PROSPECTUS
$90,000,000
PUDA
COAL, INC.
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Units
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This
prospectus relates to common stock, preferred stock, debt securities, warrants
for equity and 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 or, if any debt securities are issued at any original issuance
discount, such greater amount as shall result in net proceeds of
$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 October 12, 2010, the last reported sale price of our
common stock on the NYSE Amex was $9.03 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 October 29, 2010
TABLE OF
CONTENTS
Page
ABOUT THIS PROSPECTUS
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1
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THE COMPANY
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1
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RECENT DEVELOPMENTS
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4
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FORWARD-LOOKING STATEMENTS
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4
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RISK FACTORS
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4
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USE OF PROCEEDS
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14
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DESCRIPTION OF THE COMMON STOCK AND PREFERRED
STOCK WE MAY OFFER
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15
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DESCRIPTION OF DEBT
SECURITIES
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16
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DESCRIPTION OF THE WARRANTS WE MAY
OFFER
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31
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DESCRIPTION OF THE UNITS WE MAY
OFFER
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32
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PLAN OF DISTRIBUTION
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35
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LEGAL MATTERS
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36
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EXPERTS
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36
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WHERE YOU CAN FIND MORE
INFORMATION
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36
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INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
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36
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___________________________
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, debt securities, warrants for equity and debt securities from
time to time and units comprised of common stock, preferred stock, debt
securities, 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 or, if
any debt securities are issued at any original issuance discount, such greater
amount as shall result in net proceeds 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 1.1 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:
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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.
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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.
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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.
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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.
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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.
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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.
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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
depend on key persons and the loss of any key person could adversely affect our
operations.
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 successfully 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 September 30, 2010, we had
20,341,880 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:
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the
number of shares in the series of preferred
stock;
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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;
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the
dividend rate, if any, and whether dividends on that series of preferred
stock will be cumulative, noncumulative or partially
cumulative;
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the
voting rights of that series of preferred stock, if
any;
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any
conversion provisions applicable to that series of preferred
stock;
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any
redemption or sinking fund provisions applicable to that series of
preferred stock;
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the
liquidation preference per share of that series of preferred stock, if
any; and
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the
terms of any other preferences or rights, if any, applicable to that
series of preferred stock.
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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 DEBT
SECURITIES
This
prospectus describes the general terms and provisions of the debt securities we
may issue. When we offer to sell a particular series of debt
securities, we will describe the specific terms of the securities in a
supplement to this prospectus, including any additional covenants or changes to
existing covenants relating to such series. The prospectus supplement
also will indicate whether the general terms and provisions described in this
prospectus apply to a particular series of debt securities. You
should read the actual indenture if you do not fully understand a term or the
way we use it in this prospectus.
We may
offer senior or subordinated debt securities. Each series of debt
securities may have different terms. The senior debt securities will
be issued under one or more senior indentures, dated as of a date prior to such
issuance, between us and the trustee named in the senior indenture, as amended
or supplemented from time to time. We will refer to any such
indenture throughout this prospectus as the “senior indenture.” Any subordinated
debt securities will be issued under one or more separate indentures, dated as
of a date prior to such issuance, between us and the trustee named in the
subordinated indenture, as amended or supplemented from time to
time. We will refer to any such indenture throughout this prospectus
as the “subordinated indenture” and to the trustee under the senior or
subordinated indenture as the “trustee.” The senior indenture and the
subordinated indenture are sometimes collectively referred to in this prospectus
as the “indentures.” The indentures will be subject to and governed by the Trust
Indenture Act of 1939, as amended. We included copies of the forms of
the indentures as exhibits to our registration statement and they are
incorporated into this prospectus by reference.
If we
issue debt securities at a discount from their principal amount, then, for
purposes of calculating the aggregate initial offering price of the offered
securities issued under this prospectus, we will include only the initial
offering price of the debt securities and not the principal amount of the debt
securities.
We have
summarized below the material provisions of the indentures and the debt
securities, or indicated which material provisions will be described in the
related prospectus supplement. The prospectus supplement relating to
any particular securities offered will describe the specific terms of the
securities, which may be in addition to or different from the general terms
summarized in this prospectus. Because the summary in this prospectus
and in any prospectus supplement does not contain all of the information that
you may find useful, you should read the documents relating to the securities
that are described in this prospectus or in any applicable prospectus
supplement. Please read “Where You Can Find More Information” to find
out how you can obtain a copy of those documents. Except as otherwise
indicated, the terms of the indentures are identical. As used under
this caption, the term “debt securities” includes the debt securities being
offered by this prospectus and all other debt securities issued by us under the
indentures.
General
The
indentures:
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do
not limit the amount of debt securities that we may
issue;
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allow
us to issue debt securities in one or more
series;
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do
not require us to issue all of the debt securities of a series at the same
time;
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allow
us to reopen a series to issue additional debt securities without the
consent of the holders of the debt securities of such series;
and
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provide
that the debt securities will be unsecured, except as may be set forth in
the applicable prospectus
supplement.
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Unless we
give you different information in the applicable prospectus supplement, the
senior debt securities will be unsubordinated obligations and will rank equally
with all of our other unsecured and unsubordinated
indebtedness. Payments on the subordinated debt securities will be
subordinated to the prior payment in full of all of our senior indebtedness, as
described under “Description of the Debt Securities--Subordination” and in the
applicable prospectus supplement.
