JOHN R. THOMAS
DIRECT (503) 294-9448
jrthomas@stoel.com
May 26, 2006
VIA EDGAR AND OVERNIGHT COURIER
Ms. Pamela A. Long
Assistant Director
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Mail Stop 7010
Washington, D.C. 20549
RE: VERASUN ENERGY CORPORATION
RESPONSE TO CORRESPONDENCE DATED MAY 25, 2006
AMENDMENT NO. 2 TO FORM S-1
FILED MAY 23, 2006
FILE NO. 333-132861
Dear Ms. Long:
This letter is the response of VeraSun Energy Corporation (the "Company") to the
Staff's comments to the above-referenced correspondence relating to Amendment
No. 2 to Form S-1. The Company has included each of the Staff's comments dated
May 25, 2006 and the Company's responses below.
Principal and Selling Shareholders, page 78
1. WE NOTE YOUR PROPOSED RESPONSE TO COMMENT 2 OF OUR
LETTER DATED MAY 24, 2006. PLEASE INCLUDE THE
REPRESENTATIONS CONTAINED IN THE RESPONSE IN YOUR
PROSPECTUS.
The Company has made the requested revision. Please
refer to page 79 of Amendment No. 3 to the Company's
Registration Statement on Form S-1 ("Amendment No. 3").
Financial Statements for the Quarter Ended March 31, 2006 Note 4 -
Stock-Based Compensation, page F-36
2. WE HAVE REVIEWED YOUR RESPONSES TO COMMENTS THREE AND
FOUR. DESPITE THE SIGNIFICANT UNCERTAINTY REGARDING THE
EMERGENCE OF THE ETHANOL INDUSTRY AND THE
Pamela A. Long
May 26, 2006
Page 2
VOLATILITY OF ETHANOL PRICES DURING THE FIRST QUARTER OF
2006, WE WOULD EXPECT A REASONABLE VALUATION TO REFLECT
AN INCREASE IN THE VALUE OF YOUR COMMON STOCK OF GREATER
THAN THE $0.05 PER SHARE YOU HAVE RECORDED FOR THE FIRST
QUARTER OF 2006.
THE DUFF AND PHELPS VALUATION REPORT YOU REFER TO IN
YOUR RESPONSE ESTIMATED THE VALUE OF YOUR COMMON STOCK
AS OF DECEMBER 31, 2005. ON APRIL 28, 2006 YOU ESTIMATED
THE VALUE OF YOUR COMMON STOCK AS OF MARCH 31, 2006
USING THE SAME ASSUMPTIONS ORIGINALLY USED BY DUFF AND
PHELPS IN THEIR DECEMBER 31, 2005 ANALYSIS. HOWEVER, WE
NOTE THE FOLLOWING ITEMS:
- YOU MET WITH UNDERWRITERS REGARDING THE
POSSIBILITY OF AN IPO TWO MONTHS EARLIER, AND IN
THE INTERVENING PERIOD, BEFORE THE END OF THE
QUARTER, YOU FILED A FORM S-1.
- YOUR APRIL 28 ANALYSIS ASSUMED THREE PLANTS,
DESPITE YOUR PLANS TO BUILD TWO ADDITIONAL
PLANTS, WHICH YOU DISCUSS IN THE PROSPECTUS
SUMMARY AND ELSEWHERE IN THE FORM S-1 YOU FILED
ON MARCH 30, 2006.
- BASED ON THE INFORMATION YOU PROVIDED, IT
APPEARS THAT THE PER GALLON RACK PRICE OF
ETHANOL INCREASED 11%, FROM $2.15 TO $2.38,
BETWEEN THE NOVEMBER 30, 2005 OFFERING AND MARCH
31, 2006. THIS IS COMPARED TO THE SUBSEQUENT
INCREASE OF 12% FROM $2.38 AT MARCH 31 TO THE
AVERAGE RACK PRICE PER GALLON TO DATE FOR MAY OF
$2.66.
- IT IS OUR UNDERSTANDING THAT CERTAIN COMPANIES
IN THE ETHANOL INDUSTRY HAVE EXPERIENCED
SIGNIFICANT STOCK PRICE INCREASES SUBSEQUENT TO
MARCH 31, 2006; HOWEVER, IT ALSO APPEARS THAT
SUCH INCREASES WERE PRECEDED BY SIMILAR
INCREASES DURING THE PERIOD FROM NOVEMBER 30,
2005 TO MARCH 31, 2006.
ALTHOUGH WE ACKNOWLEDGE THE DRAMATIC INCREASE IN THE
PRICE OF ETHANOL AND YOUR VALUATION DUE TO RECENT
DEVELOPMENTS IN THE MARKET, IT APPEARS THAT A
SIGNIFICANT PORTION OF THE INCREASE IN THE VALUE OF YOUR
COMMON STOCK OCCURRED PRIOR TO MARCH 31, 2006.
Based upon the Company's discussions with the Staff, and
after re-evaluating its valuation model and assumptions
as of March 31, 2006, the Company has calculated a
revised valuation of its common stock as of March 31,
2006 of $15.60 per share and, accordingly, has increased
the valuation of the put warrant issued to Teachers
Insurance and Annuity Association of America by $10.9
million. This results in a corresponding increase in the
interest charge for the first quarter of 2006 of $10.9
Pamela A. Long
May 26, 2006
Page 3
million. The Company has revised the relevant financial
information in Amendment No. 3 accordingly.
3. WE HAVE REVIEWED YOUR RESPONSE TO COMMENT SIX. IF TRUE,
PLEASE CONFIRM THAT THE ORIGINAL TERMS OF EACH OF THE
OPTIONS THAT HAD A MEASUREMENT DATE PRIOR TO THE APRIL
1, 2006 PROVIDED FOR ACCELERATION UPON AN INITIAL PUBLIC
OFFERING. IN THIS REGARD, WE NOTE YOUR STATEMENT ON PAGE
F-38 THAT "CERTAIN" SERVICE AWARDS PROVIDE FOR
ACCELERATED VESTING UPON A CHANGE IN CONTROL.
The Company confirms that the original terms of the
options that will accelerate upon completion of the
Company's planned initial public offering have not been
changed. With respect to the second half of comment no.
3, the Company confirms that some of its options,
including those awarded to directors of the Company, do
not provide for accelerated vesting upon a change of
control.
Exhibits
4. WE NOTE YOUR RESPONSE TO COMMENT 8 OF OUR LETTER DATED
MAY 24, 2006. PLEASE EXPAND UPON YOUR RESPONSE TO
DISCUSS YOUR VIEW THAT THE CONTRACT IS IMMATERIAL, GIVEN
YOUR PROSPECTUS DISCLOSURE REGARDING THE AGREEMENT AND
AMERICAN MILLING'S ANTICIPATED PARTICIPATION IN YOUR
DIRECTED SHARE PROGRAM. THIS RESPONSE SHOULD INCLUDE THE
SUBSTANTIVE TERMS OF THE CONTRACT, PARTICULARLY ITS
CONSIDERATION. IN ADDITION PLEASE CONFIRM THAT AMERICAN
MILLING IS NOT A RELATED PARTY OR, ALTERNATIVELY, REVISE
YOUR PROSPECTUS TO DISCLOSE THE NATURE OF THE
RELATIONSHIP.
The Company has filed the American Milling agreement as
Exhibit 2.1 to Amendment No 3. The Company is seeking
confidential treatment for the pricing terms in the
agreement because they may affect the Company's
acquisition of property in the future, even though the
Company may not purchase any development sites under the
agreement. The Company confirms that American Milling is
not a related party.
The Company is appreciative of the Staff's efforts on its behalf over the past
few weeks and management looks forward to speaking with you today regarding this
letter and Amendment No. 3. Please address any questions or comments you may
have about this letter or Amendment No. 3 to me at (503) 294-9448.
Pamela A. Long
May 26, 2006
Page 4
Very truly yours,
/s/ John R. Thomas
John R. Thomas
cc: Mr. Chris Edwards, Special Counsel
Mr. Matt Franker, Staff Attorney
Mr. Ernest Greene, Staff Accountant
Mr. Scott Watkinson, Senior Staff Accountant
Mr. Donald L. Endres
Mr. Danny C. Herron
Mr. John M. Schweitzer
Mr. John J. Sabl