Unassociated Document
As
filed with the Securities and Exchange Commission on August 17,
2010
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
PUDA
COAL, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
of incorporation or other
jurisdiction
of incorporation)
|
|
65-1129912
(I.R.S. Employer
Identification No.)
|
426
Xuefu Street, Taiyuan
Shanxi
Province, The People’s Republic of China 030006
011
86 351 228 1302
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Qiong
Wu
Chief
Financial Officer, Puda Coal, Inc.
426
Xuefu Street, Taiyuan
Shanxi
Province, The People’s Republic of China 030006
011
86 351 228 1302
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Stephen
M. Davis, Esq.
Goodwin
Procter LLP
The
New York Times Building, 620 Eighth Avenue
New
York, NY 10018
212-813-8804
Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this Registration
Statement.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. ¨
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. ¨
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
|
|
Accelerated
filer ¨
|
|
|
|
Non-accelerated
filer x (Do
not check if a smaller reporting company)
|
|
Smaller
reporting company ¨
|
CALCULATION
OF REGISTRATION FEE
Title of each class of
securities to be registered
|
|
Amount to be
registered(1)
|
|
|
Proposed
maximum
offering price
per unit(1)(2)
|
|
|
Proposed
maximum
aggregate
offering
price(1)(2)(3)
|
|
|
Amount of
registration fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, par value $0.001 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, par value $0.01 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
90,000,000
|
|
|
|
|
|
|
$
|
90,000,000
|
|
|
$
|
6,417
|
|
(1)
|
An
indeterminate number of or aggregate principal amount of the securities is
being registered as may at various times be issued at indeterminate
prices, with an aggregate public offering price not to exceed $90,000,000
or the equivalent thereof in one or more currencies. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder. The proposed maximum
initial offering price per security will be determined, from time to time,
by the registrant in connection with the issuance by the registrant of the
securities registered hereunder. The securities registered also
include such indeterminate number of shares of common stock and preferred
stock as may be issued upon conversion of or exchange for preferred stock
that provide for conversion or exchange, upon exercise of warrants or
pursuant to the anti-dilution provisions of any such
securities. In addition, pursuant to Rule 416 under the
Securities Act, the securities being registered hereunder include
indeterminate number of shares of common stock and preferred stock as may
be issuable with respect to the shares being registered hereunder as a
result of stock splits, stock dividends or similar
transactions.
|
(2)
|
Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(o).
|
(3)
|
Includes
consideration to be received by us for registered securities that are
issuable upon exercise, conversion or exchange of other registered
securities.
|
The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes
effective. This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED August 17, 2010
PROSPECTUS
$90,000,000
PUDA
COAL, INC.
Common
Stock
Preferred
Stock
Warrants
Units
This
prospectus relates to common stock, preferred stock, warrants for equity
securities and units which we may sell from time to time in one or more
offerings. We will provide specific terms of these sales in
supplements to this prospectus. You should read this prospectus and
each supplement carefully before you invest. The aggregate public
offering price of the securities offered by this prospectus will not exceed
$90,000,000.
This
prospectus may not be used to offer and sell securities unless accompanied by a
prospectus supplement.
See
“Risk Factors” beginning on page 3 for a discussion of material risks that you
should consider before you invest in our securities being sold under this
prospectus.
Our
common stock is traded on the NYSE Amex under the trading symbol
“PUDA.” On August 12, 2010, the last reported sale price of our
common stock on the NYSE Amex was $9.3 per share.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the securities or passed on the adequacy or accuracy
of the disclosures in this prospectus or any accompanying prospectus
supplement. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is ________ __, ____
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
ABOUT
THIS PROSPECTUS
|
|
1
|
THE
COMPANY
|
|
1
|
FORWARD-LOOKING
STATEMENTS
|
|
3
|
RISK
FACTORS
|
|
3
|
USE
OF PROCEEDS
|
|
14
|
DESCRIPTION
OF THE COMMON STOCK AND PREFERRED STOCK WE MAY OFFER
|
|
14
|
DESCRIPTION
OF THE WARRANTS WE MAY OFFER
|
|
16
|
DESCRIPTION
OF THE UNITS WE MAY OFFER
|
|
17
|
PLAN
OF DISTRIBUTION
|
|
20
|
LEGAL
MATTERS
|
|
21
|
EXPERTS
|
|
21
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
21
|
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
|
|
21
|
You
should rely only on the information we have provided or incorporated by
reference in this prospectus, any applicable prospectus supplement and any
related free writing prospectus. Neither the delivery of this
prospectus nor any sale made under it implies that there has been no change in
our affairs or that the information in this prospectus is correct as of any date
after the date of this prospectus. You should assume that the
information in this prospectus, any applicable prospectus supplement or any
related free writing prospectus is accurate only as of the date on the front of
the document and that any information we have incorporated by reference is
accurate only as of the date of the document incorporated by reference,
regardless of the time of delivery of this prospectus, any applicable prospectus
supplement or any related free writing prospectus, or any sale of a
security.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a Registration Statement on Form S-3 that we filed with
the Securities and Exchange Commission utilizing a “shelf” registration
process. Under this shelf process, we may sell common stock,
preferred stock, warrants for equity securities from time to time and units
comprised of common stock, preferred stock, warrants and other securities in any
combination, in one or more offerings, either separately or in units, at
indeterminate prices, up to an aggregate maximum offering price for all such
securities of $90,000,000. This prospectus provides you with a
general description of the securities we may offer. Each time we sell
any securities under this prospectus, we will provide a prospectus supplement
that will contain specific information about the terms of that
offering. We may also authorize one or more free writing prospectus
to be provided to you that may contain material information relating to these
offerings and securities. This prospectus, together with applicable
prospectus supplements, any information incorporated by reference and any
related free writing prospectus, includes all material information relating to
these offerings and securities. The prospectus supplement may also
add, update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement together with
additional information described below under the heading “Where You Can Find
More Information.”
THE
COMPANY
Puda
Coal, Inc. (“Puda” or the “Company”) is a supplier of high-grade metallurgical
coking coal to the industrial sector in the People’s Republic of
China. Its processed coking coal is primarily purchased by coke and
steel producers for the purpose of making the coke required for the steel
manufacturing process. Its operations are conducted exclusively by an
entity in China, Shanxi Puda Coal Group Co., Ltd. (“Shanxi Coal”), which it
controls through 90% indirect equity ownership.
Puda
cleans raw coking coal sourced from third party coal mines primarily located in
Liulin County, Shanxi Province, and markets the cleaned, high quality coking
coal to coke and steel makers in its geographic market. Its current
primary geographic markets include Shanxi Province, Inner Mongolia Autonomous
Region, Hebei Province, Beijing and Tianjin, China.
The
Company focuses on value-added coal washing processes and specializes in
providing high quality, cleaned coking coal, which is the quality level required
to produce steel. The demand for the form of high quality coking coal
which the Company produces is primarily driven by China’s industrial expansion
and advancement, which depends on the availability of large amounts of steel for
building infrastructure. The Company currently purchases raw coal from a
diversified pool of local coal mines in Shanxi Province.
The
central area of Shanxi Province, where Puda’s three coal washing plants are
located, is known for its high quality coking coal reserves. The
Company is strategically located in proximity to some of the highest quality
coking coal reserves suitable for steel making. Puda’s three coal
washing plants are located in Liulin County, Zhongyang County and Lingshi
County, all of which are within approximately 150 miles of the Company’s
executive offices in Taiyuan City. Puda’s accumulated coal washing
capacity is about 3.5 million MT per year. As a large-volume
supplier, the Company expects to continue to enjoy certain advantages as it
believes that its primary customers will continue to focus on suppliers that can
deliver large volume, consistently high-quality coking coal. The
Company also expects to be well positioned to serve the demand for steel
production in China - mostly, coking companies that supply the steel mills and
steel mills with their own coking facilities. These customers are
mostly located in Shanxi Province, Inner Mongolia Autonomous Region, Hebei
Province, Beijing and Tianjin, all of which are accessible by railroad which is
the most cost effective method for coal transport.
Puda has
three coal washing plants: Shanxi Liulin Jucai Plant, located in
Liulin County, about 2 miles away from Jucai Coal, has an annual cleaning
capacity of 1.1 million MT; Shanxi Zhongyang Ruixu Plant, located in
Zhongyang County, has an annual clean coal washing capacity of 1.2 million MT;
Lingshi Dongqiang Plant, located in Lingshi County, has an annual coal washing
capacity of 1.2 million MT. In year 2009, the Company produced about
1.9 million MT cleaned coal, which is 54% of the 3.5 million MT annual
production capacity.
To
diversify its source of revenue and increase its gross margin, in 2009, the
Company entered into coal mining business, which can be operated separately
from, or synergistically with, its coal washing business. The Company
plans to take advantage of the policy initiatives of the Chinese government and
has begun working on finding suitable coal mines to acquire.
On May
14, 2009, the Company entered into an agreement to purchase 18% ownership in
Shanxi Jianhe Coal Industry Limited Company for an aggregate purchase price of
RMB 100 million (approximately $14.6 million). The closing occurred
in December 2009 when the share transfer and governmental registration of the
share transfer was completed. According to the agreement, Shanxi Coal will be
paid dividends semiannually based on its 18% ownership in Jianhe Coal and
aggregate dividend to be declared will be no less than 80% of the net profits of
Jianhe Coal. In addition, Shanxi Coal has first priority in the right to
purchase other shares of Jianhe Coal within the 24-month period following
execution of the agreement.
In
September 2009, the Shanxi provincial government appointed Shanxi Coal as the
acquirer and consolidator for eight coal mines in Yucheng City, Pinglu County.
Shanxi Coal will acquire and consolidate the eight coal mines into five,
increasing their total annual capacity from approximately 1.6 million to 3.6
million metric tons. In March 2010, Shanxi Coal received another
approval by the Shanxi Provincial government to acquire and consolidate four
additional coking coal mines into one coal mine in HuoZhou County, increasing
their total capacity from 720,000 metric tons to 900,000 metric
tons.