Each
indenture provides that we may, but need not, designate more than one trustee
under an indenture. Any trustee under an indenture may resign or be
removed and a successor trustee may be appointed to act with respect to the
series of debt securities administered by the resigning or removed
trustee. If two or more persons are acting as trustee with respect to
different series of debt securities, each trustee shall be a trustee of a trust
under the applicable indenture separate and apart from the trust administered by
any other trustee. Except as otherwise indicated in this prospectus,
any action described in this prospectus to be taken by each trustee may be taken
by each trustee with respect to, and only with respect to, the one or more
series of debt securities for which it is trustee under the applicable
indenture.
The
prospectus supplement for each offering will provide the following terms, where
applicable:
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the
title of the debt securities and whether they are senior or
subordinated;
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the
aggregate principal amount of the debt securities being offered, the
aggregate principal amount of the debt securities outstanding as of the
most recent practicable date and any limit on their aggregate principal
amount, including the aggregate principal amount of debt securities
authorized;
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the
price at which the debt securities will be issued, expressed as a
percentage of the principal and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof or, if applicable, the
portion of the principal amount of such debt securities that is
convertible into common stock or preferred stock or the method by which
any such portion shall be
determined;
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if
convertible, the terms on which such debt securities are convertible,
including the initial conversion price or rate and the conversion period
and any applicable limitations on the ownership or transferability of
common stock or preferred stock received on
conversion;
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the
date or dates, or the method for determining the date or dates, on which
the principal of the debt securities will be
payable;
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the
fixed or variable interest rate or rates of the debt securities, or the
method by which the interest rate or rates is
determined;
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the
date or dates, or the method for determining the date or dates, from which
interest will accrue;
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the
dates on which interest will be
payable;
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the
record dates for interest payment dates, or the method by which we will
determine those dates;
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the
persons to whom interest will be
payable;
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the
basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day
months;
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any
make-whole amount, which is the amount in addition to principal and
interest that is required to be paid to the holder of a debt security as a
result of any optional redemption or accelerated payment of such debt
security, or the method for determining the make-whole
amount;
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the
place or places where the principal of, and any premium, or make-whole
amount, and interest on, the debt securities will be
payable;
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where
the debt securities may be surrendered for registration of transfer or
conversion or exchange;
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where
notices or demands to or upon us in respect of the debt securities and the
applicable indenture may be served;
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the
times, prices and other terms and conditions upon which we may redeem the
debt securities;
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any
obligation we have to redeem, repay or purchase the debt securities
pursuant to any sinking fund or analogous provision or at the option of
holders of the debt securities, and the times and prices at which we must
redeem, repay or purchase the debt securities as a result of such an
obligation;
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the
currency or currencies in which the debt securities are denominated and
payable if other than United States dollars, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies and the terms and conditions relating thereto, and
the manner of determining the equivalent of such foreign currency in
United States dollars;
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whether
the principal of, and any premium, or make-whole amount, or interest on,
the debt securities of the series are to be payable, at our election or at
the election of a holder, in a currency or currencies other than that in
which the debt securities are denominated or stated to be payable, and
other related terms and conditions;
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whether
the amount of payments of principal of, and any premium, or make-whole
amount, or interest on, the debt securities may be determined according to
an index, formula or other method and how such amounts will be
determined;
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whether
the debt securities will be in registered form, bearer form or both and
(1) if in registered form, the person to whom any interest shall be
payable, if other than the person in whose name the security is registered
at the close of business on the regular record date for such interest, or
(2) if in bearer form, the manner in which, or the person to whom, any
interest on the security shall be payable if otherwise than upon
presentation and surrender upon
maturity;
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any
restrictions applicable to the offer, sale or delivery of securities in
bearer form and the terms upon which securities in bearer form of the
series may be exchanged for securities in registered form of the series
and vice versa if permitted by applicable laws and
regulations;
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whether
any debt securities of the series are to be issuable initially in
temporary global form and whether any debt securities of the series are to
be issuable in permanent global form with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global
security may or shall be required to exchange their interests for other
debt securities of the series, and the manner in which interest shall be
paid;
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the
identity of the depositary for securities in registered form, if such
series are to be issuable as a global
security;
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the
date as of which any debt securities in bearer form or in temporary global
form shall be dated if other than the original issuance date of the first
security of the series to be
issued;
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the
applicability, if any, of the defeasance and covenant defeasance
provisions described in this prospectus or in the applicable
indenture;
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whether
and under what circumstances we will pay any additional amounts on the
debt securities in respect of any tax, assessment or governmental charge
and, if so, whether we will have the option to redeem the debt securities
in lieu of making such a payment;
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whether
and under what circumstances the debt securities being offered are
convertible into common stock or preferred stock, as the case may be,
including the conversion price or rate or manner or calculation
thereof;
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the
circumstances, if any, specified in the applicable prospectus supplement,
under which beneficial owners of interests in the global security may
obtain definitive debt securities and the manner in which payments on a
permanent global debt security will be made if any debt securities are
issuable in temporary or permanent global
form;
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any
provisions granting special rights to holders of securities upon the
occurrence of such events as specified in the applicable prospectus
supplement;
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if
the debt securities of such series are to be issuable in definitive form
only upon receipt of certain certificates or other documents or
satisfaction of other conditions, then the form and/or terms of such
certificates, documents or
conditions;
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the
name of the applicable trustee and the nature of any material relationship
with us or any of our affiliates, and the percentage of debt securities of
the class necessary to require the trustee to take
action;
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any
deletions from, modifications of, or additions to our events of default or
covenants and any change in the right of any trustee or any of the holders
to declare the principal amount of any of such debt securities due and
payable;
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applicable
CUSIP numbers; and
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any
other terms of such debt securities not inconsistent with the provisions
of the applicable indenture.
