⁾⁽²⁾	Amount of registration fee⁽³⁾
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	)
Depositary shares representing interests in Series A Non-Voting Convertible Preferred Stock						29,773,422	$	0.56		$	16,673,116		$	1,188.79(4	)
Series A Non-Voting Convertible Preferred Stock, par value $0.01 per share						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	)


	~~Page~~
~~Summary~~		1
~~Risk factors~~		10
~~Forward-looking statements~~		31
~~Organizational structure~~		32
~~Use of proceeds~~		35
~~Dividend policy~~		36
~~Capitalization~~		37
~~Dilution~~		39
~~Selected financial data~~		41
~~Management’s discussion and analysis of financial condition and results of operations~~		42
~~Industry outlook~~		54
~~Business~~		59
~~Management~~		78
~~Principal stockholders~~		96
~~Certain relationships and related party transactions~~		99
~~Description of indebtedness~~		~~105~~
~~Description of capital stock~~		~~109~~
~~Shares eligible~~We are responsible only for ~~future sale~~		~~113~~
~~Material United States federal tax consequences for non-United States stockholders~~		~~115~~
~~Underwriting~~		~~118~~
~~Legal matters~~		~~123~~
~~Experts~~		~~123~~
~~Where you can find more information~~		~~123~~
~~Index to consolidated financial statements~~		~~F-1~~

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)


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


• ·	~~Favorable production economics.~~Reliable Corn Supply ~~Based on data provided by the RFA, the cost to produce a gallon of ethanol is currently significantly lower than the cost to produce a gallon of gasoline.~~


•	~~Blending benefits.~~ ~~Adding ethanol to gasoline raises gasoline’s octane level and results in a more complete fuel combustion, reducing carbon monoxide and nitrogen oxide emissions.~~


•	~~Favorable tax treatment.~~ Ethanol’s favorable production economics are enhanced by a federal tax credit of $0.51 a gallon — $0.051 a gallon of gasoline at a 10% blend — that is received by refiners or marketers for blending ethanol into gasoline.


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


	•	~~Reliable corn supply.~~ ~~We expect to~~ benefit from Cargill’s expertise in corn origination services and extensive experience with corn supply in the geographic areas of our facilities. Pursuant to our corn supply agreements for our Wood River and Fairmont plants, Cargill will supply our corn requirements during the 20-year term of the contracts, regardless of local supply and demand. From inception, we believe we have priced corn on a local basis more efficiently than our competitors in the corn belt.

	·
	•	Logistics and ~~transportation.~~Transportation ~~We believe access to~~. Cargill’s ~~expertise, through its~~ extensive network of rail and trucking relationships and an array of logistical and scheduling tools ~~will minimize~~minimizes the risk of disruption or unexpected additional transportation costs for the delivery of corn and the ~~transportation~~shipment of ~~the~~ ethanol and distillers ~~grain.~~grain products.

	·
	•	Ethanol and ~~distillers grain marketing.~~Distillers Grain Marketing. Because of ~~Cargill’s~~our partnership with Cargill and its significant ~~historical~~ experience marketing ethanol and distillers grain, Cargill ~~will provide~~provides us with immediate access to aits broad customer base. Under 10-year agreements, Cargill ~~will be~~is responsible for maintaining a continuous outlet for the marketing, sale and distribution of all ethanol and distillers grain produced by our Wood River and Fairmont plants. In addition, we believe our relationship with Cargill positions us well with large end-users of ethanol due to the size and reliability of Cargill compared to other small ethanol marketers and producers that market ethanol ~~dire ctly~~directly or through other marketing channels. For example, our 2009 realized ethanol price was $0.06 per gallon better than the Chicago Board of Trade, or CBOT, average.


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


~~JPMorgan~~		~~Citi~~		~~A.G. Edwards~~
~~Bear, Stearns & Co. Inc.~~				~~Cowen and Company~~
	Prospectus Summary		1
Summary of the Rights Offering		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


	priority relationship with them. We believe this will enable us to add new ethanol production capacity faster than many of our competitors by providing access to construction slots as needed. This may be a key advantage over our competitors that have not secured construction commitments for their announced capacity expansions.


•	~~Risk management.~~ We will seek to eventually hedge a majority of our corn and natural gas costs, as well as our primary product, ethanol. By doing so, we expect to limit our exposure to commodity price fluctuations and reduce earnings volatility.


•	Under our agreement with Cargill, if any of five parties identified on an annual basis by Cargill acquires 30% or more of our common stock or the power to elect a majority of our Board, Cargill may terminate our commercial agreements.


•	~~If either the Wood River or Fairmont plant is not complete by December 31, 2009, Cargill may terminate its commercial agreements relating to that plant.~~


•	~~Difficulties securing suitable sites, obtaining the services of qualified contractors, receiving approvals and permits and funding construction costs;~~


•	~~Possible excess production capacity in the ethanol industry resulting from new plants under construction or decreases in demand;~~


•	~~Failure to reach definitive agreements with Cargill with respect to our Alta plant or any additional plants;~~


•	~~Dependence on TIC and its partner Delta-T, and the possibility that delays, defaults or non-performance by TIC or Delta-T could adversely affect us;~~


•	~~Failure or inability to reach definitive agreements relating to the construction of and/or the technology to be used in our proposed Alta plant;~~


•	~~Emergence of new, more energy-efficient technologies for producing ethanol that could displace corn-based ethanol;~~


•	~~Fluctuations in the selling price and production cost of gasoline;~~


•	~~Dependence on commodity prices, which are subject to significant volatility and uncertainty;~~


•	~~Increasing prices, escalation of construction costs and potential shortages of corn and natural gas;~~


•	~~The potentially adverse effects of hedging and other risk mitigation strategies;~~


•	~~The dependence of our industry upon a myriad of federal and state legislation and regulation, including the blenders’ credit, the Freedom to Farm Act, tariff barriers and the RFS; and~~


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

Overview
~~Common~~We are distributing to the holders of our common stock ~~offered by us~~non-transferable subscription rights to purchase depositary shares. Each depositary share will represent a fractional interest in ~~this offering~~		~~9,500,000~~a share of Series A Non-Voting Convertible Preferred Stock equal to of a share of Series A Non-Voting Convertible Preferred Stock and will entitle the holder, through the depositary, to a proportional fractional interest in the rights and preferences of such share of Series A Non-Voting Convertible Preferred Stock. Each share of Series A Non-Voting Convertible Preferred Stock will, following the requisite stockholder approval, automatically convert into shares


~~Common~~ of common stock. Upon conversion, each depositary share shall entitle the holder thereof to receive one share of common stock and, ~~Class B~~upon the distribution of one share of common stock to the holder, each such depositary share shall be ~~outstanding after this offering~~		~~32,500,000 total~~automatically cancelled and have no further value. As a result, the depositary shares are effectively convertible on a one-for-one basis into shares of ~~which 14,268,044~~our common stock.

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 ~~and 18,231,956~~held on the record date. The number of subscription rights distributed to the holders of our common stock in this rights offering will be ~~shares~~determined as described under “—Number of ~~Class B common stock. Holders~~Rights; Number of ~~shares of Class B common stock will have no economic~~LLC Purchase Privileges.” Fractional subscription rights ~~but~~resulting from such pro rata distribution will be ~~entitled~~eliminated by rounding up to ~~one vote for each share held. In addition, there~~the nearest whole right.

Concurrent Private Placement		General. Concurrent with this rights offering, the LLC will ~~be 18,231,956~~grant at no charge purchase privileges to the record holders (other than BioFuel Energy Corp.) of membership interests in the LLC ~~that can be exchanged for newly issued shares~~as of ~~common stock~~5:00 p.m., New York City time, on , the record date, to purchase a ~~one-for-one basis,~~new class of preferred membership interests in ~~which case~~ the ~~related shares~~LLC (which we refer to as the “LLC’s concurrent private placement”). Each LLC purchase privilege will permit the holder of ~~Class B common stock~~such privilege to acquire, at a price equal to $0.56, one preferred membership interest in the LLC under the LLC basic purchase privilege and will ~~be retired.~~


~~Use~~also provide the holder of ~~proceeds~~		~~We estimate~~such LLC basic purchase privilege with an LLC additional purchase privilege. The LLC additional purchase privilege will entitle the holder of the LLC purchase privilege to purchase an additional amount of preferred membership interests equal to up to 100% of the preferred membership interests that the ~~net proceeds from this offering will approximate $147 million, after deducting underwriting discounts and our offering expenses. We intend~~holder was otherwise entitled to ~~use up to $50 million of the net proceeds to repay all outstanding subordinated debt.~~purchase. We expect that ~~all remaining proceeds will ultimately be used to fund~~ the ~~equity portion~~record date, term and expiration date of the ~~construction costs~~LLC’s concurrent private placement will be the same as those of ~~our Alta plant. However, prior to the time funds are required at Alta, we may use them to repay or defer borrowing under our bank construction loans for the Wood River and Fairmont plants.~~
		this rights offering.


		~~As funds are required for the construction~~ Grant of our Alta ethanol plant, we expect to borrow up to approximately $125 million of additional debt under existing or subsequent bank facilities, which, in combination with proceeds from this offering and internal cash flow, would fund such expenditures. For further discussion of our expected use of proceeds from this offering, see ‘‘Use of proceeds’’LLC Purchase Privileges.

~~JPMorgan~~

~~A.G. Edwards~~

~~Bear, Stearns & Co. Inc.~~

~~Cowen and Company~~