UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
PATRIOT COAL CORPORATION
(Name of Registrant as Specified In Its Charter)
[COMPANY NAME]
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
April 7, 2008
Dear Stockholder:
You are cordially invited to attend the 2008 Annual Meeting of
Stockholders of Patriot Coal Corporation (the
Company), which will be held on Monday, May 12,
2008, at 10:00 A.M., Central Time, at the Donald Danforth
Plant Science Center at 975 North Warson Road, Saint Louis,
Missouri 63132.
During this meeting, stockholders will vote on the following
items:
1. Election of two Class I Directors for three-year
terms;
2. Ratification of the appointment of Ernst &
Young LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31,
2008; and
3. To transact such other business, if any, as lawfully may
be brought before the meeting.
The accompanying Notice of Annual Meeting of Stockholders and
Proxy Statement contain complete details on these items and
other matters. We also will be reporting on the Companys
operations and responding to stockholder questions. If you have
questions that you would like to raise at the meeting, we
encourage you to submit written questions in advance (by mail or
e-mail)
to
the Corporate Secretary. This will help us respond to your
questions during the meeting. If you would like to
e-mail
your
questions, please send them to
stockholders.questions@patriotcoal.com.
Your participation in the Annual Meeting is important,
regardless of the number of shares you hold. To ensure your
representation, we encourage you to vote over the telephone or
internet or to complete and return the enclosed proxy card as
soon as possible. If you attend the Annual Meeting, you may then
revoke your proxy and vote in person if you so desire.
Thank you for your continued support of Patriot
Coal. We look forward to seeing you on May 12.
Very truly yours,
Richard M. Whiting
President & Chief Executive Officer
PATRIOT
COAL CORPORATION
12312 Olive Boulevard
Saint Louis, Missouri 63141
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
Patriot Coal Corporation (the Company) will hold its
Annual Meeting of Stockholders at the Donald Danforth Plant
Science Center at 975 North Warson Road, Saint Louis, Missouri
63132 on Monday, May 12, 2008, at 10:00 A.M., Central
Time, to:
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Elect two Class I Directors for three-year terms;
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Ratify the appointment of Ernst & Young LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2008; and
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To transact such other business, if any, as lawfully may be
brought before the meeting.
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The Board of Directors has fixed March 20, 2008 as the
record date for determining stockholders who will be entitled to
receive notice of and vote at the Annual Meeting or any
adjournment. Each share of Common Stock is entitled to one vote.
As of the record date, there were 26,760,377 shares of
Common Stock outstanding.
If you own shares of the Companys Common Stock as of
March 20, 2008, you can vote those shares by completing and
mailing the enclosed proxy card or by attending the Annual
Meeting and voting in person. Stockholders of record also may
submit their proxies electronically or by telephone as follows:
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By visiting the website at
www.voteproxy.com
and
following the voting instructions provided; or
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By calling 1-800-PROXIES on a touch-tone telephone and following
the recorded instructions.
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An admittance card or other proof of ownership is required to
attend the Annual Meeting. Please retain the top portion of your
proxy card for this purpose. Also, please indicate your
intention to attend the Annual Meeting by checking the
appropriate box on the proxy card, or, if voting by the Internet
or by telephone, when prompted. If your shares are held by a
bank or broker, you will need to ask them for an admission card
in the form of a confirmation of beneficial ownership. If you do
not receive a confirmation of beneficial ownership or other
admittance card from your bank or broker, you must bring proof
of share ownership (such as a copy of your brokerage statement)
to the Annual Meeting.
Your vote is important. Whether or not you plan to attend the
Annual Meeting, please cast your vote by telephone or the
Internet, or complete, date and sign the enclosed proxy card and
return it in the envelope provided. If you attend the meeting,
you may withdraw your proxy and vote in person, if you so
choose.
Joseph W. Bean
Senior Vice President, General Counsel
& Corporate Secretary
TABLE OF
CONTENTS
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PATRIOT
COAL CORPORATION
PROXY STATEMENT
FOR THE
2008 ANNUAL MEETING OF STOCKHOLDERS
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
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Q:
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Why did I receive this Proxy Statement?
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A:
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The Board of Directors is soliciting your proxy to vote at the
2008 Annual Meeting of Stockholders because you are a
stockholder of Patriot Coal Corporation as of March 20,
2008, the record date. As of the record date, there were
26,760,377 shares of Common Stock outstanding. Each share
of Common Stock is entitled to one vote.
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This Proxy Statement summarizes the information you need to know
to vote at the Annual Meeting. This Proxy Statement and proxy
card were first mailed to stockholders on or about April 8,
2008.
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Q:
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What am I being asked to vote on?
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A:
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You are being asked to vote on the following items:
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Election of Michael M. Scharf and J. Joe Adorjan as
Class I Directors;
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Ratification of the appointment of Ernst &
Young LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31,
2008; and
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Any other matter properly introduced at the meeting.
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Q:
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What are the voting recommendations of the Board of
Directors?
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A:
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The Board recommends the following votes:
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FOR each of the director nominees (Item 1); and
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FOR ratification of the appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm for the fiscal year ending
December 31, 2008 (Item 2).
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Q:
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Will any other matters be voted on?
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A:
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We are not aware of any other matters that will be brought
before the stockholders for a vote at the Annual Meeting. If any
other matter is properly brought before the meeting, your proxy
will authorize each of Richard M. Whiting, Mark N.
Schroeder and Joseph W. Bean to vote on such matters in their
discretion.
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Q:
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How do I vote?
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A:
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If you are a stockholder of record or hold stock through the
Patriot Coal Corporation 401(k) Retirement Plan, you may vote
using any of the following methods:
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Via the internet, by visiting the website
www.voteproxy.com
and following the instructions for
Internet voting on your proxy card;
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From the United States, Canada or Puerto Rico, by
dialing 1-800-PROXIES and following the instructions for
telephone voting on your proxy card;
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By completing and mailing your proxy/voting
instruction card; or
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By casting your vote in person at the Annual Meeting.
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If you vote over the Internet, you may incur costs such as
telephone and Internet access charges for which you will be
responsible. The telephone and Internet voting facilities for
the stockholders of record of all shares, other than those held
in the Patriot Coal Corporation 401(k) Retirement Plan, close at
10:59 P.M. Central Time on May 11, 2008. The Internet and
telephone voting procedures are designed to authenticate
stockholders by use of a control number and to allow you to
confirm your instructions have been properly recorded.
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If you hold shares of the Companys common stock in the
Patriot Coal Corporation 401(k) Retirement Plan, you will
receive a single proxy/voting instruction card with respect to
all shares registered in your name, whether inside or outside of
the plan. If your accounts inside and outside of the plan are
not registered in the same name, you will receive a separate
proxy/voting instruction card with respect to the shares
credited in your plan account. Voting instructions regarding
plan shares must be received by 3:00 P.M. Central Time
on May 7, 2008, and all telephone and Internet voting
facilities with respect to plan shares will close at that time.
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Shares of common stock in the Patriot Coal Corporation 401(k)
Retirement Plan will be voted by Vanguard Fiduciary
Trust Company (Vanguard), as trustee of the
plan. Plan participants should indicate their voting
instructions to Vanguard for each action to be taken under proxy
by completing and returning the proxy/voting instruction card,
by using the toll-free telephone number or by indicating their
instructions over the Internet. All voting instructions from
plan participants will be kept confidential. If a plan
participant fails to sign or to timely return the proxy/voting
instruction card or otherwise timely indicate his or her
instructions by telephone or over the Internet, the shares
allocated to such participant, together with unallocated shares,
will be voted in the same proportion as plan shares for which
the trustee receives voting instructions.
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If you return your signed proxy card or vote by Internet or
telephone, your shares will be voted as you indicate. If you do
not indicate how your shares are to be voted on a matter, the
shares represented by your properly completed proxy/voting
instruction card will be voted For the nominees for
director and For ratification of the appointment of
Ernst & Young LLP.
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If your shares are held in a brokerage account in your
brokers name (also known as street name), you
should follow the instructions for voting provided by your
broker or nominee. You may complete and mail a voting
instruction card to your broker or nominee or, if your broker or
nominee allows, submit voting instructions by Internet or
telephone. If you provide specific voting instructions by mail,
telephone or Internet, your broker or nominee will vote your
shares as you have directed.
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Ballots will be provided during the Annual Meeting to anyone who
wants to vote in person at the meeting. If you hold shares in
street name, you must request a confirmation of beneficial
ownership from your broker to vote in person at the meeting.
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Q:
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Can I change my vote?
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Yes. If you are a stockholder of record, you can change your
vote or revoke your proxy before the Annual Meeting by:
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Submitting a valid, later-dated proxy;
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Submitting a valid, subsequent vote by telephone or
the Internet at any time prior to 10:59 P.M. Central Time
on May 11, 2008;
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Notifying the Companys Corporate Secretary in
writing that you have revoked your proxy; or
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Completing a written ballot at the Annual Meeting
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You can revoke your voting instructions with respect to shares
held in the Patriot Coal Corporation 401(k) Retirement Plan at
any time prior to 10.59 P.M. Central Time on
May 11, 2008 by timely delivery of a properly executed,
later-dated voting instruction card (or an Internet or telephone
vote), or by delivering a written revocation of your voting
instructions to Vanguard.
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Is my vote confidential?
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Yes. All proxies, ballots and vote tabulations that identify how
individual stockholders voted will be kept confidential and not
be disclosed to the Companys directors, officers or
employees, except in limited circumstances, including:
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When disclosure is required by law;
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During any contested solicitation of proxies; or
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When written comments by a stockholder appear on a
proxy card or other voting material.
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What will happen if I do not instruct my broker how to
vote?
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If your shares are held in street name and you do not instruct
your broker how to vote, your broker may vote your shares at its
discretion on routine matters such as the election directors
(Item 1) or ratification of the independent registered
public accounting firm (Item 2). On non-routine matters,
brokers and other nominees cannot vote without instructions from
the beneficial owner, resulting in so-called broker
non-votes.
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How will my Company stock in the Patriot Coal Corporation
401(k) Retirement Plan be voted?
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Vanguard, as the plan trustee, will vote your shares in
accordance with your instructions if you send in a completed
proxy/voting instruction card or vote by telephone or the
Internet before 10:59 P.M. Central Time on
May 11, 2008. All telephone and Internet voting facilities
with respect to plan shares will close at that time. Vanguard
will vote allocated shares of Company Common Stock for which it
has not received direction, as well as shares not allocated to
individual participant accounts, in the same proportion as plan
shares for which the trustee receives voting instructions.
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How many shares must be present to hold the Annual
Meeting?
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Holders of a majority of the shares of outstanding Common Stock
as of the record date must be represented in person or by proxy
at the Annual Meeting in order to conduct business. This is
called a quorum. If you vote, your shares will be part of the
quorum. Abstentions, Withheld votes and broker
non-votes also will be counted in determining whether a quorum
exists.
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What vote is required to approve the proposals?
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In the election of directors, the two nominees receiving the
highest number of For votes will be elected.
Abstentions and proxies marked Withhold will have no
effect on the election of directors, except, if a nominee in an
uncontested election receives more Withhold than
For votes, the nominee must tender his resignation
in accordance with our Director Election Procedures. The Board
will then determine whether to accept or reject the resignation
based on all factors affecting the nominees qualifications
and contributions to the Company. Our Director Election
Procedures can be accessed on the Companys website
(
www.patriotcoal.com
) by clicking on
Investors, then Corporate Governance,
and then Corporate Governance Guidelines.
Information on our website is not considered part of this Proxy
Statement.
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The ratification of the appointment of Ernst & Young
LLP will require approval by a majority of the shares present in
person or by proxy at the meeting and entitled to vote.
Abstentions will have the same effect as votes cast against this
proposal while broker non-votes will have no impact on this
proposal.
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Q:
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What does it mean if I receive more than one proxy card?
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It means your shares are held in more than one account at the
transfer agent and/or with banks or brokers. Please vote all of
your shares.
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Who can attend the Annual Meeting?
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A:
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All Patriot Coal Corporation stockholders as of March 20,
2008 may attend the Annual Meeting.
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What do I need to do to attend the Annual Meeting?
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A:
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If you are a stockholder of record or a participant in the
Patriot Coal Corporation 401(k) Retirement Plan, your admission
card is attached to your proxy card or voting instruction form.
You will need to bring this admission card with you to the
Annual Meeting.
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If you own shares in street name, you will need to ask your bank
or broker for an admission card in the form of a confirmation of
beneficial ownership. You will need to bring a confirmation of
beneficial ownership with you to vote at the Annual Meeting. If
you do not receive your confirmation of beneficial ownership in
time, bring your most recent brokerage statement with you to the
Annual Meeting. We can use that to verify your ownership of
Common Stock and admit you to the meeting; however, you will not
be able to vote your shares at the meeting without a
confirmation of beneficial ownership.
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Q:
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Where can I find the voting results of the Annual Meeting?
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A:
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We plan to announce preliminary voting results at the Annual
Meeting and to publish final results in our Quarterly Report on
SEC
Form 10-Q
for the quarterly period ended June 30, 2008.
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ELECTION
OF DIRECTORS (ITEM 1)
In accordance with the terms of the Companys certificate
of incorporation, the Board of Directors is divided into three
classes, with each class serving a staggered three-year term. At
this years Annual Meeting, the terms of current
Class I Directors will expire. The terms of Class II
Directors and Class III Directors will expire at the Annual
Meetings to be held in 2009 and 2010, respectively.
The Board of Directors has nominated J. Joe Adorjan and Michael
M. Scharf for election as Class I Directors with terms
expiring in 2011. Each of the nominees is currently serving as a
director of the Company. All nominees have consented to serve
for the new term. Should any one or more of the nominees become
unavailable for election, your proxy authorizes us to vote for
such other persons, if any, as the Board of Directors may
recommend.
The Board of Directors recommends that you vote
For each of the Class I director nominees named
below.
Class I
Director Nominees Terms Expiring in 2011
J. JOE ADORJAN,
age 69, has been a director of
the Company since November 2007. Mr. Adorjan is currently
chairman of Adven Capital, a private equity firm and is a
partner of Stonington Partners Inc., a New York based private
equity firm. He has served in these positions since February
2001. From 1995 through December 2000, Mr. Adorjan served
as chairman and chief executive officer of Borg-Warner Security
Corporation, a provider of security services. Prior to joining
Borg-Warner, Mr. Adorjan served in a number of senior
executive capacities with Emerson Electric Co. and ESCO
Electronics Corporation, an independent NYSE corporation that
was formed in 1990 with the spin-off of Emersons
government and defense business. He was chairman and chief
executive officer of ESCO from 1990 to 1992, when he rejoined
Emerson as president. Mr. Adorjan originally joined Emerson
in 1968 and served in a number of senior executive capacities,
including executive vice president of finance, international,
technology and corporate development.
Mr. Adorjan has a Bachelors and Masters degree in economics
from Saint Louis University. Mr. Adorjan currently serves
as a director for Goss Graphics Systems, Inc., a manufacturer of
web offset newspaper press systems, and is chairman of Bates
Sales Company, a distributor of industrial power transmission
equipment and parts. He is also a member of the board of
directors of Thermadyne Holdings Corporation, a marketer of
cutting and welding products and accessories, where he serves as
lead director and as a member of the audit and compensation
committees. He also serves on the board of trustees of Saint
Louis University and Ranken Technical College and is Chairman of
The Hungarian Missouri Educational Partnership.
MICHAEL M. SCHARF,
age 60, has been a director of
the Company since November 2007. Mr. Scharf is Senior Vice
President & Chief Financial Officer of Bunge North
America, the North American operating arm of Bunge Limited, a
global supplier of agricultural commodities and food products.
He has served in this capacity since joining Bunge in 1990. He
was previously Senior Vice President and Chief Financial Officer
of Peabody Holding Company, Inc. (1978-1990) and Tax
Manager at Arthur Andersen & Co. (1969-1978).
Mr. Scharf has a degree in Accounting from Wheeling Jesuit
University and is a certified public accountant. Mr. Scharf
represents Bunges interests with multiple biofuels joint
ventures, and is currently a director of Renewable Energy Group
(biodiesel), Bunge-Ergon Vicksburg (ethanol), Biofuels Company
of America (biodiesel), and Southwest Iowa Renewable Energy
(ethanol).
Class II
Directors Terms Expiring in 2009
B. R. BROWN,
age 75, has been a director of the
Company since October 2007. Mr. Brown is the retired
Chairman, President and Chief Executive Officer of CONSOL
Energy, Inc., a domestic coal and gas producer and energy
services provider. He served as Chairman, President and Chief
Executive Officer of CONSOL and
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predecessor companies from 1978 to 1998. He also served as a
Senior Vice President of E.I. du Pont de Nemours &
Co., CONSOLs controlling stockholder, from 1981 to 1991.
Before joining CONSOL, Mr. Brown was a Senior Vice
President at Conoco. From 1990 to 1995, he also was President
and Chief Executive Officer of Remington Arms Company, Inc.
Mr. Brown has a degree in economics from the University of
Arkansas. Mr. Brown has previously served as Director and
Chairman of the Bituminous Coal Operators Association
Negotiating Committee, Chairman of the National Mining
Association, and Chairman of the Coal Industry Advisory Board of
the International Energy Agency. Mr. Brown was a director
of Peabody Energy Corporation from December 2003 until October
2007, when he resigned to join Patriots Board of
Directors. He is also a director of Delta Trust & Bank
and Remington Arms Company, Inc.
JOHN E. LUSHEFSKI,
age 52, has been a director of
the Company since October 2007. Mr. Lushefski has been a
senior consultant providing strategic, business development and
financial advice to public and private companies since July
2005. He has substantial coal industry experience and a global
background in treasury, tax, accounting, strategic planning,
information technology, human resources, investor relations and
business development. From December 2004 until July 2005,
Mr. Lushefski was engaged in the development of his current
consulting business. From 1996 until December 2004, he served as
Chief Financial Officer of Millennium Chemicals Inc., a
NYSE-listed international chemicals manufacturer that was spun
off from Hanson PLC. He also served as Senior Vice
President & Chief Financial Officer of Hanson
Industries Inc. from 1995 to 1996, and as Vice
President & Chief Financial Officer of Peabody Holding
Company, Inc. from 1991 to 1995. Prior to joining Hanson in
1985, he was an Audit Manager with Price Waterhouse LLP, New
York.
Mr. Lushefski is a certified public accountant with a B.S.
in Business Management/Accounting from Pennsylvania State
University. He also has served as a director of Suburban
Propane, LP
(1996-1999)
and Smith Corona Corporation
(1995-1996).
Class III
Directors Terms Expiring in 2010
RICHARD M. WHITING,
age 53, has been a director of
the Company since October 2007. Effective October 31, 2007,
the Company was spun-off from Peabody Energy Corporation
(Peabody) and became a separate, publicly-traded
company (the spin-off). Mr. Whiting assumed the
position of President & Chief Executive Officer in
October 2007.
Mr. Whiting joined Peabodys predecessor company in
1976 and held a number of operations, sales and engineering
positions both at the corporate offices and at field locations.
Prior to the spin-off, Mr. Whiting was Peabodys
Executive Vice President & Chief Marketing Officer
from May 2006 to October 2007, with responsibility for all
marketing, sales and coal trading operations, as well as
Peabodys joint venture relationships. He previously served
as President & Chief Operating Officer and as a
director of Peabody from 1998 to 2002. He also served as
Executive Vice President Sales,
Marketing & Trading from 2002 to 2006, and as
President of Peabody COALSALES Company from 1992 to 1998.
Mr. Whiting is the former Chairman of National Mining
Associations Safety and Health Committee, the former
Chairman of the Bituminous Coal Operators Association, and
a past board member of the National Coal Council. He is
currently a director of the Society of Mining Engineers
Foundation.
Mr. Whiting holds a Bachelor of Science degree in mining
engineering from West Virginia University.
