March 7, 2006
By facsimile to (212) 930-9725 and U.S. Mail
Mr. Frederic Scheer
President and Chief Executive Officer
Cereplast, Inc.
3421-3433 West El Segundo Boulevard
Hawthorne, CA 90250
Re: Cereplast, Inc.
Registration Statement on Form SB-2
Filed February 14, 2006
File No. 333-131853
Dear Mr. Scheer:
We limited our review to the periodic equity investment
agreement and related disclosures and have the comments below. No
further review of the registration statement has been or will be
made.
We urge all persons by statute responsible for the
registration
statement`s adequacy and accuracy to make certain that all
information required under the Securities Act has been included.
We
remind you to consider applicable requirements for the preliminary
prospectus` distribution.
Where indicated, we think that you should revise the document
in
response to the comments. If you disagree, we will consider your
explanation why a comment is inapplicable or a revision is
unnecessary. Be as detailed as necessary in your explanation. To
understand better your disclosure, we may ask you in some comments
to
provide us supplemental information. We may raise additional
comments after reviewing this information.
Our review`s purpose is to assist you in your compliance with
applicable disclosure requirements and to enhance the overall
disclosure in your document. We look forward to working with you
to
achieve these objectives. We welcome any questions that you may
have
about the comments or any other aspect of our review. You may
call
us at the telephone numbers listed at the end of this letter.
General
1. Please provide an explanation whether Cumorah Capital, Inc. or
Cumorah or any of its affiliates is an affiliate of Cereplast,
Inc.
or Cereplast.
2. Please explain how Cumorah and Cereplast decided upon the $10
million amount of the periodic equity investment agreement.
Please
state your belief whether Cumorah will provide Cereplast the total
dollar amount available under the periodic equity investment
agreement. Please provide us all press releases, transcripts, and
other communications directed to the market on the periodic equity
investment agreement with an explanation of how you have
represented
the potential proceeds under the periodic equity investment
agreement
and other transactions to the market.
3. We note the disclosure in section 10(e) of exhibit 4.5. Please
provide appropriate disclosure of the placement agent used for the
equity line arrangement, including its identity, activities, and
compensation.
4. We note section 7.2(d) of the periodic equity investment
agreement
and that Cumorah does not have to acquire and pay for shares if
Cereplast does not fulfill this provision. Please tell us who
determines whether Cereplast has complied with all covenants,
agreements, and conditions and what standard will be used.
Note that we consider agreements that give investors the
right
to acquire additional securities to provide the investors with
an
investment decision, suggesting that the investors are not
irrevocably bound. In view of the provision noted above, tell us
why
you believe that the equity line transaction is consistent
with
our position under "Equity Line Financings" in "Current Issues
and
Rulemaking Projects Outline Quarterly Update, March 31, 2001.
Prospectus` Outside Front Cover Page
5. Please disclose in the second paragraph that the 10% discount
that
Cumorah will pay represents an underwriting discount.
6. Please disclose the amount of the lowest volume closing bid
price
of Cereplast`s common stock for the most recent five day trading
period.
Summary, Periodic Equity Investment Agreement, page 3
7. Please disclose here and on page 35 that Cumorah will be
irrevocably bound to purchase shares when you request an advance.
8. Disclosure in this subsection`s second paragraph that Cumorah
is
purchasing shares under the periodic equity investment agreement
with
an intent to sell or distribute its shares to the public is
inconsistent with disclosure in section 3.4 of exhibit 4.4 that
Cumorah is purchasing the securities for its own account, for
investment, and without any view to the distribution, assignment,
or
resale to others. Please advise or revise to reconcile the
disclosures.
9. Confirm that Cumorah has no other convertible or exercisable
instruments tied to the market price of the common stock of
Cereplast, Inc. or Cereplast. We note the disclosure in section
4.3
of exhibit 4.4.
10. Disclosure in this subsection`s second paragraph indicates
that
Cereplast issued to Cumorah five million shares of common stock
upon
the periodic equity investment agreement`s execution. Explain the
issuance`s purpose. If the issuance represents a placement fee,
so
indicate. Also disclose the value of the five million shares
issued
to Cumorah.
11. Please explain how Cumorah will be able to sell shares before
its
receipt of those shares if the number of shares is not determined
until the fifth trading day after a request of advance.
Risk Factors, page 5
12. Please discuss also in the eighteenth risk factor the
ownership
cap and how it many limit Cereplast`s access to funds under the
equity line.
Use of Proceeds, page 11
13. In view of the fluctuating purchase price under the equity
line
arrangement and the current market price of Cereplast`s common
stock,
please provide a table illustrating the maximum amount of net
proceeds that you could raise based on a range of market prices,
including the most current market price, if you sold all shares
issuable under the periodic equity investment agreement.
Plan of Distribution, page 31
14. Cumorah as an equity line investor is an underwriter. Thus,
revise the language "deemed to be" an underwriter in this
section`s
fourth paragraph to make clear that Cumorah is an underwriter.
15. Rule 144 under the Securities Act is a safe harbor from
underwriter status. Since Cumorah as an equity line investor is
an
underwriter, Cumorah may not use Rule 144 to resell the
securities.
Thus, revise this section`s second paragraph to make clear that
Cumorah may not use Rule 144 to resell the securities.