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We may
issue debt securities at a discount below their principal amount and provide for
less than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity of the debt securities. We refer to any
such debt securities throughout this prospectus as “original issue discount
securities.” The applicable prospectus supplement will describe the
United States federal income tax consequences and other relevant considerations
applicable to original issue discount securities.
We also
may issue indexed debt securities. Payments of principal of and
premium and interest on, indexed debt securities are determined with reference
to the rate of exchange between the currency or currency unit in which the debt
security is denominated and any other currency or currency unit specified by us,
to the relationship between two or more currencies or currency units or by other
similar methods or formulas specified in the prospectus supplement.
Except as
described under “—Merger, Consolidation or Sale of Assets” or as may be set
forth in any prospectus supplement, the debt securities will not contain any
provisions that (1) would limit our ability to incur indebtedness or (2) would
afford holders of debt securities protection in the event of (a) a highly
leveraged or similar transaction involving us, or (b) a change of control or
reorganization, restructuring, merger or similar transaction involving us that
may adversely affect the holders of the debt securities. In the
future, we may enter into transactions, such as the sale of all or substantially
all of our assets or a merger or consolidation, that may have an adverse effect
on our ability to service our indebtedness, including the debt securities, by,
among other things, substantially reducing or eliminating our
assets.
Neither
the Delaware General Corporation Law nor our governing instruments define the
term “substantially all” as it relates to the sale of
assets. Additionally, Delaware cases interpreting the term
“substantially all” rely upon the facts and circumstances of each particular
case. Consequently, to determine whether a sale of “substantially
all” of our assets has occurred, a holder of debt securities must review the
financial and other information that we have disclosed to the
public.
We will
provide you with more information in the applicable prospectus supplement
regarding any deletions, modifications, or additions to the events of default or
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
Payment
Unless we
give you different information in the applicable prospectus supplement, the
principal of, and any premium, or make-whole amount, and interest on, any series
of the debt securities will be payable at the corporate trust office of the
trustee. We will provide you with the address of the trustee in the
applicable prospectus supplement. We may also pay interest by mailing
a check to the address of the person entitled to it as it appears in the
applicable register for the debt securities or by wire transfer of funds to that
person at an account maintained within the United States.
All
monies that we pay to a paying agent or a trustee for the payment of the
principal of, and any premium, or make-whole amount, or interest on, any debt
security will be repaid to us if unclaimed at the end of two years after the
obligation underlying payment becomes due and payable. After funds
have been returned to us, the holder of the debt security may look only to us
for payment, without payment of interest for the period which we hold the
funds.
Denomination,
Interest, Registration and Transfer
Unless
otherwise described in the applicable prospectus supplement, the debt securities
of any series will be issuable in denominations of $1,000 and integral multiples
of $1,000.
Subject
to the limitations imposed upon debt securities that are evidenced by a
computerized entry in the records of a depository company rather than by
physical delivery of a note, a holder of debt securities of any series
may:
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exchange
them for any authorized denomination of other debt securities of the same
series and of a like aggregate principal amount and kind upon surrender of
such debt securities at the corporate trust office of the applicable
trustee or at the office of any transfer agent that we designate for such
purpose; and
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surrender
them for registration of transfer or exchange at the corporate trust
office of the applicable trustee or at the office of any transfer agent
that we designate for such purpose.
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Every
debt security surrendered for registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer satisfactory to the
applicable trustee or transfer agent. Payment of a service charge
will not be required for any registration of transfer or exchange of any debt
securities, but we or the trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection
therewith. If in addition to the applicable trustee, the applicable
prospectus supplement refers to any transfer agent initially designated by us
for any series of debt securities, we may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that we will be required to maintain a transfer
agent in each place of payment for such series. We may at any time
designate additional transfer agents for any series of debt
securities.
Neither
we, nor any trustee, will be required to:
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issue,
register the transfer of or exchange debt securities of any series during
a period beginning at the opening of business 15 days before the day that
the notice of redemption of any debt securities selected for redemption is
mailed and ending at the close of business on the day of such
mailing;
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register
the transfer of or exchange any debt security, or portion thereof, so
selected for redemption, in whole or in part, except the unredeemed
portion of any debt security being redeemed in part;
and
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issue,
register the transfer of or exchange any debt security that has been
surrendered for repayment at the option of the holder, except the portion,
if any, of such debt security not to be so
repaid.
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Merger,
Consolidation or Sale of Assets
The
indentures provide that we may, without the consent of the holders of any
outstanding debt securities, (1) consolidate with, (2) sell, lease or convey all
or substantially all of our assets to, or (3) merge with or into, any other
entity provided that:
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either
we are the continuing entity, or the successor entity, if other than us,
assumes the obligations (A) to pay the principal of, and any premium (or
make-whole amount) and interest on, all of the debt securities and (B) to
duly perform and observe all of the covenants and conditions contained in
each indenture;
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after
giving effect to the transaction, there is no event of default under the
indentures and no event which, after notice or the lapse of time, or both,
would become such an event of default, occurs and continues;
and
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an
officers’ certificate and legal opinion covering such conditions are
delivered to each applicable
trustee.
