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Cereplast Announces $12,500,000 Private Placement

Cereplast, Inc. (NASDAQ: CERP), a leading manufacturer of proprietary bio-based, compostable and sustainable plastics has entered into a Securities Purchase Agreement with select institutional investors. Under the terms of the purchase agreement, the company will raise $12.5 million in an offering of 7% senior subordinated convertible notes due June 1, 2016.

Proceeds from the financing will be used for working capital to meet the increasing demand for the company’s bioplastic resins, driven by recently signed distribution agreements and increased legislation banning the use of traditional plastics. Based on current demand, the company expects rapid expansion in Europe and other emerging markets.

"We are at an inflection point of a growing need for bioplastics worldwide,” said Frederic Scheer, Chairman and CEO of Cereplast, Inc. “Demand is being driven by legislation for bio-based alternatives to petroleum-based plastics, as well as the rising price of commodities. Proceeds from this transaction will provide us with the capital to deliver on our growth expectations as we are now well positioned to capture the rising demand that exists in the marketplace. Not only do we expect continued growth to come from the European marketplace, but new legislation in India, Brazil and other countries have introduced a tremendous opportunity for Cereplast bioplastics in those regions and beyond.”

Terms of Senior Subordinated Convertible Notes

Under the terms of the notes, Cereplast will pay interest semi-annually and the notes will mature on June 1, 2016, unless earlier repurchased or converted as described below. The notes are convertible into shares of Cereplast common stock at a conversion rate of 172.4138 shares of common stock per $1,000 principal amount of convertible notes, equivalent to a conversion price of approximately $5.80 per share of common stock, subject to adjustment. The initial conversion price represents a premium of approximately 15% over the closing price of Cereplast’s common stock on NASDAQ Capital Market on May 18, 2011. In addition to the shares of common stock, holders of the notes will receive, if applicable, upon conversion an amount in cash equal to the amount of any interest, that would have accrued under the notes for the period from the then most recent interest payment date through and including, June 2, 2014, subject to a cap of approximately two years of interest payments. The notes will be Cereplast’s senior subordinated unsecured obligations which will rank subordinate in right to payment to all Cereplast’s existing and future senior secured indebtedness. The notes may also be repurchased by Cereplast at the purchaser's option on June 15, 2014 or in connection with a change of control of Cereplast. In addition, if certain fundamental changes to Cereplast occur, holders of the notes may be entitled to an increased conversion rate. The closing of the offering is expected to take place on or about May 24, 2011, subject to the satisfaction of customary closing conditions.

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