In
connection with the above coal mine acquisition and consolidation plan, on
December 11, 2009, Shanxi Coal entered into a Mining Right and Mining Assets
Transfer Agreement with Pinglu County Da Wa Coal Industry Co., Ltd., or Da Wa
Coal, pursuant to which Shanxi Coal will purchase from Da Wa Coal all its
tangible assets and coal mining rights with respect to a coal mine located in
Pinglu County, Yuncheng City, Shanxi Province of China. As consideration, Shanxi
Coal will pay Da Wa Coal an aggregate purchase price of RMB 190 million
(approximately $27.8 million) in cash, of which RMB 46.6 million ($6.8 million)
is for the tangible assets and RMB 143.4 million ($21.0 million) is for the
mining rights and compensation to Da Wa Coal. On December 11, 2009, Shanxi Coal
also entered into a Mining Rights and Mining Assets Transfer Agreement with
Pinglu County Guanyao Coal Industry Co., Ltd., or Guanyao Coal, pursuant to
which, Shanxi Coal will purchase from Guanyao Coal all its tangible assets and
coal mining rights with respect to a coal mine located in Pinglu County,
Yuncheng City and Yuanqu County, Shanxi Province of China. As consideration,
Shanxi Coal will pay Guanyao Coal an aggregate purchase price of RMB 94.80
million (approximately $13.9 million) in cash, of which RMB 37.6 million ($5.5
million) is for the tangible assets and RMB 57.2 million ($8.4 million) is for
the mining rights and compensation of Guanyao Coal. Pursuant to the payment term
of the above two agreements, on December 14, 2009, Shanxi Coal paid 15% of the
purchase price under each agreement as down payment, on June 25, 2010, Shanxi
Coal paid another 65% of the purchase prices under each agreement with an
aggregate amount of RMB185.12 million ($27.2 million) after the registration and
ownership certificates of the mining rights and the land and property deeds were
transferred to Shanxi Coal. The remaining purchase price of $8.4
million will be paid upon the one-year anniversary of the completion of the
transfers.
In March
2010, we received an approval by the Shanxi provincial government to acquire and
consolidate four additional coking coal mines in Huozhou County, Shanxi
Province, including Jianhe Coal. Shanxi Coal has the government’s permission to
acquire and consolidate the four coal mines into one, which could increase the
total annual capacity of target coal mines from the current accumulated 720,000
metric tons to 900,000 metric tons per year.
As part
of the Shanxi provincial government’s policies to consolidate and redevelop the
coal mining industry, new guidelines were enacted by the government in February
2010 to require the registered capital of coal mine consolidators to be at least
RMB200 million (US$29.3 million). The new requirement was adopted to ensure that
coal mine consolidators have sufficient financial strength to consolidate coal
mines efficiently and timely. The registered capital of Shanxi Coal
at that time was RMB22.5 million (about US$3.3 million). As Shanxi
Coal had been previously approved as an acquirer and consolidator of certain
coal mine projects, Shanxi Coal needed to increase its registered capital to
RMB500 million (US$73.2 million), 90% of which would be funded by Shanxi Coal’s
90% shareholder, Shanxi Putai Resources Limited Co. (“Putai”) and 10% of
which would be funded by Shanxi Coal’s 10% shareholders, Mr. Ming Zhao, and his
brother, Mr. Yao Zhao. In addition to RMB190 million cash on hand, Putai needed
RMB240 million to satisfy the capital injection. On May 7, 2010,
Putai entered into a Loan Agreement with Mr. Ming Zhao, a significant
shareholder and Chairman of the board of director of the
Company. Pursuant to the agreement, Mr. Zhao provided Putai with an
unsecured loan in an aggregate principal amount of RMB240
million. The loan has a maturity date of November 6, 2011 and bears
an interest at a rate of 6% per annum, which is payable on a quarterly basis,
subject to certain adjustments. Putai used the proceeds from the loan
to pay for its share of the required registered capital increase of its 90%
subsidiary, Shanxi Coal.
On August
1, 2010, Shanxi Coal entered into an Investment Cooperation Agreement with Ming
Zhao, Chairman of our Board and our principal stockholder, and Jianping Gao, an
individual unrelated to the Company. Pursuant to the agreement, the parties will
purchase, consolidate and re-develop six coal mines in Pinglu County, Stanxi
Province. Shanxi
Coal, Mr. Zhao and Mr. Gao will each contribute 40%, 30% and 30%, respectively,
of the total investment needed for the project. Shanxi Coal will be
the project manager; in addition, each of Mr. Zhao and Mr. Gao have agreed to
transfer 5.5% of his respective voting rights in the project companies, which
will hold the coal mines after they are acquired, to Shanxi Coal to enable
Shanxi Coal to exercise full operating and management control of the project
companies. The parties will share the profits and bear the risks and losses in
connection with the project, based upon the percentages of their equity
ownership and limited by the amount of investment contributed by each
party. The parties further agree that, once the coal mines to be
acquired and consolidated under the project are operational, to the extent
permitted by the Chinese law, at least 80% of the audited annual net profits of
the project companies established after the coal mine acquisition will be
distributed to the parties at a ratio that is proportionate to their respective
investment. Shanxi Coal is entitled to purchasing the equity interest
of Mr. Zhao and/or Mr. Gao in the project companies at Shanxi Coal’s sole
discretion at a price determined by an independent professional
appraiser. A committee of the Board of Directors of the Company
comprised solely of independent directors negotiated terms of the agreement on
behalf of the Company and approved the agreement.
We were
incorporated on August 9, 2001 under the laws of Florida, and were subsequently
reincorporated on July 30, 2009 under the laws of Delaware. Our
principal executive office is located at 426 Xuefu Street, Taiyuan City, Shanxi
Province, China. Our telephone number is +86 (351) 2281302 and our facsimile
number is +86 (351) 7034404. As used in this prospectus, the words
“we,” “us,” “our”, “Puda” and the “Company” refer to Puda Coal, Inc., a Delaware
corporation, and its subsidiaries.
RECENT
DEVELOPMENTS
No
material recent development has occurred since the filing of our last Annual
Report on Form 10-K for the year ended December 31, 2009 that has not been
described in a report on Form 10-Q or Form 8-K.
FORWARD-LOOKING
STATEMENTS
The
statements contained in this registration statement on Form S-3 that are not
purely historical are “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the
Securities Exchange Act of 1934 (“Exchange Act”), including without limitation
statements about the expectations, beliefs, intentions or strategies regarding
the future of Puda. Words such as “expects,” “intends,” “plans,” “projects,”
“believes,” “estimates,” and similar expressions are used to identify these
forward-looking statements. These include, among others, statements regarding
our future expectations, performance, plans and prospects as well as assumptions
about future events. All forward-looking statements included in this
registration statement are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. The forward-looking statements contained herein involve risks and
uncertainties discussed under the heading “Risk Factors” beginning on page 3.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of such factors, including those set
forth in this registration statement.
RISK
FACTORS
The
prospectus supplement applicable to each type or series of securities we offer
will contain a discussion of risks applicable to an investment in Puda and to
the particular types of securities that we are offering under that prospectus
supplement. Prior to making a decision about investing in our
securities, you should carefully consider the specific factors discussed under
the caption “Risk Factors” in the applicable prospectus supplement, together
with all of the other information contained in the prospectus supplement or
appearing or incorporated by reference in this prospectus.
Risks
Relating to Our Business
We
are primarily a holding company and depend on distributions from our
subsidiaries to meet our financial obligations.
Our
company has an offshore holding structure commonly used by foreign investors
with operations in China. We are a corporation which owns BVI, and BVI owns
Putai. Our operations are conducted exclusively through Shanxi Coal, in which we
own 90% of the equity interest. The operations of Shanxi Coal are our sole
source of revenues. We have no operations independent of those of Putai and its
subsidiaries. As a result, we are dependent upon the performance of Putai and
its subsidiaries and will be subject to the financial, business and other
factors affecting such subsidiaries as well as general economic and financial
conditions. As substantially all of our operations are conducted through our
subsidiaries, we are dependent on the cash flow of our subsidiaries to meet our
obligations.
Because
virtually all of our assets are held by our operating subsidiaries, the claims
of our shareholders will be structurally subordinate to all existing and future
liabilities and obligations, and trade payables of such subsidiaries. In the
event of a bankruptcy, liquidation or reorganization of the Company, our assets
and those of our subsidiaries’ will be available to satisfy the claims of our
shareholders only after all of Putai and its subsidiaries’ liabilities and
obligations have been paid in full.
If
we do not successfully execute our strategy of growth through coal mine
acquisitions, our future performance, particularly our profit margins, could be
adversely affected.
We have
adopted a business strategy to enter into coal mining business, including
acquisitions of coal mines. If we are unable to obtain or manage
these external growth opportunities successfully, we will not be able to grow
our business in the way that we currently expect. The availability of
high quality coal mines is limited and we are not certain that we will be able
to identify suitable candidates or complete transactions on terms that are
acceptable to us. In order to pursue such opportunities, we may
require significant additional financing, which may not be available to us on
favorable terms, if at all. If we are unsuccessful in our external growth
strategy, we may not be able to grow our business significantly and we may incur
asset impairment charges as a result of acquisitions that are not
successful.
Because
we are entering into a new business line, coal mining, through acquisitions of
various coal mine assets, we are subject to the risks faced by a new business
and risks relating to coal mine operations.