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Covenants
Existence. Except
as permitted under “--Merger, Consolidation or Sale of Assets,” the indentures
require us to do or cause to be done all things necessary to preserve and keep
in full force and effect our existence, rights and
franchises. However, the indentures do not require us to preserve any
right or franchise if we determine that any right or franchise is no longer
desirable in the conduct of our business.
Payment of taxes and other
claims. The indentures require us to pay, discharge or cause
to be paid or discharged, before they become delinquent (1) all taxes,
assessments and governmental charges levied or imposed on us, our subsidiaries
or our subsidiaries’ income, profits or property, and (2) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
our property or the property of our subsidiaries. However, we will
not be required to pay, discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
Provision of financial
information. The indentures require us to (1) within 15 days
of each of the respective dates by which we are required to file our annual
reports, quarterly reports and other documents with the SEC, file with the
trustee copies of the annual report, quarterly report and other documents that
we file with the SEC under Section 13 or 15(d) of the Exchange Act, (2) file
with the trustee and the SEC any additional information, documents and reports
regarding compliance by us with the conditions and covenants of the indentures,
as required, (3) within 30 days after the filing with the trustee, mail to all
holders of debt securities, as their names and addresses appear in the
applicable register for such debt securities, without cost to such holders,
summaries of any documents and reports required to be filed by us pursuant to
(1) and (2) above, and (4) supply, promptly upon written request and payment of
the reasonable cost of duplication and delivery, copies of such documents to any
prospective holder.
Additional
covenants. The applicable prospectus supplement will set forth
any additional covenants of us relating to any series of debt
securities.
Events
of Default, Notice and Waiver
Unless
the applicable prospectus supplement states otherwise, when we refer to “events
of default” as defined in the indentures with respect to any series of debt
securities, we mean:
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default
in the payment of any installment of interest on any debt security of such
series continuing for 30 days;
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default
in the payment of principal of, or any premium, or make-whole amount, on
any debt security of such series for five business days at its stated
maturity;
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default
in making any sinking fund payment as required for any debt security of
such series for five business days;
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default
in the performance or breach of any covenant or warranty in the debt
securities or in the indenture by us continuing for 60 days after written
notice as provided in the applicable indenture, but not of a covenant
added to the indenture solely for the benefit of a series of debt
securities issued thereunder other than such
series;
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a
default under any bond, debenture, note, mortgage, indenture or instrument
having an aggregate principal amount of $10,000,000, if the default
results in the indebtedness becoming or being declared due and payable
prior to the date it otherwise would have, without such indebtedness
having been discharged, or such acceleration having been rescinded or
annulled, within 30 days after notice to us specifying such
default;
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our
bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of us or any significant subsidiary of us;
and
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any
other event of default provided with respect to a particular series of
debt securities.
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When we
use the term “significant subsidiary,” we refer to the meaning ascribed to such
term in Rule 1-02 of Regulation S-X promulgated under the Securities Act of
1933, as amended, or Securities Act.
If an
event of default occurs and is continuing with respect to debt securities of any
series outstanding, then the applicable trustee or the holders of 25% or more in
principal amount of the debt securities of that series will have the right to
declare the principal amount of all the debt securities of that series to be due
and payable. If the debt securities of that series are original issue
discount securities or indexed securities, then the applicable trustee or the
holders of 25% or more in principal amount of the debt securities of that series
will have the right to declare the portion of the principal amount as may be
specified in the terms thereof to be due and payable. However, at any
time after such a declaration of acceleration has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable trustee, the holders of at least a majority in principal amount of
outstanding debt securities of such series or of all debt securities then
outstanding under the applicable indenture may rescind and annul such
declaration and its consequences if:
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we
have deposited with the applicable trustee all required payments of the
principal, any premium, or make-whole amount, interest and, to the extent
permitted by law, interest on overdue installment of interest, plus
applicable fees, expenses, disbursements and advances of the applicable
trustee; and
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all
events of default, other than the non-payment of accelerated principal, or
a specified portion thereof, and any premium, or make-whole amount, have
been cured or waived.
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The
indentures also provide that the holders of at least a majority in principal
amount of the outstanding debt securities of any series or of all debt
securities then outstanding under the applicable indenture may, on behalf of all
holders, waive any past default with respect to such series and its
consequences, except a default:
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in
the payment of the principal, any premium, or make-whole amount, or
interest;
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in
respect of a covenant or provision contained in the applicable indenture
that cannot be modified or amended without the consent of the holders of
the outstanding debt security that is affected by the default;
or
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in
respect of a covenant or provision for the benefit or protection of the
trustee, without its express written
consent.
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The
indentures require each trustee to give notice to the holders of debt securities
within 90 days of a default unless such default has been cured or
waived. However, the trustee may withhold notice if specified persons
of such trustee consider such withholding to be in the interest of the holders
of debt securities. The trustee may not withhold notice of a default
in the payment of principal, any premium or interest on any debt security of
such series or in the payment of any sinking fund installment in respect of any
debt security of such series.
The
indentures provide that holders of debt securities of any series may not
institute any proceedings, judicial or otherwise, with respect to such indenture
or for any remedy under the indenture, unless the trustee fails to act for a
period of 60 days after the trustee has received a written request to institute
proceedings in respect of an event of default from the holders of 25% or more in
principal amount of the outstanding debt securities of such series, as well as
an offer of indemnity reasonably satisfactory to the
trustee. However, this provision will not prevent any holder of debt
securities from instituting suit for the enforcement of payment of the principal
of, and any premium, or make-whole amount, and interest on, such debt securities
at the respective due dates thereof.
The
indentures provide that, subject to provisions in each indenture relating to its
duties in the case of a default, a trustee has no obligation to exercise any of
its rights or powers at the request or direction of any holders of any series of
debt securities then outstanding under the indenture, unless the holders have
offered to the trustee reasonable security or indemnity. The holders
of at least a majority in principal amount of the outstanding debt securities of
any series or of all debt securities then outstanding under an indenture shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable trustee, or of exercising any trust
or power conferred upon such trustee. However, a trustee may refuse
to follow any direction which:
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is
in conflict with any law or the applicable
indenture;
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may
involve the trustee in personal liability;
or
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may
be unduly prejudicial to the holders of debt securities of the series not
joining the proceeding.
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Within
120 days after the close of each fiscal year, we will be required to deliver to
each trustee a certificate, signed by one of our several specified officers,
stating whether or not that officer has knowledge of any default under the
applicable indenture. If the officer has knowledge of any default,
the notice must specify the nature and status of the default.
Modification
of the Indentures
The
indentures provide that modifications and amendments may be made only with the
consent of the affected holders of at least a majority in principal amount of
all outstanding debt securities issued under that indenture. However,
no such modification or amendment may, without the consent of the holders of the
debt securities affected by the modification or amendment:
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change
the stated maturity of the principal of, or any premium, or make-whole
amount, on, or any installment of principal of or interest on, any such
debt security;
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reduce
the principal amount of, the rate or amount of interest on or any premium,
or make-whole amount, payable on redemption of any such debt
security;
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reduce
the amount of principal of an original issue discount security that would
be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right
of repayment of the holder of any such debt
security;
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change
the place of payment or the coin or currency for payment of principal of,
or any premium, or make-whole amount, or interest on, any such debt
security;
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impair
the right to institute suit for the enforcement of any payment on or with
respect to any such debt security;
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reduce
the percentage in principal amount of any outstanding debt securities
necessary to modify or amend the applicable indenture with respect to such
debt securities, to waive compliance with particular provisions thereof or
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable indenture;
and
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modify
any of the foregoing provisions or any of the provisions relating to the
waiver of particular past defaults or covenants, except to increase the
required percentage to effect such action or to provide that some of the
other provisions may not be modified or waived without the consent of the
holder of such debt security.
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The
holders of a majority in aggregate principal amount of the outstanding debt
securities of each series may, on behalf of all holders of debt securities of
that series, waive, insofar as that series is concerned, our compliance with
material restrictive covenants of the applicable indenture.
We and
our respective trustee may make modifications and amendments of an indenture
without the consent of any holder of debt securities for any of the following
purposes:
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to
evidence the succession of another person to us as obligor under such
indenture;
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to
add to our covenants for the benefit of the holders of all or any series
of debt securities or to surrender any right or power conferred upon us in
such indenture;
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to
add events of default for the benefit of the holders of all or any series
of debt securities;
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to
add or change any provisions of an indenture (1) to change or eliminate
restrictions on the payment of principal of, or premium, or make-whole
amount, or interest on, debt securities in bearer form, or (2) to permit
or facilitate the issuance of debt securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
holders of the debt securities of any series in any material
respect;
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to
change or eliminate any provisions of an indenture, provided that any such
change or elimination shall become effective only when there are no debt
securities outstanding of any series created prior thereto which are
entitled to the benefit of such
provision;
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to
secure the debt securities;
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to
establish the form or terms of debt securities of any
series;
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to
provide for the acceptance of appointment by a successor trustee or
facilitate the administration of the trusts under an indenture by more
than one trustee;
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to
cure any ambiguity, defect or inconsistency in an indenture, provided that
such action shall not adversely affect the interests of holders of debt
securities of any series issued under such indenture;
and
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to
supplement any of the provisions of an indenture to the extent necessary
to permit or facilitate defeasance and discharge of any series of such
debt securities, provided that such action shall not adversely affect the
interests of the holders of the outstanding debt securities of any
series.
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Voting
The
indentures provide that in determining whether the holders of the requisite
principal amount of outstanding debt securities of a series have given any
request, demand, authorization, direction, notice, consent or waiver under the
indentures or whether a quorum is present at a meeting of holders of debt
securities:
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the
principal amount of an original issue discount security that shall be
deemed to be outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity
thereof;
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the
principal amount of any debt security denominated in a foreign currency
that shall be deemed outstanding shall be the United States dollar
equivalent, determined on the issue date for such debt security, of the
principal amount or, in the case of an original issue discount security,
the United States dollar equivalent on the issue date of such debt
security of the amount determined as provided in the preceding bullet
point;
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the
principal amount of an indexed security that shall be deemed outstanding
shall be the principal face amount of such indexed security at original
issuance, unless otherwise provided for such indexed security under such
indenture; and
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debt
securities owned by us or any other obligor upon the debt securities or by
any affiliate of ours or of such other obligor shall be
disregarded.
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The
indentures contain provisions for convening meetings of the holders of debt
securities of a series. A meeting will be permitted to be called at
any time by the applicable trustee, and also, upon request, by us or the holders
of at least 25% in principal amount of the outstanding debt securities of such
series, in any such case upon notice given as provided in such
indenture. Except for any consent that must be given by the holder of
each debt security affected by the modifications and amendments of an indenture
described above, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority of the aggregate principal amount of the
outstanding debt securities of that series represented at such
meeting.
