USBE US Bioenergy Corp (MM)

Our business is subject to a number of risks and uncertainties. If any of these events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition and results of operations.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

Our results of operations, financial position and business are highly dependent on commodity prices, which are subject to significant volatility and uncertainty, so our results could fluctuate significantly.

We generally do not have long-term, fixed price contracts for the purchase of corn and natural gas, our principal inputs, or for the sale of ethanol, our principal product. Therefore, our results of operations, financial position and business outlook are substantially dependent on commodity prices, especially prices for corn, natural gas, ethanol and unleaded gasoline. Prices for these commodities are generally subject to significant volatility and uncertainty. As a result, our future results may fluctuate substantially, and we may experience periods of declining prices for our products and increasing costs for our raw materials, which could result in operating losses and have a negative impact on our liquidity. We may attempt to offset a portion of the effects of such fluctuations by entering into forward contracts to supply ethanol or to purchase corn, natural gas or other items or by engaging in transactions involving exchange-traded futures contracts, but these activities involve substantial costs and substantial risks and may be ineffective in mitigating these fluctuations.

The spread between ethanol and corn prices can vary significantly and while during 2006 was at historically high levels, it narrowed significantly during 2007.

Our gross margins depend principally on the spread between ethanol and corn prices. During the five-year period from 2003 to 2007, ethanol prices (based on price data from the Chicago Board of Trade, or CBOT, daily futures data) have ranged from a low of $1.08 per gallon to a high of $3.95 per gallon, averaging $1.83 per gallon during this period. During most of fiscal 2006, the spread between ethanol and corn prices was at historically high levels, driven in large part by high oil prices and historically low corn prices. For the majority of 2007, the price of ethanol declined and the cost of corn rose sharply, however, ethanol prices did increase during the fourth quarter. On December 31, 2007, the Chicago spot price per gallon of ethanol was $2.36, whereas on December 29, 2006, the Chicago spot price per gallon of ethanol was $2.45. Over the same period, corn prices (based on CBOT daily futures data) rose to $4.55 per bushel on December 31, 2007, from $3.90 per bushel on December 29, 2006. The spread between the price of a gallon of ethanol and the cost of the corn required to produce a gallon of ethanol will likely continue to fluctuate. A sustained narrow spread or any further reduction in the spread between ethanol and corn prices, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, could have a material adverse effect on our business, results of operations and financial condition.

Our business is highly sensitive to corn prices, and we generally cannot pass on increases in corn prices to our customers.

Corn is the principal raw material we use to produce ethanol and distillers grains. Because ethanol competes with fuels that are not corn-based, we generally are unable to pass along increased corn costs to our customers,

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and accordingly, rising corn prices tend to produce lower profit margins. At certain levels, corn prices would make ethanol uneconomical to use in fuel markets. The price of corn is influenced by weather conditions (including droughts) and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors, including government policies and subsidies with respect to agriculture and international trade, and global and local supply and demand. Any decline in the corn harvest, caused by farmer planting decisions or otherwise, could cause corn prices to increase and negatively impact our gross margins. The price of corn has fluctuated significantly in the past and may fluctuate significantly in the future. For example, over the ten-year period from 1998 through 2007, corn prices (based on CBOT daily futures data) have ranged from a low of $1.75 per bushel in 2000 to a high of $4.55 per bushel in 2007, with prices averaging $2.42 per bushel during this period. During 2007, corn prices were at substantially higher levels than both the ten-year average and average corn prices during 2006, ranging from a low of $3.10 per bushel to a high of $4.55 per bushel, with prices averaging $3.75 per bushel. On January 31, 2008, the CBOT price per bushel of corn for March 2008 delivery was $5.01. If these higher corn prices continue, they may have a material adverse effect on our business, results of operations and financial position.

In addition, increasing domestic ethanol capacity could boost demand for corn and result in increased corn prices. In 2006, corn bought by ethanol plants represented approximately 18% of the total corn supply for that year according to results reported by the National Corn Growers Association, and this percentage is expected to increase as additional ethanol capacity comes online, rising to more than 30% of the total corn supply by 2009/2010 according to the United States Department of Agriculture (USDA). At a more local level, the price we pay for corn at any of our plants could also increase if another ethanol plant were built in the same general vicinity or if we expand our plant.

We may also have difficulty from time to time in purchasing corn on satisfactory terms due to supply shortages. Any supply shortage could require us to suspend operations until corn becomes available on satisfactory terms. Suspension of operations could have a material adverse effect on our business, results of operations and financial condition.

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

We rely upon outside parties for our supply of natural gas which is consumed as fuel in the manufacture of ethanol and drying of distillers grains. The prices for and availability of natural gas are subject to volatile market conditions. The fluctuations in natural gas prices over the five-year period from 2003 through 2007, based on New York Mercantile Exchange, Inc., or NYMEX, daily futures data, have ranged from a low of $4.20 per MMBTU in 2006 to a high of $15.38 per MMBTU in 2005, averaging $6.96 per MMBTU during this period. On December 31, 2007, the NYMEX price of natural gas was $7.48 per MMBTU, and on December 29, 2006, the NYMEX price of natural gas was $6.30 per MMBTU. These market conditions often are affected by factors beyond our control such as weather conditions (including hurricanes), overall economic conditions and foreign and domestic governmental regulation and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol for our customers. Furthermore, increases in natural gas prices could have a material adverse effect on our business, results of operations and financial condition.

Fluctuations in the selling price and production cost of gasoline may reduce our profit margins.

Ethanol is marketed both as a fuel additive to reduce vehicle emissions from gasoline and as an octane enhancer to improve the octane rating of gasoline with which it is blended. As a result, ethanol prices are influenced by the supply and demand for gasoline and our business, future results of operations and financial condition may be materially adversely affected if gasoline demand or prices decrease.