Under our
new business strategy as discussed above, we are entering into the coal mining
business through acquisitions of various coal mine assets, which is a new
business to us. The operation of the coal mines will be subject to
significant additional risks which are not necessarily related to our coal
washing business. In addition to the normal risks associated with our business,
there are additional risks that relate to the new coal mining business. These
risks include, but are not limited to:
|
·
|
We lack experience in
operating coal mines. Although individuals on our board and our
management team have extensive experience in operating coal mines and we
plan to hire additional outside management company and personnel to
operate the coal mines, as a company, we have never operated coal mines,
and we cannot assure you that we will be successful in operating coal
mines.
|
|
·
|
We require significant
additional funds to enable us to develop and expand the coal mine
business. The construction of coal mines and related facilities is
very capital intensive, and we will require significant additional funds
for this purpose. We cannot assure you that we will be able to obtain any
financing which we may require, or obtain financing on terms that are
favorable or acceptable to us.
|
|
·
|
Our coal mining business faces
many uncertainties, which may change by the time the construction of our
coal mines and related facilities is completed. The uncertainties
our coal mine operations face include a change in the coal price and price
policy and limitation that is imposed or may be imposed by the Chinese
government from time to time, which may have an adverse impact on our
revenues and reduce our margins. We may also face delays in the
construction of our coal mines and related facilities, which depend on
third parties to complete, as a result of breach of contract by the
construction contractors, protests or other obstructive or delaying
activities by displaced persons and others who may oppose such
constructions.
|
|
·
|
The coal mining business is
highly regulated. The exploration, transportation and distribution
of coal is subject to PRC regulations, including the price at which we
sell coal. The price control limits our potential profit from the sale of
coal. Other regulations may result in increased costs in order to comply
with these regulations.
|
|
·
|
Because of the nature of coal
mine business, we could be exposed to liability from mining accidents or
other safety issues. Any explosions or other safety accidents from
our coal mines, once they become operational, could cause severe property
damage, personal injury as well as loss of life, which may not be covered
by insurance. Any such loss could result in a material adverse impact on
our business and operating results or even cause termination of coal mine
operations and could subject us to regulatory
actions.
|
|
·
|
We entered into an Investment
Cooperation Agreement to acquire and co-develop certain coal mines, the
success of which cooperation relationship is uncertain. Because of
the large capital investment required to acquire and co-develop coal
mines, we entered into an Investment Cooperation Agreement with Mr. Ming
Zhao on August 1, 2010, our principal stockholder and Chairman of our
Board, and Mr. Jianping Gao. Under the agreement, Shanxi Coal,
Mr. Zhao and Mr. Gao each will contribute 40%, 30% and 30% of the total
investment needed for the six coal mines under the Pinglu project, and
will share economic benefits and bear losses that are proportionate to
their respective equity contribution. This is the first time we
have entered into such an investment cooperation agreement. If
the cooperation is not successful, our coal mining business will be
materially impacted. Moreover, if we, as the project manager,
act in a way that is considered grossly negligent or in material violation
of the agreement, we could be subject to liabilities. Finally, under the
agreement, to the extent permitted by the Chinese law, at least 80% of the
audited annual net profits of the project companies established after the
coal mine acquisition will be distributed to the parties at a ratio that
is proportionate to their respective investment. Therefore, the
project companies may not have sufficient cash generated from operations
for reinvestment or capacity expansion in the future and may need
outside financing for its future
growth.
|
In light
of these risks and uncertainties, we may not be able to set up the newly
acquired coal mines for operation on time, integrate them successfully or take
full advantage of them. There can be no assurance that we will recover our
investment in this new business, that we will realize a profit from this new
business or that diverting our management’s attention to this new business will
not have a material adverse effect on our existing coal mining businesses, any
of which results may have a material adverse effect on our results of
operations, financial condition and prospects.
Our
future operating results have been and may continue to be affected by
fluctuations in raw material prices. We may not be able to pass on cost
increases to customers.
Our
operating profits have been and may continue to be negatively affected by
fluctuations in the price of raw coking coal. We are subject to short-term coal
price volatility and have purchased and may continue to have to
purchase raw coking coal at higher prices. In the past, we were unable to
pass the cost increase of raw coal on to customers and may not be able to do so
in the future either. This has adversely affected and may continue to adversely
affect our gross margins and profitability. Our sales agreements with customers
generally contain provisions that permit the parties to adjust the contract
price of the cleaned coking coal upward or downward at specified times. For
example, we may adjust these contract prices because of increases or decreases
in the price of raw coal from our mining suppliers, general inflation or
deflation, or changes in the cost of producing raw or cleaned coking coal caused
by such things as changes in taxes, fees, royalties or the laws regulating the
mining, production, sale or use of coal. However, if we fail to agree on a price
with our customer under these provisions, many agreements permit customers to
terminate the contract or refuse to buy all of the quantities contracted for.
Market prices for raw coking coal fluctuate in most regions in China. From the
beginning of 2008 the price of raw coking coal rose significantly and the price
arrived to historically highest level in October 2008, and then decreased
afterwards. In 2009, the raw coal prices remained at a relatively higher
level due to shortage in supply because many coal mines were temporarily shut
down by the Shanxi provincial government during the processing of coal mine
consolidation. We were not able to fully pass these cost increases on to our
customers and may not be able to do so with any future increases in the cost of
raw materials. Top quality raw coking coal is critical to our maintaining
operating efficiencies and delivering cleaned coal to our customers which meets
their specifications. Since top quality raw coking coal is more limited in
supply, its price tends to be more volatile. A general rise in coking coal
prices also may adversely affect the price of, and demand for, coke and products
made with coke such as pig iron, steel and concrete. This may in turn lead to a
fall in demand for our products.
The
demand for our product is cyclical and is affected by industrial economic
conditions. Downturns in the economy may reduce demand for our product and our
revenues could decline.
Because
we do not export our product out of China, our business and operating results
related to our cleaned coking coal business are primarily dependent upon China’s
domestic demand for cleaned coking coal, and our business and operating results
related to our newly acquired coal mine business will be primarily dependent
upon China’s domestic demand for raw coal to be produced from our coal mines
once those mines are up for operation. However, because the domestic demand for
coal in China is impacted by the international demand for coal, we are also
susceptible to fluctuations in the international markets. The domestic and
international coal markets are cyclical and exhibit fluctuation in supply and
demand from year to year and are subject to numerous factors beyond our control,
including, but not limited to, the economic conditions in China, the global
economic conditions and fluctuations in industries with high demand for coal,
such as the steel and power industries. A significant decline in demand or
excess supply for coal may have a material adverse effect on our business and
results of operations.
In
addition, nearly all of our sales are concentrated in the central and northern
area of China. Accordingly, we are susceptible to fluctuations in business
caused by adverse economic conditions in those regions. Difficult economic
conditions in other geographic areas into which we may expand may also adversely
affect our business, operations and finances.
If
any of Shanxi Coal’s coal sales agreements relating to our coal clean and coal
washing business terminates or expires, our revenues and operating profits could
suffer.
A
substantial portion of our cleaned coking coal sales are made under cleaned
coking coal sales agreements, which are important to the stability and
profitability of our coal washing operations. It is common business practice in
China that cleaned coking coal purchase and sale agreements are signed for one
year terms, with annual renewals. This practice makes it difficult for us to
forecast long-term purchase and sale quantities and can negatively affect our
ability to manage inventory. These agreements may expire or be terminated.
Cleaned coal sales agreements also typically contain force majeure provisions
allowing temporary suspension of performance by us or the customer during the
duration of specified events beyond the control of the affected party. Moreover,
even if sales agreements are in force, buyers are generally not obligated to
take the quantities specified in the contracts.
Increases
in transportation costs could make our operations less competitive and result in
the loss of customers.
Coal
producers and processors depend upon rail, barge, trucking, overland conveyor
and other systems to deliver coal to markets. While our cleaned coking coal
customers typically arrange and pay for transportation of cleaned coking coal
from our facilities to the point of use, any disruption of these transportation
services because of weather-related problems, strikes, lock-outs or other events
could temporarily impair our ability to supply coal to customers and thus could
adversely affect our results of operations. For example, the high volume of raw
coal shipped from all Shanxi Province mines could create temporary
congestion on the rail systems servicing that region. If transportation for our
cleaned coking coal becomes unavailable or uneconomic for our customers, our
ability to sell cleaned coking coal could suffer. Transportation costs can
represent a significant portion of the total cost of cleaned coal. Since our
customers typically pay that cost, it is a critical factor in a distant
customer’s purchasing decision. If transportation costs from our facilities to
the customer’s are not competitive, the customer may elect to purchase from
another company. Moreover, certain cleaned coking coal sales agreements permit
the customer to terminate the contract if the cost of transportation increases
by specified amounts in any given 12-month period.
We
may not be able to meet quality specifications required by our customers and as
a result could incur economic penalties or cancelled agreements which would
reduce our sales and profitability.
Most of
our cleaned coking coal sales agreements contain provisions requiring us to
deliver coking coal meeting quality thresholds for certain characteristics such
as BTUs, sulfur content, ash content, grindability and ash fusion temperature.
If we are not able to meet these specifications, because, for example, we are
not able to source coal of the proper quality, we may incur economic penalties,
including price adjustments, the rejection of deliveries or termination of the
contracts.
Our
cleaned coking coal business is highly competitive and increased competition
could reduce our sales, earnings and profitability.
The coal
crushing, washing and processing business is highly competitive in China and we
face substantial competition in connection with the marketing and sale of our
products. Most of our competitors are well established, have greater financial,
marketing, personnel and other resources, have been in business for longer
periods of time than we have, and have products that have gained wide customer
acceptance in the marketplace. The greater financial resources of our
competitors will permit them to implement extensive marketing and promotional
programs. We could fail to expand our market share, and could fail to maintain
our current share.
Increased
competition could also result in overcapacity in the Chinese coal industry in
general. The coal industry in China has experienced overcapacity in the past.
During the mid-1970s and early 1980s, a growing coal market and increased demand
for coal in China attracted new investors to the coal industry, spurred the
development of new mines and resulted in added production capacity throughout
the industry, all of which led to increased competition and lower processed coal
prices. Similarly, an increase in future processed coal prices could encourage
the development of expanded capacity by new or existing coal processors. Any
overcapacity could reduce processed coal prices in the future and our
profitability would be impaired.
We and
our operating company, Shanxi Coal are highly dependent on the marketing ability
and credit of Ming Zhao, our Chairman, and the loss of his service and support
would have a material and adverse impact on our operations. We are also
dependent upon our relationship with Ming Zhao and his brother, Yao Zhao’s other
controlled businesses. None of our companies have applied for key-man life
insurance on the lives of our executives. If we were to lose the services of
Ming Zhao, our ability to operate succefully would be impaired.
Significant
assets are subject to a lien held by a company controlled by the Zhaos and their
family. If we default on the payment of the obligations secured by the lien we
could lose title to assets which are necessary for the operation of our
business.