Notwithstanding
the preceding paragraph, except as referred to above, any resolution relating to
a request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a specified
percentage, which is less than a majority of the aggregate principal amount of
the outstanding debt securities of a series, may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of such specified percentage.
Any
resolution passed or decision taken at any properly held meeting of holders of
debt securities of any series will be binding on all holders of such
series. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding debt securities of a
series. However, if any action is to be taken relating to a consent
or waiver which may be given by the holders of at least a specified percentage
in principal amount of the outstanding debt securities of a series, the persons
holding such percentage will constitute a quorum.
Notwithstanding
the foregoing provisions, the indentures provide that if any action is to be
taken at a meeting with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that such indenture expressly
provides may be made, given or taken by the holders of a specified percentage in
principal amount of all outstanding debt securities affected by such action, or
of the holders of such series and one or more additional series:
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there
shall be no minimum quorum requirement for such meeting;
and
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the
principal amount of the outstanding debt securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken account in determining
whether such request, demand, authorization, direction, notice, consent,
waiver or other action has been made, given or taken under such
indenture.
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Subordination
Unless
otherwise provided in the applicable prospectus supplement, subordinated
securities will be subject to the following subordination
provisions.
Upon any
distribution to our creditors in a liquidation, dissolution or reorganization,
the payment of the principal of and interest on any subordinated securities will
be subordinated to the extent provided in the applicable indenture in right of
payment to the prior payment in full of all senior debt. However, our
obligation to make payments of the principal of and interest on such
subordinated securities otherwise will not be affected. No payment of
principal or interest will be permitted to be made on subordinated securities at
any time if a default on senior debt exists that permits the holders of such
senior debt to accelerate its maturity and the default is the subject of
judicial proceedings or we receive notice of the default. After all
senior debt is paid in full and until the subordinated securities are paid in
full, holders of subordinated securities will be subrogated to the rights of
holders of senior debt to the extent that distributions otherwise payable to
holders of subordinated securities have been applied to the payment of senior
debt. The subordinated indenture will not restrict the amount of
senior debt or other indebtedness of us and its subsidiaries. As a
result of these subordination provisions, in the event of a distribution of
assets upon insolvency, holders of subordinated securities may recover less,
ratably, than our general creditors.
The term
“senior debt” will be defined in the applicable indenture as the principal of
and interest on, or substantially similar payments to be made by us in respect
of, other outstanding indebtedness, whether outstanding at the date of execution
of the applicable indenture or subsequently incurred, created or
assumed. The prospectus supplement may include a description of
additional terms implementing the subordination feature.
No
restrictions will be included in any indenture relating to subordinated
securities upon the creation of additional senior debt.
If this
prospectus is being delivered in connection with the offering of a series of
subordinated securities, the accompanying prospectus supplement or the
information incorporated in this prospectus by reference will set forth the
approximate amount of senior debt outstanding as of the end of our most recent
fiscal quarter.
Discharge,
Defeasance and Covenant Defeasance
Unless
otherwise indicated in the applicable prospectus supplement, the indentures
allow us to discharge our obligations to holders of any series of debt
securities issued under any indenture when:
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either
(1) all securities of such series have already been delivered to the
applicable trustee for cancellation; or (2) all securities of such series
have not already been delivered to the applicable trustee for cancellation
but (A) have become due and payable, (B) will become due and payable
within one year, or (C) if redeemable at our option, are to be redeemed
within one year, and we have irrevocably deposited with the applicable
trustee, in trust, funds in such currency or currencies, currency unit or
units or composite currency or currencies in which such debt securities
are payable, an amount sufficient to pay the entire indebtedness on such
debt securities in respect of principal and any premium, or make-whole
amount, and interest to the date of such deposit if such debt securities
have become due and payable or, if they have not, to the stated maturity
or redemption date;
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we
have paid or caused to be paid all other sums payable;
and
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an
officers’ certificate and an opinion of counsel stating the conditions to
discharging the debt securities have been satisfied has been delivered to
the trustee.
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Unless
otherwise indicated in the applicable prospectus supplement, the indentures
provide that, upon our irrevocable deposit with the applicable trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such debt securities are payable at
stated maturity, or government obligations, or both, applicable to such debt
securities, which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, and any premium, or make-whole amount, and interest on, such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor, the issuing company may elect
either:
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to
defease and be discharged from any and all obligations with respect to
such debt securities; or
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to
be released from its obligations with respect to such debt securities
under the applicable indenture or, if provided in the applicable
prospectus supplement, its obligations with respect to any other covenant,
and any omission to comply with such obligations shall not constitute an
event of default with respect to such debt
securities.
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Notwithstanding
the above, we may not elect to defease and be discharged from the obligation to
pay any additional amounts upon the occurrence of particular events of tax,
assessment or governmental charge with respect to payments on such debt
securities and the obligations to register the transfer or exchange of such debt
securities, to replace temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such debt securities,
or to hold monies for payment in trust.
The
indentures only permit us to establish the trust described in the paragraph
above if, among other things, it has delivered to the applicable trustee an
opinion of counsel to the effect that the holders of such debt securities will
not recognize income, gain or loss for United States federal income tax purposes
as a result of such defeasance or covenant defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred. Such opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling received
from or published by the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the
indenture. In the event of such defeasance, the holders of such debt
securities would be able to look only to such trust fund for payment of
principal, any premium, or make-whole amount, and interest.