Until recently, the price of a gallon of gasoline has been lower than the cost to produce a gallon of ethanol. In addition, some of our ethanol sales contracts provide for pricing on an indexed basis, so that the price we receive for products sold under these arrangements is adjusted as ethanol prices change.

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

Distillers grains compete with other protein-based animal feed products. The price of distillers grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains. Because the price of distillers grains is not tied to production costs, decreases in the price of distillers grains will result in our generating less revenue and lower profit margins.

Our business is subject to seasonal fluctuations.

Our operating results are influenced by seasonal fluctuations in the price of our primary operating inputs, corn and natural gas, and the price of our primary product, ethanol. In recent years, the spot price of corn tended to rise during the spring planting season in May and June and tended to decrease during the fall harvest in October and November. The price of natural gas however, tends to move opposite to that of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition, ethanol prices are substantially correlated with the price of unleaded gasoline. The price of unleaded gasoline tends to rise during the summer. Given our limited history and the growth of the industry, it is unclear how these seasonal fluctuations will affect our results over time.

As more ethanol plants are built, ethanol production will increase and, if demand does not increase, the price of ethanol and distillers grains may decrease.

According to the Renewable Fuels Association (RFA), domestic ethanol production capacity has increased steadily from 1.7 billion gallons per year in January of 1999 to 8 billion gallons per year in January 2008. In addition, there is a significant amount of production capacity being added to the ethanol industry. According to the RFA, as of January 2008, approximately 5.5 billion gallons per year of production capacity, an increase of 69% over current production levels, is currently under construction. This capacity is being added to address anticipated increases in demand. However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all. Recently, several ethanol companies have announced the postponement of ethanol plants under construction due, in part, to concerns about excess production capacity in the ethanol industry. If the ethanol industry has excess production capacity, it could have a material adverse effect on our business, results of operations and financial condition.

Excess ethanol production capacity also may result from decreases in the demand for ethanol or increased imported supply, which could result from a number of factors, including regulatory developments and reduced gasoline consumption in the U.S. Reduced gasoline consumption could occur as a result of increased prices for gasoline or crude oil, which could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage, or as a result of technological advances, such as the commercialization of engines utilizing hydrogen fuel-cells, which could supplant gasoline-powered engines. There are a number of governmental initiatives designed to reduce gasoline consumption, including tax credits for hybrid vehicles and consumer education programs.

In addition, because ethanol production produces distillers grains as a co-product, increased ethanol production will also lead to increased supplies of distillers grains. An increase in the supply of distillers grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers grains production. A decline in the price of distillers grains or the distillers grains market generally could have a material adverse effect on our business, results of operations and financial condition.

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Growth in the sale and distribution of ethanol is dependent on the changes to and expansion of related infrastructure which may not occur on a timely basis, or at all, and our operations could be adversely affected by infrastructure disruptions.

Substantial development of infrastructure will be required by persons and entities outside of our control for our operations, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to:

The rapid expansion of the ethanol industry currently underway compounds the issues presented by the need to develop and expand ethanol related infrastructure, as the lack of infrastructure prevents the use of ethanol in certain areas where there might otherwise be demand and results in excess ethanol supply in areas with more established ethanol infrastructure, depressing ethanol prices in those areas. Substantial investments required for these infrastructure changes and expansions may not be made or may not be made on a timely basis. Any delay or failure in making the changes to or expansion of infrastructure could hurt the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise have a material adverse effect on our business, results of operations or financial condition. Our business is dependent on the continuing availability of infrastructure and any infrastructure disruptions could have a material adverse effect on our business, results of operations and financial condition.

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

The elimination or significant reduction in the blenders’ credit could have a material adverse effect on our results of operations and financial position. The cost of production of ethanol is made significantly more competitive with regular gasoline by federal tax incentives. The federal excise tax incentive program currently allows gasoline distributors who blend ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sell. If the fuel is blended with 10% ethanol, the refiner/marketer pays $0.051 per gallon less tax, which equates to an incentive of $0.51 per gallon of ethanol. The $0.51 per gallon incentive for ethanol is scheduled to be reduced to $0.46 per gallon in 2009 and to expire in 2010. The blenders’ credits could be eliminated or reduced at any time through an act of Congress and may not be renewed in 2010 or may be renewed on different terms. In addition, the blenders’ credits, as well as other federal and state programs benefiting ethanol (such as tariffs), generally are subject to U.S. government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures, and might be the subject of challenges thereunder, in whole or in part.

Ethanol can be imported into the U.S. duty-free from some countries, which may undermine the ethanol industry in the U.S. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the $0.51 per gallon ethanol incentive that is available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. A special exemption from the tariff exists for ethanol imported from 24 countries in Central America and the Caribbean Islands, which is limited to a total of 7% of U.S. production per year. Imports from the exempted countries may increase as a result of new plants under development. Since production costs for ethanol in these countries are estimated to be significantly less than what they are in the U.S., the duty-free import of ethanol through the countries exempted from the tariff may negatively affect the

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demand for domestic ethanol and the price at which we sell ethanol. Although the $0.54 per gallon tariff has been extended through December 31, 2008, bills were previously introduced in both the U.S. House of Representatives and U.S. Senate to repeal the tariff. We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed beyond its current expiration. Any changes in the tariff or exemption from the tariff could have a material adverse effect on our results of operations and financial position. In addition, the North America Free Trade Agreement, or NAFTA, which entered into force on January 1, 1994, allows Canada and Mexico to export ethanol to the United States duty-free or at a reduced rate. Canada is exempt from duty under the current NAFTA guidelines, while Mexico’s duty rate is $0.10 per gallon.