Selling Stockholders, page 33
16. Expand the disclosure to state that Cereplast will file
prospectus supplements:
* To reflect changes in Cumorah`s selling stockholder information,
including sale of material amounts of securities.
* When Cereplast exercises its right to sell under the periodic
equity investment agreement with Cumorah.
17. Expand the disclosure to include all compensation fees paid or
payable under financing agreements with selling stockholders.
18. Describe briefly how The Madison Trust and Mr. Christopher
Stappas acquired the securities being offered for resale.
19. Confirm that neither The Madison Trust nor Mr. Christopher
Stappas is a broker-dealer or a broker-dealer`s affiliate. If The
Madison Trust or Mr. Christopher Stappas is a broker-dealer, tell
us
whether they acquired the securities as compensation for
underwriting
activities. Unless a broker-dealer acquired the securities as
compensation for underwriting activities, Cereplast must identify
the
broker-dealer as an underwriter in the prospectus. Language such
as
"may be deemed" an underwriter is unacceptable if the selling
stockholder is a broker-dealer.
20. If The Madison Trust or Mr. Christopher Stappas is a broker-
dealer`s affiliate, include disclosure that this broker-dealer`s
affiliate:
* Purchased in the ordinary course of business the securities
being
resold.
* Had no agreements or understandings, directly or indirectly,
with
any person to distribute the securities at the time of their
purchase.
If Cereplast is unable to make the representations noted above in
the
prospectus, Cereplast must state in the prospectus that the
selling
stockholder is an underwriter. Language such as "may be deemed"
an
underwriter is unacceptable if the selling stockholder is an
affiliate of an underwriter that cannot make these
representations.
21. For The Madison Trust and Mr. Christopher Stappas, consider
adding disclosure that the term selling stockholders includes them
and their transferees, pledgees, donees, or their successors.
22. Disclose that Cereplast will file a prospectus supplement to
name
successors to any named selling stockholders who are able to use
the
prospectus to resell the securities.
Periodic Equity Investment Agreement, page 35
23. Please discuss the alternative financing methods that you
considered before deciding to enter into an equity line of credit
arrangement with Cumorah and why you decided ultimately to enter
into
this facility with Cumorah.
24. Please disclose the material terms of the escrow agreement,
including the mechanics of the escrow.
25. Please disclose in the last bullet point on page 36 the number
of
shares that Cumorah would have to own to reach this threshold.
Exhibit 4.4
26. As noted above, Cumorah as an equity line investor is an
underwriter and may not use Rule 144 to resell the securities.
Further, our position is that Cumorah as an equity line investor
may
not transfer or assign the securities. Based on the disclosures
under (ii) and (iii) in section 1.23, confirm and provide
disclosure
that Cumorah as an equity line investor understands that it may
not
use Rule 144 to resell the securities and may not transfer or
assign
the securities. We note the disclosures in sections 3.4, 6.4, and
10.1.
Exhibit 4.5
27. Refer to section 10(e). File the escrow agreement as an
exhibit
to the registration statement.
Exhibit 5.1
28. Except for the five million shares issued upon the periodic
equity investment agreement`s execution, Cereplast has not issued
shares under the periodic equity investment agreement. Thus,
revise
the third paragraph to reflect that fact.
Closing
File an amendment to the SB-2 in response to the comment. To
expedite our review, Cereplast may wish to provide us three marked
courtesy copies of the amendment. Include with the filing any
supplemental information requested and a cover letter tagged as
correspondence that keys the responses to the comments. If
Cereplast
thinks that compliance with the comments is inappropriate, provide
the basis in the letter. We may have additional comments after
review of the amendment, the responses to the comments, and any
supplemental information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosure in the registration statement reviewed by us to
ensure
that they have provided all information investors require for an
informed decision. Since Cereplast and its management are in
possession of all facts relating to the disclosure in the
registration statement, they are responsible for the adequacy and
accuracy of the disclosures that they have made.
If Cereplast requests acceleration of the registration
statement`s effectiveness, Cereplast should furnish a letter at
the
time of the request, acknowledging that:
* Should the Commission or the staff acting by delegated authority
declare the registration statement effective, it does not
foreclose
the Commission from taking any action on the filing.
* The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective does
not
relieve Cereplast from its full responsibility for the adequacy
and
accuracy of the registration statement`s disclosures.
* Cereplast may not assert our comments or the declaration of the
registration statement`s effectiveness as a defense in any
proceedings initiated by the Commission or any person under the
United States` federal securities laws.
The Commission`s Division of Enforcement has access to all
information that Cereplast provides us in our review of the
registration statement or in response to our comments on the
registration statement.
We will consider a written request for acceleration of the
registration statement`s effectiveness under Rule 461 of
Regulation C
under the Securities Act as confirmation that those requesting
acceleration are aware of their responsibilities under the
Securities
Act and the Exchange Act as they relate to the proposed public
offering of the securities specified in the registration
statement.
We will act on the request and by delegated authority grant
acceleration of the registration statement`s effectiveness.
You may direct questions on comments and disclosure issues to
Edward M. Kelly, Senior Counsel, at (202) 551-3728 or me at (202)
551-3767.
Very truly yours,
Jennifer R. Hardy
Legal Branch Chief
cc: Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, NY 10018
Mr. Frederic Scheer
March 7, 2006
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE