Mail Stop 3561
January 27, 2006
James K. Patterson
Chief Executive Officer
Ethanol Grain Processors, LLC
P.O. Box 95
Obion, TN 38240
Re: Ethanol Grain Processors, LLC
Registration Statement on Form SB-2
Filed December 30, 2005
File No. 333-130815
Dear Mr. Patterson:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. The securities you are offering for sale at $2.00 per unit
include
a deferred payment option. Specifically, investors may pay a
minimum
initial 10% of the purchase price in cash, and provide up to the
remaining 90% of the purchase price by means of a promissory note
that is payable upon written notice by the company, which may
occur
after the end of the subscription period. Rule 10b-9 under the
Securities Exchange Act of 1934 is applicable to this minimum-
maximum
offering, and requires the prompt refund of the consideration paid
for the securities unless, among other things, "the total amount
due
to the [issuer] is received by [the issuer] by a specified date."
See Rule 10b-9(a)(2). With a view to better disclosure, please
provide us with an analysis as to whether receipt of promissory
notes, in lieu of cash, to meet the $42,000,000 minimum prior to
the
offering termination date would be consistent with Rule 10b-
9(a)(2).
2. We note that on page 72 it appears that you conducted a private
rescission offer because of omissions relating to Mr. Escue`s
involvement in certain legal proceedings. Please revise to
describe
the facts surrounding any potential securities violation and the
reasons for the rescission offer, including what the potential
violations are, when the potential violation occurred, how you
became
aware of the potential violation and how you conducted the
rescission
offer. Please also disclose that the rescission offer does not
eliminate all of the contingent liability and discuss the survival
of
rescission rights under the federal securities laws. Further,
please
add similar risk factor disclosure.
3. Please provide us with any gatefold information such as
pictures,
graphics or artwork that will be used in the prospectus.
4. We note your discussion concerning the setting of your offering
price in your Risk Factors on page 10. Please revise your
prospectus
to provide a separate disclosure regarding the determination of
your
offering price of the securities being registered required by Item
505 of Regulation S-B. Please consider whether the sale of units
in
recent private placements or the amounts of debt financing
required
for operations were factors in determining the offering price.
Fee Table
5. Please revise to include a reference to the applicable
provision
of Rule 457 of Regulation C that you are relying upon.
Prospectus Cover Page
6. We note that you state that investors who subscribe "in the
early
stages" will receive an additional 10% in units. Please revise to
clarify the effective price per unit for each of the following
periods:
* That before June 30, 2006, the price per unit will be $1.82,
* That from June 30, 2006 to August 15, 2006, the price per unit
will
be $1.90 per unit, and
* That from August 15, 2006 to the termination date of the
offering,
the price per unit will be $2.
7. Please revise throughout the document to clarify the
termination
date of the offering and to revise your use of the term "financial
closing" since you appear to be referring to the closing date of
this
offering. It appears that you will accept subscriptions until no
later than December 31, 2006, but that the termination date of the
offering when investors may expect prompt return of all payments
is
December 31, 2007.
8. We note your statement on page 3 under "Escrow Procedures" that
a
minimum of $42 million is required "in this offering or any
subsequent offering;" however, on page 23 under "Use of Proceeds,"
it
appears that $42 million is the minimum offering amount. Please
revise throughout your document to state whether there is no
minimum
amount, or whether $42 million is the minimum amount required to
be
raised in this offering.
9. While keeping your cover page to one page, please revise the
legend at the bottom of your cover page to include language that
indicates that neither the Securities and Exchange Commission nor
any
state securities commission has approved or disapproved the
securities being offered. See Item 501(a)(7) of Regulation S-B.
Summary, page 1
10. The Summary section is intended to provide a brief overview of
the most material aspects of the offering. Please revise the
length
of your summary. The summary should not contain, and is not
required
to contain, all of the detailed information in the prospectus. See
Item 503(a) of Regulation S-B. The summary is only intended to
provide a brief snapshot of the offering. Please also revise this
section to comply with the Plain English requirements of Rule 421
of
Regulation C.
Promissory Notes, page 3
11. We note that the outstanding balance of the promissory notes
will
be due in one or more installments upon a 30-day written notice.
Please revise to clarify whether the promissory notes become due
at
any time after December 31, 2006 or at some other time. Further,
please disclose any maturity date of the promissory note and
whether
in any event full payment must be made by December 31, 2007, or
whether the promissory notes may remain outstanding for an
indefinite
period.
Risk Factors, page 7
12. We note that according to a recent article, there are very few
service stations in the U.S. that sell ethanol. For example, see
"How to Beat the High Cost of Gasoline," Fortune, February 6,
2006.
Consider discussing this as a risk factor.
13.
We note your disclosure on page 32 indicating that if you are not
able to raise sufficient capital, you may seek to enter into joint
ventures. Please revise to discuss the risks in connection with
joint ventures, including that you will be bound by the decisions
of
your co-venturer, that your liabilities may exceed the percentage
of
your investment, and that you will be affected by your co-
venturer`s
financial condition.
Use of Proceeds, page 23
14. Please revise to list the significant offering expenses and
revise to specify how the net proceeds will be used and the
priority
of each purpose if all the units are not sold. See Item 504 of
Regulation S-B. Please revise the column heading "minimum equity
for
financial closing" if there is no minimum amount required to be
raised in this offering.