The effect of the renewable fuel standard (“RFS”) program in the Energy Independence and Security Act signed into law on December 19, 2007 (the “2007 Act”) is uncertain. The mandated minimum level of use of renewable fuels in the RFS under the 2007 Act increased to 9 billion gallons per year in 2008 (from 5.4 billion gallons under the RFS enacted in 2005), further increasing to 36 billion gallons per year in 2022. The 2007 Act also requires the increased use of “advanced” biofuels, which are alternative biofuels produced without using corn starch such as cellulosic ethanol and biomass-based diesel, with 21 billion gallons of the mandated 36 billion gallons of renewable fuel required to come from advanced biofuels by 2022. Required RFS volumes for both general and advanced renewable fuels in years to follow 2022 will be determined by a governmental administrator, in coordination with the U.S. Department of Energy and U.S. Department of Agriculture. Increased competition from other types of biofuels could have a material adverse effect on our results of operations and financial position.

The RFS program and the 2007 Act also include provisions allowing “credits” to be granted to fuel producers who blend in their fuel more than the required percentage of renewable fuels in a given year. These credits may be used in subsequent years to satisfy RFS production percentage and volume standards and may be traded to other parties. The accumulation of excess credits could further reduce the impact of the RFS mandate schedule and result in a lower ethanol price or could result in greater fluctuations in demand for ethanol from year to year, both of which could have a material adverse effect on our results of operations and financial condition.

Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a material adverse effect on our results of operations. Under the RFS as passed as part of the Energy Policy Act of 2005, the U.S. Environmental Protection Agency (EPA), in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels mandate with respect to one or more states if the Administrator of the EPA, determines upon the petition of one or more states that implementing the requirements would severely harm the economy or the environment of a state, a region or the U.S., or that there is inadequate supply to meet the requirement. In addition, the Energy Independence and Security Act of 2007 allows any other person subject to the requirements of the RFS or the EPA Administrator to file a petition for such a waiver. Any waiver of the RFS with respect to one or more states could adversely offset demand for ethanol and could have a material adverse effect on our results of operations and financial condition.

Various studies have criticized the efficiency of ethanol, in general, and corn-based ethanol in particular, which could lead to the reduction or repeal of incentives and tariffs that promote the use and domestic production of ethanol or otherwise negatively impact public perception and acceptance of ethanol as an alternative fuel.

Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and as potentially depleting water resources. Other studies have suggested that corn-based ethanol is less efficient than ethanol produced from switchgrass or wheat grain and that it negatively impacts consumers by causing prices for dairy, meat and other foodstuffs from livestock that consume corn to increase. If these views gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of these measures. These views could also negatively impact public perception of the ethanol industry and acceptance of ethanol as an alternative fuel.

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We face intense competition from competing ethanol and other fuel additive producers.

Competition in the ethanol industry is intense. We face formidable competition in every aspect of our business from established producers and marketers of ethanol, including Archer Daniels Midland Company and Cargill, Inc., and from other companies that are seeking to develop large-scale ethanol plants and alliances. According to the RFA, as of January 2008, the top ten producers accounted for approximately 43% of the ethanol production capacity in the U.S. and we accounted for approximately 4% of the ethanol production capacity in the U.S. Some of our competitors are divisions of substantially larger enterprises and have substantially greater financial resources than we do. Smaller competitors also pose a threat. Farmer-owned cooperatives and independent firms consisting of groups of individual farmers and investors have been able to compete successfully in the ethanol industry. These smaller competitors operate smaller plants which may not affect the local price of corn grown in proximity to the plant as much as larger plants like ours affect these prices. In addition, many of these smaller competitors are farmer-owned and often require their farmer-owners to commit to selling them a certain amount of corn as a requirement of ownership. A significant portion of production capacity in our industry consists of smaller-sized plants.

We expect competition to increase as the ethanol industry becomes more widely known and demand for ethanol increases. Most new ethanol plants in development across the country are independently owned. In addition, various investors could heavily invest in ethanol plants and oversupply ethanol, resulting in higher raw material costs and lower ethanol price levels that could materially adversely affect our business, results of operations and financial condition.

We also face increasing competition from international suppliers. Although there is a tariff on foreign-produced ethanol (which is scheduled to expire in 2009) that is roughly equivalent to the federal ethanol tax incentive, ethanol imports from certain countries equivalent to up to 7.0% of total domestic production were exempted from this tariff under the Caribbean Basin Initiative to spur economic development in Central America and the Caribbean. Currently, international suppliers produce ethanol primarily from sugar cane, which is a significantly more efficient raw material from which to produce ethanol than corn, and have cost structures that are substantially lower than ours.

Any increase in domestic or foreign competition could cause us to reduce our prices and take other steps to attempt to compete more effectively, which could materially adversely affect our business, results of operations and financial condition.

We have a limited operating history and our business may not be as successful as envisioned.

We were incorporated in October 2004 and did not engage in any revenue producing activities until we acquired United Bio Energy, LLC, on May 1, 2005. On April 30, 2006, we acquired our first operating ethanol plant and in May 2006, began recording revenues from our ethanol production activity. Accordingly, we have a limited operating history from which one can evaluate our business and prospects. Our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in rapidly evolving conditions, such as the ethanol market, where supply and demand may change significantly in a short period of time.

Some of these risks relate to our potential inability to:

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If we cannot successfully address these risks, our business, future results of operations and financial condition may be materially adversely affected, and we may experience operating losses in the future.

Potential future acquisitions could be difficult to find and integrate, divert the attention of key personnel, disrupt our business, dilute shareholder value and adversely affect our financial results.

As part of our business strategy, we may consider acquisitions of other businesses, building sites, plants, storage or distribution facilities and selected infrastructure. There is no assurance, however, that we will determine to pursue any of these opportunities or that if we determine to pursue them that we will be successful.

Acquisitions involve numerous risks, any of which could harm our business, including, but not limited to:

We also may pursue acquisitions through joint ventures or partnerships. Partnerships and joint ventures typically involve restrictions on actions that the partnership or joint venture may take without the approval of the partners. These types of provisions may limit our ability to manage a partnership or joint venture in a manner that is in our best interest but is opposed by our other partner or partners.