IRL F. ENGELHARDT,
age 61, has served as Chairman of
the Board of Directors and Executive Advisor of the Company
since its October 31, 2007 spin-off. Mr. Engelhardt
served as Chairman and Chief Executive Officer of Peabody from
1990 to December 2005 and its Chairman of the Board of Directors
from 2006 through October 2007. He served as Co-Chief Executive
Officer of The Energy Group from 1997 to 1998, Chairman of
Suburban Propane Company from 1995 to 1996, Chairman of
Cornerstone Construction and Materials from 1994 to 1995 and
Director and Group Vice President of Hanson Industries from 1995
to 1996. Mr. Engelhardt is also a director of The Williams
Companies, Inc., Valero Energy Corporation, Chairman of The
Federal Reserve Bank of St. Louis and General Manager of
White Walnut Farms LLC.
5
ROBERT O. VIETS,
age 64, has been a director of the
Company since November 2007. Mr. Viets is the former
President, Chief Executive Officer and Director of CILCORP, a
NYSE-listed holding company which owned a regulated electric and
natural gas utility (CILCO) in central Illinois. Mr. Viets
served in this capacity from 1988 until 1999, when CILCORP was
acquired by AES. He also served as Chief Financial Officer
during his
26-year
career at CILCORP. Prior to joining CILCORP, Mr. Viets was
an auditor with Arthur Andersen & Co. Following his
career at CILCORP, Mr. Viets has provided consulting
services to regulated energy and communication businesses.
Mr. Viets has a degree in economics from Washburn
University (Topeka) and a law degree from Washington University
School of Law. He is also a certified public accountant. He has
served as a director of, among other companies, RLI Corp., a
specialty property and casualty insurer (1993-present);
Consumers Water Company, a Maine-based regulated water utility
(1996-1998);
and Philadelphia Suburban Corp., now Aqua America, Inc.
(1998-2001);
including serving as a member of the Audit Committees at RLI
Corp. and Philadelphia Suburban Corp.
INFORMATION
REGARDING BOARD OF DIRECTORS AND COMMITTEES
Director
Independence
As required by the rules of the New York Stock Exchange
(NYSE), the Board of Directors will evaluate the
independence of its members at least annually, and at other
appropriate times when a change in circumstances could
potentially impact the independence or effectiveness of one or
more directors (e.g., in connection with a change in employment
status or other significant changes). This process is
administered by the Nominating & Governance Committee
which consists entirely of directors who are independent under
applicable NYSE rules. After carefully considering all relevant
relationships with the Company, the Nominating &
Governance Committee submits its recommendations regarding
independence to the full Board, which then makes a determination
with respect to each director.
In making independence determinations, the
Nominating & Governance Committee and the Board
consider all relevant facts and circumstances, including
(1) the nature of any relationships with the Company,
(2) the significance of the relationship to the Company,
the other organization and the individual director,
(3) whether or not the relationship is solely a business
relationship in the ordinary course of the Companys and
the other organizations businesses and does not afford the
director any special benefits, and (4) any commercial,
industrial, banking, consulting, legal, accounting, charitable
and familial relationships. For purposes of this determination,
the Board deems any relationships that have expired for more
than three years to be immaterial.
After considering the standards for independence adopted by the
NYSE and various other factors as described herein, the Board of
Directors has determined that all directors other than
Messrs. Whiting and Engelhardt are independent. None of the
directors, other than Messrs. Whiting and Engelhardt,
receives any compensation from the Company other than customary
director and committee fees.
The Board has determined that Directors Adorjan, Brown,
Lushefski and Scharf are independent, based upon the fact that
they have no relationships with the Company (other than serving
as directors). The Board has also determined that Mr. Viets
is independent after evaluating his relationship with the
Company and concluding that such relationship is immaterial.
Such relationship is outlined below.
Mr. Viets serves as a director of RLI Corp., a specialty
property and casualty insurer that provides marine excess
liability insurance coverage to the Company for an annual
premium of $8,400. The Board has concluded that this
relationship is not material since this service is offered to
the Company on the same general terms and conditions as other
large commercial customers and was provided to the Company prior
to Mr. Viets joining the Board. The Companys
directors did not solicit these commercial relationships and
were not involved in any related discussions or deliberations.
6
Board
Attendance and Executive Sessions
The Board of Directors met three times in 2007. During that
period, each incumbent director attended 100% of the meetings of
the Board and the committees on which he served.
Mr. Engelhardt serves as chairman at all meetings of the
Board of Directors, including portions of meetings where all
directors are present.
Non-management directors meet in executive session at least
quarterly. If the Board determines that any non-management
director is not independent in accordance with the Boards
standards for determining independence, an executive session
comprised solely of independent directors will be held at least
annually. Executive sessions are chaired by the chairpersons of
the Audit Committee, the Compensation Committee, and the
Nominating & Governance Committee, on a rotating basis.
Committees
of the Board of Directors
The Board has appointed four standing committees from among its
members to assist it in carrying out its obligations. These
committees are the Audit Committee, Compensation Committee,
Executive Committee and Nominating & Governance
Committee. Each standing committee has adopted a formal charter
that describes in more detail its purpose, organizational
structure and responsibilities. A copy of each committee charter
can be found on the Companys website
(
www.patriotcoal.com
) by clicking on
Investors, then Corporate Governance,
and then Committee Charters and is available in
print to any stockholder who requests it. Information on our
website is not considered part of this Proxy Statement. A
description of each committee and its current membership follows:
Executive
Committee
The members of the Executive Committee are Richard M. Whiting
(Chair), Irl F. Engelhardt and B. R. Brown. The Executive
Committee did not meet during 2007.
When the Board of Directors is not in session, the Executive
Committee has all of the power and authority as delegated by the
Board of Directors, except with respect to:
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Amending the Companys certificate of incorporation and
bylaws;
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Adopting an agreement of merger or consolidation;
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Recommending to shareholders the sale, lease or exchange of all
or substantially all of the Companys property and assets;
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Recommending to shareholders dissolution of the Company or
revocation of any dissolution;
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Declaring a dividend;
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Issuing stock;
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Appointing members of Board committees; and
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Changing major lines of business.
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Compensation
Committee
The members of the Compensation Committee are John E. Lushefski
(Chair), B. R. Brown and J. Joe Adorjan. The Board of Directors
has affirmatively determined that, in its judgment, all members
of the Compensation Committee are independent under rules
established by the New York Stock Exchange.
The Compensation Committee met once during 2007. Some of the
primary responsibilities of the Compensation Committee include
the following:
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To annually review and approve corporate goals and objectives
relevant to the Companys CEO compensation, evaluate the
CEOs performance in light of those goals and objectives,
and together with the other
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independent members of the Board of Directors, determine and
approve the CEOs compensation levels based on this
evaluation;
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To annually review, with the CEO, the performance of the
Companys executive officers and make recommendations to
the Board of Directors with respect to the compensation plans
for such officers;
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To annually review and approve the CEOs and the executive
officers base salary, annual incentive opportunity and
long-term incentive opportunity and as appropriate, employment
agreements, severance agreements, change of control provisions
and any special supplemental benefits;
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To approve annual bonus awards for executive officers other than
the CEO;
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To oversee the Companys annual and long-term incentive
programs;
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To periodically assess the Companys director compensation
program and, when appropriate, recommend modifications for Board
consideration;
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To review and make recommendations to the Board of Directors in
conjunction with the CEO, as appropriate, with respect to
succession planning and management development; and
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To make regular reports on its activities to the Board of
Directors.
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Nominating &
Governance Committee
The members of the Nominating & Governance Committee
are Michael M. Scharf (Chair), J. Joe Adorjan and Robert O.
Viets. The Board of Directors has affirmatively determined that,
in its judgment, all members of the Nominating &
Governance Committee are independent under New York Stock
Exchange rules.
The Nominating & Governance Committee met once during
2007. Some of the primary responsibilities of the
Nominating & Governance Committee include the
following:
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To identify, evaluate and recommend qualified candidates for
election to the Board of Directors;
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To advise the Board of Directors on matters related to corporate
governance;
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To assist the Board of Directors in conducting its annual
assessment of Board performance;
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To recommend the structure, composition and responsibilities of
other Board committees;
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To advise the Board of Directors on matters related to corporate
social responsibility;
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To ensure the Company maintains an effective orientation program
for new directors and a continuing education and development
program to supplement the skills and needs of the Board of
Directors;
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To monitor compliance with the Companys corporate
compliance program and Code of Business Conduct and
Ethics; and
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To make regular reports on its activities to the Board of
Directors.
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Audit
Committee
The members of the Audit Committee are Robert O. Viets (Chair),
Michael M. Scharf and John E. Lushefski. The Board of Directors
has affirmatively determined that, in its judgment, all members
of the Audit Committee are independent under New York Stock
Exchange and SEC rules. The Board of Directors also has
determined that each of Messrs. Viets, Scharf and Lushefski
is an audit committee financial expert under SEC
rules.
The Audit Committee met three times during 2007. The Audit
Committees primary purpose is to provide assistance to the
Board of Directors in fulfilling its oversight responsibility
with respect to:
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The quality and integrity of the Companys financial
statements and financial reporting processes;
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The Companys systems of internal accounting and financial
controls and disclosure controls;
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The independent registered public accounting firms
qualifications and independence;
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8
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The performance of the Companys internal audit function
and independent registered public accounting firm; and
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Compliance with legal and regulatory requirements.
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Some of the primary responsibilities of the Audit Committee
include the following:
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To appoint the Companys independent registered public
accounting firm, which reports directly to the Audit Committee;
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To approve all audit engagement fees and terms and all
permissible non-audit engagements with the Companys
independent registered public accounting firm;
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To ensure that the Company maintains an internal audit function
and to review the appointment of the senior internal audit team
and/or
provider;
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To approve the terms of engagement for the internal audit
provider;
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To meet on a regular basis with the Companys financial
management, internal audit management and independent registered
public accounting firm to review matters relating to the
Companys internal accounting controls, internal audit
program, accounting practices and procedures, the scope and
procedures of the outside audit, the independence of the
independent registered public accounting firm and other matters
relating to the Companys financial condition;
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To oversee the Companys financial reporting process and to
review in advance of filing or issuance the Companys
quarterly reports on
Form 10-Q,
annual reports on
Form 10-K
and earnings press releases;
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To review the Companys guidelines and policies with
respect to risk assessment and risk management, and to monitor
the Companys major financial risk exposures and steps
management has taken to control such exposures; and
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To make regular reports to the Board of Directors regarding the
activities and recommendations of the Audit Committee.
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REPORT OF
THE AUDIT COMMITTEE
The Audit Committee oversees the Companys financial
reporting process on behalf of the Board of Directors. The
Companys management has the primary responsibility for the
financial statements, for maintaining effective internal control
over financial reporting, and for assessing the effectiveness of
internal control over financial reporting. In fulfilling its
oversight responsibilities, the Committee reviewed and discussed
the consolidated financial statements in the 2007 Annual Report
on
Form 10-K
with Company management, including a discussion of the quality,
not just the acceptability, of the accounting principles; the
reasonableness of significant judgments; and the clarity of
disclosures in the financial statements.
The Committee reviewed with the independent registered public
accounting firm, Ernst & Young, which is responsible
for expressing an opinion on the conformity of those audited
consolidated financial statements with U.S. generally
accepted accounting principles, its judgments as to the quality,
not just the acceptability, of the Companys accounting
principles and such other matters as are required to be
discussed with the Committee by Statement on Auditing Standards
No. 61,
Communication With Audit Committees
, (as
amended), other standards of the Public Company Accounting
Oversight Board (United States), rules of the Securities and
Exchange Commission, and other applicable regulations. In
addition, the Committee has discussed with the independent
registered public accounting firm the firms independence
from Company management and the Company, including the matters
in the letter from the firm required by Independence Standards
Board Standard No. 1,
Independence Discussions with
Audit Committees
, and considered the compatibility of
non-audit services with the independent registered public
accounting firms independence.
The Committee discussed with Ernst & Young the overall
scope and plans for their respective audits. The Committee meets
with Ernst & Young, with and without management
present, to discuss the results of their
9
examinations; their evaluations of the Companys internal
control; and the overall quality of the Companys financial
reporting.
In reliance on the reviews and discussions referred to above,
the Committee recommended to the Board of Directors, and the
Board has approved, that the audited consolidated financial
statements be included in the Annual Report on
Form 10-K
for the year ended December 31, 2007 filed by the Company
with the Securities and Exchange Commission. The Committee and
the Board also have recommended, subject to stockholder
approval, the selection of the Companys independent
registered public accounting firm.
The Committee is governed by a charter (refer to
www.patriotcoal.com). The Committee held six meetings in
relation to fiscal year 2007. The Committee is comprised solely
of independent directors as defined by the New York
Securities Exchange listing standards and
Rule 10A-3
of the Securities Exchange Act of 1934.
MEMBERS OF THE AUDIT COMMITTEE:
ROBERT O. VIETS, CHAIR
MICHAEL M. SCHARF
JOHN E. LUSHEFSKI
FEES PAID
TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP has served as the Companys
independent registered public accounting firm since
October 31, 2007, the effective date of the spin-off from
Peabody, and served as the Companys independent registered
public accounting firm for the fiscal year ended
December 31, 2007.
The following fees were paid to Ernst & Young for
services rendered during the Companys last fiscal year:
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Audit Fees:
Audit fees billed (or billable) to
the Company by Ernst & Young with respect to the
fiscal year ended December 31, 2007 were $682,500. Fiscal
year December 31, 2007 audit fees include professional
services rendered for the audit of the Companys annual
financial statements, review of financial statements included in
the Companys
Form 10-Q
and services that are normally provided by Ernst &
Young in connection with statutory and regulatory filings or
engagements for the fiscal year.
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Audit-Related Fees:
There were no
Audit-Related Fees billed by Ernst & Young with
respect to the fiscal year ended December 31, 2007.
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Tax Fees:
There were no Tax Fees billed by
Ernst & Young with respect to the fiscal year ended
December 31, 2007.
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All Other Fees:
There were no Other Fees
billed by Ernst & Young with respect to the fiscal
year ended December 31, 2007.
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Under procedures established by the Board of Directors, the
Audit Committee is required to pre-approve all audit and
non-audit services performed by the Companys independent
registered public accounting firm to ensure that the provisions
of such services do not impair such firms independence.
The Audit Committee may delegate its pre-approval authority to
one or more of its members, but not to management. The member or
members to whom such authority is delegated shall report any
pre-approval decisions to the Audit Committee at its next
scheduled meeting.
Each fiscal year, the Audit Committee reviews with management
and the independent registered public accounting firm the types
of services that are likely to be required throughout the year.
Those services are comprised of four categories, including audit
services, audit-related services, tax services and all other
permissible services. At that time, the Audit Committee
pre-approves a list of specific services that may be provided
within each of these categories, and sets fee limits for each
specific service or project. Management is then authorized to
engage the independent registered public accounting firm to
perform the pre-approved services as needed throughout the year,
10
subject to providing the Audit Committee with regular updates.
The Audit Committee reviews the amount of all billings submitted
by the independent registered public accounting firm on a
regular basis to ensure that their services do not exceed
pre-defined limits. The Audit Committee must review and approve
in advance, on a
case-by-case
basis, all other projects, services and fees to be performed by
or paid to the independent registered public accounting firm.
The Audit Committee also must approve in advance any fees for
pre-approved services that exceed the pre-established limits, as
described above.
Under Company policy
and/or
applicable rules and regulations, the Companys independent
registered public accounting firm is prohibited from providing
the following types of services to the Company:
(1) bookkeeping or other services related to the
Companys accounting records or financial statements,
(2) financial information systems design and
implementation, (3) appraisal or valuation services,
fairness opinions or
contribution-in-kind
reports, (4) actuarial services, (5) internal audit
outsourcing services, (6) management functions,
(7) human resources, (8) broker-dealer, investment
advisor or investment banking services, (9) legal services,
(10) expert services unrelated to audit, (11) any
services entailing a contingent fee or commission, and
(12) tax services to an officer of the Company whose role
is in a financial oversight capacity.
CORPORATE
GOVERNANCE MATTERS
Good corporate governance is a priority at Patriot Coal
Corporation. The Companys key governance practices are
outlined in its Corporate Governance Guidelines, committee
charters, and Code of Business Conduct and Ethics. These
documents can be found on the Companys webpage
(
www.patriotcoal.com
on the Internet) by clicking on
Investors, and then Corporate Governance
and are available in print to any stockholder upon request.
Information on our website is not considered part of this Proxy
Statement. The Code of Business Conduct and Ethics applies to
the Companys directors, Chief Executive Officer, Chief
Financial Officer, Controller and other Company personnel.
The Nominating & Governance Committee of the Board of
Directors is responsible for reviewing the Corporate Governance
Guidelines annually and reporting and making recommendations to
the Board concerning corporate governance matters.
Stockholder
Communications with the Board of Directors
The Board of Directors has adopted the following procedures for
stockholders and other interested persons to send communications
to the Board, individual directors
and/or
Committee Chairs (collectively, Stockholder
Communications):
Stockholders and other interested persons seeking to communicate
with the Board should submit their written comments to the
Chairman, Patriot Coal Corporation, 12312 Olive Boulevard, Saint
Louis, Missouri 63141. The Chairman will forward such
Stockholder Communications to each member of the Board
(excluding routine advertisements and business solicitations, as
instructed by the Board), and provide a report on the
disposition of matters stated in such communications at the next
regular meeting of the Board of Directors. If a Stockholder
Communication is addressed to a specific individual director or
Committee Chair (excluding routine advertisements and business
solicitations), the Chairman will forward that communication to
the named director, and will discuss with that director whether
the full Board
and/or
one
of its committees should address the subject matter.
If a Stockholder Communication raises concerns about the ethical
conduct of management or the Company, it should be sent directly
to the Corporate Secretary at 12312 Olive Boulevard,
Suite 400, Saint Louis, Missouri 63141. The Corporate
Secretary will promptly forward a copy of such Stockholder
Communication to the Chairman of the Audit Committee and, if
appropriate, the Companys Chairman, and take such actions
as they authorize to ensure that the subject matter is addressed
by the appropriate Board committee, management
and/or
by
the full Board.
If a stockholder or other interested person seeks to communicate
exclusively with the Companys non-management directors,
such Stockholder Communication should be sent directly to the
Corporate Secretary who will forward any such communications
directly to the Chair of the Nominating & Governance
Committee. The
11
Corporate Secretary will first consult with and receive the
approval of the Chair of the Nominating and Corporate Governance
Committee before disclosing or otherwise discussing the
communication with members of management or directors who are
members of management.
At the direction of the Board, the Company reserves the right to
screen all materials sent to its directors for potential
security risks, harassment purposes or routine solicitations.
Stockholders have an opportunity to communicate with the Board
of Directors at the Companys Annual Meeting of
Stockholders. Pursuant to Board policy, each director is
expected to attend the Annual Meeting in person, subject to
occasional excused absences due to illness or unavoidable
conflicts.
Overview
of Director Nominating Process
The Board of Directors believes that one of its primary goals is
to advise management on strategy and to monitor the
Companys performance. The Board also believes that the
best way to accomplish this goal is by choosing directors who
possess a diversity of experience, knowledge and skills that are
particularly relevant and helpful to the Company. As such,
current Board members posses a wide array of skills and
experience in the coal industry, related energy industries and
other important areas. When evaluating potential members, the
Board seeks to enlist the services of candidates who possess
high ethical standards and a combination of skills and
experience which the Board determines are the most appropriate
to meet its objectives. The Board believes all candidates should
be committed to creating value over the long term and to serving
the best interests of the Company and all of its stockholders.
The Nominating & Governance Committee
(Committee) is responsible for identifying,
evaluating and recommending qualified candidates for election to
the Board of Directors. The Committee will consider director
candidates submitted by stockholders. In accordance with the
Companys Bylaws, any stockholder wishing to submit a
candidate for consideration should send the following
information to the Secretary of the Company at 12312 Olive
Boulevard, Suite 400, Saint Louis, Missouri 63141:
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Stockholders name, number of shares owned, length of
period held, and proof of ownership;
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Name, age and address of candidate;
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A detailed resume describing among other things the
candidates educational background, occupation, employment
history, and material outside commitments (
e.g
.,
memberships on other boards and committees, charitable
foundations, etc.);
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A supporting statement which describes the candidates
reasons for seeking election to the Board of Directors, and
documents
his/her
ability to satisfy the director qualifications described below;
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A description of any arrangements or understandings between the
stockholder and the candidate; and
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A signed statement from the candidate, confirming
his/her
willingness to serve on the Board of Directors.