We
financed the acquisition of the Shanxi Liulin Jucai Plant and the Zhongyang
Plant through Resources Group, an entity owned 80% by Ming Zhao, 10% by Yao
Zhao, 5% by Xue Ning, Ming Zhao’s wife, and 5% by Xue Yue, a second-generation
cousin of Xue Ning, for an aggregate cost of $13 million paid through a 6%
secured Facilities Loan amortized over 10 years. The note is secured by the
assets purchased. If we default on the loan, the security could be enforced and
title to the assets could be lost, having a significant negative impact on our
ability to produce our products.
Since the
Zhaos are equity owners of Resources Group they may have a conflict of interest
with the Company. If the lien is enforced after a default, the secured assets
would be transferred to an entity which is owned by them. Ming Zhao and Yao Zhao
may have, or may develop in the future, conflicts of interest with us. As the
equity owners of 10% of the registered capital of Shanxi Coal, they might
personally profit if Shanxi Coal’s benefits of operation are not directed to us.
In addition, the loan used to finance our facility expansions are held by
Resources Group, a company which is owned by the Zhaos and their family. It
could be in their economic interest to cause us to default on the payment of the
loan with Resources Group since Resources Group could acquire the assets which
are subject to the lien as a result of enforcement of the lien after a default.
With their combined ownership of us, they can largely control the actions which
we take. Ming Zhao is our Chairman of the board of directors. In addition, the
Zhao brothers also control the mine, Jucai, of which is one of our suppliers. By
limiting or eliminating our supply, they could adversely impact our production
and revenue, which in turn could cause us to default on our loan to Resources
Group. See also the risk below, “Our principal stockholders have significant
control over the company and may have conflicts of interest with the
company.”
We
do not have any registered patents or other intellectual property and we may not
be able to maintain the confidentiality of our processes.
We have
no patents covering our cleaning processes and we rely on the confidentiality of
our cleaning processes in producing a competitive product. The confidentiality
of our know-how may not be maintained and we may lose any meaningful competitive
advantage which might arise through our proprietary processes.
The
current credit and financial market conditions have a negative impact on global
business environment and may exacerbate certain risks affecting our
business.
The
financial markets have been experiencing instability following the recession in
late 2008 and 2009 around the world. Many of our customers and suppliers may
encounter much uncertainty and risks due to the weakened business environment
and credit availability. As a result, these customers and suppliers
may be unable to satisfy their contract obligations, may delay payment, or may
not repay our credit advance to them, which could negatively affect our business
and financial performance.
Terrorist
attacks or military conflict could result in disruption of our
business.
Terrorist
attacks and threats, escalation of military activity in response to such attacks
or acts of war may negatively affect our business, financial condition and
results of operations. Our business is affected by general economic conditions,
fluctuations in consumer confidence and spending, and market liquidity, which
can decline as a result of numerous factors outside of our control, such as
terrorist attacks and acts of war. Future terrorist attacks, rumors or threats
of war, actual conflicts involving China or its allies, or military or trade
disruptions affecting our customers may materially adversely affect our
operations. As a result, there could be delays or losses in transportation and
deliveries of our products to our customers, decreased sales of coal and
extensions of time for payment of accounts receivable from customers. Strategic
targets such as energy-related assets may be at greater risk of terrorist
attacks than other targets. In addition, disruption or significant increases in
energy prices could result in government-imposed price controls. Any, or a
combination, of these occurrences could have a material adverse effect on Shanxi
Coal’s business, financial condition and results of operations.
Risks
Relating to Doing Business in China
Our
Chinese operations pose certain risks because of the evolving state of the
Chinese economy, political, and legislative and regulatory systems. Changes in
the interpretations of existing laws and the enactment of new laws may
negatively impact our business and results of operation.
Substantially
all of our business operations are conducted in China. Accordingly, our results
of operations, financial condition and prospects are subject to economic,
political and legal developments in China. China’s economy differs from the
economies of most developed countries in many respects, including its levels of
government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. Doing business in China involves
various risks including internal and international political risks, evolving
national economic policies as well as financial accounting standards,
expropriation and the potential for a reversal in economic conditions. Since the
late 1970s, the Chinese government has been reforming its economic system. These
policies and measures may from time to time be modified or revised. While the
Chinese economy has experienced significant growth in the past 20 years, growth
has been uneven across different regions and among various economic sectors of
China. Furthermore, while the Chinese government has implemented various
measures to encourage economic development and guide the allocation of
resources, some of these measures may also have a negative effect on us. For
example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us. Also, since early 2004, the Chinese
government has implemented certain measures to control the pace of economic
growth including certain levels of price controls on raw coking coal. Such
controls could cause our margins to be decreased. In addition, such measures may
cause a decrease in the level of economic activity in China, which in turn could
adversely affect our results of operations and financial condition. Adverse
changes in economic policies of the Chinese government or in the laws and
regulations, if any, could have a material and adverse effect on the overall
economic growth of China, and could adversely affect our business
operations.
There are
substantial uncertainties regarding the application of Chinese laws, especially
with respect to existing and future foreign investments in China. The
interpretation and application of existing Chinese laws, regulations and
policies, and the stated positions of the Chinese authorities may change and
possible new laws, regulations or policies will impact our business and
operations. For example, due to the uncertainties surrounding the interpretation
of the transfer pricing rules relating to related party transactions in China,
it is possible that tax authorities in China may challenge the transfer prices
that we have used for related party transactions among our entities in China in
the future. Because of the evolving nature of the law, it will be difficult for
us to manage and plan for changes that may arise. Our business is and will
continue to be subject central, provincial, local and municipal regulation and
licensing in China. Compliance with such regulations and licensing can be
expected to be a time-consuming, expensive process. Compliance with foreign
country laws and regulations affecting foreign investment, business operations,
currency exchange, repatriation of profits, and taxation, will increase the risk
of investing in our stock.
We
may have to incur unanticipated costs because of the unpredictability of the
Chinese legal system.
The
Chinese legal system has many uncertainties. The Chinese legal system is based
on written statutes. Prior court decisions may be cited for reference but have
limited precedential value. Since 1979, Chinese legislation and regulations have
enhanced the protections afforded to various forms of foreign investments in
China. However, China has not developed a fully integrated legal system and
recently-enacted laws and regulations may not sufficiently cover all
aspects of economic activities in China. In particular, because these laws and
regulations are relatively new, and because of the limited volume of published
decisions and their nonbinding nature, the interpretation and enforcement of
these laws and regulations involve uncertainties. In addition, the Chinese
legal system is based in part on government policies and internal rules (some of
which are not published on a timely basis or at all) that may have a retroactive
effect. As a result, we may not be aware of our violation of these policies and
rules until some time after the violation. In addition, any litigation in China
may be protracted and result in substantial costs and diversion of resources and
management attention.
Our
industry is heavily regulated and we may not be able to remain in compliance
with all such regulations and we may be required to incur substantial costs in
complying with such regulation.
We are
subject to extensive regulation by China’s Mining Ministry, and by other
provincial, county and local authorities in jurisdictions in which our products
are processed or sold, regarding the processing, storage, and distribution of
our product. Our processing facilities are subject to periodic inspection by
national, province, county and local authorities. We may not be able to comply
with current laws and regulations, or any future laws and regulations. To the
extent that new regulations are adopted, we will be required to adjust our
activities in order to comply with such regulations. We may be required to incur
substantial costs in order to comply. Our failure to comply with applicable laws
and regulations could subject us to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, which
could have a material and adverse effect on our business, operations and
finances. Changes in applicable laws and regulations may also have a negative
impact on our sales. Certain of our contracts with customers permit the
customers to terminate the contract in the event of changes in regulations
affecting the industry that increase the price of coal beyond specified
limits.
The
government regulation of our operations imposes additional costs on us, and
future regulations could increase those costs or limit our ability to explore
and produce raw coal and to crush, clean and process coking coal. China’s
central, provincial and local authorities regulate the coal mining industry with
respect to matters such as employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, plant and wildlife
protection, reclamation and restoration of mining properties after mining is
completed, the discharge of materials into the environment, surface subsidence
from underground mining and the effects that mining has on groundwater quality
and availability. We are required to prepare and present to China’s central,
provincial and local authorities data pertaining to the effect or impact that
any proposed processing of coal may have upon the environment. The costs,
liabilities and requirements associated with these regulations may be costly and
time-consuming and may delay commencement, expansion or continuation of our coal
processing operations. The possibility exists that new legislation and/or
regulations and orders may be adopted that may materially and adversely affect
our operations, our cost structure and/or our customers’ ability to use coal.
New legislation or administrative regulations (or judicial interpretations of
existing laws and regulations), including proposals related to the protection of
the environment that would further regulate and tax the coal industry, may also
require us and our customers to change operations significantly or incur
increased costs. Certain sales agreements contain provisions that allow a
purchaser to terminate its contract if legislation is passed that either
restricts the use or type of coal permissible at the purchaser’s plant or
results in specified increases in the cost of coal or its use. These factors and
legislation, if enacted, could have a material adverse effect on our financial
condition and results of operations.
It
will be difficult for any shareholder of our company to commence a legal action
against our executives. Other than the stock of our subsidiaries, we have no
assets in the United States.
We
conduct substantially all of our operations through our control of Shanxi Coal.
Shanxi Coal and substantially all of Shanxi Coal’s assets are located in Shanxi
Province, China. Other than our stock in our direct subsidiary, Puda Investments
Holding Limited, an International Business Company incorporated in the British
Virgin Islands, we have no assets in the United States. In addition, all of our
executive officers and some of our directors reside within China. As a result,
it may not be possible to effect service of process within the United States or
elsewhere outside of China upon our senior executive officers and some of our
directors, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. Moreover, our Chinese
counsel has advised us that China does not have treaties with the United States
or many other countries providing for the reciprocal recognition and enforcement
of judgments of courts.
Restrictions
on Chinese currency may limit our ability to obtain operating capital and could
restrict our ability to move funds out of China and to pay
dividends.