Future acquisitions may involve the issuance of our equity securities as payment or in connection with financing the business or assets acquired, and as a result, could dilute the ownership interests of current shareholders. In addition, we may need to incur additional debt and related interest expense in order to consummate these transactions, as well as to assume unforeseen liabilities, all of which could have a material adverse effect on our business, results of operations and financial condition. The failure to successfully evaluate and execute acquisitions or joint ventures or otherwise adequately address the risks associated with acquisitions or joint ventures could have a material adverse effect on our business, results of operations and financial condition.

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

We have five operational ethanol plants and three ethanol plants under construction, which are in various stages of construction, with commencement of operations scheduled in 2008. We also continue to evaluate potential future opportunities for growth and development.

Development, construction and expansion of ethanol plants are subject to a number of risks, any of which could prevent us from commencing operations at a particular plant as expected or at all, including cost overruns, zoning and permitting matters, adverse weather, defects in materials and workmanship, labor and material shortages, transportation constraints, construction change orders, site changes, workforce issues, the availability of sufficient quantities of water of suitable quality and other unforeseen difficulties. For example, a lawsuit is currently pending against our joint venture partner in the Grinnell project, and certain other defendants, including the county zoning board, challenging a decision to rezone the land intended for the Grinnell plant to permit construction of an ethanol plant. A majority of the contested issues were favorably decided for our joint venture partner on summary judgment, with our joint venture partner prevailing on the remaining issues at trial in September 2007. However, the plaintiff requested a reconsideration of the decision, and because the plaintiff was unsuccessful, we believe that an appeal is likely. Construction in the upper Midwest, where many of our plants are located, can also be particularly difficult in the winter because of delays related to adverse weather. In addition, during the expansion of an existing plant, we may be forced to suspend or curtail our operations at such plant, which would decrease our ethanol production and reduce its revenues.

As of December 31, 2007, total costs to complete our plants under construction are expected to be approximately $174.3 million. At this time Grinnell has not entered into a credit facility to construct its ethanol plant, and we have put on hold any further funding of the Grinnell plant until the pending lawsuits are satisfactorily resolved and a credit facility is obtained. To the extent that our cash on hand and cash generated from operations are not sufficient, additional financing will be required to fully fund future construction projects. We may not have access to required financing on acceptable terms or at all.

We intend to finance the expansion of our business in part with additional indebtedness and may also do so by issuing additional equity securities. We could face financial risks associated with incurring additional indebtedness, such as reducing our liquidity and access to financial markets and increasing the amount of cash flow required to service such indebtedness, or associated with issuing additional equity, such as dilution of ownership and earnings. We face additional risks associated with financing our expansion strategy due to the significant limitations imposed on our ability to incur or service additional debt or grant security interests on our assets contained in our existing debt financing agreements.

The significant expansion of ethanol production capacity currently underway in the U.S. may also impede our expansion strategy. As a result of this expansion, we believe that there is increasing competition for suitable sites for ethanol plants, and we may not find suitable sites for construction of new plants or other suitable expansion opportunities. Even if we are able to identify suitable sites or opportunities, we may not be able to secure the services and products from the contractors, engineering firms, construction firms and equipment suppliers necessary to build our ethanol plants on a timely basis or on acceptable economic terms.

Our expansion strategy is particularly dependent on the continued availability of construction and engineering services provided to us by Fagen, Inc., an entity controlled by one of our principal shareholders, Ron Fagen. We believe that Fagen has constructed over 65% of the ethanol production capacity built in the U.S. over the past six years. Although we have entered into design-build agreements with Fagen, Inc. for each of our plants under construction, including our Grinnell project, and master design-build agreements with Fagen that provide additional build slots through 2010, if Fagen fails to perform under those agreements, our ability to meet our expansion goals would be limited. Fagen has also entered into design-build contracts with other parties seeking to build ethanol plants and has invested and may continue to invest in other ethanol producers. As a result, Fagen, Inc. may have a conflict of interest in performing its obligations under its design-build agreements with us which could delay or prevent our expansion strategy.

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We must also obtain numerous regulatory approvals and permits in order to construct and operate additional or expanded plants. These requirements may not be satisfied in a timely manner or at all. Our exposure to permitting risks may be exacerbated because we may begin construction on certain of our plants and incur substantial costs without first obtaining all permits necessary to operate an ethanol plant at that site. In the event that we fail to ultimately obtain all necessary permits, we would be forced to abandon the project and lose the benefit of any construction costs already incurred. In addition, federal and state governmental requirements may substantially increase our costs, which could have a material adverse effect on our business, results of operations and financial condition.

Our expansion plans may also result in other unanticipated adverse consequences, such as the diversion of management’s attention from our existing plants and other businesses.

Accordingly, we may not be able to implement our expansion strategy as planned, or at all. We may not find additional appropriate sites for new ethanol plants, and we may not be able to finance, construct, develop or operate these new or expanded plants successfully.

We engage in hedging transactions which involve risks that can harm our business.

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

Operational difficulties at our plants could negatively impact our sales volumes and could cause us to incur substantial losses.

Our operations are subject to labor disruptions, unscheduled downtime and other operational hazards inherent in our industry, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Moreover, our plants may not operate as planned or expected. All of our plants have or will have a specified nameplate capacity which represents the production capacity specified in the applicable design-build agreement. The builder generally tests the capacity of the plant during the start of its operations. But based on our experience in operating similar plants, we generally expect our plants to produce in excess of their nameplate capacity. The operation of our plants is and will be, however, subject to various uncertainties relating to our ability to implement the necessary process improvements required to achieve these increased production capacities. As a

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result, our plants may not produce ethanol and distillers grains at the levels we expect. In the event any of our plants do not run at their nameplate or our increased expected capacity levels, our business, results of operations and financial condition may be materially adversely affected.

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

We are or will become 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. In particular, each ethanol plant we intend to operate will be subject to environmental regulation by the state in which the plant is located and by the EPA. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts on the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damage to natural resources, criminal sanctions, permit revocations and/or plant shutdowns.

In addition, to construct and operate our ethanol plants, we will need to obtain and comply with a number of permit requirements. As a condition to granting necessary permits, regulators could make demands that increase our costs of construction and operations, in which case we could be forced to obtain additional debt or equity capital. For example, the construction costs for our Dyersville, Iowa, Hankinson, North Dakota and Janesville, Minnesota projects are more than originally anticipated due water discharge requirements. We incurred additional construction costs of approximately $10.0 million to meet these requirements. Permit conditions could also restrict or limit the extent of our operations. We cannot assure you that we will be able to obtain and comply with all necessary permits to construct or operate our ethanol plants. Failure to obtain and comply with all applicable permits and licenses could halt our construction and could subject us to future claims.

Environmental issues, such as contamination and compliance with applicable environmental standards, could arise at any time during the construction and operation of our ethanol plants. If this occurs, it would require us to spend significant resources to remedy the issues and may delay or prevent construction or operation of our ethanol plants. This would significantly increase the cost of these projects.

We may be liable 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 and/or remediation by regulatory agencies, we may be responsible under CERCLA or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties, including our employees and property owners or residents near our plants, alleging property damage and personal injury due to exposure to hazardous or other materials at or from those plants. Additionally, employees, property owners or residents near our ethanol plants could object to the air emissions or water discharges from our ethanol plants. Ethanol production has been known to produce an odor that some people find unpleasant. Environmental and public nuisance claims or toxic tort claims could be brought against us as a result of this odor or other releases to the air or water. Some of these matters may require us to expend significant resources for investigation, cleanup, installation of control technologies or other compliance-related items, or other costs.

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 plants. For example, federal and state environmental authorities have recently been investigating alleged excess volatile organic compounds and other air emissions from certain U.S. ethanol plants. Present and future environmental laws and regulations (and interpretations thereof) applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on our business, results of operations and financial condition.

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The hazards and risks associated with producing and transporting our products (such as fires, natural disasters, explosions, and abnormal pressures and blowouts) may also result in personal injury claims by third-parties or damage to property owned by us or by other parties. As protection against operating hazards, we intend to maintain insurance coverage against some, but not all, potential losses. However, we could sustain losses for uninsurable or uninsured events, or in amounts in excess of existing insurance coverage. Events that result in significant personal injury to third-parties or damage to property owned by us or third-parties or other losses that are not fully covered by insurance could have a material adverse effect on our business, results of operations and financial condition.

We do not own or control some of the assets we depend on to operate our business.

We are generally contractually obligated to sell 100% of the ethanol we currently produce to Provista, an entity in which we only own a 50% equity interest. However, our Marion plant is contractually obligated to sell 100% of its ethanol to Archer Daniels Midland Corporation (ADM). The other 50% of Provista is owned by CHS Inc. Provista is governed by an amended and restated operating agreement, which provides for the designation of a manager to manage its business and affairs. Pursuant to the amended and restated operating agreement and the related management agreement, we, along with CHS, designated CHS as the manager of Provista. The management agreement provides CHS with broad authority to manage the business of Provista, subject to certain actions that CHS may not take without our approval. Because we do not manage Provista, our ability to control the marketing of our ethanol is limited, and we may be prevented from taking actions with respect to the marketing of our ethanol that we believe to be in our own best interests.

In addition, Provista leases approximately 1,300 railcars and employs the personnel upon whom we rely to sell our ethanol. Our marketing agreement with Provista has a current term through August 31, 2008, and thereafter will automatically renew for one-year additional terms, unless either party provides the other with ninety days written notice of non-renewal. Moreover, pursuant to the amended and restated operating agreement, beginning on April 1, 2009, either member of Provista may initiate a buy-sell mechanism. Under this mechanism, after receiving notice of the initiation of the buy-sell mechanism, the non-initiating member must elect to either sell all of its interests in Provista to the initiating member or purchase all of the initiating member’s interest in Provista, in each case, at a purchase price not less than a specified multiple of Provista’s EBITDA. If our marketing agreement with Provista is terminated, or if we lose all of our interests in Provista pursuant to the buy-sell mechanism, we may be unable to obtain replacement third-party marketing services on similar terms or at all or to acquire the railcars and develop the necessary internal resources to market our ethanol directly. As a result, any such termination or loss of all of our interests in Provista could have a material adverse effect on our business, results of operations and financial condition.

In addition, in connection with the development of future ethanol plants, we may enter into joint venture arrangements with third-party entities to own and operate such plants. For example, we formed a joint venture with Big River Resources, LLC to construct an ethanol plant near Grinnell, Iowa. Under the terms of this arrangement, each of us and Big River Resources, LLC owns 50% of the entity that will own the plant. If we own less than 100% of the entities that operate certain of its ethanol plants, we may be limited in our ability to operate the plant in a manner that maximizes benefits for us.

Disruptions to infrastructure, or in the supply of fuel, natural gas, water or corn, could materially and adversely affect our business.

Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters, human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plants to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

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Our business also depends on the continuing availability of raw materials, including corn, fuel and natural gas. The production of ethanol, from the planting of corn to the distribution of ethanol to refiners, is highly energy- intensive. Significant amounts of fuel and natural gas are required for the growing, fertilizing and harvesting of corn, as well as for the fermentation, distillation and transportation of ethanol and the drying of distillers grains. A serious disruption in supplies of fuel or natural gas, including as a result of delivery curtailments to industrial customers due to extremely cold weather, or significant increases in the prices of fuel or natural gas, could significantly reduce the availability of raw materials at our plants, increase our production costs and could have a material adverse effect on our business, results of operations and financial condition.

Our ethanol plants also require a significant and uninterrupted supply of water of suitable quality to operate. If there is an interruption in the supply of water for any reason, we may be required to halt production at one or more of our plants. If production is halted at one or more of our plants for an extended period of time, it could have a material adverse effect on our business, results of operations and financial condition.

Our historical financial information is not comparable to our current financial condition and results of operations.

We did not engage in any revenue producing activities from our inception on October 28, 2004 until we acquired UBE on May 1, 2005. As a result, our results of operations for periods subsequent to our acquisition of UBE are not comparable to our results of operations for prior periods.

We also did not produce any ethanol during 2004 or 2005, and all of our revenue producing operating results during 2005 were attributable to the conduct of our services business after the consummation of the UBE acquisition on May 1, 2005.

We acquired our first operating ethanol plant, Platte Valley, on April 30, 2006, and effective May 1, 2006, we began recognizing revenue from the production of ethanol. As a result, our results of operations for periods subsequent to our acquisition of Platte Valley are not comparable to our results of operations for prior periods. Moreover, in September 2006, our Woodbury plant began operations. In November 2006, we completed the expansion of our Platte Valley plant, and in December 2006 we began production at our Albert City plant. In May 2007, we began production at our Ord plant and in February 2008, we commenced operations at our Marion, South Dakota plant. In addition, we currently have three ethanol plants under construction. To the extent we acquire or develop additional production capacity, the comparability of our results of operations will be further limited.

Accordingly, our historical financial information and financial information for periods in which we experience a significant expansion of our ethanol production capacity may be of limited use in evaluating our financial performance and comparing it to other periods.

Our management’s time and attention will be divided among our ethanol plants, and our ethanol plants will be part of one common management strategy.

Our business model calls for us to form wholly-owned business entities to own each of our ethanol plants, which will be managed by a centralized management team. The demands on our management’s time from one ethanol plant may, from time to time, compete with the time and attention required for the operation of other ethanol plants. This division of our management’s time and attention among our ethanol plants may make it difficult for us to realize the maximum return from any one plant. Further, to reduce expenses and create efficiencies, we intend to manage each of our ethanol plants in a similar manner. This common management strategy may also result in difficulties in achieving the maximum return from any one plant. If our common management strategy is not successful or if we are not able to address the unique challenges of each ethanol plant, the impact of this arrangement likely will be spread among all of our ethanol plants, resulting in greater potential harm to our business than if each ethanol plant were operated independently.

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The market price of our common stock may be volatile.

Securities markets worldwide experience significant price and volume fluctuations, in response to general economic and market conditions and their effect on various industries. This market volatility could cause the price of our common stock to decline significantly without regard to our operating performance. In addition, the market price of our common stock could decline significantly if our future operating results fail to meet or exceed the expectations of public market analysts and investors. The volatility in our stock price could be based on various factors, including:

Competition for qualified personnel in the ethanol industry is intense and we may not be able to hire and retain qualified personnel to operate our ethanol plants.

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

Technological advances could significantly decrease the cost of producing ethanol or result in the production of higher-quality ethanol, and if we are unable to adopt or incorporate technological advances into our operations, our proposed ethanol plants could become uncompetitive or obsolete.

We expect that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our ethanol plants less efficient or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than us. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than those of our competitors, which could cause our ethanol plants to become uncompetitive.

Ethanol production methods are also constantly advancing. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical or thermal process, rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be competitive, new technologies may develop that would allow these methods to become viable means of ethanol production in the future. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, which could make our ethanol plants obsolete. Modifying our plants to use the new inputs and technologies will likely require significant investments.

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In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol, and our business, results of operations and financial condition may be materially adversely affected.

We have a significant amount of debt, and our existing debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that limit distributions and impose restrictions on the operation of our business. Our debt level or our failure, or the failure of any of our subsidiaries, to comply with applicable debt financing covenants and agreements could have a material adverse effect on our business, results of operations and financial condition.

As of December 31, 2007, our total outstanding debt was $430.3 million. As of December 31, 2007, we had total available borrowing capacity of $232.8 million under our credit facilities. We plan to incur significant additional debt to complete our four ethanol plants that were under construction. We also may incur additional debt to fund operations at our plants or in connection with other development projects or acquisitions.

The use of debt financing makes it more difficult for us to operate because we must make principal and interest payments on the indebtedness and abide by covenants contained in our debt financing agreements. The level of our debt may have important implications on our operations, including, among other things:

The terms of our existing debt financing agreements contain, and any future debt financing agreement we enter into may contain, financial, maintenance, organizational, operational and other restrictive covenants. If we are unable to comply with these covenants or service our debt, we may lose control of our business and be forced to reduce or delay planned capital expenditures, sell assets, restructure our indebtedness or submit to foreclosure proceedings, all of which could result in a material adverse effect upon our business, results of operations and financial condition. Our debt arrangements may also include subordinated debt, which may contain even more restrictions and be on less favorable terms than our senior debt. If we issue subordinated debt, we may have to give the lender warrants, put rights, conversion rights, the right to take control of our business in the event of a default or other rights and benefits as the lender may require.

Changes in the design or operation of our internal controls could result in material misstatements in our financial statements in future periods.

In 2006 and 2005, management and the auditors identified material weaknesses in the design and operation of our internal controls. We believe that we have remediated these weaknesses, but cannot provide assurance that we will have no future deficiencies or weaknesses in our internal controls over financial reporting. If additional

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significant deficiencies or material weaknesses in our internal controls are discovered in the future, we may fail to meet our future reporting obligations, our financial statements may contain material misstatements and our operating results may be adversely affected. Any such failure could also adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our “internal control over financial reporting.”

We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared.

We are subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires annual management assessment of the effectiveness of a company’s internal controls over financial reporting and a report by its independent registered public accounting firm addressing these assessments. These reporting and other obligations place significant demands on our management, administrative, operational, internal audit and accounting resources. If we are unable to meet these demands in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to us could be impaired. Any failure to maintain effective internal controls could have a material adverse effect on our business, results of operations and financial condition.

We are a holding company, and there are limitations on our ability to receive distributions from our subsidiaries.

We conduct all of our operations through subsidiaries and are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to meet our obligations. Moreover, substantially all of our subsidiaries are currently, or are expected in the future to be, limited in their ability to pay dividends or make distributions to us by the terms of their financing agreements.

Certain of our shareholders exert significant influence over us. Their interests may not coincide with ours or the interests of our shareholders, and they may make decisions with which we or our shareholders may disagree.

Gordon Ommen, our chief executive officer, Ron Fagen and CHS Inc. beneficially own approximately 8.2%, 18.3% and 19.9% of our common stock, respectively, and our executive officers, directors and principal shareholders, i.e., shareholders holding more than 5% of our common stock, including Gordon Ommen, Ron Fagen and CHS Inc., together control approximately 46% of our common stock. As a result, these shareholders, acting individually or together, could significantly influence our management and affairs and all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.

The interests of these shareholders may not coincide with our interests or the interests of our shareholders. For instance, Capitaline Advisors, LLC, a private equity investment management firm specializing in renewable energy investments which is 100% owned and controlled by Gordon Ommen, and Fagen, Inc., the leading builder of ethanol plants in the U.S. which is owned and controlled by Ron Fagen, have invested and may continue to invest in a number of other ethanol producers. For example, Capitaline Advisors currently has an investment in Big River Resources, LLC, our joint venture partner for the Grinnell plant. As a result of these and other potential conflicting interests, these existing shareholders may make decisions with respect to us with which we or our shareholders may disagree.

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RISKS RELATED TO OUR PROPOSED MERGER WITH VERASUN

Our failure to complete the merger with VeraSun could negatively impact our stock price and future business and financial results.

Completion of our merger with VeraSun is conditioned upon, among other things, the approval and adoption of the merger agreement and the approval of the merger by our shareholders and the approval of the issuance of VeraSun common stock in the merger by VeraSun shareholders. In addition, the merger agreement contains other customary closing conditions, which may not be satisfied or waived. The merger agreement also contains certain termination rights held by VeraSun and us. If for any reason we are unable to complete the merger, we would be subject to a number of risks, including the following:

The occurrence of any of these events, individually or in combination, could have a material adverse effect on our business, financial condition and results of operations or the trading price of our common stock.

In our merger with VeraSun, the exchange ratio is fixed and will not be adjusted in the event of any change in either VeraSun’s or US BioEnergy’s stock price. Accordingly, because the market price of VeraSun common stock may fluctuate, at the time of the US BioEnergy special meeting of shareholders, US BioEnergy shareholders cannot be sure of the market value of the consideration they will receive in the merger.

Upon completion of the merger, US BioEnergy shareholders will receive consideration equal to 0.810 shares of VeraSun common stock for each share of US BioEnergy common stock they own. The 0.810 to 1 exchange ratio was agreed upon in the merger agreement, and will not be adjusted due to any increases or decreases in the price of VeraSun or US BioEnergy common stock. In addition, neither party has a right to terminate the merger agreement based solely upon changes in the market price of VeraSun’s common stock or US BioEnergy’s common stock, and the merger agreement contains no other provisions that would limit the impact of increases or decreases in the market price of VeraSun’s or US BioEnergy’s common stock. As a result, any changes in the value of VeraSun’s common stock will have a corresponding effect on the value of the consideration that VeraSun pays to US BioEnergy shareholders in the merger.

The market price of VeraSun common stock at the time of completion of the merger may vary significantly from the price on the date of the merger agreement or from the price on the date that US BioEnergy shareholders

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submit proxies for our shareholders’ meeting or the date of such shareholders’ meeting. These variations may be caused by a variety of factors, including:

VeraSun common stock has historically experienced volatility. The closing price of VeraSun common stock on the NYSE on November 28, 2007, the day prior to the announcement of the merger agreement, was $10.64 per share. From November 28, 2007 through February 28, 2008, the day before the joint proxy statement/prospectus related to the proposed merger, the trading price of VeraSun common stock ranged from a high of $17.75 per share to a low of $8.59 per share, and as of March 11, 2008, the closing price was $6.68. The market price of VeraSun common stock may continue to fluctuate prior to completion of the merger, which would result in corresponding fluctuations in the value of the consideration paid by VeraSun to US BioEnergy shareholders in the merger. For example:

In addition, because the date that the merger is completed may be later than the date of the US BioEnergy special meeting of shareholders, at the time of the US BioEnergy special meeting US BioEnergy shareholders may not be sure of the market value of the VeraSun common stock they will receive upon completion of the merger or the market value of VeraSun common stock at any time after the completion of the merger.

The market price of VeraSun’s common stock may be affected after the merger by factors different from those affecting the shares of VeraSun and US BioEnergy currently, and may decline as a result of the merger.

Upon completion of the merger, holders of US BioEnergy common stock will become holders of VeraSun common stock. An investment in VeraSun common stock has different risks than an investment in US BioEnergy common stock. Former holders of US BioEnergy common stock may be subject to additional risks upon exchange of their shares of US BioEnergy common stock for VeraSun common stock in the merger.

Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of VeraSun’s common stock following the merger.

In accordance with U.S. GAAP, the combined company will account for the merger using the purchase method of accounting, which will result in charges to VeraSun’s earnings that could adversely affect the market

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value of the common stock of VeraSun following completion of the merger. Under the purchase method of accounting, the combined company will allocate the total purchase price to US BioEnergy’s net tangible assets, amortizable intangible assets and intangible assets with indefinite lives based on their fair values as of the date of completion of the merger, and record the excess of the purchase price over the fair values of the identified tangible and intangible assets as goodwill. The combined company will incur additional depreciation and amortization expense over the useful lives of certain of the net tangible and intangible assets acquired in connection with the merger. In addition, to the extent the value of goodwill or intangible assets becomes impaired, the combined company may be required to incur material charges relating to the impairment of those assets. These depreciation, amortization and potential impairment charges could have a material impact on the combined company’s results of operations and adversely affect the market value of VeraSun’s common stock.