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The Corporate Secretary will promptly forward such materials to
the Committee Chair and the Chairman of the Board. The Corporate
Secretary also will maintain copies of such materials for future
reference by the Committee when filling Board positions.
Stockholders may submit potential director candidates at any
time pursuant to these procedures. The Committee will consider
such candidates if a vacancy arises or if the Board decides to
expand its membership, and at such other times as the Committee
deems necessary or appropriate.
Director
Qualifications
General criteria for the nomination of director candidates
include experience and successful track record, integrity,
skills, diversity, ability to make analytical inquiries,
understanding of our business environment, and willingness to
devote adequate time to director duties, all in the context of
the perceived needs of the Board at that time.
12
Pursuant to its charter, the Committee must review with the
Board of Directors, at least annually, the requisite
qualifications, independence, skills and characteristics of
Board candidates, members and the Board as a whole. When
assessing potential new directors, the Committee considers
individuals from various and diverse backgrounds. While the
selection of qualified directors is a complex and subjective
process that requires consideration of many intangible factors,
the Committee believes that candidates should generally meet the
following criteria:
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Candidates should possess broad training, experience and a
successful track record at senior policy-making levels in
business, government, education, technology, accounting, law,
consulting or administration;
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Candidates should possess the highest personal and professional
ethics, integrity and values. Candidates also should be
committed to representing the long-term interests of the Company
and all of its stockholders;
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Candidates should have an inquisitive and objective perspective,
strength of character and the mature judgment essential to
effective decision-making;
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Candidates need to possess expertise that is useful to the
Company and complementary to the background and experience of
the other Board members; and
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Candidates need to be willing to devote sufficient time to Board
and Committee activities and to enhance their knowledge of the
Companys business, operations and industry.
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The Committee will consider candidates submitted by a variety of
sources (including, without limit, incumbent directors,
stockholders, Company management and third-party search firms)
when filling vacancies
and/or
expanding the Board. If a vacancy arises or the Board decides to
expand its membership, the Committee generally asks each
director to submit a list of potential candidates for
consideration. The Committee then evaluates each potential
candidates educational background, employment history, and
outside commitments and other relevant factors to determine
whether
he/she
is
potentially qualified to serve on the Board. At that time, the
Committee also will consider potential nominees submitted by
stockholders in accordance with the procedures described above.
The Committee seeks to identify and recruit the best available
candidates, and it intends to evaluate qualified stockholder
nominees on the same basis as those submitted by Board members
or other sources.
After completing this process, the Committee will determine
whether one or more candidates are sufficiently qualified to
warrant further investigation. If the process yields one or more
desirable candidates, the Committee will rank them by order of
preference, depending on their respective qualifications and the
Companys needs. The Committee Chair, or another director
designated by the Committee Chair, will then contact the
preferred candidate(s) to evaluate their potential interest and
to set up interviews with members of the Committee. All such
interviews are held in person, and include only the candidates
and the independent Committee members. Based upon interview
results and appropriate background checks, the Committee then
decides whether it will recommend the candidates
nomination to the full Board.
The Committee believes this process will produce highly
qualified, independent Board members. However, the Committee may
choose, from time to time, to use additional resources
(including independent third-party search firms) after
determining that such resources could enhance a particular
director search.
13
OWNERSHIP
OF COMPANY SECURITIES
The following tables sets forth information as of March 5,
2008 with respect to persons or entities who are known to
beneficially own more than 5% of the Companys outstanding
Common Stock, each director, each executive officer named in the
Summary Compensation Table below, and all directors and
executive officers as a group.
Beneficial
Owners of More Than Five Percent, Directors and
Management
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Amount and
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Nature
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Name and Address
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of Beneficial
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Percent of
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of Beneficial Owners
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Ownership
(1)
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Class
(2)
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Chilton Investment Company, LLC
(3)
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3,966,032
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14.821
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%
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FMR LLC
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1,525,981
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(4)
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5.702
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%
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Neuberger Berman, LLC
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1,441,974
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(5)
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5.388
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%
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Capital World Investors
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1,398,360
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(6)
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5.225
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%
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J. Joe Adorjan
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Joseph W. Bean
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8,711
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*
|
|
B.R. Brown
|
|
|
719
|
|
|
|
*
|
|
Charles A. Ebetino, Jr.
|
|
|
16,852
|
|
|
|
*
|
|
Irl F. Engelhardt
|
|
|
157,715
|
(7)
|
|
|
*
|
|
John E. Lushefski
|
|
|
|
|
|
|
|
|
Jiri Nemec
|
|
|
21,284
|
|
|
|
*
|
|
Michael M. Scharf
|
|
|
|
|
|
|
|
|
Mark N. Schroeder
|
|
|
18,506
|
|
|
|
*
|
|
Robert O. Viets
|
|
|
1,600
|
|
|
|
*
|
|
Richard M. Whiting
|
|
|
80,712
|
|
|
|
*
|
|
All directors and executive officers as a group (13 people)
|
|
|
318,531
|
|
|
|
1.19
|
%
|
|
|
|
(1)
|
|
Amounts shown are based on the latest available filings on
Form 13G or other relevant filings made with the Securities
and Exchange Commission (Commission). Beneficial
ownership is determined in accordance with the rules of the SEC
and includes voting and investment power with respect to shares.
Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all
shares beneficially owned; includes shares of restricted stock
that remain unvested as of March 5, 2008 as follows:
Mr. Joseph W. Bean, 5,500 shares; Mr. Charles A.
Ebetino, Jr., 12,000 shares; Mr. Irl F. Engelhardt,
17,996 shares; Mr. Jiri Nemec, 17,500 shares;
Mr. Mark N. Schroeder, 12,000 shares; Mr. Richard
M. Whiting, 46,667 shares.
|
|
(2)
|
|
An asterisk (*) indicates that the applicable person
beneficially owns less than one percent of the outstanding
shares.
|
|
(3)
|
|
Chilton Investment Company, LLC is located at 1266 East Main
St., 7 Floor, Stamford, CT 06902.
|
|
(4)
|
|
FMR LLC, with an address at 82 Devonshire St., Boston, MA 02109,
has the sole power to vote 474 shares and the sole power to
dispose 1,525,981 shares.
|
|
(5)
|
|
Neuberger Berman Inc. and affiliated entities, with an address
at 605 Third Avenue, New York, NY 10158, reported sole and
shared voting and dispositive power as follows: Neuberger Berman
Inc., sole voting power with respect to 1,176,447 shares,
shared power to dispose with respect to 1,441,974 shares;
and Neuberger Berman LLC, sole voting power with respect to
1,176,447 shares, shared power to dispose with respect to
1,441,974 shares.
|
|
(6)
|
|
Capital World Investors, with an address at 333 South Hope St.,
Los Angeles, CA 90071, has the sole power to vote
265,300 shares and the sole power to dispose
1,398,360 shares.
|
|
(7)
|
|
Includes 1,952 shares of Common Stock held in Mr. Irl
F. Engelhardts 401(k) plan and 440 shares of Common
Stock held by Mr. Irl F. Engelhardts spouse.
|
14
Section 16
(a) Beneficial Ownership Reporting Compliance
The Companys executive officers and directors and persons
beneficially holding more than ten percent of the Companys
Common Stock are required under the Securities Exchange Act of
1934 to file reports of ownership and changes in ownership of
Company Common Stock with the Commission. The Company files
these reports of ownership and changes in ownership on behalf of
its executive officers and directors. To the best of the
Companys knowledge, based solely on its review of the
copies of such reports furnished to the Company during the
fiscal year ended December 31, 2007, filings with
Commission and written representations from certain reporting
persons that no additional reports were required, all required
reports were timely filed.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
Role of
Peabody
The following is a discussion of the executive compensation
programs adopted by Patriot in connection with our spin-off from
Peabody on October 31, 2007.
|
|
|
|
|
Prior to the spin-off, Patriots executive compensation
plans and agreements were reviewed and approved by
Peabodys Compensation Committee and the independent
members of Peabodys Board of Directors. At that time
Peabody was Patriots sole shareholder.
|
|
|
|
Following the spin-off, Patriots Compensation Committee
assumed responsibility for Patriots executive compensation
plans.
|
Executive
Compensation Program Objectives
The objectives of Patriots executive compensation program
are to attract, retain and motivate key executives to enhance
long-term profitability and stockholder value. Compensation
programs are designed to align incentives for executives with
achievement of Patriots business strategies, including:
|
|
|
|
|
Maximizing operational excellence in the areas of safety,
productivity and cost management and environmental stewardship;
|
|
|
|
Capitalizing on organic growth opportunities as well as
value-enhancing acquisitions and joint ventures; and
|
|
|
|
Maximizing profitability and customer satisfaction by taking
advantage of our diverse products and sourcing capabilities.
|
In order to meet our objectives, our executive compensation
program is designed to:
|
|
|
|
|
Provide competitive compensation based on the position and
responsibility by using market data to successfully attract and
retain highly-qualified executives with the leadership skills
and experience necessary for our long-term success;
|
|
|
|
Provide incentive compensation that places a strong emphasis on
financial performance, with the flexibility to assess
operational and individual performance; and
|
|
|
|
Provide an appropriate link between compensation and the
creation of shareholder value through awards tied to our
long-term performance and share price appreciation.
|
With these objectives in mind, Peabodys Compensation
Committee approved a compensation structure for our executive
officers that incorporates four key components: base salary; an
annual incentive plan; long-term incentive compensation
consisting of restricted stock, stock options and restricted
stock units; and retirement and other benefits.
15
Roles of
the Compensation Committee & the Compensation
Consultant
In anticipation of the spin-off, Peabodys Compensation
Committee engaged Mercer Human Resource Consulting
(Mercer), an outside compensation consultant, to
provide guidance with respect to the development and
implementation of Patriots compensation programs. In its
engagement, Mercer provided Peabodys Compensation
Committee with advice concerning the types and levels of
compensation to be paid to the Chief Executive Officer and the
other senior executives. Mercer assisted by providing market
compensation data on base pay, as well as annual and long-term
incentives. In addition, Mercer advised Peabodys
Compensation Committee on plan design for each element of
executive compensation, including helping to identify: the
appropriate mix of base salary and annual and long-term
incentive compensation; the appropriate mix of long-term
incentive compensation to be granted as restricted stock, stock
options and restricted stock units; and the relevant industry
comparator group. Since the spin-off, these matters fall within
the responsibility of Patriots Compensation Committee, as
described below. Under its charter, Patriots Compensation
Committee has authority to engage the services of outside
advisors, experts and others to assist the Compensation
Committee in fulfilling these duties.
The Compensation Committee is comprised entirely of independent
directors and has the ultimate responsibility for review and
approval of the compensation of the Companys executive
officers, excluding the Chief Executive Officer. The Committee
has overall responsibility for monitoring the performance of the
Companys executives and evaluating and approving the
Companys executive compensation plans, policies and
programs. The Committee also reviews and approves executive
participation in any company-wide benefit plans. In addition,
the Committee oversees the Companys annual and long-term
incentive plans and programs.
With respect to the Chief Executive Officer, the Compensation
Committee together with the other independent members of the
Board of Directors, reviews and approves the Chief Executive
Officers compensation, including base salary, annual
incentive and long-term incentive compensation, deferred
compensation, perquisites, equity compensation, employment
agreements, severance arrangements, retirement and other
post-employment benefits and
change-in-control
benefits (in each case, as and when appropriate). In addition,
the Compensation Committee and the other independent members of
the Board of Directors review and approve corporate goals and
objectives relevant to such compensation and evaluate the Chief
Executive Officers performance in light of those goals and
objectives.
Benchmarking
Process
In developing Patriots executive compensation programs in
connection with the spin-off, Peabodys Compensation
Committee commissioned a compensation analysis conducted by its
independent compensation consultant to ensure that
Patriots programs are competitive with those of other
publicly held companies of similar size and in similar
industries. For positions that require specific industry
knowledge and experience, Peabodys Compensation Committee
used both a mining comparator group and Mercers general
industry database for benchmarking purposes. This approach was
designed to ensure that Patriots executive compensation
levels are competitive relative to the companies with which
Patriot competes for industry-specific talent. The mining
comparator group is composed of Peabody, CONSOL Energy, Inc.,
Arch Coal, Inc., Massey Energy Company, Alpha Natural Resources,
Inc., Foundation Coal Holdings, Inc., International Coal Group,
Inc., James River Coal Company, and Westmoreland Coal Company.
Talent for other key roles in the organization can be acquired
across a broader spectrum of companies. As such, Mercer also
utilized published compensation surveys from companies based on
similar size and scope.
For purposes of reviewing the competitiveness of Patriots
executive compensation program, Mercer used a combination of
proxy data from the above peers and survey data to benchmark
compensation for executive officers. Mercer utilized two
published surveys which included the 2006 Mercer Benchmark
Database and the 2006/2007 Watson Wyatt Survey on Top Management
Compensation. The data from the published surveys was updated by
3.9%, the expected pay increase in 2007 for executives in the
energy industry based on the Mercer 2006/2007
U.S. Compensation Planning Survey anticipating that the
spin-off would occur in 2007.
The survey data consisted of general industry references for
companies of comparable expected revenue size to Patriot and
were averaged with the available proxy data to provide an
overall market composite. Base salaries were determined by
reference to both peer survey data and annual incentive
opportunities by reference to broad industry
16
survey data, and the resulting Patriot total cash opportunities
were compared to the market total cash opportunities. For
purposes of determining an executives total direct
compensation (i.e. base salary, annual bonus and annual
long-term incentive), the Compensation Committee generally
targeted the
50
th
percentile
and then adjusted the executives targeted compensation
levels for factors such as experience, retention and
responsibility.
With respect to the long-term incentive awards granted in
connection with the spin-off, Peabodys Compensation
Committee also reviewed data, provided by Mercer, regarding
types and levels of initial grants of long-term incentive awards
provided to executives who lead companies through initial public
offerings, spin-offs and similar transactions.
Overall, Mercer determined that Patriots executive
compensation programs, as structured, are competitive relative
to our peers and other companies who have engaged in similar
transactions. Based upon the review of the compensation plans
discussed below, peer group compensation levels, and general
industry compensation levels, Peabodys Compensation
Committee, assisted by its outside consultant, believed that the
value and design of Patriots executive compensation
programs were appropriate for a spun-off company of its size,
structure and business.
Employment
Agreements
In connection with the spin-off and in consultation with Mercer,
the Company entered into employment agreements with each of our
named executive officers and with certain other key executives.
The terms of those agreements, including the provision of
post-termination benefits, as described in detail in the
Potential Payments Upon Termination or Change of
Control section, were structured to attract and retain
persons believed to be key to Patriots success as well as
be competitive with compensation practices for executives in
similar positions at companies of similar size and complexity.
In assessing whether the terms of the employment agreements were
competitive, Peabodys Compensation Committee received
advice from its compensation consultant and reviewed salary
surveys and industry benchmarking data, as discussed above. For
more information regarding the terms of these agreements, see
the Potential Termination Upon Termination or Change of
Control section.
Annual
Base Salary
Base salary represents the major fixed component of compensation
for the named executive officers. Peabodys Compensation
Committee reviewed the base salaries of the Chief Executive
Officer and the executives who report directly to the Chief
Executive Officer to ensure competitiveness in the marketplace.
Mr. Whitings employment agreement sets his base
salary at $700,000.
Base salaries for the other named executive officers were
determined based on a review for officers in their positions at
peer companies and by reference to broad industry survey data
discussed in the Benchmarking Process section and
the individual executives experience. Pursuant to the
terms of their respective employment agreements entered into at
the time of the spin-off, base salaries are as follows:
Mr. Nemec, $375,000, Mr. Schroeder, $375,000,
Mr. Ebetino, $375,000, and Mr. Bean, $275,000.
Patriots Compensation Committee will continue to review
the base salaries of the named executive officers at least
annually to ensure that their salaries are competitive with
companies of similar size and complexity. Any further salary
increases may also be based on factors such as assessment of
individual performance, experience, promotions and changes in
level of responsibility.
Annual
Incentive Plan
Patriots executive officers and other designated key
employees participate in an annual incentive compensation plan,
which was approved by Peabody, in its capacity as our sole
stockholder, prior to the spin-off. In general, our annual
incentive plan provides opportunities for key executives to earn
annual cash incentive payments tied to the successful
achievement of pre-established objectives that support our
business strategy.
Named executive officers are assigned threshold, target and
maximum incentive payouts. If Patriots performance does
not meet the threshold level established by the Compensation
Committee, no incentive bonus is earned. At threshold levels of
Patriot performance, the incentive bonus that can be earned
generally equals 50% of the target
17
payout. Under the plan, the target payouts for the named
executive officers were established through an analysis of
compensation for comparable positions in industries of similar
size and complexity, in order to provide a competitive level of
compensation when participants, including the named executive
officers, achieve their performance objectives with respect to
Patriot performance.
Pursuant to the terms of their respective employment agreements,
the named executive officers threshold, target and maximum
incentive payouts, as a percent of their salaries, based on
achievement of relevant Patriot performance objectives, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold Payout
|
|
|
Target Payout
|
|
|
Maximum Payout
|
|
Name
|
|
as a % of Salary
|
|
|
as a % of Salary
|
|
|
as a % of Salary
|
|
|
Richard M. Whiting
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
175
|
%
|
Jiri Nemec
|
|
|
40
|
%
|
|
|
80
|
%
|
|
|
140
|
%
|
Mark N. Schroeder
|
|
|
40
|
%
|
|
|
80
|
%
|
|
|
140
|
%
|
Charles A. Ebetino, Jr.
|
|
|
40
|
%
|
|
|
80
|
%
|
|
|
140
|
%
|
Joseph W. Bean
|
|
|
30
|
%
|
|
|
60
|
%
|
|
|
105
|
%
|
2007
Annual Incentive Payouts
Prior to the spin-off, Peabodys Compensation Committee
approved an incentive plan design for Patriots named
executive officers with respect to the 2007 fiscal year with the
following terms: 60% of the annual bonus would be
nondiscretionary and based on Peabodys performance in
accordance with the terms of Peabodys annual incentive
plan, and 40% of the annual bonus would be discretionary based
on successful achievement of individual performance objectives
including, but not limited to, the successful completion of the
spin-off of Patriot and its transition to a stand alone company.
In 2007, the Chief Executive Officer, the Chief Financial
Officer and the other named executive officers earned annual
incentive payouts, as reflected in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table on
page 24 of this Proxy Statement.
For 2007, the nondiscretionary performance measures (60% of the
award) included (i) goals for Peabodys Adjusted
EBITDA (ii) Peabodys earnings per share,
(iii) Peabodys leverage ratio and (iv) a measure
for safety. Those results were certified by Peabodys
Compensation Committee and provided to Patriot and corresponding
bonus amounts were paid by Patriot for the period
November 1, 2007 to December 31, 2007. Factors
considered in determining the amount of the discretionary
portion of the award (40% of the award) to each named executive
officer related primarily to the spin-off and included
(i) maintenance of normal course of business with regard to
safety and productivity at coal mining operations,
(ii) effective communication and transition activities with
customers, vendors, regulators, lenders and other stakeholders,
(iii) securing appropriate levels of staffing for the new
organization and successful relocation to the new corporate
headquarters and (iv) maintaining effective communications
and relations with employees throughout the transition.
Performance against these discretionary goals was assessed by
Patriots Compensation Committee in January 2008. In
determining the discretionary portion of the award for 2007,
Patriots Chief Executive Officer made recommendations to
the Compensation Committee for the other named executive
officers, but final determinations were made by the Compensation
Committee in its discretion. Patriots Compensation
Committee, together with the other independent members of the
Board of Directors, determined and approved the discretionary
portion of the Chief Executive Officers 2007 incentive
award for the two months ended December 31, 2007.
Long-Term
Incentives
Prior to the spin-off, Peabody, as Patriots sole
stockholder, approved and Patriots Board of Directors
adopted, Patriots long-term incentive plan. The long-term
incentive plan provides opportunities for key executives to earn
payments based upon successful achievement of pre-established
long-term (greater than one year) objectives, increase in
Patriots stock price and service with Patriot. The
one-time long-term incentive awards awarded in connection with
the spin-off have terms specifically aimed at long-term
retention, in addition to achievement of certain financial
objectives discussed on page 19 of this Proxy Statement.
Other than on death, disability or a change of control of
Patriot, the time-based equity components of the one-time
long-term incentive awards granted
18
in connection with the spin-off will not vest prior to the
fifth-year anniversary of their date of grant. In addition, the
performance-based component of the one-time long-term incentive
awards only vest if performance metrics are achieved and are
otherwise forfeited, including for terminations of employment as
a result of death, disability or a change of control. These
vesting schedules are not commonplace and were designed to
reinforce the commitment of the named executive officers to
Patriot as a stand-alone public company.
One-Time
Long-Term Incentive Awards
Upon consummation of the spin-off, a long-term incentive
opportunity was granted to each of the named executive officers
through a one-time award of stock options and restricted stock
units. The targeted value of these awards was split evenly
between stock options and restricted stock units.
The purpose of the initial long-term incentive grants is to:
|
|
|
|
|
Build commitment to Patriot and promote retention during the
transition period following the spin-off;
|
|
|
|
Align executive and stockholder interests;
|
|
|
|
Make a substantial portion of each named executive
officers compensation directly contingent on future stock
price appreciation; and
|
|
|
|
Complement the other components of our compensation program and
provide competitive total compensation opportunities.
|
Stock
Options
Initial awards were made as of November 1, 2007 in the form
of nonqualified stock options. The stock options were granted at
an exercise price equal to the closing market price of our
common stock as reported on the New York Stock Exchange on the
date of grant. Accordingly, those stock options will have
intrinsic value to employees only if the market price of
Patriots common stock increases after that date. The
Company uses a Black-Scholes valuation model to establish the
expected value of all stock option grants.
The initial grant of stock options vest 50% on the fifth
anniversary of the grant date, 25% on the sixth anniversary of
the grant date and 25% on the seventh anniversary of the grant
date. The options will immediately vest upon a change of control
of Patriot or upon the holders death or disability. If the
holders employment terminates for reasons other than death
or disability, all unvested stock options will be forfeited.
Stock options will expire ten years from the date of grant or
following specified periods upon termination of employment, if
earlier.
Restricted
Stock Units
In connection with the spin-off, initial awards of time-vested
restricted stock units were granted, on November 1, 2007,
each representing one share of Patriot common stock. If certain
super-performance metrics (described below) are met, additional
restricted stock units may be earned. The award will time vest
as follows and will be payable in shares of our common stock:
50% on the fifth anniversary of the grant date, 25% on the
sixth anniversary of the grant date and 25% on the seventh
anniversary of the grant date. Any additional restricted stock
units will be payable subject to the achievement of performance
goals at the conclusion of the vesting periods ended
December 31, 2012, December 31, 2013 and
December 31, 2014. Upon a change of control of Patriot or
the holders death, or disability, the vesting of the
time-vested restricted stock units will accelerate. If the
holders employment terminates for any other reason, all
unvested restricted stock units will be forfeited. The
restricted stock units subject to the super-performance
conditions do not accelerate vest for any reason, including
change of control, or the holders death or disability.
If the following performance metrics are met on each of the
vesting dates, additional restricted stock units may be earned
as follows:
|
|
|
|
|
Fifth anniversary of the grant date:
50% of
the initial award time vests with an opportunity to earn up to
1.5 x 50% of the initial award if the super-performance
metrics are achieved;
|
19
|
|
|
|
|
Sixth anniversary of the grant date:
25% of
the initial award time vests with an opportunity to earn up to
3.0 x 25% of the initial award if the super-performance metrics
are achieved; and
|
|
|
|
Seventh anniversary of the grant date:
25% of
the initial award time vests with an opportunity to earn up to
4.0 x 25% of the initial award if the super-performance metrics
are achieved.
|
The super-performance metrics are designed to balance
Patriots growth goals with financial stability and capital
efficiency. The metrics used to measure these objectives are:
Adjusted EBITDA, Return on Invested Capital and a Leverage
ratio. Each is equally weighted in determining payouts, if any.
The percentage of achievement as of the vesting dates for each
year is determined as follows and is based on the targets
outlined in the chart below:
|
|
|
|
|
The percentage of the Adjusted EBITDA goal achieved multiplied
by 1/3, plus
|
|
|
|
The percentage of the ROIC goal achieved multiplied by 1/3, plus
|
|
|
|
The percentage of the Leverage goal achieved, multiplied by 1/3.
|
One-Time
Long-Term Incentive Award
Super-Performance
Grid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Achievement
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
%
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
|
($ in millions)
|
|
|
Cumulative Adjusted EBITDA Goal (1/3 weight)
|
|
|
25
|
%
|
|
$
|
798.5
|
|
|
$
|
1,028.5
|
|
|
$
|
1,281.5
|
|
|
|
|
62.5
|
%
|
|
$
|
871.1
|
|
|
$
|
1,122.0
|
|
|
$
|
1,398.0
|
|
|
|
|
100
|
%
|
|
$
|
943.6
|
|
|
$
|
1,215.5
|
|
|
$
|
1,514.5
|
|
ROIC Goal (1/3 weight)
|
|
|
25
|
%
|
|
|
12%
|
|
|
|
12%
|
|
|
|
12%
|
|
|
|
|
62.5
|
%
|
|
|
14%
|
|
|
|
14%
|
|
|
|
14%
|
|
|
|
|
100
|
%
|
|
|
16%
|
|
|
|
16%
|
|
|
|
16%
|
|
Leverage Goal (1/3 weight)
|
|
|
25
|
%
|
|
|
< 2.50
|
|
|
|
< 2.50
|
|
|
|
< 2.50
|
|
|
|
|
62.5
|
%
|
|
|
< 2.00
|
|
|
|
< 2.00
|
|
|
|
< 2.00
|
|
|
|
|
100
|
%
|
|
|
< 1.50
|
|
|
|
< 1.50
|
|
|
|
< 1.50
|
|
Achievement between the 25% and 100% levels illustrated above
will be interpolated, but achievement less than the 25% level
for any goal will result in 0% vesting for that goal.
Additionally, 100% achievement is the maximum level of vesting
(i.e. achievement in excess of 100% does not result in vesting
greater than 100%).
Peabody determined that the grant levels for the spin-off were
in line with typical market practices for similar transactions,
and they provide a significant equity stake in Patriot to key
executives. Pursuant to their respective employment agreements,
the named executive officers received, in connection with the
spin-off, a one-time long-term incentive grant as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
Stock
|
|
|
Stock
|
|
Name
|
|
Options(#)
|
|
|
Units(#)
|
|
|
Richard M. Whiting
|
|
|
186,425
|
|
|
|
79,335
|
|
Mark N. Schroeder
|
|
|
55,810
|
|
|
|
23,751
|
|
Jiri Nemec
|
|
|
55,810
|
|
|
|
23,751
|
|
Charles A. Ebetino, Jr.
|
|
|
55,810
|
|
|
|
23,751
|
|
Joseph W. Bean
|
|
|
31,450
|
|
|
|
13,384
|
|
The Cumulative Adjusted EBITDA performance measure is a key
metric in assessing operating performance and is also an
indicator of Patriots ability to meet debt service and
capital expenditure requirements. Adjusted EBITDA is defined as
net income (loss) before deducting net interest expense, income
taxes, minority interests, asset retirement obligation expense
and depreciation, depletion and amortization.
20
The Return on Invested Capital is intended to measure financial
stability over the five, six and seven year periods and will be
calculated as follows:
|
|
|
|
|
For the five-year measurement period ending December 31,
2012: Five-year cumulative Adjusted EBITDA divided by the
five-year
(2008-2012)
Total Invested Capital amount.
|
|
|
|
|
−
|
Total Invested Capital includes total debt, total
stockholders equity and legacy liabilities.
|
|
|
|
|
|
For the six-year measurement period ending December 31,
2013: Six-year cumulative Adjusted EBITDA divided by the
six-year
(2008-2013)
Total Invested Capital amount.
|
|
|
|
For the seven-year measurement period ending December 31,
2014: Seven-year cumulative Adjusted EBITDA divided by the
seven-year
(2008-2014)
Total Invested Capital amount.
|
The Leverage ratio will be calculated as debt divided by EBITDA
and will be measured as of December 31, 2012,
December 31, 2013 and December 31, 2014.
Annual
Long-Term Incentive Grants
A long-term incentive opportunity is available to each of our
named executive officers and certain other key employees through
annual awards and is designed to be competitive and based on
actual Patriot performance. The first of these annual awards was
granted to the named executive officers in the form of
restricted shares that will cliff vest three years from
November 1, 2007. Restricted stock is designed to attract
and retain the executive team, align executive and stockholder
interests, and provide executives with stock ownership in
Patriot. The timing, form and amount of future annual awards
will be determined by Patriots Compensation Committee and,
with respect to the Chief Executive Officer, the independent
members of the Board of Directors. Under the terms of their
respective employment agreements, the named executive officers
received annual long-term incentive awards with a value at least
equal to the percentage of their base salaries set forth below:
|
|
|
|
|
|
|
|
|
|
|
As a%
|
|
|
Restricted
|
|
Name
|
|
of Salary
|
|
|
Stock(#)
|
|
|
Richard M. Whiting
|
|
|
250
|
%
|
|
|
46,667
|
|
Mark N. Schroeder
|
|
|
120
|
%
|
|
|
12,000
|
|
Jiri Nemec
|
|
|
175
|
%
|
|
|
17,500
|
|
Charles A. Ebetino, Jr.
|
|
|
120
|
%
|
|
|
12,000
|
|
Joseph W. Bean
|
|
|
75
|
%
|
|
|
5,500
|
|
The shares will immediately vest upon a change of control of
Patriot or upon the holders death or disability. If the
holders employment is terminated for reasons other than
death or disability, all unvested restricted shares will be
forfeited.
Retirement
Benefits
Defined
Contribution Plan
Patriot maintains a defined contribution retirement plan and
other health and welfare benefit plans for its employees. Named
executive officers participate in these plans on the same terms
as other eligible employees, subject to any legal limits on the
amounts that may be contributed by or paid to executives under
the plans.
Excess
Defined Contribution Retirement Plan
The Company maintains one excess defined contribution plan that
provides retirement benefits to executives whose pay exceeds
legislative limits for qualified benefit plans, which includes
the named executive officers.
Other
Benefits Provided by the Company
The named executive officers receive the same welfare and fringe
benefits as all other employees of Patriot.
Perquisites
Patriot does not provide any perquisites in excess of $10,000
per individual per year to its named executive officers or other
senior executives.
21
Policy on
Grant of Equity-Based Compensation
In January 2008, the Committee approved a policy for granting
equity-based compensation. The Committee makes grants of
equity-based compensation to attract, motivate, compensate and
retain executives and other key employees and to align their
interests with the interests of stockholders. The timing of
grants of equity-based compensation is designed to achieve these
purposes. The following describes the regular process for making
grants.
At the regularly scheduled meeting of the Compensation Committee
of the Board of Directors held in December of each year, the
Committee reviews the performance of the Company and senior
management during the fiscal year. Based upon that review and
such other factors as the Committee determines are relevant,
including the recommendations of the Committees
compensation consultant, the Committee grants equity-based
compensation to senior management by approving either
(i) the terms of specific grants or (ii) a specific
formula for determination of the terms of the grants. Such
grants are made effective the first business day in January of
the following year and may be determined based on the closing
price of the Companys common stock as reported on the New
York Stock Exchange (or the principal stock exchange or market
on which the Common Stock is then traded) on such day or the
last preceding day on which a sale was reported (the fair
market value).
The Compensation Committee also approves all grants of
equity-based compensation to newly-hired or promoted eligible
employees, or made under or in connection with retention
agreements or for other valid business purposes, that were not
made at the foregoing scheduled meeting of the Committee. Such
grants must be approved at a regular or special meeting of the
Committee that occurs on or prior to the date on which the award
is considered to be granted.
All stock options must be granted at an option price not less
than the fair market value. The grant date of any award is the
date of the meeting of the Committee approving the grant or, if
so approved by the Committee and reflected in the minutes of
such meeting, any later date the Committee approves.
Stock
Ownership Guidelines
Stock
Ownership Guidelines
Both Management and the Board of Directors believe the
Companys executives should acquire and retain a
significant amount of Company Common Stock in order to further
align their interests with those of stockholders.
Under the Companys share ownership guidelines, the Chief
Executive Officer is encouraged to acquire and retain Company
stock having a value equal to at least five times his or her
base salary. Other named executive officers are encouraged to
acquire and retain Company stock having a value equal to at
least three times their base salary. All such executives are
encouraged to meet these ownership levels within five years
after assuming their executive positions.
The following table summarizes the named executive
officers ownership of Company Common Stock as of
December 31, 2007.
Named
Executive Officer Stock Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
Guidelines,
|
|
|
Ownership
|
|
|
|
Ownership
|
|
|
Ownership
|
|
|
Relative to
|
|
|
Relative to
|
|
Name
|
|
(#)
(1)
|
|
|
($)
(2)
|
|
|
Base Salary
|
|
|
Base Salary
|
|
|
Richard M. Whiting
(3)
|
|
|
160,046
|
|
|
|
6,680,320
|
|
|
|
5
|
x
|
|
|
9.5
|
x
|
Mark N. Schroeder
(4)
|
|
|
42,256
|
|
|
|
1,763,765
|
|
|
|
3
|
x
|
|
|
4.7
|
x
|
Jiri Nemec
(5)
|
|
|
45,036
|
|
|
|
1,879,803
|
|
|
|
3
|
x
|
|
|
5.0
|
x
|
Charles A. Ebetino, Jr.
(6)
|
|
|
40,602
|
|
|
|
1,694,727
|
|
|
|
3
|
x
|
|
|
4.5
|
x
|
Joseph W. Bean
(7)
|
|
|
22,095
|
|
|
|
922,245
|
|
|
|
3
|
x
|
|
|
3.4
|
x
|
|
|
|
(1)
|
|
Includes shares acquired as a result of Peabodys spin-off
of Patriot through a stock dividend; through the open market,
time-vested restricted stock granted on November 1, 2007,
through the Annual Long-Term Incentive Award and time-vested
restricted stock units through the Extended Long-Term Incentive
Award.
|
|
(2)
|
|
Calculated based on the Companys closing market price per
share on the last trading day of 2007, $41.74.
|
22
|
|
|
(3)
|
|
Includes 79,334 time-vested restricted stock units granted to
Mr. Whiting on November 1, 2007 under the terms of his
Extended Long-Term Incentive Award.
|
|
(4)
|
|
Includes 23,750 time-vested restricted stock units granted to
Mr. Schroeder on November 1, 2007 under the terms of
his Extended Long-Term Incentive Award.
|
|
(5)
|
|
Includes 23,750 time-vested restricted stock units granted to
Mr. Nemec on November 1, 2007 under the terms of his
Extended Long-Term Incentive Award.
|
|
(6)
|
|
Includes 23,750 time-vested restricted stock units granted to
Mr. Ebetino, Jr. on November 1, 2007 under the terms
of his Extended Long-Term Incentive Award.
|
|
(7)
|
|
Includes 13,384 time-vested restricted stock units granted to
Mr. Bean on November 1, 2007 under the terms of his
Extended Long-Term Incentive Award.
|
Deductibility
of Compensation Expenses
Pursuant to Section 162(m) under the Internal Revenue Code,
certain compensation paid to executive officers in excess of
$1 million is not tax deductible, except to the extent such
excess constitutes performance-based compensation. While Patriot
is operating under transition rules under Section 162(m)
until its 2009 annual meeting, our Committee has and will
continue to carefully consider the impact of Section 162(m)
when establishing incentive compensation plans and making
awards. At the same time, the Committee considers its primary
goal to design compensation strategies that further the economic
interests of the Company and its stockholders. In certain cases,
the Compensation Committee may determine that the amount of tax
deductions lost is insignificant when compared to the potential
opportunity a compensation program provides for creating
stockholder value. The Compensation Committee therefore retains
the ability to evaluate the performance of the Companys
executive officers and to pay appropriate compensation, even if
it may result in the non-deductibility of certain compensation.
REPORT OF
THE COMPENSATION COMMITTEE
The Compensation Committee has reviewed and discussed with
management the Companys disclosures under
Compensation Discussion and Analysis on page 15 of
this Proxy Statement.
Based on such review and discussion, the Compensation Committee
recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in this Proxy Statement and
incorporated by reference in the Companys annual report on
Form 10-K
for the fiscal year ended December 31, 2007 for filing with
the Securities and Exchange Commission.
MEMBERS OF THE COMPENSATION COMMITTEE:
JOHN E. LUSHEFSKI, CHAIR
J. JOE ADORJAN
B. R. BROWN
23
SUMMARY
COMPENSATION TABLE
The following table summarizes the total compensation paid to
the Chief Executive Officer, the Chief Financial Officer and the
three other most highly compensated executive officers for their
service to the Company for the period November 1, 2007
through December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Stock Awards
|
|
Option Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(2)
|
|
($)(2)
|
|
($)(3)
|
|
($)(4)
|
|
($)(5)
|
|
($)
|
|
Richard M. Whiting(1)
|
|
|
2007
|
|
|
|
116,667
|
|
|
|
|
|
|
|
182,993
|
|
|
|
79,303
|
|
|
|
125,413
|
|
|
|
|
|
|
|
8,397
|
|
|
|
512,772
|
|
President & Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark N. Schroeder(1)
|
|
|
2007
|
|
|
|
62,500
|
|
|
|
|
|
|
|
50,800
|
|
|
|
23,741
|
|
|
|
53,748
|
|
|
|
|
|
|
|
4,538
|
|
|
|
195,326
|
|
Senior Vice President & Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiri Nemec(1)
|
|
|
2007
|
|
|
|
62,500
|
|
|
|
|
|
|
|
61,914
|
|
|
|
23,741
|
|
|
|
37,702
|
|
|
|
|
|
|
|
4,538
|
|
|
|
190,395
|
|
Senior Vice President & Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles A. Ebetino, Jr.(1)
|
|
|
2007
|
|
|
|
62,500
|
|
|
|
|
|
|
|
50,800
|
|
|
|
23,741
|
|
|
|
51,708
|
|
|
|
|
|
|
|
4,668
|
|
|
|
193,416
|
|
Senior Vice President - Corporate Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph W. Bean(1)
|
|
|
2007
|
|
|
|
45,833
|
|
|
|
|
|
|
|
26,076
|
|
|
|
13,378
|
|
|
|
29,562
|
|
|
|
|
|
|
|
3,286
|
|
|
|
118,135
|
|
Senior Vice President, General Counsel & Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Each of the above-named executives began employment with Patriot
effective with the November 1, 2007 spin-off. Therefore,
the amounts reflected in the Summary Compensation Table
represent compensation for the period November 1, 2007 to
December 31, 2007.
|
|
(2)
|
|
Long-term incentive awards to the named executive officers
consist of restricted stock and restricted stock units
(reflected in the Stock Award column above) and
stock options (reflected in the Option Awards column
above). The value of stock awards and option awards is the
compensation charge dollar amount recognized for financial
statement reporting purposes for 2007 in accordance with
FAS 123R. The grant date fair value of stock awards and
option awards for financial statement reporting purposes in
accordance with FAS 123R is included in the Grants of
Plan-Based Awards Table on page 25 of this Proxy Statement.
