Filed pursuant to Rule 424(b)(2)
(File No. 333-157645)
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 4, 2009)
12,000,000 Shares
Patriot Coal
Corporation
COMMON STOCK
Patriot Coal Corporation is offering 12,000,000 shares
of its common stock.
Our common stock is listed on the New York Stock Exchange
under the symbol PCX. On June 16, 2009, the
last reported sale price of our common stock on the New York
Stock Exchange was $8.01 per share.
Investing in the common stock involves risks. See
Risk Factors beginning on
page S-7.
PRICE $7.90 A SHARE
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Public
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Commissions
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Company
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Per share
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$
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7.90000
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$
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0.41475
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$
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7.48525
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Total
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$
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94,800,000
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$
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4,977,000
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$
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89,823,000
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Patriot Coal Corporation has granted the underwriters the
right to purchase an additional 1,800,000 shares of common
stock to cover over-allotments.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus supplement and the accompanying
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Morgan Stanley & Co. Incorporated and UBS
Securities LLC expect to deliver the shares of common stock to
purchasers on June 22, 2009.
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MORGAN
STANLEY
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UBS INVESTMENT BANK
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Barclays
Capital
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PNC
Capital Markets LLC
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Natixis
Bleichroeder Inc.
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Piper Jaffray
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Santander Investment
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Societe Generale
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June 16, 2009
TABLE OF
CONTENTS
Prospectus
supplement
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Page
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S-ii
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S-ii
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S-1
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S-1
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S-3
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S-4
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S-7
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S-9
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S-10
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S-11
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S-12
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S-19
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S-21
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S-26
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S-26
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Prospectus
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Page
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About This Prospectus
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1
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The Company
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2
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Where You Can Find More Information
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2
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Special Note on Forward-Looking Statements
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3
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Risk Factors
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5
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Ratio of Earnings to Fixed Charges
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21
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Use of Proceeds
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21
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Description of Capital Stock
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21
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Description of Preferred Stock
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28
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Description of Warrants
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28
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Description of Purchase Contracts
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28
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Description of Units
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29
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Description of Debt Securities
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29
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Forms of Securities
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34
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Plan of Distribution
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36
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Validity of Securities
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37
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Experts
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37
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it.
We are not, and the underwriters are not, making an offer to
sell securities in any jurisdiction where the offer or sale is
not permitted.
You should assume that the information appearing in this
prospectus supplement and the accompanying prospectus is
accurate only as of the respective dates on the front cover of
these documents or earlier dates specified herein or therein and
that the information incorporated herein or therein by reference
is accurate only as of its date. Our business, financial
condition, results of operations and prospects may have changed
since those dates. It is important that you read and consider
all of the information in this prospectus supplement on the one
hand, and the information contained in the accompanying
prospectus and any document incorporated by reference, on the
other hand, in making your investment decision.
S-i
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (the SEC). You may read and copy any
document that we file at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an Internet site at
http://www.sec.gov,
from which interested persons can electronically access our SEC
filings, including the registration statement and the exhibits
and schedules thereto.
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus supplement, and information
that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below and all documents subsequently filed with
the SEC pursuant to Section 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934, as amended, prior to the
termination of the offering under this prospectus supplement:
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(a)
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Current Reports on
Form 8-K
filed on February 4, February 6, February 10 (for the
Form 8-K
filed on such date with respect to Items 5.02 and 9.01),
February 26, June 15 and June 16, 2009;
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(b)
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Quarterly Report on
Form 10-Q
for the three-months ended March 31, 2009;
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(c)
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Annual Report on
Form 10-K
for the year ended December 31, 2008; and
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(d)
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Definitive Proxy Statement on Schedule 14A filed on
April 1, 2009.
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Our Current Report on
Form 8-K
filed on June 16, 2009 in connection with our adoption,
effective as of January 1, 2009, of Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment to
ARB 51 (SFAS No. 160), Financial
Accounting Standard Board Staff Position (FSP) APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-1)
and FSP Emerging Issues Task Force
03-6-1
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities
(FSP
EITF 03-6-1),
updates Items 6, 7, 7A and 8 of our Annual Report on
Form 10-K
for the year ended December 31, 2008.
You may also request copies of our filings, free of charge, by
telephone at
(314) 275-3680
or by mail at: Patriot Coal Corporation, 12312 Olive Boulevard,
St. Louis, Missouri 63141, attention: Investor Relations.
SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. We have based these forward-looking statements on
our current expectations and projections about future events.
These forward-looking statements are subject to risks,
uncertainties, and assumptions about our business, including,
among other things:
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difficulty in implementing our business strategy;
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geologic, equipment and operational risks associated with mining;
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changes in general economic conditions, including coal and power
market conditions;
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availability and costs of credit, surety bonds and letters of
credit;
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reductions of purchases or deferral of deliveries by major
customers;
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customer performance and credit risks;
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the outcome of commercial negotiations involving sales contracts
or other transactions;
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regulatory and court decisions including, but not limited to,
those impacting permits issued pursuant to the Clean Water Act;
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environmental laws and regulations including those affecting our
operations and those affecting our customers coal usage;
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S-ii
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coal mining laws and regulations;
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economic strength and political stability of countries in which
we serve customers;
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downturns in consumer and company spending;
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supplier and contract miner performance, and the availability
and cost of key equipment and commodities;
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availability and costs of transportation;
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worldwide economic and political conditions;
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labor availability and relations;
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our ability to replace proven and probable coal reserves;
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the effects of mergers, acquisitions and divestitures, including
our ability to successfully integrate mergers and acquisitions;
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our ability to respond to changing customer preferences;
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our dependence on Peabody Energy for a significant portion of
our revenues;
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price volatility and demand, particularly in higher margin
products;
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failure to comply with debt covenants;
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developments in greenhouse gas emission regulation and
treatment, including any development of commercially successful
carbon capture and storage techniques;
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the outcome of pending or future litigation;
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weather patterns affecting energy demand;
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competition in our industry;
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changes in postretirement benefit obligations;
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changes to contribution requirements to multi-employer benefit
funds;
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availability and costs of competing energy resources;
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interest rate fluctuation;
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inflationary trends, including those impacting materials used in
our business;
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wars and acts of terrorism or sabotage;
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impact of pandemic illness; and
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other factors, including those discussed in Legal
Proceedings set forth in Part I, Item 3 of our
Annual Report on
Form 10-K
for the year ended December 31, 2008 and Part II,
Item 1 of our Quarterly Report on
Form 10-Q
for the three-months ended March 31, 2009.
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These factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements that
are included in the documents incorporated by reference. If one
or more of these or other risks or uncertainties materialize, or
if our underlying assumptions prove to be incorrect, actual
results may vary materially from what we projected.
Consequently, actual events and results may vary significantly
from those included in or contemplated or implied by our
forward-looking statements. We do not undertake any obligation
(and expressly disclaim any such obligation) to update the
forward-looking statements, except as required by federal
securities laws. This description replaces in its entirety the
information included under the caption Special Note on
Forward-Looking Statements in the accompanying prospectus.
S-iii
SUMMARY
This summary highlights information contained elsewhere in this
prospectus supplement, the accompanying prospectus or the
documents incorporated by reference. It does not contain all of
the information that you should consider before making an
investment decision. You should read carefully the entire
prospectus supplement, the accompanying prospectus, the
documents incorporated by reference and the other documents to
which we refer for a more complete understanding of this
offering. You should read Risk Factors beginning on
page S-7
of this prospectus supplement and on page 5 of the
accompanying prospectus for more information about important
risks that you should consider before buying the common stock to
be issued in connection with this offering. Unless the context
requires otherwise or as otherwise indicated,
Patriot, we, us,
our or similar terms in this prospectus supplement
refer to Patriot Coal Corporation and its subsidiaries on a
consolidated basis.
OUR
BUSINESS
Business
We are a leading producer of thermal coal in the eastern United
States, with operations and coal reserves in Appalachia and the
Illinois Basin, which represent our operating segments. We are
also a leading U.S. producer of metallurgical quality coal.
Our principal business is the mining, preparation and sale of
thermal coal, also known as steam coal, for sale primarily to
electric utilities and metallurgical coal, for sale to steel
mills and independent coke producers. In the first three months
of 2009, we sold 8.5 million tons of coal, of which 84% was
sold to domestic electric utilities and 16% was sold to domestic
and global steel producers. In 2008, we sold 28.5 million
tons of coal, of which 79% was sold to domestic electric
utilities and 21% was sold to domestic and global steel
producers. We control approximately 1.8 billion tons of
proven and probable coal reserves. Our proven and probable coal
reserves include metallurgical coal and medium and high Btu
thermal coal, with low, medium and high sulfur content.
Our operations consist of fourteen mining complexes, which
include company-operated mines, contractor-operated mines and
coal preparation facilities. The Appalachia and Illinois Basin
segments consist of our operations in West Virginia and
Kentucky, respectively. We ship coal to electric utilities,
industrial users and metallurgical coal customers via various
company-owned and third-party loading facilities and multiple
rail and river transportation routes.
Recent
Developments
Effective July 23, 2008, we acquired Magnum Coal Company
(Magnum). Magnum was one of the largest coal
producers in Appalachia, operating eight mining complexes with
production from surface and underground mines and controlling
more than 600 million tons of proven and probable coal
reserves. Upon the completion of the acquisition, we performed a
strategic review of all our operations, resulting in the
decision to cease operations at two Magnum mining complexes. The
Jupiter complex ceased operations in December 2008 and the
Remington complex ceased operations in March 2009.
Early in 2009, we implemented a Management Action Plan in
response to the weakened coal markets. In January 2009, we
announced the idling of our Black Oak mine. On April 2,
2009, we announced additional contract mine suspensions, the
deferral of the opening of the Blue Creek complex and the
cancellation of certain shifts at various mining complexes.
Effective January 1, 2009, we adopted
SFAS No. 160, FSP APB
14-1
and FSP
EITF 03-6-1.
As required, these standards were retrospectively applied to our
financial statements as further described in our Current Report
on
Form 8-K
filed on June 16, 2009, and incorporated by reference
herein.
On June 15, 2009, we provided an update on certain of our
metallurgical coal supply agreements. We reached agreement with
a customer that previously requested deferral of a portion of
contracted shipments. The customer confirmed its commitment to
purchase volumes as originally contracted for the remainder of
2009 and has agreed to make a cash payment to compensate for
shortfalls in contracted purchases in the first
S-1
half of 2009, primarily in the second quarter. The cash payment
will be received in June and recognized as revenue during the
second quarter. Our EBITDA for the second quarter is expected to
be largely driven by this contractual arrangement. See
Summary Condensed Consolidated Financial Data for a
definition of the term EBITDA. Separately, we have filed a
demand for arbitration against a metallurgical coal customer to
enforce our contractual rights and recover damages for failure
to perform under two legacy-priced coal supply agreements during
2009. The customers failure to perform has caused
disruptions in operating and shipping schedules.
As of June 15, our 2009 production is substantially
committed, and we expect sales to total 33.5 to 35 million
tons for the full year. Average selling prices of currently
priced tons scheduled for shipment in the second half of 2009
are as follows:
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Second Half 2009
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Tons
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Price per ton
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(in millions)
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Appalachia thermal
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11.1
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$
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58
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Illinois Basin thermal
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3.8
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$
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37
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Appalachia met
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2.5
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$
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105
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Total
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17.4
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For more information, please see our Current Report on
Form 8-K
filed on June 15, 2009, which is incorporated by reference
herein. Also see our Special Note on Forward-Looking
Statements in this prospectus supplement and our
Risk Factors in this prospectus supplement and the
accompanying prospectus.
S-2
THE
OFFERING
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Common stock offered by us
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12,000,000 shares (or 13,800,000 shares if the
underwriters exercise in full their option to purchase an
additional 1,800,000 shares)(1)
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Common stock to be outstanding immediately after completion of
this offering(2)
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90,079,523 shares (or 91,879,523 shares if the
underwriters exercise in full their option to purchase an
additional 1,800,000 shares)
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Over-allotment option
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1,800,000 shares
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Use of proceeds
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The net proceeds from the sale of the shares, after deducting
underwriting discounts and commissions and estimated offering
expenses, will be approximately $89.3 million, or
approximately $102.8 million if the underwriters
overallotment option is exercised in full.
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We intend to use the net proceeds from this offering to repay
the outstanding balance on our revolving credit facility, which
was $65,000,000 as of March 31, 2009, with the remainder
for general corporate purposes. See Use of Proceeds.
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NYSE symbol
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PCX
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(1)
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Includes associated Series A Junior Participating Preferred
Stock purchase rights. See Description of Capital
Stock Rights Agreement in this prospectus
supplement.
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(2)
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The number of shares of common stock to be outstanding after
this offering includes 951,616 restricted shares outstanding
under our equity compensation plans, but excluding options,
restricted stock units and deferred stock units granted under
our equity compensation plans for up to 2,514,613 shares
(as of June 15, 2009) with vesting dates prior to
May 31, 2013, the maturity date of our convertible notes,
which has up to 4,137,788 shares that could be delivered upon
conversion of our outstanding private convertible notes. The
company also has 817,954 shares reserved for our employee
stock purchase plan.
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S-3
SUMMARY
CONDENSED CONSOLIDATED FINANCIAL DATA
The following table presents selected financial and other data
about us for the most recent three fiscal years and the three
month periods ended March 31, 2009 and 2008. The historical
financial and other data have been prepared on a consolidated
basis derived from Patriots consolidated financial
statements using the historical results of operations and bases
of the assets and liabilities of Patriots businesses. The
historical consolidated balance sheet data set forth below
reflect the assets and liabilities that existed as of the dates
and the periods presented.
Effective October 31, 2007, Patriot was spun off from
Peabody Energy Corporation (Peabody). For periods prior to the
spin-off, the historical consolidated statements of income data
set forth below do not reflect changes that occurred in the
operations and funding of our company as a result of our
spin-off from Peabody and give effect to allocations of expenses
from Peabody in 2007 and 2006.
On July 23, 2008, Patriot completed the acquisition of
Magnum and their results are included from that date forward.
The selected consolidated financial data should be read in
conjunction with, and are qualified by reference to,
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the historical
financial statements and the accompanying notes thereto of us
and our consolidated subsidiaries as provided in our Current
Report of
Form 8-K
filed on June 16, 2009, which is incorporated by reference
to this prospectus supplement and accompanying prospectus. The
consolidated statements of operations and cash flow data for
each of the three years in the period ended December 31,
2008 and the consolidated balance sheet data as of
December 31, 2008, 2007 and 2006 are derived from our
audited consolidated financial statements and should be read in
conjunction with those consolidated financial statements and the
accompanying notes. The historical financial and other data
relating to the three month periods ended March 31, 2009
and 2008 has been derived from our unaudited condensed
consolidated financial statements and related notes. In
managements opinion, these unaudited condensed
consolidated financial statements have been prepared on
substantially the same basis as the audited financial statements
and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial
data for the periods presented.
The financial information presented below may not reflect what
our results of operations, cash flows and financial position
would have been had we operated as a separate, stand-alone
entity for the years ended December 31, 2007 and 2006 or
what our results of operations, financial position and cash
flows will be in the future.
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Year Ended December 31,
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Three Months Ended March 31,
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2008
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2007
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2006
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2009
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2008
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(Unaudited)
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(Unaudited)
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(In thousands, except for share and per share data)
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Results of Operations Data:
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Revenues
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Sales
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$
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1,630,873
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$
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1,069,316
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$
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1,142,521
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$
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522,838
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$
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279,101
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Other revenues
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23,749
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4,046
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5,398
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6,098
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5,233
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Total revenues
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1,654,622
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1,073,362
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1,147,919
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528,936
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284,334
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Costs and expenses
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Operating costs and expenses
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1,329,259
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1,109,252
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1,051,872
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417,401
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259,118
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Depreciation, depletion and amortization
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125,356
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85,640
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86,458
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54,979
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18,610
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Asset retirement obligation expense
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19,260
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20,144
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24,282
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6,451
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3,416
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Selling and administrative expenses
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38,607
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45,137
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47,909
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12,886
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8,289
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Net gain on disposal or exchange of assets(1)
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(7,004
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)
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(81,458
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)
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(78,631
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)
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(30
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(194
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)
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Operating profit (loss)
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149,144
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(105,353
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)
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16,029
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|
|
|
37,249
|
|
|
|
(4,905
|
)
|
Interest expense
|
|
|
23,648
|
|
|
|
8,337
|
|
|
|
11,419
|
|
|
|
8,593
|
|
|
|
2,322
|
|
Interest income
|
|
|
(17,232
|
)
|
|
|
(11,543
|
)
|
|
|
(1,417
|
)
|
|
|
(3,487
|
)
|
|
|
(3,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(In thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