When we
use the term “government obligations,” we mean securities that are:
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direct
obligations of the United States or the government that issued the foreign
currency in which the debt securities of a particular series are payable,
for the payment of which its full faith and credit is pledged;
or
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obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States or other government that issued the
foreign currency in which the debt securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States or such other government, which are
not callable or redeemable at the option of the issuer thereof and shall
also include a depository receipt issued by a bank or trust company as
custodian with respect to any such government obligation or a specific
payment of interest on or principal of any such government obligation held
by such custodian for the account of the holder of a depository
receipt. However, except as required by law, such custodian is
not authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the government obligation or the specific payment of interest
on or principal of the government obligation evidenced by such depository
receipt.
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Unless
otherwise provided in the applicable prospectus supplement, if after we have
deposited funds and/or government obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series, (1) the holder of a
debt security of such series is entitled to, and does, elect under the terms of
the applicable indenture or the terms of such debt security to receive payment
in a currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such debt security, or (2) a conversion
event occurs in respect of the currency, currency unit or composite currency in
which such deposit has been made, the indebtedness represented by such debt
security will be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal of, and premium, or make-whole
amount, and interest on, such debt security as they become due out of the
proceeds yielded by converting the amount so deposited in respect of such debt
security into the currency, currency unit or composite currency in which such
debt security becomes payable as a result of such election or such cessation of
usage based on the applicable market exchange rate.
When we
use the term “conversion event,” we mean the cessation of use of:
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a
currency, currency unit or composite currency both by the government of
the country that issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within
the international banking
community;
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the
European Currency Unit both within the European Monetary System and for
the settlement of transactions by public institutions of or within the
European Communities; or
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any
currency unit or composite currency other than the European Currency Unit
for the purposes for which it was
established.
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Unless
otherwise provided in the applicable prospectus supplement, all payments of
principal of, and any premium, or make-whole amount, and interest on, any debt
security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in United States dollars.
In the
event that (1) we effect covenant defeasance with respect to any debt securities
and (2) those debt securities are declared due and payable because of the
occurrence of any event of default, the amount in the currency, currency unit or
composite currency in which such debt securities are payable, and government
obligations on deposit with the applicable trustee, will be sufficient to pay
amounts due on such debt securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such debt securities at the time of the
acceleration resulting from such event of default. However, the
issuing company would remain liable to make payments of any amounts due at the
time of acceleration.
The
applicable prospectus supplement may further describe the provisions, if any,
permitting such defeasance or covenant defeasance, including any modifications
to the provisions described above, with respect to the debt securities of or
within a particular series.
Conversion
Rights
The terms
and conditions, if any, upon which the debt securities are convertible into
common stock or preferred stock will be set forth in the applicable prospectus
supplement. The terms will include whether the debt securities are
convertible into shares of common stock or preferred stock, the conversion
price, or manner of calculation thereof, the conversion period, provisions as to
whether conversion will be at the issuing company’s option or the option of the
holders, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of the debt
securities and any restrictions on conversion.
Global
Securities
The debt
securities of a series may be issued in whole or in part in the form of one or
more global securities that will be deposited with, or on behalf of, a
depository identified in the applicable prospectus supplement relating to such
series. Global securities, if any, issued in the United States are
expected to be deposited with The Depository Trust Company, or DTC, as
depository. We may issue global securities in either registered or
bearer form and in either temporary or permanent form. We will
describe the specific terms of the depository arrangement with respect to a
series of debt securities in the applicable prospectus supplement relating to
such series. We expect that unless the applicable prospectus
supplement provides otherwise, the following provisions will apply to depository
arrangements.
Once a
global security is issued, the depository for such global security or its
nominee will credit on its book-entry registration and transfer system the
respective principal amounts of the individual debt securities represented by
such global security to the accounts of participants that have accounts with
such depository. Such accounts shall be designated by the
underwriters, dealers or agents with respect to such debt securities or by us if
we offer such debt securities directly. Ownership of beneficial
interests in such global security will be limited to participants with the
depository or persons that may hold interests through those
participants.
We expect
that, under procedures established by DTC, ownership of beneficial interests in
any global security for which DTC is the depository will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee, with respect to beneficial interests of participants with
the depository, and records of participants, with respect to beneficial
interests of persons who hold through participants with the
depository. Neither we nor the trustee will have any responsibility
or liability for any aspect of the records of DTC or for maintaining,
supervising or reviewing any records of DTC or any of its participants relating
to beneficial ownership interests in the debt securities. The laws of
some states require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and laws may
impair the ability to own, pledge or transfer beneficial interest in a global
security.