The
Chinese currency, “Renminbi”, or “RMB”, is not a freely convertible currency,
which could limit our ability to obtain sufficient foreign currency to support
Shanxi Coal’s business operations in the future and could impair the ability of
Shanxi Coal to pay dividends or other distributions to Puda. We rely on the
Chinese government’s foreign currency conversion policies, which may change at
any time, in regard to our currency exchange needs. Shanxi Coal receives all of
its revenues in Renminbi, which is not freely convertible into other foreign
currencies. Under our current structure, our income is derived from payments
from Shanxi Coal through Putai and BVI. In China, the government has control
over Renminbi reserves through, among other things, direct regulation of the
conversion of Renminbi into other foreign currencies and restrictions on foreign
imports. Although foreign currencies which are required for “current account”
transactions can be bought freely at authorized Chinese banks, the proper
procedural requirements prescribed by Chinese law must be met. Current account
items, including profit distributions, interest payments and expenditures from
trade-related transactions, can be made in foreign currencies without prior
approval from the Chinese State Administration of Foreign Exchange by complying
with certain procedural requirements. However, approval from appropriate
government authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment
of bank loans denominated in foreign currencies. At the same time, Chinese
companies are also required to sell their foreign exchange earnings to
authorized Chinese banks and the purchase of foreign currencies for capital
account transactions still requires prior approval of the Chinese government.
This type of heavy regulation by the Chinese government of foreign currency
exchange restricts certain of our business operations and a change in any of
these government policies, or any other, could further negatively impact our
operations.
In order
to pay dividends, a conversion of Renminbi into U.S. dollar is required. Under
current Chinese law, the conversion of Renminbi into foreign currency generally
requires government consent. Government authorities may impose restrictions that
could have a negative impact in the future on the conversion process and upon
the ability of Shanxi Coal to meet its cash needs, and to pay dividends to Puda.
However, Putai is presently classified as a wholly-owned foreign enterprise, or
WFOE, in China that has verifiable foreign investment in China, funding having
been made through an official Chinese banking channel. Because Putai qualifies
for treatment as a WFOE, it can convert Renminbi, declare dividends and its
funds can be repatriated to Puda in the United States under current laws and
regulations in China, subject to limitations and restrictions imposed by
Chinese laws, such as the SAFE notices issued by the State Administration of
Foreign Exchange. However, the Chinese laws governing foreign currency exchange
are evolving, and changes in such laws or their interpretation or application
may adversely affect the ability to convert Renminbi, declare dividends and
repatriate funds to the United States. Because our cash flow is dependent on
dividend distributions from our subsidiaries in China, we may be restricted from
distributing dividends to stockholders if we do not receive distributions of
dividends from our subsidiaries.
We
are subject to currency fluctuations from our Chinese operations and
fluctuations in the exchange rate may negatively affect our expenses and results
of operations, as well as the value of our assets and liabilities.
Effective
July 21, 2005, The People’s Bank of China announced that the Renminbi exchange
rate regime is reformed by moving from a fixed rate of exchange based upon the
U.S. dollar to a managed floating exchange rate regime based upon market supply
and demand of a basket of currencies. As of July 26, 2005, the exchange rate
against the Renminbi was adjusted to 8.11 Renminbi per U.S. dollar from 8.28
Renminbi per U.S. dollar, which represents an adjustment of approximately two
percent. As of December 31, 2009, the last trading day in 2009, Renminbi
appreciated to approximately 6.8259 Renminbi per U.S. dollar. It is
expected that the revaluation of the Renminbi and the exchange rate of the
Renminbi may continue to change in the future. Fluctuations in the exchange rate
between the Chinese RMB and the United States dollar could adversely affect our
operating results. Results of Shanxi Coal’s operations are translated at average
exchange rates into United States dollar for purposes of reporting results.
As a result, fluctuations in exchange rates may adversely affect our expenses
and results of operations as well as the value of our assets and liabilities.
Fluctuations may adversely affect the comparability of period-to-period results.
We do not use hedging techniques to eliminate the effects of currency
fluctuations. Thus, exchange rate fluctuations could have a material adverse
impact on our operating results and stock prices.
Because
our operations are located in China, information about our operations are not
readily available from independent third-party sources.
Because
our sole operating company, Shanxi Coal, is based in China, shareholders may
have greater difficulty in obtaining information about Shanxi Coal on a timely
basis than would shareholders of an entirely U.S.-based company. Shanxi Coal’s
operations will continue to be conducted in China and shareholders may have
difficulty in obtaining information about Shanxi Coal from sources other than
Shanxi Coal itself. Information available from newspapers, trade journals, or
local, regional or national regulatory agencies such as issuance of construction
permits and contract awards for development projects will not be readily
available to shareholders. Shareholders will be dependent upon Shanxi Coal’s
management for reports of Shanxi Coal’s progress, development, activities and
expenditure of proceeds.
Climate
change poses both regulatory and physical risks that could adversely impact our
business, financial position, results of operations and liquidity.
Climate
change could have a potential economic impact on us and climate change
mitigation programs and regulations could increase our costs. Energy costs could
be higher as a result of climate change regulations. Our costs could increase if
utility companies pass on their costs, such as those associated with carbon
taxes, emission cap and trade programs, or renewable portfolio standards. In
addition, climate change may increase the frequency or intensity of natural
disasters. As such, we cannot assure you that climate change will not adversely
impact our business, financial position, results of operations and
liquidity.
Risks
Associated with this Offering and Our Common Stock
Our
stock was historically very thinly traded and stockholders may not be able to
liquidate their investment at all, or may only be able to liquidate the
investment at a price less than the company’s value.
Our
common stock was historically very thinly traded, and the price if traded may
not reflect the value of our company. Consequently, investors may not
be able to liquidate their investment at all, or if they are able to liquidate
it may only be at a price that does not reflect the value of the
business. Even if a more active market should develop, the price may
be highly volatile. Furthermore, if the price for our stock becomes
lower, many brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to effect a
transaction in our stock, the combination of brokerage commissions, transfer
fees, taxes, if any, and any other selling costs may exceed the selling
price. In additional, many lending institutions will not permit the
use of common stock like ours as collateral for any loans.
Our
stock price has been extremely volatile and may continue to fluctuate
significantly, which may make it more difficult for you to resell shares when
you want at prices you find attractive.
The
trading price of our common stock has been and may continue to be subject to
significant daily fluctuations. During the three months ended June
30, 2010, the closing sale prices of our ordinary shares on the NYSE
Amex ranged from $7.33 to $11.3 per share. Our stock price may
fluctuate in response to a number of events and factors, such as quarterly
variations in operating results, announcements of material customer agreements
or acquisition, the operating and stock price performance of other companies
that investors may deem comparable, new government restrictions or regulations
and news reports relating to trends in our markets. In addition, the
stock market in general, and the market prices for China-related companies
recently have experienced extreme volatility that often has been unrelated to
the operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of our common stock,
regardless of our operating performance.
Our
stock prices could decrease if a substantial number of shares are sold under
Rule 144.
A
substantial number of Puda’s outstanding shares of common stock are “restricted
securities” within the meaning of Rule 144 under the Securities Act. As
restricted shares, these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or other applicable
exemption from registration under the Act and as required under applicable state
securities laws. Rule 144 provides in essence that non-affiliates may sell
restricted securities without volume limitations or other requirements after
having held the securities for six months. If a substantial number of
shares of our stock are sold under the Rule 144 or other exemption, it could
cause the price our stock to go down.
Our
principal stockholders have the ability to exert significant control in matters
requiring stockholder vote and could delay, deter or prevent a change in control
of our company.
As of the
date of this prospectus, Ming Zhao and Yao Zhao own in total approximately 47%
of the Company’s outstanding shares, and upon the exercise of all of the
outstanding warrants, they will own in total approximately 45% of our
outstanding stock and, acting together, will be able to exert a significant
degree of influence over our management and affairs and all actions requiring
stockholder approval, such as the election of directors and approval of
significant corporate transactions. In addition, Delaware corporate law provides
that certain actions may be taken by consent action of stockholders holding a
majority of the outstanding shares. In the event that the requisite approval of
stockholders is obtained by consent action, without any meeting of stockholders,
dissenting or non-participating stockholders generally would be bound by such
vote. Through their concentration of voting power, the Zhao brothers could
delay, deter or prevent a change in control of our company or other business
combinations that might otherwise be beneficial to our other stockholders.
Accordingly, this concentration of ownership may harm the market price of our
common stock. In addition, the interest of the Zhao brothers may not always
coincide with the interest of the Company’s other stockholders. In deciding how
to vote on such matters, the Zhao brothers may be influenced by interests that
conflict with yours. You should not buy our common stock unless you are
willing to entrust all aspects of operational control to Puda’s current
management team.
Our
principal stockholders have significant control over the company and may have
conflicts of interest with the company.
Ming Zhao
and Yao Zhao may have, or may develop in the future, conflicts of interest with
us. First, the loan used to finance our recent facility expansions is held by
Resources Group, a company which is owned by the Zhaos. It could be in their
economic interest to cause us to default on the payment of the loan with
Resources Group since Resources Group could acquire the assets which are subject
to the lien as a result of enforcement of the lien after a
default. In addition, Putai owes Mr. Ming Zhao an principal amount of
RMB240 million (US$35.2 million) plus quarterly interest pursuant to a loan
agreement dated on May 7, 2010, which loan proceeds were used to increase
Putai’s registered capital to the level required by the Shanxi government to be
a coal mine consolidator. It could be in Mr. Ming Zhao’s economic interest to
cause us to default on the loan as Mr. Zhao would be entitled to an additional
5% penalty interest on top of the 6% regular interest under the
loan. With the combined ownership of us by Mr. Ming Zhao and his
brother Mr. Yao Zhao, and the position of Mr. Ming Zhao as our Chairman of the
board, he can to a large extent control the actions which we take. Second, the
Zhao brothers control the mine which is one of our raw coal suppliers. We
currently secure raw coal from local Liulin County coal mines, including Jucai
Coal, a coal mine that is 75% owned by Yao Zhao, Mr. Ming Zhao’s brother and a
manager of the coal washing plants of Shanxi Coal. By limiting or eliminating
our supply, the Zhao brothers, who control our coal mine supplies, could
adversely impact our production and revenue, which in turn could cause us to
default on our loan to Resources Group. In addition, the Zhao brothers may
declare dividends out of Shanxi Coal, in which they own 10% of the direct equity
interest even though it would be in the interests of Puda for Shanxi Coal, to
reinvest its profits into the business.