15. We note your discussion concerning the setting of your
offering
price in your Risk Factors on page 10. Please revise your
prospectus
to provide a separate disclosure regarding the determination of
your
offering price of the securities being registered required by Item
505 of Regulation S-B. Please consider whether the sale of units
in
recent private placements or the amounts of debt financing
required
for operations were factors in determining the offering price.
Management`s Plan of Operation, page 28
BioEnergy Capital Consultants, LLC, page 37
16. We note that BioEnergy Capital Consultants will assist with
"planning" your "equity raising efforts" and with securing debt
financing. Please further describe the services provided by
BioEnergy Capital.
Estimated Uses of Funds, page 34
17. Please advise us and revise your filing to reflect any updates
to
the cost estimates provided.
The Industry and Our Business, page 41
18. Please provide copies of the reports or studies that support
the
qualitative and comparative statements contained in your
prospectus.
We note the following examples:
* "...Obion, Tennessee, an area dominated by the river and
southern
livestock markets...," page 5;
* "...the price of ethanol, which tends to track with gasoline
prices," page 15
* "Today, approximately 90% of the ethanol produced in the United
States is produced from corn," page 43;
* The statements attributed to the Renewable Fuels Association and
U.S. Department of Transportation Highway Statistics on page 44;
and
* "Gasoline blends containing up to 10% ethanol are approved under
the warranties of most domestic and foreign automobile
manufacturers," page 45;
These are only examples. Please tell us if the statement
represents
management`s belief. Please mark your furnished support or
provide
page references in your response to the sections you rely upon for
each specific statement. To the extent you are unable to provide
support, please delete the qualitative and comparative statement.
Please revise throughout your prospectus as necessary.
The Ethanol Plant, page 41
19. We note your use of a block flow diagram on page 42 that
references the Renewable Fuels Association. The details for the
chart are illegible. Please revise your chart so it is legible.
The
same is true of the Natural Gas Industry Price chart on page 56,
the
Electric Industry Prices chart and Tennessee Gasoline Pricing
History
chart on page 57.
The Ethanol Market, page 44
20. We note your use of a chart on page 45 purporting to
illustrate
U.S. ethanol demand under the Energy Policy Act of 2005, but the
chart is entitled U.S. Fuel Ethanol Production, not demand.
Please
revise or advise.
Biographies, page 63
21. Please revise to describe the business experience of each
director and executive for the past five years, or clarify your
disclosure by adding dates or the duration of employment. Refer
to
Item 401(a)(4) of Regulation S-B.
Board Compensation and Compensation for Services as Officers, page
66
22. Please revise your prospectus to provide the compensation
information and securities grant information in the table formats
required by Item 402 of Regulation S-B and related instructions.
Certain Relationship and Related Party Transactions, page 68
23. Please tell us why you do not consider Fagen to be a promoter.
Refer to the definition of "promoter" in Rule 405 of the
Securities
Act.
Plan of Distribution, page 94
24. Please revise your disclosure to identify the individual
officers
and governors who will offer units or state that all of them will
participate in offering units. Please also disclose the exemption
from broker-dealer registration that your officers and governors
plan
to rely upon. In this regard, if you intend to rely on Rule 3a4-
1,
please provide us with a detailed analysis demonstrating how each
individual satisfies the conditions of the exemption. We may have
further comments.
25. We note that you state that officers, governors and affiliates
may purchase units in this offering. Please describe the issuance
of
5,750,000 units to Ethanol Capital Management and that there are
no
limits on the amount of units that affiliates may purchase, as
disclosed on page 12. Please also revise to state whether
affiliates
are purchasing units for investment or resale.
Summary of Promotional and Sales Material, page 97
26. With respect to these sales materials, please tell us whether
they will meet the requirements of section 10 and how you intend
to
comply with section 5 of the Securities Act, rule 164 under the
Securities Act of 1933 and rule 433 of Regulation C. Please tell
us
in greater detail the type of promotional and sales material you
will
use, how and when you will distribute it, and whether any written
communications that may not be preceded or accompanied by this
prospectus will comply with rule 134 under the Securities Act of
1933. Also tell us whether you plan to use the Internet or any
other
electronic distribution procedures in connection with this
offering.
If so, please provide us with screen shots of any Internet pages
to
be used in connection with the distribution.
Index to Financial Statement of Operations, page F-1
27. Update the financial statement through the end of the fiscal
year. See Item 310 of Regulation S-B.
Prospectus Back Cover
28. If applicable to your offering, please revise the outside back
cover page of your prospectus to include the dealer prospectus
delivery obligation disclosure language in accordance with 502(b)
of
Regulation S-B.
Part II. Information Not Required in Prospectus
Item 27. Exhibits
29. Please file your legal and tax opinion in a timely manner so
that
we may review them before you request that your registration
statement become effective. Please also file the agreements that
you
have with the following companies, or advise us:
* BioEnergy Consulting
* Antioch International Consulting
* RTP Environmental Associates
* US Energy Services
***
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Michael Moran, Accounting Branch Chief, at
(202) 551- 3841 if you have questions regarding comments on the
financial statements and related matters. Please contact Scott
Anderegg, Staff Attorney, at (202) 551-3342, Peggy Kim, Senior
Staff
Attorney, at (202) 551-3411 or me at (202) 551-3720 with any other
questions.
Sincerely,
H. Christopher Owings
Assistant Director
cc: Michael L. Weaver, Esq.
Via Fax (612) 371-3207
James K. Patterson
Ethanol Grain Processors, LLC
January 27, 2006
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