A discussion of the relevant fair value assumptions is set forth
in Note 22 to the Companys consolidated financial
statements on pages F-33 through F-35 of the Annual Report on
Form 10-K
for the year ended December 31, 2007. The Company cautions
that the amount ultimately realized by the named executive
officers from the stock and option awards will likely vary based
on a number of factors, including the Companys actual
operating performance, stock price fluctuations and the timing
of exercises (in the case of options only) and sales.
|
|
(3)
|
|
The material terms of these awards are described under the
caption Annual Incentive Plan in the Compensation
Discussion and Analysis section on page 17 of this Proxy
Statement.
|
|
(4)
|
|
The Company does not have a pension plan or a deferred
compensation plan.
|
|
(5)
|
|
Amounts included in this column are described in the All Other
Compensation Table on page 25 of this Proxy Statement.
|
24
All Other
Compensation
The following table sets forth detail of the amounts reported in
the All Other Compensation column of the Summary Compensation
Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual 401(K)
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching and
|
|
|
|
|
|
|
|
|
|
Group Term
|
|
|
Performance
|
|
|
|
|
Name
|
|
Year
|
|
|
Life Insurance
|
|
|
Contributions
|
|
|
Total
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Richard M. Whiting
|
|
|
2007
|
|
|
|
207
|
|
|
|
8,190
|
|
|
|
8,397
|
|
Mark N. Schroeder
|
|
|
2007
|
|
|
|
150
|
|
|
|
4,388
|
|
|
|
4,538
|
|
Jiri Nemec
|
|
|
2007
|
|
|
|
150
|
|
|
|
4,388
|
|
|
|
4,538
|
|
Charles A. Ebetino, Jr.
|
|
|
2007
|
|
|
|
280
|
|
|
|
4,388
|
|
|
|
4,668
|
|
Joseph W. Bean
|
|
|
2007
|
|
|
|
68
|
|
|
|
3,218
|
|
|
|
3,286
|
|
GRANTS OF
PLAN-BASED AWARDS IN 2007
The following table sets forth information concerning the grant
of plan-based awards to each of the Companys named
executive officers for the period November 1, 2007 through
December 31, 2007. Each named executive officer received
restricted stock, restricted stock units and stock option awards
on November 1, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Stock
|
|
|
All Other
|
|
|
Option
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Awards:
|
|
|
Stock
|
|
|
Awards:
|
|
|
or Base
|
|
|
Option
|
|
|
|
|
|
|
Estimated Possible Payouts
|
|
|
Estimated Future Payouts
|
|
|
Plan
|
|
|
Number of
|
|
|
Awards:
|
|
|
Number of
|
|
|
Price of
|
|
|
Awards:
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
Under Equity Incentive Plan
|
|
|
Awards:
|
|
|
Shares of
|
|
|
Grant
|
|
|
Securities
|
|
|
Option
|
|
|
Grant
|
|
|
|
|
|
|
Plan Awards
|
|
|
Awards(1)
|
|
|
Grant Date
|
|
|
Stock or
|
|
|
Date Fair
|
|
|
Underlying
|
|
|
Awards
|
|
|
Date Fair
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Fair Value
|
|
|
Units
|
|
|
Value
|
|
|
Options
|
|
|
($/Sh)
|
|
|
Value
|
|
Name
|
|
Grant Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($)(2)
|
|
|
(#)(3)
|
|
|
($)(2)
|
|
|
(#)(2)(4)
|
|
|
(2)(5)
|
|
|
($)(2)
|
|
|
Richard M. Whiting
|
|
|
11/1/2007
|
|
|
|
58,333
|
|
|
|
116,667
|
|
|
|
204,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,334
|
|
|
|
79,334
|
|
|
|
198,334
|
|
|
|
2,999,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,667
|
|
|
|
1,697,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,425
|
|
|
|
37.50
|
|
|
|
2,682,458
|
|
Mark N. Schroeder
|
|
|
11/1/2007
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,750
|
|
|
|
23,750
|
|
|
|
59,375
|
|
|
|
898,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
436,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
|
|
|
37.50
|
|
|
|
803,047
|
|
Jiri Nemec
|
|
|
11/1/2007
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,750
|
|
|
|
23,750
|
|
|
|
59,375
|
|
|
|
898,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
636,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
|
|
|
37.50
|
|
|
|
803,047
|
|
Charles A. Ebetino, Jr.
|
|
|
11/1/2007
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,750
|
|
|
|
23,750
|
|
|
|
59,375
|
|
|
|
898,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
436,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
|
|
|
37.50
|
|
|
|
803,047
|
|
Joseph W. Bean
|
|
|
11/1/2007
|
|
|
|
13,750
|
|
|
|
27,500
|
|
|
|
48,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,384
|
|
|
|
13,384
|
|
|
|
33,460
|
|
|
|
506,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
|
200,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,450
|
|
|
|
37.50
|
|
|
|
452,532
|
|
|
|
|
(1)
|
|
The restricted stock unit awards are included in the
Estimated Future Payouts Under Equity Incentive Plan
Awards column above. Performance unit awards granted in
2007 will be earned based on achievement of performance
objectives for the period November 1, 2007 to
December 31, 2012, November 1, 2007 to
December 31, 2013 and November 1, 2007 to
December 31, 2014. The material terms of these awards,
including payout formulas, are described under the caption
Restricted Stock Units in the Compensation
Discussion and Analysis section on page 19 of this Proxy
Statement.
|
|
(2)
|
|
The value of stock awards, option awards and restricted stock
unit awards is the grant date fair value determined under
FAS 123R for financial statement reporting purposes. A
discussion of the relevant fair value assumptions is set forth
in Note 22 to the Companys consolidated financial
statements on pages F-33 through F-35 of the
|
25
|
|
|
|
|
Annual Report on
Form 10-K
for the year ended December 31, 2007. The Company cautions
that the amount ultimately realized by the named executive
officers from the stock, unit and option awards will likely vary
based on a number of factors, including the Companys
actual operating performance, stock price fluctuations and the
timing of exercises (in the case of options only) and sales.
|
|
(3)
|
|
Restricted stock awards are reflected in the All Other
Stock Awards column above. Restricted stock cliff vests on
the third anniversary of the date of grant.
|
|
(4)
|
|
The options vest fifty percent on the fifth anniversary of the
date of grant, 25% on the sixth anniversary of the grant date
and the remaining 25% on the seventh anniversary of the grant
date. Other material terms of these awards are described under
the caption Stock Options in the Compensation
Discussion and Analysis section on page 19 of this Proxy
Statement.
|
|
(5)
|
|
The exercise price for all options is equal to the closing
market price per share of the Companys Common Stock on the
date of grant.
|
OUTSTANDING
EQUITY AWARDS AT 2007 FISCAL YEAR END
The following table sets forth detail about the outstanding
equity awards for each of the named executive officers as of
December 31, 2007. The Company cautions that the amount
ultimately realized by the named executive officers from the
outstanding equity awards will likely vary based on a number of
factors, including the Companys actual operating
performance, stock price fluctuations and the timing of
exercises and sales.
All unexercisable options and unvested shares or units of stock
reflected in the table below are subject to forfeiture by the
holder if the holder terminates employment without good reason
(as defined in the holders employment agreement).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Plan Awards:
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Market or Payout
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares, Units
|
|
|
Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Market Value of
|
|
|
or Other
|
|
|
Unearned Shares,
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
or Units of Stock
|
|
|
Shares or Units of
|
|
|
Rights That
|
|
|
Units or Other
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
That Have Not
|
|
|
Stock That Have
|
|
|
Have Not
|
|
|
Rights That Have
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)(1)
|
|
|
(#)(2)
|
|
|
($)(3)
|
|
|
Richard M. Whiting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,334
|
(6)
|
|
|
8,278,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,667
|
(5)
|
|
|
1,947,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,425
|
(4)
|
|
|
37.50
|
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
186,425
|
|
|
|
|
|
|
|
|
|
|
|
46,667
|
|
|
|
1,947,881
|
|
|
|
198,334
|
|
|
|
8,278,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark N. Schroeder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,375
|
(6)
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
(5)
|
|
|
500,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
(4)
|
|
|
37.50
|
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
55,810
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
500,880
|
|
|
|
59,375
|
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiri Nemec
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,375
|
(6)
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
(5)
|
|
|
730,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
(4)
|
|
|
37.50
|
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
55,810
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
730,450
|
|
|
|
59,375
|
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles A. Ebetino, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,375
|
(6)
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
(5)
|
|
|
730,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,810
|
(4)
|
|
|
37.50
|
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
55,810
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
|
|
730,450
|
|
|
|
59,375
|
|
|
|
2,478,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph W. Bean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,460
|
(6)
|
|
|
1,396,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500
|
(5)
|
|
|
229,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,450
|
(4)
|
|
|
37.50
|
|
|
|
11/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
31,450
|
|
|
|
|
|
|
|
|
|
|
|
5,500
|
|
|
|
229,570
|
|
|
|
33,460
|
|
|
|
1,396,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The market value was calculated based on the closing market
price per share of the Companys Common Stock on the last
trading day of 2007, $41.74 per share.
|
|
(2)
|
|
The number of restricted stock units disclosed includes both the
time-vested and performance-based awards and is based on the
assumption that all super-performance goals were achieved.
|
26
|
|
|
(3)
|
|
The payout value was calculated based on the closing market
price per share of the Companys Common Stock on the last
trading day of 2007, $41.74 per share, and the assumption that
all time-based awards vest and all super performance goals were
achieved.
|
|
(4)
|
|
The options were granted on November 1, 2007 and vest
50 percent on the fifth anniversary of the date of grant,
25 percent on the sixth anniversary of the grant date and
the remaining 25 percent on the seventh anniversary of the
grant date.
|
|
(5)
|
|
The restricted stock was granted on November 1, 2007 and
cliff vests on November 1, 2010.
|
|
(6)
|
|
The restricted stock units were granted on November 1, 2007
and vest 50 percent on the fifth anniversary of the date of
grant, 25 percent on the sixth anniversary of the grant
date and the remaining 25 percent on the seventh
anniversary of the grant date, with opportunities to earn
additional units if super-performance targets are achieved by
December 31, 2012, December 31, 2013 and
December 31, 2014. The super-performance targets are
described under One-Time Long-Term Incentive Awards
in the Compensation Discussion and Analysis on page 19 of
this Proxy Statement.
|
OPTIONS
EXERCISED AND STOCK VESTED IN 2007
None of the named executive officers exercised any stock options
or had any stock awards that vested during 2007.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
In connection with the spin-off and in consultation with Mercer,
the Company entered into employment agreements with each of our
named executive officers and with certain other key executives.
The terms of those agreements, including the provision of
post-termination benefits, as described in detail below, were
structured to attract and retain persons believed to be key to
Patriots success as well as be competitive with
compensation practices for executives in similar positions at
companies of similar size and complexity.
The Chief Executive Officers employment agreement will
extend from day-to-day so that there is at all times remaining a
term of three years. Following a termination without cause or
resignation for good reason, the Chief Executive Officer would
be entitled to a payment equal to three years base salary
and three times the higher of (1) the target annual bonus
for the year of termination or (2) the average of the
actual annual bonuses we paid in respect of the three prior
years. One-third of this severance payment would be payable in
twelve equal monthly installments commencing on the date of
termination, with the remainder payable in a lump sum on the
first anniversary of termination. Upon termination, the CEO
would also be entitled to a one-time prorated bonus for the year
of termination (based on our actual performance for that year
multiplied by a fraction, the numerator of which is the number
of calendar days he was employed during the year of termination,
and the denominator of which is the total number of calendar
days during that year), payable when bonuses, if any, are paid
to other executives. He would also be entitled to receive
qualified and nonqualified retirement, life insurance, medical
and other benefits for three years following termination. If the
CEO is terminated without cause or resigns for good reason
following a change of control, he would be entitled to all
benefits described above, and all outstanding equity awards
would accelerate as a result of the change of control and would
not be forfeited upon subsequent termination of the CEOs
employment. If the CEO is terminated without cause or resigns
for good reason absent a change of control, he would be entitled
to all benefits described above, but all outstanding unvested
equity awards would not accelerate and would be forfeited.
The employment agreements for the Senior Vice
President & Chief Operating Officer and the Senior
Vice President & Chief Financial Officer will extend
from day-to-day so that there is at all times a remaining term
of one year. Following a termination without cause or
resignation for good reason, each would be entitled to a payment
equal to one year of base salary plus (1) the target annual
bonus for the year of termination or (2) the average of the
actual annual bonuses we paid in respect of the three prior
years. This amount would be payable in twelve equal monthly
installments commencing on the date of termination. In addition,
each would be entitled to a one-time prorated bonus for the year
of termination (based on our actual performance for that year
multiplied by a fraction, the numerator of which is the number
of calendar days the executive officer was employed during the
year of
27
termination, and the denominator of which is the total number of
calendar days during that year), payable when bonuses, if any,
are paid to our other executives. Each of these officers would
also be entitled to receive qualified and nonqualified
retirement, life insurance, medical and other benefits for one
year following termination. If any of these officers is
terminated without cause or resigns for good reason following a
change of control, he would be entitled to all benefits
described above, and all outstanding equity awards would
accelerate as a result of the change of control and would not be
forfeited upon subsequent termination of any of these
officers employment. If any of these officers is
terminated without cause or resigns for good reason absent a
change of control, he would be entitled to all benefits
described above, but all outstanding unvested equity awards
would not accelerate and would be forfeited.
The employment agreements for the other named executive officers
will have an initial two-year term. During the initial two-year
term, following a termination without cause or resignation for
good reason, each would be entitled to a payment equal to the
product of (1) one year of base salary plus the greater of
(a) the target annual bonus for the year of termination or
(b) the average of the actual annual bonuses we paid in
respect of the three prior years, multiplied by (2) the
greater of (a) one or (b) the number of calendar days
following the termination date remaining in the initial two-year
term divided by 365. In addition, the other named executive
officers would be entitled to a one-time prorated bonus for the
year of termination (based on our actual performance for that
year multiplied by a fraction, the numerator of which is the
number of calendar days the executive officer was employed
during the year of termination, and the denominator of which is
the total number of calendar days during that year), payable
when bonuses, if any, are paid to our other executives. Each
other named executive officer would also be entitled to receive
qualified and nonqualified retirement, life insurance, medical
and other benefits for the greater of one year following the
date of termination or the remainder of the agreements
initial two-year term. If the other named executive officer is
terminated without cause or resigns for good reason following a
change of control during the term of the employment agreement,
he would be entitled to all benefits described above, and all
outstanding equity awards would accelerate as a result of the
change of control and would not be forfeited upon subsequent
termination of any of these named executive officers
employment. If any of these other named executive officers is
terminated without cause or resigns for good reason absent a
change of control, he would be entitled to all benefits
described above, but all outstanding unvested equity awards
would not accelerate and would be forfeited.
If an employment agreement for any of the other named executive
officers is not extended by mutual consent of the parties, the
executive will no longer be entitled to receive any special
termination benefits;
provided, however
, if that
executive is thereafter terminated by Patriot other than for
cause, disability or death, he would be entitled to receive a
one-year severance payment, pro-rated bonus and continuation
benefits for one year as described above.
If any of the named executive officers is terminated for cause
or resigns without good reason, the compensation due to that
officer would only include accrued but unpaid salary and payment
of accrued and vested benefits and unused vacation time. If that
officer is terminated due to death or disability, he would be
entitled to receive accrued but unpaid salary and payment of
accrued and vested benefits and unused vacation time. He also
would receive a pro-rated bonus for the year of termination, as
described above.
Under all executives employment agreements, Patriot would
not be obligated to provide any benefits under tax qualified
plans that are not permitted by the terms of each plan or by
applicable law or that could jeopardize the plans tax
status. Continuing benefit coverage would terminate to the
extent an executive is offered or obtains comparable coverage
from any other employer. The employment agreements will provide
for confidentiality during and following employment, and will
include noncompetition and nonsolicitation covenants that will
be effective during and for one year following employment. If an
executive breaches any of his or her confidentiality,
noncompetition or nonsolicitation covenants, the executive will
forfeit any unpaid amounts or benefits. To the extent that
excise taxes are incurred by an executive as a result of
excess parachute payments, as defined by IRS
regulations, Patriot will pay additional amounts so that the
executive would be in the same financial position as if the
excise taxes were not incurred.
Under the executives employment agreements, Good
reason is defined as (i) a reduction by Patriot in
the executives base salary, (ii) a material reduction
in the aggregate program of employee benefits and perquisites to
which the executive is entitled (other than a reduction that
generally affects all executives), (iii) a material decline
in the executives bonus or long-term incentive award
opportunities, (iv) relocation of the executives
primary office
28
by more than 50 miles from the location of the
executives primary office in Saint Louis, Missouri or
(v) any material diminution or material adverse change in
the executives title, duties, responsibilities or
reporting relationships. Resignation without good
reason is not only voluntary termination by the employee,
but also any other reason that is not included in the definition
of good reason.
Under the executives employment agreements, a change
of control is defined as (a) a person (with certain
exceptions) becoming the direct or indirect beneficial owner of
securities of the Company representing 50% or more of the
combined voting power of the Company, (b) if, during any
period of twelve months, the constitution of Patriots
Board of Directors changes such that individuals who were
directors at the beginning of that period, and new directors
(other than directors nominated by a person who has entered into
an agreement with Patriot that would constitute a change
of control or by any person who has announced an intention
to take or to consider taking actions which if consummated would
constitute a change of control) whose election by
Patriots Board of Directors or nomination for election by
the Companys stockholders was approved by a vote of the
Companys stockholders or at least three-fourths of
Patriots directors who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved, cease to constitute a
majority of Patriots Board of Directors, (c) the
consummation of any merger, consolidation, plan of amalgamation,
reorganization or similar transaction or series of transactions
in which the Company is involved, unless the stockholders of the
Company immediately prior thereto continue to own more than 50%
of the combined voting power of the Company or the surviving
entity in substantially the same proportions or (d) the
consummation of a sale or disposition by the Company of all or
substantially all of its assets (with certain exceptions).
In connection with the spin-off, the Company also entered into
an employment agreement with Irl F. Engelhardt to serve as
Chairman of the Board and Executive Advisor at a base salary of
$250,000 per year and a target annual bonus of 50 percent
of base salary. He also received a one time grant of restricted
shares valued at $650,000 based on the fair market value of
Companys common stock on the date of the spin-off. The
restricted stock cliff vests three years from the date of the
grant and will accelerate vest upon death, disability or a
change of control (as defined above). Mr. Engelhardts
agreement has a term expiring December 31, 2010, which may
be extended by mutual agreement. The Company may only terminate
his employment as Executive Advisor for cause, disability or
death. The Board of Directors may terminate his service as
Chairman of the Board at any time for any reason.
Mr. Engelhardt may terminate his employment at any time;
however, if he terminated employment for good reason, he would
be entitled to his base salary through December 31, 2010, a
one-time prorated bonus for the year of termination (based on
the Companys actual performance multiplied by a fraction,
the numerator of which is the number of business days he was
employed during the year of termination, and the denominator of
which is the total number of business days during that year),
payable when bonuses, if any, are paid to other executives. He
would also receive qualified and nonqualified retirement, life
insurance, medical and other benefits through December 31,
2010.
For purposes of Mr. Engelhardts agreement, good
reason is defined as (i) reduction by Patriot in the
executives base salary, (ii) a material reduction in
the aggregate program of employee benefits and perquisites to
which the executive is entitled (other than a reduction that
generally affects all executives), or (iii) any material
diminution or material adverse change in the executives
title, duties, responsibilities or reporting relationship as
Executive Advisor. The removal of Mr. Engelhardt as
Chairman of the Board will not constitute good reason. If
Mr. Engelhardt is terminated for cause or resigns without
good reason, the compensation due would only include accrued but
unpaid salary and payment of accrued and vested benefits and
unused vacation time. If Mr. Engelhardt is terminated due
to death or disability, he would be entitled to receive accrued
but unpaid salary and payment of accrued and vested benefits and
unused vacation time. He also would receive a pro-rated bonus
for the year of termination, as described above. Resignation
without good reason is not only voluntary
termination by Mr. Engelhardt, but also any other reason
that is not included in the definition of good reason.
In structuring the terms of Mr. Engelhardts
employment agreement, Peabodys Compensation Committee
considered his extensive experience and relationships in the
coal industry, and designed a compensation package it believed
necessary to retain his services for the benefit of Patriot and
its stockholders. In consultation with the independent
compensation consultant and based on its assessment of
Mr. Engelhardts future contributions to Patriot, the
Committee deemed the magnitude and structure of
Mr. Engelhardts employment agreement to be
appropriate and recommended it to Peabodys Board of
Directors (acting as Patriots Board of Directors prior to
the
29
spin-off) for approval. Peabodys Board of Directors,
excluding Mr. Engelhardt, who was Chairman at the time,
approved Mr. Engelhardts employment agreement based
on the Compensation Committees recommendation.