The
conversion of outstanding derivative securities could cause your ownership in
the company to be diluted and may decrease the value of your
investment.
Outstanding
derivative securities and current and future obligations to issue Puda’s
securities to various parties may dilute the value of your investment. In
November 2005, we issued warrants with 5 years term to certain
investors. For as long as the warrants are outstanding, the holders
thereof will have an opportunity to profit from a rise in the market price of
our common stock without assuming the risks of ownership. This may have an
adverse effect on the terms upon which we can obtain additional capital. It
should be expected that the holders of such derivative securities would exercise
or convert them at a time when we would be able to obtain equity capital on
terms more favorable than the exercise or conversion prices provided by the
warrants or options. There are no preemptive rights in connection with Puda’s
common stock.
We
do not intend to pay dividends in the foreseeable future.
In 2005,
Shanxi Coal, our 90% subsidiary, declared dividends of $1,715,470, payable to
Ming Zhao (80%) and Yao Zhao (20%), of which $543,470 was paid in 2005 and
$1,172,000 was paid in October 17, 2008. In September 2008, Shanxi Coal declared
RMB 8 million ($1,170,754) dividend to its shareholders, which has not been paid
as of the date of this prospectus. No dividend was declared in 2006,
2007, 2008 or 2009. We do not intend to pay any dividends in the foreseeable
future. We do not plan on making any cash distributions in the manner of a
dividend or otherwise. Our board of directors presently intends to follow a
policy of retaining earnings, if any.
The
Company has the right to issue additional common stock and preferred stock
without the consent of shareholders. This would have the effect of diluting your
ownership in the company and could decrease the value of your
stock.
There are
additional authorized but unissued shares of our common stock that may be later
issued by our board of directors for any purpose without the consent or vote of
the stockholders that would dilute a stockholder’s percentage ownership of the
company.
In
addition, our certificate of incorporation authorizes the issuance of shares of
preferred stock, the rights, preferences, designations and limitations of which
may be set by the board of directors. While no preferred stock is currently
outstanding or subject to be issued, the certificate of incorporation has
authorized issuance of up to 5,000,000 shares of preferred stock in the
discretion of the board of directors. Such preferred stock may be issued upon
filing of amended certificate of incorporation and the payment of required fees;
no further shareholder action is required. If issued, the rights, preferences,
designations and limitations of such preferred stock would be set by the board
of directors and could operate to the disadvantage of the outstanding common
stock. Such terms could include, among others, preferences as to dividends and
distributions on liquidation.
We
may be subject to regulatory scrutiny and sustain a loss of public confidence if
we are unable to satisfy regulatory requirements relating to our internal
controls over financial reporting and/or we have material internal control
weaknesses which may result in material financial reporting errors.
Section
404 of the Sarbanes Oxley Act of 2002 requires us to perform an evaluation of
our internal controls over financial reporting beginning with our Annual Report
filed for a fiscal year ending on or after December 15, 2007 and have our
independent registered public accounting firm attest to such evaluation for
fiscal years ending on or after June 15, 2010. Compliance with these
requirements can be expensive and time consuming. While we believe that we met
and will continue to be able to meet the applicable deadlines, no assurance can
be given that we will meet the required deadlines in future
years. If we fail to timely complete this evaluation, or if our
auditors cannot timely attest to our evaluation when we are required to have
such attestation, we may be subject to regulatory scrutiny and a loss of public
confidence in our internal controls.
USE
OF PROCEEDS
Unless
otherwise indicated in the applicable prospectus supplement, we anticipate that
any net proceeds from the sale of the securities that we may offer under this
prospectus and any accompanying prospectus supplement will be used for general
corporate purposes. General corporate purposes may include operating
expenses, acquisitions, investments, repayment of debt, capital expenditures,
repurchase of our capital stock and any other purposes that we may specify in
any prospectus supplement. We may invest the net proceeds temporarily
until we use them for their stated purposes.
DESCRIPTION
OF THE COMMON STOCK AND PREFERRED STOCK WE MAY OFFER
The
following description of our common stock and preferred stock, together with the
additional information included in any applicable prospectus supplements,
summarizes the material terms and provisions of these types of securities but is
not complete. For the complete terms of our common stock and
preferred stock, please refer to our certificate of incorporation and bylaws
that are incorporated by reference into the registration statement which
includes this prospectus and, with respect to preferred stock, the certificate
of designation which will be filed with the Securities and Exchange Commission
for each series of preferred stock we may designate, if any. We also
refer you to the description of our common stock and preferred stock set forth
in our Registration Statement on Form 8-A filed with the SEC on September 16,
2009.
We will
describe in a prospectus supplement the specific terms of any common stock or
preferred stock we may offer pursuant to this prospectus. If
indicated in a prospectus supplement, the terms of such common stock or
preferred stock may differ from the terms described below.
Common
Stock
Under our
certificate of incorporation we may issue up to 150,000,000 shares of common
stock, par value $0.001 per share. As of August 10, 2010, we had
20,284,737 shares
of common stock issued and outstanding. The holders of our common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Subject to preferences that
may be applicable to any outstanding preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by our board
of directors out of funds legally available for that purpose. In the
event of liquidation, dissolution or winding up of Puda, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior distribution rights of any outstanding
preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. The
outstanding shares of common stock are fully paid and
non-assessable.
Our
common stock is listed on the NYSE Amex under the symbol “PUDA.” The
transfer agent and registrar for our common stock is Fidelity Transfer
Company.
Preferred
Stock
Under our
certificate of incorporation we may issue up to 5,000,000 shares of preferred
stock, par value $0.01 per share. No shares of preferred stock or
options to purchase preferred stock are currently outstanding. Our
board of directors has the authority, without further action by the
stockholders, to issue up to the maximum authorized number of shares of
preferred stock in one or more series. The board of directors also
has the authority to designate the rights, preferences, privileges and
restrictions of each such series, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any
series. The rights, preferences, privileges and restrictions of each
series will be fixed by the certificate of designation relating to that
series. Any or all of the rights of the preferred stock may be
greater than the rights of the common stock.
The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Puda without further action by the
stockholders. The issuance of preferred stock with voting and
conversion rights may also adversely affect the voting power of the holders of
common stock. In certain circumstances, an issuance of preferred
stock could have the effect of decreasing the market price of the common
stock.
Whenever
preferred stock is to be sold pursuant to this prospectus, we will file a
prospectus supplement relating to that sale which will specify:
|
Ÿ
|
the number of shares in the
series of preferred stock;
|
|
Ÿ
|
the designation for the series of
preferred stock by number, letter or title that shall distinguish the
series from any other series of preferred
stock;
|
|
Ÿ
|
the dividend rate, if any, and
whether dividends on that series of preferred stock will be cumulative,
noncumulative or partially
cumulative;
|
|
Ÿ
|
the voting rights of that series
of preferred stock, if any;
|
|
Ÿ
|
any conversion provisions
applicable to that series of preferred
stock;
|
|
Ÿ
|
any redemption or sinking fund
provisions applicable to that series of preferred
stock;
|
|
Ÿ
|
the liquidation preference per
share of that series of preferred stock, if any;
and
|
|
Ÿ
|
the terms of any other
preferences or rights, if any, applicable to that series of preferred
stock.
|
Certain
Effects of Authorized but Unissued Stock
We have
shares of common stock and preferred stock available for future issuance without
stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital, facilitate corporate acquisitions or payable as a dividend
on the capital stock.
The
existence of unissued and unreserved common stock and preferred stock may enable
our board of directors to issue shares to persons friendly to current management
or to issue preferred stock with terms that could render more difficult or
discourage an attempt to obtain control of us by means of a merger, tender
offer, proxy contest or otherwise, thereby protecting the continuity of our
management. In addition, the issuance of preferred stock could
adversely affect the voting power of holders of common stock and the likelihood
that such holders will receive dividend payments and payments upon
liquidation.
Delaware
Law and Certain Provisions of Our Certificate of Incorporation and
Bylaws
Provisions
of Delaware law and our certificate of incorporation and bylaws could make the
acquisition of Puda and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of Puda to negotiate with us
first. We believe that the benefits of increased protection of our
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Puda outweigh the disadvantages
of discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
We are
subject to the provisions of Section 203 of the Delaware general corporation
law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a “business combination” with an “interested
stockholder” for a period of three years after the date that the person became
an interested stockholder unless, subject to certain exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a
“business combination” includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the
stockholder. Generally, an “interested stockholder” is a person who,
together with affiliates and associates, owns, or within three years prior, did
own 15% or more of the corporation’s voting stock. These provisions
may have the effect of delaying, deferring or preventing a change in control of
Puda without further action by the stockholders.
Our
certificate of incorporation sets forth an advance notice procedure with regard
to the nomination, other than by or at the direction of the board of directors,
of candidates for election as directors and with regard to business to be
brought before a meeting of stockholders.
DESCRIPTION
OF THE WARRANTS WE MAY OFFER
We may
issue warrants, including warrants to purchase common stock, preferred stock,
units or any combination of the foregoing. Warrants may be issued
independently or together with any securities and may be attached to or separate
from the securities. The warrants will be issued under warrant
agreements to be entered into between us and a warrant agent as detailed in the
prospectus supplement relating to warrants being offered.