Some of the directors and executive officers of US BioEnergy and VeraSun have interests in the merger that are different from, or in addition to, those of US BioEnergy’s and VeraSun’s other shareholders.

Certain directors of US BioEnergy and VeraSun have arrangements or other interests that provide them with interests in the merger that are different from, or in addition to, those of US BioEnergy’s or VeraSun’s other shareholders. For example, Donald Endres, the CEO of VeraSun, who is also a director of VeraSun, will, pursuant to the merger agreement, remain CEO of VeraSun and will also remain on the board of directors of VeraSun following the merger, and Gordon Ommen, the President and CEO of US BioEnergy, will become non-executive chairman of the board of directors of VeraSun following the merger. In addition, three other US BioEnergy directors and all of the other VeraSun directors may serve on VeraSun’s board following the merger. While other US BioEnergy directors will not become directors of the combined company after the merger, VeraSun will maintain liability insurance and US BioEnergy’s directors will be indemnified for services as directors of US BioEnergy before the merger. Certain officers of VeraSun and US BioEnergy also have change in control agreements and participate in equity incentive plans provided by VeraSun or US BioEnergy that will provide them with certain enhanced protections and acceleration of equity awards if the merger occurs. In addition, two directors of US BioEnergy are executive officers of entities that have commercial arrangements with US BioEnergy, and one of these entities also has commercial arrangements with VeraSun.

The merger agreement limits the ability of US BioEnergy to pursue alternatives to the merger, and in certain instances requires payment of a termination fee, which could deter a third party from proposing an alternative transaction to the merger.

The merger agreement contains terms and conditions that make it more difficult for US BioEnergy to enter into an alternative transaction to the merger. These “no shop” provisions impose restrictions on US BioEnergy that, subject to certain exceptions, limit US BioEnergy’s ability to discuss, facilitate or commit to competing third party proposals to acquire all or a significant part of US BioEnergy.

Moreover, under specified circumstances, US BioEnergy could be required to pay VeraSun a termination fee of $42 million in connection with the termination of the merger agreement. Such a termination fee could deter a third party from proposing an alternative to the merger.

Although we expect that the merger will result in benefits to the combined company, the combined company may not realize those benefits because of integration and other challenges.

The failure of the combined company to meet the challenges involved in integrating our and VeraSun’s operations successfully or otherwise to realize any of the anticipated benefits of the merger could seriously harm the results of operations of the combined company. Realizing the benefits of the merger will depend in part on the integration of operations and personnel. The integration of companies is a complex and time-consuming process that, without proper planning and implementation, could significantly disrupt the combined company’s business. The challenges involved in integration include the following:

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The combined company may not successfully integrate our operations with VeraSun in a timely manner, or at all, and the combined company may not realize the anticipated benefits or synergies of the merger to the extent, or in the timeframe, anticipated. The anticipated benefits and synergies are based on projections and assumptions, not actual experience, and assume a successful integration. In addition to the integration risks discussed above, the combined company’s ability to realize these benefits and synergies could be adversely impacted by practical constraints on its ability to combine operations.

In order to be successful, the combined company must retain and motivate key employees and failure to do so could seriously harm the combined company.

In order to be successful, the combined company must retain and motivate executives and other key employees. Our current employees or VeraSun employees may experience uncertainty about their future roles until or after our post-merger strategies are announced or executed. These circumstances may adversely affect the combined company’s ability to retain key personnel. The combined company also must continue to motivate employees and keep them focused on the combined company’s strategies and goals, which may be particularly difficult due to the potential distractions of the merger.

VeraSun and US BioEnergy shareholders have no dissenters’ rights of appraisal.

Under the public company exception in Section 47-1A-1302 of the South Dakota Business Corporation Act, shareholders of VeraSun and US BioEnergy are not entitled to appraisal rights in connection with the merger. Accordingly, neither company’s shareholders have the right to seek a judicial determination for the fair value of those shares.

Sales of a substantial number of shares of VeraSun’s common stock after completion of the merger could cause the price of VeraSun’s common stock to decline.

Under the terms of the shareholders agreements entered into concurrently with the merger agreement, for 180 days following the completion of the merger, Donald L. Endres, VeraSun’s Chief Executive Officer, in his capacity as a shareholder of VeraSun, and certain principal shareholders of US BioEnergy who will receive VeraSun common stock in the merger and who, together with Mr. Endres, in the aggregate will own a significant percentage of the common stock of VeraSun, will be limited in their ability to sell an amount of such shares equal to approximately 25.3% of the total number of shares of VeraSun common stock to be outstanding following the merger. However, upon the expiration of the 180 days, such shares will become eligible for sale. Sales of a substantial number of these shares in the public market, or the perception that these sales could occur, could cause the market price of VeraSun’s common stock to decline and could impair the ability of VeraSun shareholders to sell their shares of VeraSun common stock in the amounts and at such times and prices as they may desire. In addition, the sale of these shares could impair VeraSun’s ability to raise capital through the sale of additional equity securities.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K contains forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

We have used the words “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” and similar words or phrases, including references to assumptions, to identify forward-looking statements in this Annual Report on Form 10-K, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.

We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Annual Report on Form 10-K. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this Annual Report on Form 10-K.

Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk factors” and elsewhere in this Annual Report on Form 10-K, including, without limitation, in conjunction with the forward-looking statements included in this Annual Report on Form 10-K. As stated elsewhere in this document, such factors include, among others:

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