The tables below reflect the amount of compensation that would
have been payable to each of the named executive officers in the
event of termination of such executives employment, per
the terms of their employment agreements and long-term incentive
agreements. The amount of compensation payable to each named
executive officer upon Retirement, For Cause
Termination, Death or Disability, Voluntary Termination,
Involuntary Termination Without Cause or For
Good Reason, and Involuntary Termination as a Result of
Change of control is shown below. The amounts shown assume that
termination was effective as of December 31, 2007, and are
estimates of the amounts that would have been paid to the
executives upon their termination. The actual amounts that would
be payable can be determined only at the time of the
executives termination.
Estimated
Incremental Value Upon Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Involuntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without Cause
|
|
|
Termination as a
|
|
|
|
|
|
|
For Cause
|
|
|
Death or
|
|
|
Voluntary
|
|
|
or For Good
|
|
|
Result of Change
|
|
|
|
Retirement
|
|
|
Termination
|
|
|
Disability
|
|
|
Termination
|
|
|
Reason
|
|
|
in Control
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)(6)
|
|
|
Richard M. Whiting
|
|
|
|
|
|
|
134,038
|
|
|
|
6,883,762
|
|
|
|
134,038
|
|
|
|
5,223,492
|
|
|
|
11,273,216
|
|
Mark N. Schroeder
|
|
|
|
|
|
|
0
|
|
|
|
2,028,839
|
|
|
|
0
|
|
|
|
1,011,057
|
|
|
|
3,437,606
|
|
Jiri Nemec
|
|
|
|
|
|
|
39,276
|
|
|
|
2,297,685
|
|
|
|
39,276
|
|
|
|
1,053,684
|
|
|
|
3,012,093
|
|
Charles A. Ebetino, Jr.
|
|
|
|
|
|
|
0
|
|
|
|
2,028,839
|
|
|
|
0
|
|
|
|
1,608,161
|
|
|
|
4,401,583
|
|
Joseph W. Bean
|
|
|
|
|
|
|
0
|
|
|
|
1,086,566
|
|
|
|
0
|
|
|
|
1,030,552
|
|
|
|
2,604,734
|
|
|
|
|
(1)
|
|
None of the named executive officers was eligible for retirement
(age 55, with 5 years of service) as of
December 31, 2007.
|
|
(2)
|
|
For Cause means (i) any material and
uncorrected breach by the executive of the terms of their
employment agreement, including but not limited to engaging in
disclosure of secret or confidential information, (ii) any
willful fraud or dishonesty of the executive involving the
property or business of the Company, (iii) a deliberate or
willful refusal or failure to comply with any major corporate
policies which are communicated in writing or (iv) the
executives conviction of, or plea of no contest to any
felony if such conviction shall result in imprisonment.
Compensation payable to an executive would include only accrued
but unused vacation.
|
|
(3)
|
|
For all named executive officers, compensation payable upon
Death or Disability would include a) accrued but unused
vacation, b) prorated annual incentive for year of
termination, c) 100% payout of the time-vested portion of
outstanding restricted stock units, and d) the value an
executive could realize as a result of the accelerated vesting
of any unvested stock option awards and restricted stock, per
the terms of the executives respective grant agreements.
For 2007, the prorated annual incentive was equal to 100% of the
non-equity incentive plan compensation, as shown in the Summary
Compensation Table on page 24 of this Proxy Statement, and
payout of restricted stock units reflects the values for the
2007 restricted stock units as shown in the Outstanding Equity
Awards Table on page 26 of this Proxy Statement. Amounts do
not include life insurance payments in the case of death.
|
|
(4)
|
|
For all named executive officers, the compensation payable would
include accrued but unused vacation.
|
|
(5)
|
|
For Mr. Whiting, the compensation payable would include
a) severance payments of three times base salary, b) a
payment equal to three times the higher of (1) the target
annual incentive or (2) the average of the actual annual
incentives paid in the three prior years, c) prorated
annual incentive for year of termination, d) continuation
of benefits for three years.
|
|
|
|
For Mr. Schroeder and Mr. Nemec, the compensation
payable would include a) severance payments of one times
base salary, b) a payment equal to one times the higher of
(1) the target annual incentive or (2) the average of
the actual annual incentives paid in the three prior years,
c) prorated annual incentive for year of termination and
d) continuation of benefits for one year.
|
30
|
|
|
|
|
For Mr. Ebetino and Mr. Bean, the compensation payable
would include a) severance payments of 1.83 times
(22 months) base salary, b) a payment equal to 1.83
times the higher of (1) the target annual incentive or
(2) the average of the actual annual incentives paid in the
three prior years, c) prorated annual incentive for year of
termination and d) continuation of benefits for
22 months.
|
|
(6)
|
|
Reflects total estimate of compensation payable as a result of
both a change of control and a termination of employment, as
detailed in the Estimated Current Value of Change of Control
Benefits Table on page 31 of this Proxy Statement. This
includes the value of stock options, restricted stock and the
time-vested portion of restricted stock units granted on
November 1, 2007.
|
The named executive officers would be entitled to receive
certain benefits upon a change of control of the Company under
the terms of their individual employment agreements and
long-term incentive agreements. The actual value of these
benefits would be known only if and when they become eligible
for payment. The following table provides an estimate of the
value that would have been payable to each named executive
officer assuming a change of control of the Company had occurred
on December 31, 2007, including a
gross-up
for
certain taxes in the event that any payment made in connection
with the change of control was subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code.
Estimated
Current Value of Change of Control Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Estimated Tax
|
|
|
Accelerated Vesting of Unvested LTIP Awards
|
|
|
|
|
|
|
Amount
|
|
|
Gross Up
|
|
|
($)(3)
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
Restricted Stock
|
|
|
Stock Options
|
|
|
Restricted Stock Units
|
|
|
($)
|
|
|
Richard M. Whiting
|
|
|
5,223,492
|
|
|
|
|
|
|
|
1,947,881
|
|
|
|
790,442
|
|
|
|
3,311,401
|
|
|
|
11,273,216
|
|
Mark N. Schroeder
|
|
|
1,011,057
|
|
|
|
697,710
|
|
|
|
500,880
|
|
|
|
236,634
|
|
|
|
991,325
|
|
|
|
3,437,606
|
|
Jiri Nemec
|
|
|
1,053,684
|
|
|
|
|
|
|
|
730,450
|
|
|
|
236,634
|
|
|
|
991,325
|
|
|
|
3,012,093
|
|
Charles A. Ebetino, Jr.
|
|
|
1,608,161
|
|
|
|
1,064,583
|
|
|
|
500,880
|
|
|
|
236,634
|
|
|
|
991,325
|
|
|
|
4,401,583
|
|
Joseph W. Bean
|
|
|
1,030,552
|
|
|
|
652,616
|
|
|
|
229,570
|
|
|
|
133,348
|
|
|
|
558,648
|
|
|
|
2,604,734
|
|
|
|
|
(1)
|
|
The severance amount is equal to the amount shown in the
Involuntary Termination Without Cause or
For Good Reason column in the Estimated
Incremental Value Upon Termination Table on page 30 of this
Proxy Statement.
|
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(2)
|
|
Includes excise tax, plus the effect of 35% federal income
taxes, 6% state income taxes, and 1.45% FICA-HI taxes on the
excise tax. Excise tax is equal to 20% times the excess
parachute payment subject to excise tax. An excess parachute
payment is triggered when the change of control amount is
greater than the safe harbor amount (equal to 3x the base amount
less $1; base amount is the average of the previous
5 years
W-2
earnings); actual excess parachute payment is equal to the
difference between the preliminary change of control amount and
the base amount. The gross up calculation assumes no allocation
of any amounts to the covenant not to compete provision in each
executives employment agreement, notwithstanding that such
allocation is permissible in certain circumstances under
applicable tax rules. Such an allocation may have the effect of
reducing or eliminating any gross up payment.
|
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(3)
|
|
Reflects the value an executive could realize as a result of the
accelerated vesting of any unvested stock option awards, based
on the stock price on the last business day of 2007, $41.74. The
value realized is not and would not be a liability of the
Company.
|
2007
ANNUAL COMPENSATION OF DIRECTORS
DIRECTOR
COMPENSATION
Annual compensation of non-employee directors for 2007 was
comprised of cash compensation, consisting of annual retainer
and committee fees, and equity compensation, consisting of
deferred stock units. Each of these
31
components is described in more detail below. The total 2007
compensation of the Companys non-employee directors is
shown in the following table.
Annual
Board/Committee Fees
In 2007, non-employee directors received a pro-rata portion of
an annual cash retainer of $60,000. Non-employee directors who
served on more than one committee received an additional
pro-rata portion of an annual $10,000 cash retainer. The Audit
Committee Chairperson received an additional pro-rata portion of
an annual $15,000 cash retainer, and the other Audit Committee
members received additional pro-rata portions of annual $5,000
cash retainers. The Chairpersons of the Compensation and
Nominating & Governance Committees each received an
additional pro-rata portion of the annual $10,000 cash retainer.
The Company pays travel and accommodation expenses of directors
to attend meetings and other corporate functions. Directors do
not receive meeting attendance fees.
Annual
Equity Compensation
In 2007, non-employee directors received annual equity
compensation valued at $65,000, awarded in the form of deferred
stock units. Non-employee directors also received an initial
deferred stock unit award valued at $75,000 upon joining the
Board of Directors. Deferred stock unit awards will vest on the
first anniversary of the grant date and will be distributed in
common shares three years after grant. In the event of a change
of control of Patriot (as defined in Patriots Long-Term
Equity Incentive Plan), all restrictions related to the deferred
stock units will lapse. The deferred stock units will provide
for vesting in the event of death or disability or termination
of service without cause with consent of our Board of Directors.
Director
Compensation
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Change in
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Pension Value
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and Non-
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qualified
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Non-Equity
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Deferred
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Fees Earned
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Option
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Incentive Plan
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Compensation
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All Other
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or Paid in
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Stock Awards
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Awards
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Compensation
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Earnings
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Compensation
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Name
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Cash ($)
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($)(1)(2)
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($)
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($)
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($)
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($)
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Total ($)
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Chairman
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Irl F. Engelhardt(3)
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Non-Employee Directors
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|
|
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J. Joe Adorjan
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35,000
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23,338
|
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|
|
|
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|
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|
|
|
|
|
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58,338
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B.R. Brown
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35,000
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23,338
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|
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|
|
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|
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|
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58,338
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John E. Lushefski
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42,500
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23,338
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|
|
|
|
|
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|
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|
|
|
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|
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65,838
|
|
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Michael M. Scharf
|
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42,500
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23,338
|
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65,838
|
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Robert O. Viets
|
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42,500
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23,338
|
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|
|
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|
|
|
|
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|
|
|
|
|
|
|
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65,838
|
|
|
|
|
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(1)
|
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The value of the deferred stock units was the 2007 compensation
charge dollar amount recognized for financial statement
reporting purposes in accordance with FAS 123R. For all
non-employee directors, the grant date fair values for deferred
stock units determined under FAS 123R for financial
reporting purposes was $60,000 for annual equity compensation
and $75,000 for the initial award given upon joining the Board
of Directors. A discussion of the relevant fair value
assumptions is set forth in Note 22 to the Companys
consolidated financial statements on pages F-33 through F-35 of
the Annual Report on
Form 10-K
for the year ended December 31, 2007. The Company cautions
that the amount ultimately realized by the non-employee
directors from the deferred stock unit awards will likely vary
based on a number of factors, including the Companys
actual operating performance, stock price fluctuations and the
timing of sales.
|
32
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(2)
|
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As of December 31, 2007, the aggregate number of deferred
stock units outstanding for each non-employee director was as
follows: Mr. Adorjan, 3,734; Mr. Brown, 3,734;
Mr. Lushefski, 3,734; Mr. Scharf, 3,734; and
Mr. Viets, 3,734.
|
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(3)
|
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Mr. Engelhardt, Chairman of the Board and Executive Advisor
of the Company, continues to serve as an executive officer of
the Company and receives a salary and other compensation
pursuant to the terms of an employment agreement with the
Company, which is discussed in detail on page 29 of this
document. He receives no additional compensation for serving as
director.
|
Director
Stock Ownership
Under the Companys share ownership guidelines for
directors, directors are encouraged to acquire and retain
Company stock having a value equal to at least three times their
annual retainer. Directors are encouraged to meet these
ownership levels within three years after joining the Board.
The following table summarizes the director ownership of Company
Common Stock as of December 31, 2007.
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Ownership
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Guidelines,
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Ownership
|
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Relative to
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Relative to
|
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Share Ownership
|
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Share Ownership
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Annual Retainer
|
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Annual Retainer
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Name(1)
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(#)(2)
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($)(3)
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(4)
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(5)
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Chairman
|
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Irl F. Engelhardt
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157,715
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6,583,024
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Non-Employee Directors
|
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J. Joe Adorjan
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3,734
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155,857
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3
|
x
|
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2.6x
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B.R. Brown
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4,453
|
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185,868
|
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3
|
x
|
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3.1x
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John E. Lushefski
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3,734
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155,857
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3
|
x
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2.6x
|
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Michael M. Scharf
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3,734
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155,857
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3
|
x
|
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2.6x
|
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Robert O. Viets
|
|
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5,334
|
|
|
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222,641
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|
|
|
3
|
x
|
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3.7x
|
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(1)
|
|
Mr. Whitings stock ownership is shown on the Named
Executive Officer Stock Ownership Table.
|
|
(2)
|
|
Includes shares acquired through open market purchases and
deferred stock units granted on November 1, 2007 in
accordance with the non-employee Board of Director compensation
ownership guidelines.
|
|
(3)
|
|
Value is calculated based on the closing market price per share
of the Companys Common Stock on the last trading day of
2007, $41.74.
|
|
(4)
|
|
Based on base annual retainer. For 2007, the base annual
retainer was $60,000.
|
|
(5)
|
|
Represents current ownership, shown as a multiple of the base
annual retainer of $60,000.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our
Relationship with Peabody
In connection with the spin-off, we and Peabody entered into a
Separation Agreement and several ancillary agreements to
complete the separation of our businesses and to distribute
Patriots common stock. Several of these agreements govern
the ongoing relationship between Peabody and us. The agreements
were prepared before the spin-off and reflect agreement between
then affiliated parties established without arms-length
negotiation. However, we believe the terms of these agreements
will equitably reflect the benefits and costs of our ongoing
relationship with Peabody. The ancillary agreements include the
following:
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|
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Various coal supply agreements;
|
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|
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Tax Separation Agreement;
|
|
|
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Coal Act Liability Assumption Agreement;
|
33
|
|
|
|
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NBCWA Liability Assumption Agreement;
|
|
|
|
Salaried Employee Liability Assumption Agreement;
|
|
|
|
Administrative Services Agreement;
|
|
|
|
Transition Services Agreement;
|
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|
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Employee Matters Agreement;
|
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|
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Various real property agreements;
|
|
|
|
Throughput and Storage Agreement for a coal transloading
facility;
|
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|
|
Master Equipment Sublease Agreement;
|
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|
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Software License Agreement; and
|
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|
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Common Interest Agreement.
|
Separation
Agreement, Plan of Reorganization and Distribution
The Separation Agreement, Plan of Reorganization and
Distribution, which we refer to as the Separation Agreement,
sets forth the agreement between us and Peabody with respect to
the principal corporate transactions required to spin-off from
Peabody and other agreements governing the relationship between
Peabody and us following the separation, including certain
litigation matters.
Releases
and Indemnification
The Separation Agreement generally provides for a full and
complete mutual release and discharge as of the date of the
spin-off of all liabilities existing or arising from all acts
and events occurring or failing to occur or alleged to have
occurred or have failed to occur and all conditions existing or
alleged to have existed on or before the separation, between or
among Peabody or its affiliates, on the one hand, and us or our
affiliates, on the other hand, except as expressly set forth in
the Separation Agreement. The liabilities released or discharged
include liabilities arising under any contractual agreements or
arrangements existing or alleged to exist between or among any
such members on or before the separation, other than the
Separation Agreement, the ancillary agreements described below
and the other agreements referred to in the Separation Agreement.
Subject to certain exceptions, we agree to indemnify Peabody and
its affiliates, and each of their directors, officers and
employees, from and against all liabilities relating to, arising
out of or resulting from:
|
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|
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The business, operations, contracts, assets and liabilities of
Patriot and its affiliates, whether arising before or after the
spin-off;
|
|
|
|
Liabilities or obligations associated with the Patriot business,
as defined in the Separation Agreement, or otherwise assumed by
us pursuant to the Separation Agreement, including liabilities
associated with litigation related to the Patriot business;
|
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|
|
Any breach by us of the Separation Agreement or any of the
ancillary agreements entered into in connection with the
Separation Agreement; and
|
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|
|
Any untrue statement or alleged untrue statement of any material
fact contained in our information statement dated
October 24, 2007 filed on
Form 8-K
or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated, except for information for which Peabody will agree to
indemnify us as described below.
|
Subject to certain exceptions, Peabody agrees to indemnify us
and our affiliates, and each of our directors, officers and
employees, from and against all liabilities relating to, arising
out of or resulting from:
|
|
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|
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The business, operations, contracts, assets and liabilities of
Peabody and its affiliates (other than the Patriot business),
whether arising before or after the spin-off;
|
34
|
|
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|
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Liabilities or obligations of Peabody or its affiliates other
than those of an entity forming part of the Patriot business or
otherwise assumed by us pursuant to the Separation Agreement,
including liabilities associated with litigation that is not
related to the Patriot business;
|
|
|
|
Any breach by Peabody of the Separation Agreement or any of the
ancillary agreements entered into in connection with the
Separation Agreement;
|
|
|
|
Certain retiree healthcare costs, as described under Liability
Assumption Agreements and Administrative Services Agreement
below; and
|
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|
|
Any untrue statement or alleged untrue statement of any material
fact regarding Peabody included in certain sections of our
information statement dated October 24, 2007 filed on
Form 8-K.
|
Non-solicitation
of employees
Except with the written approval of the other party and subject
to certain exceptions provided in the Separation Agreement, we
and Peabody agree not to, for a period of 12 months
following the spin-off, directly or indirectly solicit or hire
employees of the other party or its subsidiaries.
Expenses
Peabody paid all costs and expenses incurred in connection with
the spin-off and the transactions contemplated by the Separation
Agreement, and all costs and expenses incurred in connection
with the preparation, execution, delivery and implementation of
the Separation Agreement and the ancillary agreements. Peabody
also paid other expenses of the transaction, including the
legal, filing, accounting, printing, and other expenses incurred
in connection with the preparation, printing, and filing of the
registration statement on Form 10. Peabody also funded a
portion of our credit facility origination fees and various
legal fees related to the spin-off totaling $7.1 million.
Litigation
Matters
The Separation Agreement provides that we will diligently
conduct, at our sole cost and expense, the defense of any
actions related to the Patriot business, that we will notify
Peabody of any material developments related to such litigation,
and that we will agree not to file cross claims against Peabody
in relation to such actions. Peabody made corresponding
agreements with respect to actions that are not related to the
Patriot business. We and Peabody have agreed to share the cost
and expense of certain actions that we cannot currently identify
as being related to the Patriot or Peabody businesses, until
they can be so classified. Furthermore, the Separation Agreement
requires us and Peabody to cooperate to, among other matters,
maintain attorney-client privilege and work product doctrine in
connection with litigation against us or Peabody, as further set
forth in the common interest agreement described below.
Amendments
and Waivers; Further Assurances
The Separation Agreement provides that no provisions of it or
any ancillary agreement will be deemed waived, amended,
supplemented or modified by any party unless the waiver,
amendment, supplement or modification is in writing and signed
by the authorized representative of the party against whom that
waiver, amendment, supplement or modification is sought to be
enforced.
Peabody and Patriot agree to use their respective reasonable
efforts to:
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Execute and deliver any additional instruments and documents and
take any other actions the other party may reasonably request to
effectuate the purposes of the Separation Agreement and the
ancillary agreements and their terms; and
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To take all actions and do all things reasonably necessary under
applicable laws and agreements or otherwise to consummate and
make effective the transactions contemplated by the Separation
Agreement and the ancillary agreements.
|
35
Dispute
Resolution
The Separation Agreement contains provisions that govern, except
as otherwise provided in any ancillary agreements, the
resolution of disputes, controversies or claims that may arise
between us and Peabody. These provisions contemplate that
efforts will be made to resolve disputes, controversies or
claims by escalation of the matter to senior management,
independent Board committees or other representatives of us or
Peabody. If those efforts are not successful, the parties may by
mutual agreement submit the dispute, controversy or claim to
arbitration, subject to the provisions of the Separation
Agreement.
Consummation
of Spin-off Transaction
On October 31, 2007, Patriot received a net contribution
from Peabody of $781.3 million, which reflected the
following:
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retention by Peabody of certain retiree healthcare liabilities
of $615.8 million;
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the forgiveness of the outstanding intercompany payables to
Peabody on October 31, 2007 of $81.5 million;
|
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the retention by Patriot of trade accounts receivable at
October 31, 2007, previously recorded through intercompany
receivables, of $68.6 million;
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a $30.0 million cash contribution;
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the retention by Peabody of assets and asset retirement
obligations related to certain Midwest mining operations of a
net $8.1 million;
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less the transfer of intangible assets of $22.7 million
related to purchased contract rights for a supply contract
retained by Peabody.
|
Coal
Supply Agreements
Following the spin-off, a majority of the coal produced by
Patriots operations is sold to Peabody pursuant to coal
supply agreements. Patriot will continue to supply coal pursuant
to the Master Coal Supply Agreements and two other coal supply
agreements discussed below. As of February 29, 2008,
Patriots obligations under these contractual arrangements
are as follows: 18.9 million tons in 2008,
10.6 million tons in 2009, 6.7 million tons in 2010,
6.5 million tons in 2011 and 2.8 million tons in 2012.
Patriot maintains a separate sales and marketing subsidiary, and
enters into its own coal supply arrangements for new business.
As Peabodys underlying coal supply agreements expire,
Peabody and Patriot may separately compete with each other and
other coal suppliers for future business.
Master
Coal Supply Agreements
To ensure continuity of supply to certain customers of Peabody,
Patriots sales and marketing subsidiary entered into a
total of three Master Coal Supply Agreements with Peabody
subsidiaries, including separate agreements with each of the
following: (1) COALSALES, LLC, (2) COALSALES II, LLC
and (3) COALTRADE INTERNATIONAL, LLC. Under these
contracts, the Patriot subsidiary continues to supply coal
sourced from Patriot operations directly to customers who have
existing contracts with these Peabody subsidiaries. The Master
Coal Supply Agreements incorporate the terms and conditions of
individual contracts between the Peabody subsidiaries and
customers supplied by Patriot operations. Patriot undertakes to
perform Peabodys obligations with respect to the
underlying coal supply contracts, and indemnifies Peabody for
Patriots unexcused failure to perform. In turn, Patriot is
entitled to the benefits that Peabody has under such contracts.
Payments to Patriot are due within five days following the
invoice date for end customer payments. Under the terms of the
Master Coal Supply Agreements, the Patriot subsidiary bears the
risk of default, non-performance and termination by the third
party customers. However, the applicable Peabody subsidiary must
use commercially reasonable efforts to defend its contract
rights toward the customer so that Patriot continues to maintain
the benefits of the pass-through agreement.
36
In the course of defending its rights, the Peabody subsidiary
must also exercise commercially reasonable efforts to avoid
actions that are detrimental to Patriot.
The Master Coal Supply Agreements involve sales of approximately
$965 million in the aggregate. They do not apply to coal
sold pursuant to Coal Supply Agreement I or Coal Supply
Agreement II (which are discussed below) or coal sales
agreements entered into directly by Patriot with third party
customers.
The Master Coal Supply Agreements cover a total of 41 contracts
which Peabody had with 36 customers as of February 29,
2008. None of these contracts individually is material to our
financial condition or results of operations. The material terms
and conditions of these contracts are summarized below.
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No. of
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No. of
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Weighted Avg.
|
|
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Remaining
|
|
|
|
|
|
|
|
|
|
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|
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Underlying
|
|
|
Underlying
|
|
|
Remaining
|
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Term
|
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|
Price Range
|
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Weighted
|
|
|
Remaining
|
|
Peabody Counterparty
|
|
Contracts
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Customers
|
|
|
Term
|
|
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(Range)
|
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(per ton)
|
|
|
Avg. Price
|
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|
Tons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Millions)
|
|
|
COALSALES, LLC
|
|
|
32
|
|
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|
27
|
|
|
|
20 months
|
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|
|
1-34 months
|
|
|
$
|
30-80
|
|
|
$
|
56.27
|
|
|
|
10.2
|
|
COALSALES II, LLC
|
|
|
3
|
|
|
|
3
|
|
|
|
1 month
|
|
|
|
1 month
|
|
|
$
|
20-40
|
|
|
$
|
37.76
|
|
|
|
0.1
|
|
COALTRADE International, LLC
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|
|
6
|
|
|
|
6
|
|
|
|
13 months
|
|
|
|
1-18 months
|
|
|
$
|
67-86
|
|
|
$
|
76.30
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
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|
|
41
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1
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|
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|
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|
|
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|
|
|
|
|
|
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|
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|
|
|
|
The terms and conditions of each underlying customer contract
(other than term, price and quantity, as described in the above
table) are substantially similar. Coal shipped under the
contracts to domestic customers is typically sold and delivered
to the customer at the mine, while export coal is typically sold
and delivered to the customer after loading in ocean-going
vessels. Payment terms vary by customer but typically range from
15-30 days
from receipt of invoice. The contracts contain provisions
requiring us to deliver coal meeting quality thresholds for
characteristics such as Btu, sulfur, ash, moisture and size.
Failure to meet these specifications could result in economic
penalties, including price adjustments, the rejection of
deliveries or termination of the contracts. In some cases, the
underlying contracts also provide for a price premium if the
coal quality exceeds contractual specifications.
Some customer contracts contain provisions that allow for price
adjustments due to new laws or changes in law that affect our
cost of production.
The customer contracts generally contain force majeure
provisions allowing temporary suspension of performance by us or
the customer for the duration of specified events caused by Acts
of God or other circumstances beyond the control of the affected
party. In some cases, an extended force majeure could lead to
contract termination.
In addition to the termination events described above, the
customer contracts are generally terminable by the
non-defaulting party for any material uncured breach.
Coal
Supply Agreement I
COALSALES II, LLC, a Peabody affiliate (COALSALES II), currently
supplies approximately 2.9 million tons per year of coal to
steam coal customers with coal produced from Patriots
Rocklick and Big Mountain operations. To ensure continuity of
supply to its customers, COALSALES II entered into a new coal
supply agreement with Patriot (Coal Supply Agreement I). Sales
under Coal Supply Agreement I as of February 29, 2008 are
estimated to be approximately $737 million over the
remaining term of the contract.
The material terms and conditions of Coal Supply Agreement I are
as follows:
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Patriot will generally be responsible for coordinating shipments
and the delivery of the coal into railcars for COALSALES II
customers.
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|
Patriot will supply from 1,412,500 to 1,600,250 tons of coal per
contract half-year to COALSALES II through December 31,
2012.
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37
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Conforming coal must be provided from pre-approved Patriot
production sources and shipping origins to meet specific quality
parameters in accordance with specific sampling, weighing and
analysis requirements. Non-conforming deliveries may be rejected
by COALSALES II, which could lead to suspension and agreement
termination if not remedied.
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For Patriot coal shipments during the period from
January 1, 2008 through December 31, 2011, to entitle
COALSALES II to a first priority right of production, COALSALES
II will make a monthly prepayment to Patriot, ten (10) days
prior to the beginning of each month, in the amount of
$1,041,666 per month plus any applicable taxes and royalties
related thereto.
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The unadjusted price for coal supplied under the agreement (also
known as the Base Price) ranges from $45.00 to $52.08 per ton
through December 31, 2012 and will be adjusted (within
certain limits and on certain conditions) to reflect changes in
cost due to new laws or regulations or changes in existing laws
or regulations.
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To determine the Selling Price for coal, the Base Price is
adjusted upward or downward for sulfur and calorific value
quality variances from the agreements coal quality
specifications.
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Payment terms are within 22 days after the end of each
half-month and COALSALES II must pay Patriot regardless of
whether or not the ultimate customer has paid COALSALES II.
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The agreement contains force majeure provisions allowing for the
temporary suspension of performance by us or the customer for
the duration of specified events beyond the control of the
affected party. Any shortfall in coal deliveries is generally
required to be made up within twelve months.
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In general, COALSALES II will bear the risk of default,
non-performance and termination by its customers unless caused
by or attributable to Patriot. Should a COALSALES II customer
fail to perform under its agreement with COALSALES II and damage
Patriot, COALSALES II will have the obligation to pursue its
rights and remedies against such customer for the benefit of
Patriot, as applicable.
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Coal
Supply Agreement II
COALSALES, LLC, a Peabody affiliate (COALSALES), supplies coal
to the Tennessee Valley Authority pursuant to a coal supply
agreement that runs through December 31, 2011 (Underlying
Contract). COALSALES currently sources the Underlying Contract
with 3.5 million tons per year of coal produced from
Patriots Highland operation. To ensure continuity of
supply to its customer, COALSALES entered into a new coal supply
agreement with Patriot (Coal Supply Agreement II) for
deliveries from Highland. Sales under Coal Supply
Agreement II as of February 29, 2008 are estimated to
be approximately $448 million over the remaining term of
the contract.
The material terms and conditions of Coal Supply
Agreement II are as follows:
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Patriot will supply coal to COALSALES through December 31,
2011 and unless otherwise agreed to among the parties, COALSALES
will have no right to extend the agreement beyond such date.
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Should the ultimate coal customer voluntarily elect to terminate
its contract with COALSALES early, COALSALES may continue to
take full delivery under its agreement with Patriot or elect to
terminate the agreement and pay to Patriot the liquidated
damages (25% of the Base Price, see below) it receives from the
ultimate coal customer. COALSALES may also terminate the
agreement with Patriot if the ultimate coal customer terminates
its agreement with COALSALES due to specified increases in
transportation costs, and no liquidated damages apply.
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Coal is to be shipped in relatively equal monthly shipments of
290,000 tons per month with allowed variances of five (5%)
percent per month should the ultimate coal customer so elect.
The volume of coal to be shipped under the agreement may be
reduced by COALSALES, if the ultimate coal customer reduces
shipments of coal due to new environmental laws or regulations.
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Patriot will generally be responsible for coordinating shipments
and the delivery of the coal into barges provided by the
ultimate coal customer.
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38
|
|
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Conforming coal must be provided from Patriots Highland
Mine (unless other production sources are approved by the
ultimate coal customer) to meet specific quality parameters.
Patriot is responsible for performing all sampling, weighing and
analysis requirements. Non-conforming deliveries may be rejected
by COALSALES
and/or
the
ultimate coal customer, which could lead to suspension and
agreement termination if not remedied.
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The Base Price for coal supplied under the agreement ranges from
$31.62 to $34.23 per ton through December 31, 2011 and may
be adjusted (within certain limits) to reflect changes in cost
due to new laws or regulations or changes in existing law or
regulation.
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Payment terms are within 30 days after the unloading of
coal by the ultimate customer, or if later, the receipt of
Patriots invoice. Should there be any dispute of the
invoiced amount by the ultimate coal customer, COALSALES will
have the right to make a partial payment to Patriot excluding
such disputed amount.
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Sixty (60) days after the end of each calendar quarter,
COALSALES will invoice Patriot for quality variances from the
coal specifications contained in the agreement. Such invoice
will include upward or downward price adjustments for moisture,
ash, sulfur and calorific value.
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The agreement contains force majeure provisions allowing for the
temporary suspension of performance by us or the customer for
the duration of specified events beyond the control of the
affected party. Any shortfall in coal deliveries will be made up
at Patriots election, subject to mutual agreement on
scheduling with the ultimate coal customer.
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The Underlying Contract is generally terminable by the
non-defaulting party for any material uncured breach. In
general, COALSALES will bear the risk of default,
non-performance and termination by the end customer unless
caused by or attributable to Patriot. Should the ultimate coal
customer fail to perform under its agreement with COALSALES and
damage Patriot, COALSALES will have the obligation to pursue its
rights and remedies against the ultimate coal customer for the
benefit of Patriot, as applicable.
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Tax
Separation Agreement
The tax separation agreement sets forth the responsibilities of
Peabody and Patriot with respect to, among other things,
liabilities for federal, state, local and foreign taxes for
periods before and including the spin-off, the preparation and
filing of tax returns for such periods and disputes with taxing
authorities regarding taxes for such periods. Peabody is
generally responsible for federal, state, local and foreign
income taxes of Patriot for periods before and including the
spin-off. Patriot is generally responsible for all other taxes
relating to its business. Peabody and Patriot are each generally
responsible for managing those disputes that relate to the taxes
for which each is responsible and, under certain circumstances,
may jointly control any dispute relating to taxes for which both
parties are responsible. The tax separation agreement also
provides that Patriot will have to indemnify Peabody for some or
all of the taxes resulting from the transactions related to the
distribution of Patriot common stock if it takes certain actions
and if the distribution does not qualify as tax-free under
Sections 355 and 368 of the Internal Revenue Code of 1986,
as amended (the Code).
To maintain the qualification of the distribution as tax-free
under sections 368(a)(1)(D) and 355 of the Code, there are
material limitations on transactions in which Patriot may be
involved during the two-year period following the distribution
date. Specifically, during this two-year period, Patriot has
agreed to refrain from engaging in any of the transactions
listed below unless it first obtains a private letter ruling
from the Internal Revenue Service (IRS) or an opinion reasonably
acceptable in substance to Peabody from a tax advisor reasonably
acceptable to Peabody providing that the transaction will not
affect the tax-free treatment of the distribution and the
preceding contributions of capital.
Patriot is restricted from entering into any negotiations,
agreements or arrangements with respect to transactions or
events that may cause the spin-off to be treated as part of a
plan pursuant to which one or more persons acquire directly or
indirectly stock of Patriot representing a 50-percent or
greater interest therein within the meaning of
Section 355(d)(4) of the Code, including such transactions
or events described below (and, for this purpose, including any
redemptions made pursuant to open market stock repurchase
programs), stock issuances pursuant to the exercise of options
or otherwise,
39
option grants, capital contributions or acquisitions, entering
into any partnership or joint venture arrangements or a series
of such transactions or events, but not including the spin-off.
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Merging or consolidating with or into another corporation;
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Liquidating or partially liquidating;
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Selling or transferring all or substantially all of its assets
in a single transaction or series of related transactions, or
selling or transferring any portion of its assets that would
violate certain continuity requirements imposed by the
Code; and
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Redeeming or otherwise repurchasing any of its capital stock
other than pursuant to open market stock repurchase programs
meeting certain IRS requirements.
|
If Patriot enters into any of these transactions, with or
without the required private letter ruling or opinion from tax
counsel, Patriot will be responsible for, and will indemnify
Peabody from and against, any tax liability resulting from any
such transaction.
Liability
Assumption Agreements and Administrative Services
Agreement
In connection with the spin-off, a subsidiary of Peabody agreed
to pay certain retiree healthcare liabilities of Patriot and its
subsidiaries arising under the Coal Industry Retiree Health
Benefit Act of 1992 (Coal Act) and the 2007 National Bituminous
Coal Wage Agreement (2007 NBCWA) and predecessor agreements, as
well as retiree healthcare liabilities relating to certain
salaried employees. The terms governing such assumptions are set
forth in a Coal Act Liability Assumption Agreement, a NBCWA
Liabilities Assumption Agreement and a Salaried Employee
Liability Assumption Agreement, each entered into among the
Peabody subsidiary and the applicable Patriot subsidiaries.
Peabody guarantees the performance of its subsidiary under these
liability assumption agreements. Patriot is secondarily liable
if Peabody fails to meet the 2007 NBCWA obligations and the
salaried employee obligations.
As of December 31, 2007, the present value of the estimated
retiree healthcare liabilities to be paid by Peabody totaled
$603.4 million, including Coal Act liabilities, 2007 NBCWA
contractual liabilities and liabilities relating to salaried
employees of one of our subsidiaries. As a result of
Peabodys agreement to pay these liabilities,
Patriots retiree healthcare expense and related cash
payments were reduced significantly from historical levels
following the spin-off.
Under the Coal Act Liability Assumption Agreement, the Peabody
subsidiary agreed to pay all retiree healthcare liabilities of
Patriot and its subsidiaries under the Coal Act for employees
retiring on or after January 1, 1976 and prior to
October 1, 1994. Under the NBCWA Liability Assumption
Agreement, the Peabody subsidiary agreed to pay certain retiree
healthcare liabilities of Peabody Coal Company (a Patriot
subsidiary signatory to the 2007 NBCWA and predecessor
agreements) for employees retiring after September 30, 1994
and on or before December 31, 2006. In certain
circumstances, the Peabody subsidiary would not be responsible
for increases in retiree healthcare benefits associated with
future labor agreements entered into by us. Under the Salaried
Employee Liability Assumption Agreement, the Peabody subsidiary
agreed to pay certain retiree healthcare liabilities of Peabody
Coal Company for employees retiring on or prior to
December 31, 2006.
Patriot administers the retiree healthcare benefits assumed by
the Peabody subsidiary, pursuant to an Administrative Services
Agreement entered into effective as of October 31, 2007.
The Peabody subsidiary pays Patriot a fee equal to the fair
market value of the administration of such benefits. The
Administrative Services Agreement shall remain in effect until
the termination of all of the liability assumption agreements.
Transition
Services Agreement
Peabody and Patriot entered into a transition services agreement
pursuant to which Peabody provides certain administrative and
other services to Patriot, including in the following areas:
information technology, purchasing and materials management,
accounting services, payroll, human resources, engineering,
geology, land management and environmental services. For each of
these areas, a transition service schedule summarizes the
services to be provided and the responsibilities of Peabody and
Patriot. The cost to Patriot for these services is an estimate
of fair market value rates. Patriot has the right to terminate
the transition services agreement or any class of services
provided thereunder on 60 days prior notice. The
agreement has an initial term of six months, and Patriot has the
40
option to extend for an additional term of three months and,
under certain circumstances, for another term of three months.
We paid $0.9 million to Peabody in November and December
2007 for transition services.
Employee
Matters Agreement
General
In connection with the spin-off, we and Peabody entered into an
employee matters agreement, which provides for the transition of
our employees and retirees from Peabodys employee plans
and programs to employee plans and programs at Patriot. The
agreement also allocates responsibility for certain employee
benefit matters and liabilities after the distribution date,
including benefits for certain former employees of
Patriots subsidiaries. In general, and except as described
below or under the section captioned Liability Assumption
Agreements and Administrative Services Agreement, we and Peabody
are responsible for all obligations and liabilities relating to
our respective current and former employees and their dependents
and beneficiaries.
Treatment
of Peabody Equity Awards held by Patriot Employees
In connection with the spin-off, each Peabody stock option that
was outstanding immediately prior to the distribution date was
adjusted based on a formula determined by Peabodys
Compensation Committee in accordance with the terms of the
applicable stock incentive plan. Certain Peabody employees who
became Patriot executives following the spin-off held adjusted
Peabody stock options that were scheduled to vest on or before
January 3, 2008. These options continued to vest based on
such optionees continued employment with Patriot through
January 3, 2008. Such optionees have six months after the
earlier of January 3, 2008 or their termination from
Patriot to exercise vested options in accordance with the terms
of the applicable stock incentive plan and option agreement.