The
applicable prospectus supplement will describe the following terms, where
applicable, of the warrants in respect of which this prospectus is being
delivered:
|
Ÿ
|
the title of the
warrants;
|
|
Ÿ
|
the aggregate number of the
warrants;
|
|
Ÿ
|
the price or prices at which the
warrants will be issued;
|
|
Ÿ
|
the currencies in which the price
or prices of the warrants may be
payable;
|
|
Ÿ
|
the designation, amount, and
terms of the offered securities purchasable upon exercise of the
warrants;
|
|
Ÿ
|
the designation and terms of the
other offered securities, if any, with which the warrants are issued and
the number of the warrants issued with each
security;
|
|
Ÿ
|
if applicable, the date on and
after which the warrants and the offered securities purchasable upon
exercise of the warrants will be separately
transferable;
|
|
Ÿ
|
the price or prices at which and
currency or currencies in which the offered securities purchasable upon
exercise of the warrants may be
purchased;
|
|
Ÿ
|
the date on which the right to
exercise the warrants shall commence and the date on which the right shall
expire;
|
|
Ÿ
|
the minimum or maximum amount of
the warrants which may be exercised at any one
time;
|
|
Ÿ
|
information with respect to
book-entry procedures, if
any;
|
|
Ÿ
|
a discussion of any federal
income tax considerations;
and
|
|
Ÿ
|
any other material terms of the
warrants, including terms, procedures, and limitations relating to the
exchange and exercise of the
warrants.
|
DESCRIPTION
OF THE UNITS WE MAY OFFER
This
section outlines some of the provisions of the units and the unit agreements.
This information may not be complete in all respects and is qualified entirely
by reference to the unit agreement with respect to the units of any particular
series. The specific terms of any series of units will be described in the
applicable prospectus supplement. If so described in a particular supplement,
the specific terms of any series of units may differ from the general
description of terms presented below.
We may
issue units comprised of shares of common stock, shares of preferred stock,
warrants and other securities in any combination. Each unit will be issued so
that the holder of the unit is also the holder of each security included in the
unit. Thus, the holder of a unit will have the rights and obligations of a
holder of each included security. The unit agreement under which a unit is
issued may provide that the securities included in the unit may not be held or
transferred separately, at any time or at any time before a specified
date.
The
applicable prospectus supplement may describe:
|
·
|
the
designation and terms of the units and of the securities comprising the
units, including whether and under what circumstances those securities may
be held or transferred separately;
|
|
·
|
any
provisions of the governing unit
agreement;
|
|
·
|
the
price or prices at which such units will be
issued;
|
|
·
|
the
applicable U.S. federal income tax considerations relating to the
units;
|
|
·
|
any
provisions for the issuance, payment, settlement, transfer or exchange of
the units or of the securities comprising the units;
and
|
|
·
|
any
other terms of the units and of the securities comprising the
units.
|
The
provisions described in this section, as well as those described under
“Description of Preferred Stock,” “Description of Common Stock” and “Description
of Warrants” will apply to the securities included in each unit, to the extent
relevant.
Issuance
in Series
We may
issue units in such amounts and in as many distinct series as we wish. This
section summarizes terms of the units that apply generally to all series. Most
of the financial and other specific terms of your series will be described in
the applicable prospectus supplement.
Unit
Agreements
We will
issue the units under one or more unit agreements to be entered into between us
and a bank or other financial institution, as unit agent. We may add, replace or
terminate unit agents from time to time. We will identify the unit agreement
under which each series of units will be issued and the unit agent under that
agreement in the applicable prospectus supplement.
The
following provisions will generally apply to all unit agreements unless
otherwise stated in the applicable prospectus supplement.
Modification
Without Consent
We and
the applicable unit agent may amend any unit or unit agreement without the
consent of any holder:
|
·
|
to
cure any ambiguity; any provisions of the governing unit agreement that
differ from those described below;
|
|
·
|
to
correct or supplement any defective or inconsistent provision;
or
|
|
·
|
to
make any other change that we believe is necessary or desirable and will
not adversely affect the interests of the affected holders in any material
respect.
|
We do not
need any approval to make changes that affect only units to be issued after the
changes take effect. We may also make changes that do not adversely affect a
particular unit in any material respect, even if they adversely affect other
units in a material respect. In those cases, we do not need to obtain the
approval of the holder of the unaffected unit; we need only obtain any required
approvals from the holders of the affected units.
Modification
With Consent
We may
not amend any particular unit or a unit agreement with respect to any particular
unit unless we obtain the consent of the holder of that unit, if the amendment
would:
|
·
|
impair
any right of the holder to exercise or enforce any right under a security
included in the unit if the terms of that security require the consent of
the holder to any changes that would impair the exercise or enforcement of
that right; or
|
|
·
|
reduce
the percentage of outstanding units or any series or class the consent of
whose holders is required to amend that series or class, or the applicable
unit agreement with respect to that series or class, as described
below.
|
Any
other change to a particular unit agreement and the units issued under that
agreement would require the following approval:
|
·
|
If
the change affects only the units of a particular series issued under that
agreement, the change must be approved by the holders of a majority of the
outstanding units of that series;
or
|
|
·
|
If
the change affects the units of more than one series issued under that
agreement, it must be approved by the holders of a majority of all
outstanding units of all series affected by the change, with the units of
all the affected series voting together as one class for this
purpose.
|
These
provisions regarding changes with majority approval also apply to changes
affecting any securities issued under a unit agreement, as the governing
document.
In each
case, the required approval must be given by written consent.
Unit
Agreements Will Not Be Qualified Under Trust Indenture Act
No unit
agreement will be qualified as an indenture, and no unit agent will be required
to qualify as a trustee, under the Trust Indenture Act. Therefore, holders of
units issued under unit agreements will not have the protections of the Trust
Indenture Act with respect to their units.
Mergers
and Similar Transactions Permitted; No Restrictive Covenants or Events of
Default
The unit
agreements will not restrict our ability to merge or consolidate with, or sell
our assets to, another corporation or other entity or to engage in any other
transactions. If at any time we merge or consolidate with, or sell our assets
substantially as an entirety to, another corporation or other entity, the
successor entity will succeed to and assume our obligations under the unit
agreements. We will then be relieved of any further obligation under these
agreements.
The unit
agreements will not include any restrictions on our ability to put liens on our
assets, including our interests in our subsidiaries, nor will they restrict our
ability to sell our assets. The unit agreements also will not provide for any
events of default or remedies upon the occurrence of any events of
default.
Governing
Law
The unit
agreements and the units will be governed by New York law.
Form,
Exchange and Transfer
We will
issue each unit in global—i.e., book-entry—form only. Units in book-entry form
will be represented by a global security registered in the name of a depositary,
which will be the holder of all the units represented by the global security.
Those who own beneficial interests in a unit will do so through participants in
the depositary’s system, and the rights of these indirect owners will be
governed solely by the applicable procedures of the depositary and its
participants. We will describe book-entry securities, and other terms regarding
the issuance and registration of the units in the applicable prospectus
supplement.
Each unit
and all securities comprising the unit will be issued in the same
form.
If we
issue any units in registered, non-global form, the following will apply to
them.
The units
will be issued in the denominations stated in the applicable prospectus
supplement. Holders may exchange their units for units of smaller denominations
or combined into fewer units of larger denominations, as long as the total
amount is not changed.
|
·
|
Holders
may exchange or transfer their units at the office of the unit agent.
Holders may also replace lost, stolen, destroyed or mutilated units at
that office. We may appoint another entity to perform these functions or
perform them ourselves.
|
|
·
|
Holders
will not be required to pay a service charge to transfer or exchange their
units, but they may be required to pay for any tax or other governmental
charge associated with the transfer or exchange. The transfer or exchange,
and any replacement, will be made only if our transfer agent is satisfied
with the holder’s proof of legal ownership. The transfer agent may also
require an indemnity before replacing any
units.
|
|
·
|
If
we have the right to redeem, accelerate or settle any units before their
maturity, and we exercise our right as to less than all those units or
other securities, we may block the exchange or transfer of those units
during the period beginning 15 days before the day we mail the notice of
exercise and ending on the day of that mailing, in order to freeze the
list of holders to prepare the mailing. We may also refuse to register
transfers of or exchange any unit selected for early settlement, except
that we will continue to permit transfers and exchanges of the unsettled
portion of any unit being partially settled. We may also block the
transfer or exchange of any unit in this manner if the unit includes
securities that are or may be selected for early
settlement.
|
Only the
depositary will be entitled to transfer or exchange a unit in global form, since
it will be the sole holder of the unit.
Payments
and Notices
In making
payments and giving notices with respect to our units, we will follow the
procedures as described in the applicable prospectus supplement.
PLAN
OF DISTRIBUTION
We may
sell the securities being offered pursuant to this prospectus directly to
purchasers, to or through underwriters, through dealers or agents, or through a
combination of such methods. The prospectus supplement with respect to the
securities being offered will set forth the terms of the offering, including the
names of the underwriters, dealers or agents, if any, the purchase price, the
net proceeds to Puda, any underwriting discounts and other items constituting
underwriters’ compensation, and initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers and any securities
exchanges on which such securities may be listed.
If
underwriters are used in an offering, we will execute an underwriting agreement
with such underwriters and will specify the name of each underwriter and the
terms of the transaction (including any underwriting discounts and other terms
constituting compensation of the underwriters and any dealers) in a prospectus
supplement. If an underwriting syndicate is used, the managing underwriter(s)
will be specified on the cover of the prospectus supplement. If underwriters are
used in the sale, the offered securities will be acquired by the underwriters
for their own accounts and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Any public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time. Unless otherwise set forth in the prospectus
supplement, the obligations of the underwriters to purchase the offered
securities will be subject to conditions precedent and the underwriters will be
obligated to purchase all of the offered securities if any are
purchased.
In the
event any underwriter, broker-dealer or agent that is a member of the Financial
Industry Regulatory Authority, Inc., or FINRA, participates in a public offering
of the securities that are the subject of this prospectus, the maximum
commission or discount to be received by any such FINRA member or independent
broker-dealer will not be greater than 8% of the gross offering proceeds from
securities offered with this prospectus.
If
dealers are used in an offering, we will sell the securities to the dealers as
principals. The dealers then may resell the securities to the public at varying
prices which they determine at the time of resale. The names of the dealers and
the terms of the transaction will be specified in a prospectus
supplement.
The
securities may be sold directly by us or through agents we designate. If agents
are used in an offering, the names of the agents and the terms of the agency
will be specified in a prospectus supplement. Unless otherwise indicated in a
prospectus supplement, the agents will act on a best-efforts basis for the
period of their appointment.
Dealers
and agents named in a prospectus supplement may be deemed to be underwriters
(within the meaning of the Securities Act) of the securities described therein.