So long
as the depository for a global security or its nominee is the registered owner
of such global security, such depository or such nominee, as the case may be,
will be considered the sole owner or holder of the debt securities represented
by the global security for all purposes under the applicable
indenture. Except as described below or in the applicable prospectus
supplement, owners of beneficial interest in a global security will not be
entitled to have any of the individual debt securities represented by such
global security registered in their names, will not receive or be entitled to
receive physical delivery of any such debt securities in definitive form and
will not be considered the owners or holders thereof under the applicable
indenture. Beneficial owners of debt securities evidenced by a global
security will not be considered the owners or holders thereof under the
applicable indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the trustee under the
indenture. Accordingly, each person owning a beneficial interest in a
global security with respect to which DTC is the depository must rely on the
procedures of DTC and, if such person is not a participant with the depository,
on the procedures of the participant through which such person owns its
interests, to exercise any rights of a holder under the applicable
indenture. We understand that, under existing industry practice, if
DTC requests any action of holders or if an owner of a beneficial interest in a
global security desires to give or take any action which a holder is entitled to
give or take under the applicable indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners through such
participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments
of principal of, and any premium, or make-whole amount, and interest on,
individual debt securities represented by a global security registered in the
name of a depository or its nominee will be made to or at the direction of the
depository or its nominee, as the case may be, as the registered owner of the
global security under the applicable indenture. Under the terms of
the applicable indenture, we and the trustee may treat the persons in whose name
debt securities, including a global security, are registered as the owners
thereof for the purpose of receiving such payments. Consequently,
neither we nor the trustee have or will have any responsibility or liability for
the payment of such amounts to beneficial owners of debt securities including
principal, any premium, or make-whole amount, or interest. We
believe, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant global security as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of
beneficial interests in such global security held through such participants will
be governed by standing instructions and customary practices, as is the case
with securities held for the account of customers in bearer form or registered
in street name, and will be the responsibility of such
participants. Redemption notices with respect to any debt securities
represented by a global security will be sent to the depository or its
nominee. If less than all of the debt securities of any series are to
be redeemed, we expect the depository to determine the amount of the interest of
each participant in such debt securities to be redeemed to be determined by
lot. Neither we, the trustee, any paying agent nor the security
registrar for such debt securities will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global security for such debt securities or for
maintaining any records with respect thereto.
Neither
we nor the trustee will be liable for any delay by the holders of a global
security or the depository in identifying the beneficial owners of debt
securities, and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of a global security or
the depository for all purposes. The rules applicable to DTC and its
participants are on file with the SEC.
If a
depository for any debt securities is at any time unwilling, unable or
ineligible to continue as depository and we do not appoint a successor
depository within 90 days, we will issue individual debt securities in exchange
for the global security representing such debt securities. In
addition, we may at any time and in their sole discretion, subject to any
limitations described in the applicable prospectus supplement relating to such
debt securities, determine not to have any of such debt securities represented
by one or more global securities and in such event will issue individual debt
securities in exchange for the global security or securities representing such
debt securities. Individual debt securities so issued will be issued
in denominations of $1,000 and integral multiples of $1,000.
The debt
securities of a series may also be issued in whole or in part in the form of one
or more bearer global securities that will be deposited with a depository, or
with a nominee for such depository, identified in the applicable prospectus
supplement. Any such bearer global securities may be issued in
temporary or permanent form. The specific terms and procedures,
including the specific terms of the depositary arrangement, with respect to any
portion of a series of debt securities to be represented by one or more bearer
global securities will be described in the applicable prospectus
supplement.
No
Recourse
There is
no recourse under any obligation, covenant or agreement in the applicable
indenture or with respect to any security against any of our or our successor’s
past, present or future stockholders, employees, officers or
directors.
DESCRIPTION OF THE WARRANTS WE MAY
OFFER
We may
issue warrants, including warrants to purchase common stock, preferred stock,
debt securities, 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:
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the
title of the warrants;
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the
aggregate number of the warrants;
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the
price or prices at which the warrants will be
issued;
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the
currencies in which the price or prices of the warrants may be
payable;
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the
designation, amount, and terms of the offered securities purchasable upon
exercise of the warrants;
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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;
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if
applicable, the date on and after which the warrants and the offered
securities purchasable upon exercise of the warrants will be separately
transferable;
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the
price or prices at which and currency or currencies in which the offered
securities purchasable upon exercise of the warrants may be
purchased;
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the
date on which the right to exercise the warrants shall commence and the
date on which the right shall
expire;
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the
minimum or maximum amount of the warrants which may be exercised at any
one time;
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information
with respect to book-entry procedures, if
any;
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a
discussion of any federal income tax considerations;
and
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any
other material terms of the warrants, including terms, procedures, and
limitations relating to the exchange and exercise of the
warrants.
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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, debt
securities, 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:
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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;
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any
provisions of the governing unit
agreement;
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the
price or prices at which such units will be
issued;
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the
applicable U.S. federal income tax considerations relating to the
units;
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any
provisions for the issuance, payment, settlement, transfer or exchange of
the units or of the securities comprising the units;
and
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any
other terms of the units and of the securities comprising the
units.
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The
provisions described in this section, as well as those described under
“Description of Preferred Stock,” “Description of Common Stock”, “Description of
Debt Securities” 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:
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to
cure any ambiguity; any provisions of the governing unit agreement that
differ from those described below;
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to
correct or supplement any defective or inconsistent provision;
or
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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.
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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:
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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
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reduce
the percentage of outstanding units or any series or class or principal
amount of securities 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.
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Any other
change to a particular unit agreement and the units issued under that agreement
would require the following approval:
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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
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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.
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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 although if debt securities
are issued as part of a unit such debt securities will be issued under an
indenture.
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.
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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.
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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.
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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.
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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:
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1.
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Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2009.
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2.
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Our
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2010 and June 30, 2010
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3.
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Our
current Reports on Form 8-K, filed with the SEC on May 12, May 13, May 17,
May 25, July 1, August 5 and August 16,
2010.
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4.
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The
description of our common stock set forth in our Registration Statement on
Form 8-A filed with the SEC on September 16,
2009.
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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.
$
Puda
Coal, Inc.
Common
Stock
Joint Book-Running
Managers
Macquarie
Capital
Brean
Murray, Carret & Co.
December ,
2010