Certain Peabody employees who became Patriot executives
following the spin-off held restricted shares of Peabody common
stock. On October 22, 2007, those restricted stockholders
received the Patriot stock dividend on the same basis as all
other Peabody stockholders. In addition, restricted shares held
by these Patriot employees that were scheduled to vest on or
before January 3, 2008 continued to vest based on continued
employment with Patriot through January 3, 2008. These
restricted shares remained subject to the terms and conditions
of the applicable stock incentive plan and award agreement as in
effect immediately prior to October 31, 2007. Restricted
shares held by these Patriot employees that were scheduled to
vest after January 3, 2008 accelerated and became fully
vested on October 31, 2007.
Peabodys Board of Directors approved certain amendments to
Peabodys existing long term incentive stock plans,
effective as of October 31, 2007, to permit the treatment
of equity awards as outlined above.
For all other Peabody employees who hold Peabody equity awards
and became Patriot employees, an amendment to Peabodys
long-term stock incentive plans was implemented to allow for
continued vesting under these plans.
Certain
Real Property Arrangements
Following the spin-off, Patriot and its affiliates controlled
approximately 1.3 billion tons of proven and probable coal
reserves and related surface property in West Virginia, western
Kentucky and Illinois through various means, including fee
ownership, coal leases and option agreements. Except for certain
easements, rights of access and similar rights due to the
adjacent ownership of real property in western Kentucky, no
continuing real property relationships exist between Peabody and
Patriot subsequent to the spin-off. In the future, Patriot and
Peabody may enter into other commercial real property agreements
from time to time, the terms of which will be determined at
those relevant times.
Pursuant to a Conveyance and Assumption Agreement between a
subsidiary of Patriot and several subsidiaries of Peabody, these
Peabody subsidiaries assumed certain reclamation obligations at
sites in Indiana, Illinois, Kentucky and Ohio in exchange for
equipment owned by Patriots subsidiary having an aggregate
book value of approximately $1.2 million as of
October 31, 2007.
41
Throughput
and Storage Agreement
Since 1985, Patriots operations have transloaded coal for
seaborne markets through Dominion Terminal Associates (DTA), a
coal transloading and ground storage facility in Newport News,
Virginia. Peabody owns a 30% interest in DTA. In connection with
the spin-off, Patriot entered into a five-year Throughput and
Storage Agreement with Peabody pursuant to which Patriot
continues to utilize the DTA facility for transloading seaborne
shipments from Central Appalachia which originate on the CSX
railroad at an agreed fair value rate. Payments under the
Throughput and Storage Agreement are estimated to be
$17.3 million over the term of the contract.
Master
Equipment Sublease Agreement
Certain mining equipment and facilities used in the Patriot
business are leased from third parties by various Peabody
affiliates. Following the spin-off, Patriot subleases this
equipment and facilities from Peabody on terms and conditions
substantially similar to the third-party lease agreements. The
sublease payments will be approximately $17 million in 2008
and decline to $2.2 million per year by 2011 assuming
exercise of certain buy-out options related to such equipment
and facilities. After the spin-off, all new equipment and
facilities leases have been entered into by Patriot without
Peabody involvement. Upon expiration of an underlying equipment
lease, Patriot shall have the right to exercise any applicable
buy-out rights or return the respective equipment to the lessor
in accordance with the terms of such lease. Patriot shall
indemnify, defend and hold Peabody harmless from and against any
and all claims, damages, costs and expenses related to the
subleased equipment or any breach by Patriot of the master
sublease agreement or its underlying lease agreements. Subject
to the foregoing, Patriot is responsible for acquiring and
maintaining all equipment and facilities used in the operation
of its businesses following the spin-off.
Guarantees
Patriot and its subsidiaries were guarantors with respect to
Peabodys public debt. At spin-off, Patriot was released
from all such guarantee obligations.
Peabody currently does not guarantee any outstanding debt
obligations of Patriot or its subsidiaries. In the normal course
of business, Peabody has guaranteed the performance of Patriot
and its subsidiaries under various arrangements, including real
property leases, equipment and fixture leases, coal supply
agreements and other contracts. Those obligations which can be
quantified include payments under premises leases, equipment
leases and maintenance contracts. The total amount of such
guarantee obligations was approximately $72 million as of
December 31, 2007. Peabody also has guarantees in place
with respect to certain of Patriots Federal Black Lung
Benefits Act and workers compensation liabilities. The
total amount of such guaranteed obligations was approximately
$215 million as of December 31, 2007. For other
obligations, including guarantees of mineral and real property
leases and performance guarantees under coal supply agreements,
Peabodys potential exposure depends upon future production
and market prices, which cannot be determined at this time.
Software
License Agreement
Pursuant to the software license agreement, Peabody granted to
Patriot a non-exclusive license, solely in connection with
Patriots operation of the Patriot business, to install,
copy and distribute internally, use and create improvements,
enhancements and modifications to certain proprietary software
applications. The license was conditioned upon Patriots
prior acquisition, at Patriots expense, of a license to
all third party software applications, code or other proprietary
data or information which must be on the same platform in order
for the licensed software to run. Peabody also granted the right
to copy and distribute internally, use and create improvements,
enhancements or modifications to any related documentation
developed by Peabody that pertains to the operation of the
licensed software applications.
The software license agreement continues indefinitely, subject
to certain termination rights, such as upon a change of control
of Patriot. The agreement also provides that Peabody may, but is
under no obligation to, provide Patriot with improvements,
enhancements or modifications it makes to the licensed software
applications and related documentation after the date of the
spin-off. Patriot may make its own improvements, enhancements or
modifications to the licensed software applications and related
documentation, but all intellectual property rights therein are
owned by Peabody and licensed to Patriot under this agreement.
Peabody does not provide support and
42
maintenance services to Patriot in connection with the licensed
software applications other than under the Transition Services
Agreement. As consideration for the license granted under the
software license agreement, Patriot paid Peabody a
non-refundable upfront license fee of $1.2 million. We do
not currently anticipate that Peabody will provide us with
updates, enhancements or modifications to the licensed software
applications during the term of the software license agreement.
Common
Interest Agreement
In connection with the spin-off, we and Peabody entered into a
common interest agreement, which sets forth the terms under
which we will cooperate with Peabody with respect to claims,
suits, investigations or other proceedings that have been, or
that in the future could be, initiated against us or Peabody.
With the exception of situations where a conflict of interest
arises between us and Peabody, under the common interest
agreement, the attorney-client privilege and the work product
doctrine will apply to all privileged information and work
product exchanged between us and Peabody.
The common interest agreement provides that the parties will
share such information and documents as they deem appropriate
under the law with the other parties and their officers,
directors, employees, advisors or agents, so long as such person
is informed by the applicable party of the confidential nature
of the shared information and documents and is obligated to
treat such information and documents in accordance with the
provisions of the common interest agreement. If any third party
requests, by summons, subpoena or otherwise, the production of
any privileged documents from any party to the common interest
agreement, the recipient of such demand will immediately notify
the other party and will take all reasonable steps to permit the
assertion of all applicable rights and privileges with respect
to the documents and information subject to the request.
Policy
for Approval of Related Person Transactions
The Nominating & Governance Committee is responsible
for reviewing and approving all transactions between the Company
and certain related persons, such as its executive
officers, directors and owners of more than 5% of the
Companys voting securities in accordance with our written
policy. Such transactions are generally reviewed before entry
into the related person transaction. In addition, if any of our
specified officers becomes aware of a related party transaction
that has not been previously approved or ratified, such related
person transaction will be promptly submitted thereafter to the
Committee for its review. In reviewing a transaction, the
Committee considers the relevant facts and circumstances,
including the benefits to the Company, any impact on director
independence and whether the terms are consistent with a
transaction available on an arms-length basis. Only those
related person transactions that are determined to be in (or not
inconsistent with) the best interests of the Company and
stockholders are permitted to be approved. No member of the
Committee may participate in any review of a transaction in
which the member or any of his or her family members is the
related person. A copy of the policy can be found on the
Companys website (
www.patriotcoal.com
) by clicking
on Investors, then Corporate Governance,
and then Related Party Transactions and is available
in print to any stockholder who requests it. Information on our
website is not considered part of this Proxy Statement.
RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2)
The Board of Directors has, upon the recommendation of the Audit
Committee, appointed Ernst & Young LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2008, subject to
ratification by the Companys stockholders. While the Audit
Committee is responsible for the appointment, compensation,
retention, termination and oversight of the independent
registered public accounting firm, the Audit Committee and the
Board are requesting, as a matter of policy, that the
stockholders ratify the appointment of Ernst & Young
LLP as the Companys independent registered public
accounting firm. The Audit Committee is not required to take any
action as a result of the outcome of the vote on this proposal.
However, if the Companys stockholders do not ratify the
appointment, the Audit Committee may investigate the reasons for
stockholder rejection and may consider whether to retain
Ernst & Young LLP or to appoint another independent
registered public accounting firm. Furthermore, even if the
appointment is ratified, the Audit Committee in its
43
discretion may appoint a different independent registered public
accounting firm at any time during the year if it determines
that such a change would be in the best interests of the Company
and the Companys stockholders.
Representatives of Ernst & Young LLP are expected to
be present at the Annual Meeting. Such representatives will have
an opportunity to make a statement, if they so desire, and will
be available to respond to appropriate questions by
stockholders. For additional information regarding the
Companys relationship with Ernst & Young LLP,
please refer to Report of the Audit Committee and
Fees Paid to Independent Registered Public Accounting
Firm on page 10 of the Proxy Statement.
The Board of Directors recommends that you vote
For Item 2, which ratifies the appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm for the fiscal year ending
December 31, 2008.
ADDITIONAL
INFORMATION
Information
About Stockholder Proposals
If you wish to submit a proposal for inclusion in next
years Proxy Statement and proxy, we must receive the
proposal on or before December 7, 2008, which is 120
calendar days prior to the anniversary of this years
mailing date. Upon timely receipt of any such proposal, the
Company will determine whether or not to include such proposal
in the proxy statement and proxy in accordance with applicable
regulations governing the solicitation of proxies. Any proposals
should be submitted in writing to: Corporate Secretary, Patriot
Coal Corporation, 12312 Olive Boulevard, Suite 400, Saint
Louis, Missouri 63141.
Under the Companys by-laws, if you wish to nominate a
director or bring other business before the stockholders at the
2009 Annual Meeting without having your proposal included in
next years proxy statement:
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You must notify the Corporate Secretary in writing at the
Companys principal executive offices between
January 12, 2009 and February 11, 2009; however, if
the Company advances the date of the meeting by more than
20 days or delays the date by more than 70 days, from
May 12, 2009, then such notice must be received not earlier
than 120 days before the date of the annual meeting and not
later than the close of business on the 90th day before
such date or the 10th day after public disclosure of the
meeting is made; and
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Your notice must contain the specific information required by
the Companys by-laws regarding the proposal or nominee,
including, but not limited to, name, address, shares held, a
description of the proposal or information regarding the nominee
and other specified matters.
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You can obtain a copy of the Companys by-laws without
charge by writing to the Corporate Secretary at the address
shown above or by accessing the Companys website
(
www.patriotcoal.com
) and clicking on
Investors, and then Corporate
Governance. Information on our website is not considered
part of this Proxy Statement. These requirements are separate
from and in addition to the requirements a stockholder must meet
to have a proposal included in the Companys proxy
statement. The foregoing time limits also apply in determining
whether notice is timely for purposes of rules adopted by the
SEC relating to the exercise of discretionary voting authority.
Householding
of Proxies
The SEC has adopted rules that permit companies and
intermediaries such as brokers to satisfy delivery requirements
for annual reports and proxy statements with respect to two or
more shareholders sharing the same address by delivering a
single annual report
and/or
proxy
statement addressed to those shareholders. This process, which
is commonly referred to as householding, potentially
provides extra convenience for shareholders and cost savings for
companies. The Company and some brokers household annual reports
and proxy materials, delivering a single annual report
and/or
proxy
statement to multiple stockholders sharing an address unless
contrary instructions have been received from the affected
stockholders.
Once you have received notice from your broker or the Company
that your broker or the Company will be householding materials
to your address, householding will continue until you are
notified otherwise or until you revoke your consent. If, at any
time, you no longer wish to participate in householding and
would prefer to receive a
44
separate annual report
and/or
proxy
statement in the future, please notify your broker if your
shares are held in a brokerage account or the Company if you
hold registered shares and we will deliver those documents to
you promptly upon receiving the request. If, at any time, you
and another stockholder sharing the same address wish to
participate in householding and prefer to receive a single copy
of the Companys annual report
and/or
proxy
statement, please notify your broker if your shares are held in
a brokerage account or the Company if you hold registered shares.
You may request to receive at any time a separate copy of our
annual report or proxy statement, or notify the Company that you
do or do not wish to participate in householding, by sending a
written request to the Corporate Secretary at 12312 Olive
Boulevard, Suite 400, Saint Louis, Missouri 63141,
(314) 275-3600.
Additional
Filings
The Companys
Forms 10-K,
10-Q
and
8-K
and all
amendments to those reports are available without charge through
the Companys website on the Internet as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the Commission. They may be accessed at the
Companys website (
www.patriotcoal.com
) by clicking
on Investors, and then SEC Filings.
Information on our website is not considered part of this Proxy
Statement.
In accordance with SEC rules, the information contained in the
Report of the Audit Committee on page 9, and (ii) the
Report of the Compensation Committee on page 23 shall not
be deemed to be soliciting material, or to be
filed with the SEC or subject to the SECs
Regulation 14A, or to the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically requests that the
information be treated as soliciting material or specifically
incorporates it by reference into a document filed under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.
Costs of
Solicitation
The Company is paying the cost of preparing, printing and
mailing these proxy materials. The Company has engaged Georgeson
Inc. to assist in distributing proxy materials, soliciting
proxies and in performing other proxy solicitation services for
a fee of $6,500 plus their out-of-pocket expenses. Proxies may
be solicited personally or by telephone by regular employees of
the Company without additional compensation as well as by
employees of Georgeson. The Company will reimburse banks,
brokerage firms and others for their reasonable expenses in
forwarding proxy materials to beneficial owners and obtaining
their voting instructions.
OTHER
BUSINESS
The Board of Directors is not aware of any matters requiring
stockholder action to be presented at the Annual Meeting other
than those stated in the Notice of Annual Meeting. Should other
matters be properly introduced at the Annual Meeting, those
persons named in the enclosed proxy will have discretionary
authority to act on such matters and will vote the proxy in
accordance with their best judgment.
The Company will provide to any stockholder, without charge
and upon written request, a copy (without exhibits unless
otherwise requested) of the Companys Annual Report on
Form 10-K
for the Fiscal Year Ended December 31, 2007 as filed with
the Commission. Any such request should be directed to Patriot
Coal Corporation, Investor Relations, 12312 Olive Boulevard,
Suite 400, Saint Louis, Missouri 63141; telephone
(314) 275-3600.
By Order of the Board of Directors,
Joseph W. Bean
Senior Vice President, General
Counsel & Corporate Secretary
45
ANNUAL MEETING OF SHAREHOLDERS OF PATRIOT COAL CORPORATION May 12, 2008 Please date, sign and mail
your proxy card in the envelope provided as soon as possible. Please detach along perforated line
and mail in the envelope provided. 20230000000000001000 9 051208 THE BOARD OF
DIRECTORS RECOMMENDS VOTING FOR ITEMS 1 AND 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN
1. Election of Directors: The undersigned hereby GRANTS authority to 2. Ratification of Appointment
of Independent Registered Public elect the following nominees: (see Board recommendation below):
Accounting Firm. NOMINEES: FOR ALL NOMINEES O J. Joe Adorjan RECOMMENDATION: The Board recommends
voting FOR the above proposal. O Michael M. Scharf WITHHOLD AUTHORITY FOR ALL NOMINEES If you
vote over the Internet or by telephone, please do not mail your card. FOR ALL EXCEPT (See
instructions below) RECOMMENDATION: The Board recommends voting FOR all Nominees. INSTRUCTION: To
withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and fill in the
circle next to each nominee you wish to withhold, as shown here: MARK X HERE IF YOU PLAN TO
ATTEND THE MEETING. To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes to the registered
name(s) on the account may not be submitted via this method. Signature of Shareholder Date:
Signature of Shareholder Date: Note: Please sign exactly as your name or names appear on this
Proxy. When shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by authorized person.
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ANNUAL MEETING OF SHAREHOLDERS OF PATRIOT COAL CORPORATION May 12, 2008 PROXY VOTING INSTRUCTIONS
MAIL Date, sign and mail your proxy card in the envelope provided as soon as possible. OR -
TELEPHONE Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718- 921-8500
from foreign countries and follow the COMPANY NUMBER instructions. Have your proxy card available
when you call. OR ACCOUNT NUMBER INTERNET Access www.voteproxy.com and follow the on-screen
instructions. Have your proxy card available when you access the web page. OR IN PERSON You
may vote your shares in person by attending the Annual Meeting. You may enter your voting
instructions at 1-800-PROXIES in the United States or 1-718-921-8500 from foreign countries or
www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting date. Please
detach along perforated line and mail in the envelope provided IF you are not voting via telephone
or the Internet. 20230000000000001000 9 051208 THE BOARD OF DIRECTORS RECOMMENDS
VOTING FOR ITEMS 1 AND 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST ABSTAIN 1. Election of Directors:
The undersigned hereby GRANTS authority to 2. Ratification of Appointment of Independent Registered
Public elect the following nominees: (see Board recommendation below): Accounting Firm. NOMINEES:
FOR ALL NOMINEES O J. Joe Adorjan RECOMMENDATION: The Board recommends voting FOR the above
proposal. O Michael M. Scharf WITHHOLD AUTHORITY FOR ALL NOMINEES If you vote over the Internet or
by telephone, please do not mail your card. FOR ALL EXCEPT (See instructions below) RECOMMENDATION:
The Board recommends voting FOR all Nominees. INSTRUCTION: To withhold authority to vote for any
individual nominee(s), mark FOR ALL EXCEPT and fill in the circle next to each nominee you wish
to withhold, as shown here: JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 MARK X HERE
IF YOU PLAN TO ATTEND THE MEETING. To change the address on your account, please check the box at
right and indicate your new address in the address space above. Please note that changes to the
registered name(s) on the account may not be submitted via this method. Signature of Shareholder
Date: Signature of Shareholder Date: Note: Please sign exactly as your name or names appear on this
Proxy. When shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such.
If signer is a partnership, please sign in partnership name by authorized person.
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0 PROXY PATRIOT COAL CORPORATION Proxy/Voting Instruction Card for Annual Meeting of Shareholders
to be held on May 12, 2008 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The
undersigned hereby constitutes and appoints Richard M. Whiting, Mark N. Schroeder and Joseph W.
Bean, or any of them, with power of substitution to each, proxies to represent the undersigned and
to vote, as designated on the reverse side of this form, all shares of Common Stock which the
undersigned would be entitled to vote at the Annual Meeting of Shareholders of Patriot Coal
Corporation (Patriot) to be held on May 12, 2008 at the Donald Danforth Plant Science Center, 975
North Warson Road, Saint Louis, Missouri 63132 at 10:00A.M., and at any adjournments or
postponements thereof. The undersigned hereby further authorizes such proxies to vote in their
discretion with respect to such other business as may properly come before the meeting and any
adjournments or postponements thereof. If the undersigned is a participant in the Patriot Coal
Corporation 401(k) Retirement Plan, this proxy/voting instruction card also provides voting
instructions to the trustee of such plan to vote at the Annual Meeting, and any adjournments
thereof, as specified on the reverse side hereof. If the undersigned is a participant in this plan
and fails to provide voting instructions, the trustee will vote the undersigneds plan account
shares (and any shares not allocated to individual participant accounts) in proportion to the votes
cast by other participants in that plan. The shares represented by this proxy/voting instruction
card will be voted in the manner indicated by the shareholder. In the absence of such indication,
such shares will be voted FOR the election of all the director nominees listed in Item 1, or any
other person selected by the Board if any nominee is unable to serve, and FOR ratification of Ernst
& Young LLP as Patriots independent registered public accounting firm for 2008 (Item 2). The
shares represented by this proxy will be voted in the discretion of said proxies with respect to
such other business as may properly come before the meeting and any adjournments or postponements
thereof. IMPORTANT This proxy/voting instruction card must be signed and dated on the reverse
side. (Continued and to be signed on the reverse side) 14475
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