In addition, we may sell the securities directly to institutional investors or
others who may be deemed to be underwriters within the meaning of the Securities
Act with respect to any resales thereof.
Underwriters,
dealers and agents, may be entitled to indemnification by us against specific
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters or agents may be
required to make in respect thereof, under underwriting or other agreements. The
terms of any indemnification provisions will be set forth in a prospectus
supplement. Certain underwriters, dealers or agents and their associates may
engage in transactions with, and perform services for us in the ordinary course
of business.
If so
indicated in a prospectus supplement, we will authorize underwriters or other
persons acting as our agents to solicit offers by institutional investors to
purchase securities pursuant to contracts providing for payment and delivery on
a future date. We may enter contracts with commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutional investors. The obligations of
any institutional investor will be subject to the condition that its purchase of
the offered securities will not be illegal, at the time of delivery. The
underwriters and other agents will not be responsible for the validity or
performance of contracts.
Each
series of securities will be a new issue of securities and will have no
established trading market other than the common stock which is listed on NYSE
Amex. Any common stock sold pursuant to a prospectus supplement will be eligible
for quotation and trading on NYSE Amex, subject to official notice of issuance.
Any underwriters to whom securities are sold by Puda for public offering and
sale may make a market in the securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The securities, other than the common stock, may or may not be listed on
a national securities exchange or eligible for quotation and trading on NYSE
Amex.
LEGAL
MATTERS
The
validity of the securities to be issued pursuant to this prospectus will be
passed upon by Goodwin Procter LLP, New York, New York, counsel to
Puda.
EXPERTS
The
consolidated financial statements and supplementary consolidated financial
statements of Puda as of December 31, 2009 and 2008 and for each of the three
years in the period ended December 31, 2009, incorporated in this document by
reference to the Annual Report on Form 10-K of Puda for the year ended December
31, 2009, have been so incorporated in reliance on the reports of Moore
Stephens, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement on Form S-3 that we filed with
the Securities and Exchange Commission. Certain information in the registration
statement has been omitted from this prospectus in accordance with the rules of
the SEC. We file the annual, quarterly and special reports, proxy statements and
other information with the SEC. You can inspect and copy the registration
statement as well as the reports, proxy statements and other information we have
filed with the SEC at the public reference room maintained by the SEC at 100 F
Street, N.E., Washington, D.C., 20549. You can call the SEC at 1-800-732-0330
for further information about the Public Reference Room. We are also required to
file electronic versions of these documents with the SEC, which may be accessed
from the SEC’s World Wide Web site at http://www.sec/gov. We maintain a website
at www.pudacoalinc.com. Our website and the information contained therein or
connected thereto are not intended to be incorporated into this registration
statement.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC
allows us to “incorporate by reference” certain of our publicly-filed documents
into this prospectus, which means that information included in those documents
is considered part of this prospectus. Information that we file with the SEC
subsequent to the date of this prospectus will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act of 1934 for so long as this Registration Statement
remains effective.
The
following documents filed with the SEC are incorporated by reference in this
prospectus:
|
1.
|
Our Annual Report on Form 10-K
for the fiscal year ended December 31,
2009.
|
|
2.
|
Our Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 2010 and June 30,
2010
|
|
3.
|
Our current Reports on Form 8-K,
filed with the SEC on May 12, May 13, May 17, May 25, July 1, and August
5, 2010.
|
|
4.
|
The description of our common
stock set forth in our Registration Statement on Form 8-A filed with the
SEC on September 16, 2009.
|
We will
furnish without charge to you, on written or oral request, a copy of any or all
of the documents incorporated by reference herein, other than exhibits to such
documents. You should direct any requests for documents to Qiong (Laby) Wu,
Chief Financial Officer, 426 Xuefu Street, Taiyuan, Shanxi Province, The
People’s Republic of China 030006, telephone: 011 86 351 228
1302.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The
following table sets forth the costs and expenses payable by the Registrant in
connection with the offerings described in this registration statement. In
addition to the costs and expenses set forth below, we will pay any selling
commissions and brokerage fees and any applicable taxes and fees and
disbursements (“Sales Fees”) with respect to securities registered by this
prospectus which we may sell, but these fees cannot be predicted with any
certainty at this time due to the uncertainty as to the number of such
securities. All amounts shown are estimates except the SEC registration
fee.
SEC
registration fee
|
|
$ |
6,417 |
|
Legal
fees and expenses
|
|
$ |
50,000 |
|
Accounting
fees and expenses
|
|
$ |
20,000 |
|
Financial
printers fees and expenses
|
|
$ |
5,000 |
|
Miscellaneous
expenses
|
|
|
5,000 |
|
|
|
|
|
|
Total
|
|
$ |
86,417 |
|
Item
15. Indemnification of Directors and Officers.
Section
145 of the Delaware General Corporation Law (the “DGCL”) allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the “Securities Act”). Article VII of
the Registrant’s bylaws authorizes indemnification of the Registrant’s
directors, officers, employees and other agents to the extent and under the
circumstances permitted by the DGCL.
The
Registrant has also entered into agreements with its directors and certain
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers to the fullest extent not prohibited by law. The
Registrant maintains liability insurance for the benefit of its directors and
certain of its officers.
The above
discussion of the DGCL and of the Registrant’s bylaws and indemnification
agreements is not intended to be exhaustive and is qualified in its entirety by
such statutes, certificate of incorporation, bylaws and indemnification
agreements.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such
issue.
Item
16. Exhibits.
Exhibits
|
|
|
|
|
|
1.1
|
|
Form
of Equity Underwriting Agreement*
|
3.1
|
|
Certificate
of Incorporation**
|
3.2
|
|
Bylaws**
|
4.1
|
|
Form
of Certificate of Designation for the preferred stock (together with
preferred stock certificate)*
|
4.2
|
|
Form
of Warrant Agreement (together with form of Warrant
Certificate)*
|
4.3
|
|
Form
of Unit Agreement (together with form of Unit
Certificate)*
|
5.1
|
|
Opinion
of Goodwin Procter LLP
|
12.1
|
|
Computation
of Ratio of Earnings to Fixed Charges*
|
23.1
|
|
Consent
of Moore Stephens, Independent Accountants
|
23.2
|
|
Consent
of Goodwin Procter LLP (included in Exhibit 5.1)
|
24.1
|
|
Power
of Attorney (see signature
page)
|
*
|
To be filed by a report on Form
8-K pursuant to Item 601 of Regulation
S-K.
|
**
|
Incorporated herein by reference
to incorporated herein by reference
to our Current Report on Form 8-K filed with the SEC on July 8,
2009.
|
Item
17. Undertakings.
(a) The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities
Act,
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement,
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
provided,
however, that clauses (a) and (b) do not apply if the information required to be
included in a post-effective amendment by such clauses is contained in periodic
reports filed with or furnished to the Securities and Exchange Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”) that are incorporated by reference in the
Registration Statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(b)
That, for the
purpose of determining liability of the registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the securities: The
undersigned Registrant undertakes that in a primary offering of securities of
the undersigned Registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned Registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(1)
Any
preliminary prospectus or prospectus of the undersigned Registrant relating to
the offering required to be filed pursuant to Rule 424;
(2)
Any free
writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
Registrant;
(3)
The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned Registrant or its
securities provided by or on behalf of the undersigned Registrant;
and
(4) Any
other communication that is an offer in the offering made by the undersigned
Registrant to the purchaser.
(c) The
undersigned Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant’s annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities, other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by itself is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(e) The
undersigned Registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For
the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, Puda Coal, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Taiyuan, Shanxi Province, China, on August 17,
2010.
|
PUDA
COAL, INC.
|
|
|
|
By:
|
/s/ Qiong
Wu
|
|
|
Qiong
Wu
|
|
|
Chief
Financial Officer
|
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Liping Zhu and Qiong Wu, and each of them, as his true
and lawful attorneys-in-fact, each with full power of substitution, for him in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any related Rule 462(b)
registration statement or amendment thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done or by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Liping Zhu
|
|
Chief
Executive
Officer (Principal
|
|
August
17, 2010
|
Liping
Zhu
|
|
Executive
Officer) and Director
|
|
|
|
|
|
|
|
/s/
Qiong Wu
|
|
Chief
Financial
Officer (Principal
|
|
August
17, 2010
|
Qiong
Wu
|
|
Financial
and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Ming Zhao
|
|
Chairman
of Board
|
|
August
17, 2010
|
Ming
Zhao
|
|
|
|
|
|
|
|
|
|
/s/
Jianfei Ni
|
|
Director
|
|
August
17, 2010
|
Jianfei
Ni
|
|
|
|
|
|
|
|
|
|
/s/
C. Mark Tang
|
|
Director
|
|
August
17, 2010
|
C. Mark
Tang
|
|
|
|
|
|
|
|
|
|
/s/
Lawrence Wizel
|
|
Director
|
|
August
17, 2010
|
Lawrence
Wizel
|
|
|
|
|
INDEX
TO EXHIBITS
Exhibits
|
|
|
|
|
|
1.1
|
|
Form
of Equity Underwriting Agreement*
|
3.1
|
|
Certificate
of Incorporation**
|
3.2
|
|
Bylaws**
|
4.1
|
|
Form
of Certificate of Designation for the preferred stock (together with
preferred stock certificate)*
|
4.2
|
|
Form
of Warrant Agreement (together with form of Warrant
Certificate)*
|
4.3
|
|
Form
of Unit Agreement (together with form of Unit
certificate)*
|
5.1
|
|
Opinion
of Goodwin Procter LLP
|
12.1
|
|
Computation
of Ratio of Earnings to Fixed Charges*
|
23.1
|
|
Consent
of Moore Stephens, Independent Accountants
|
23.2
|
|
Consent
of Goodwin Procter LLP (included in Exhibit 5.1)
|
24.1
|
|
Power
of Attorney (see signature
page)
|
*
|
To be filed by a report on Form
8-K pursuant to Item 601 of Regulation
S-K.
|
**
|
Incorporated herein by reference
to incorporated herein by reference
to our Current Report on Form 8-K filed with the SEC on July 8,
2009.
|