142,728
|
|
|
$
|
(102,147
|
)
|
|
$
|
6,027
|
|
|
$
|
32,143
|
|
|
$
|
(3,978
|
)
|
Income tax provision (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,350
|
|
|
|
-
|
|
|
|
(912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
142,728
|
|
|
|
(102,147
|
)
|
|
|
(2,323
|
)
|
|
|
32,143
|
|
|
|
(3,066
|
)
|
Net income attributable to the noncontrolling interest(2)
|
|
|
-
|
|
|
|
4,721
|
|
|
|
11,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Patriot
|
|
|
142,728
|
|
|
|
(106,868
|
)
|
|
|
(13,492
|
)
|
|
|
32,143
|
|
|
|
(3,066
|
)
|
Effect of noncontrolling interest purchase arrangement
|
|
|
-
|
|
|
|
(15,667
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
142,728
|
|
|
$
|
(122,535
|
)
|
|
$
|
(13,492
|
)
|
|
$
|
32,143
|
|
|
$
|
(3,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
2.23
|
|
|
$
|
(2.29
|
)
|
|
|
N/A
|
|
|
$
|
0.41
|
|
|
$
|
(0.06
|
)
|
Earnings per share, diluted
|
|
$
|
2.21
|
|
|
$
|
(2.29
|
)
|
|
|
N/A
|
|
|
$
|
0.41
|
|
|
$
|
(0.06
|
)
|
Weighted average shares outstanding basic(3)
|
|
|
64,080,998
|
|
|
|
53,511,478
|
|
|
|
N/A
|
|
|
|
77,906,152
|
|
|
|
53,518,744
|
|
Weighted average shares outstanding diluted(3)
|
|
|
64,625,911
|
|
|
|
53,511,478
|
|
|
|
N/A
|
|
|
|
77,999,247
|
|
|
|
53,518,744
|
|
Balance Sheet Data (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,622,320
|
|
|
$
|
1,199,837
|
|
|
$
|
1,178,181
|
|
|
$
|
3,643,965
|
|
|
$
|
1,227,534
|
|
Total liabilities(4)
|
|
|
2,782,139
|
|
|
|
1,117,521
|
|
|
|
1,851,855
|
|
|
|
2,764,284
|
|
|
|
1,143,846
|
|
Total long-term debt, less current maturities
|
|
|
176,123
|
|
|
|
11,438
|
|
|
|
20,722
|
|
|
|
175,901
|
|
|
|
10,453
|
|
Total stockholders equity (deficit)(4)
|
|
|
840,181
|
|
|
|
82,316
|
|
|
|
(673,674
|
)
|
|
|
879,681
|
|
|
|
83,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
(In thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in millions and unaudited)
|
|
|
28.5
|
|
|
|
22.1
|
|
|
|
24.3
|
|
|
|
8.5
|
|
|
|
5.1
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
63,426
|
|
|
$
|
(79,699
|
)
|
|
$
|
(20,741
|
)
|
|
$
|
(19,196
|
)
|
|
$
|
(4,832
|
)
|
Investing activities
|
|
|
(138,665
|
)
|
|
|
54,721
|
|
|
|
1,993
|
|
|
|
(18,119
|
)
|
|
|
(13,316
|
)
|
Financing activities
|
|
|
72,128
|
|
|
|
30,563
|
|
|
|
18,627
|
|
|
|
40,643
|
|
|
|
21,573
|
|
Adjusted EBITDA(5) (unaudited)
|
|
|
44,238
|
|
|
|
431
|
|
|
|
126,769
|
|
|
|
21,872
|
|
|
|
17,121
|
|
Past mining obligation payments (unaudited)
|
|
|
101,746
|
|
|
|
144,811
|
|
|
|
150,672
|
|
|
|
35,254
|
|
|
|
23,368
|
|
Additions to property, plant, equipment and mine development
|
|
|
121,388
|
|
|
|
55,594
|
|
|
|
80,224
|
|
|
|
19,042
|
|
|
|
12,030
|
|
Acquisitions, net
|
|
|
9,566
|
|
|
|
47,733
|
|
|
|
44,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(1)
|
|
Net gain on disposal or exchange of assets included gains of
$66.6 million from sales of coal reserves and surface lands
in 2006 and gains of $78.5 million from the sales of coal
reserves and surface land in 2007.
|
|
(2)
|
|
In March 2006, we increased our 49% interest in KE Ventures, LLC
to an effective 73.9% interest and began combining KE Ventures,
LLCs results with our results effective January 1,
2006. In 2007, we purchased the remaining interest.
|
|
(3)
|
|
All share and per share amounts reflect the
2-for-1
stock split effected in the form of a 100% stock dividend
effective August 11, 2008.
|
|
(4)
|
|
We adopted SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans on December 31, 2006, and as a result,
increased noncurrent liabilities and decreased total invested
capital (accumulated other comprehensive loss) by
$322.1 million.
|
S-5
|
|
|
(5)
|
|
Adjusted EBITDA is defined as net income (loss) attributable to
Patriot before deducting interest income and expense; income
taxes; noncontrolling interest; asset retirement obligation
expense; depreciation, depletion and amortization; and net sales
contract accretion excluding
back-to-back
coal purchase and sales contracts. The net contract accretion on
the
back-to-back
coal purchase and sale contracts reflects the net accretion
related to certain coal purchase and sales contracts existing
prior to July 23, 2008, whereby Magnum purchased coal from
third parties to fulfill tonnage commitments on sales contracts.
Adjusted EBITDA is used by management to measure operating
performance, and management also believes it is a useful
indicator of our ability to meet debt service and capital
expenditure requirements. The term Adjusted EBITDA does not
purport to be an alternative to operating income, net income or
cash flows from operating activities as determined in accordance
with GAAP as a measure of profitability or liquidity. Because
Adjusted EBITDA is not calculated identically by all companies,
our calculation may not be comparable to similarly titled
measures of other companies.
|
Adjusted EBITDA is calculated as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Patriot
|
|
$
|
142,728
|
|
|
$
|
(106,868
|
)
|
|
$
|
(13,492
|
)
|
|
$
|
32,143
|
|
|
$
|
(3,066
|
)
|
Depreciation, depletion and amortization
|
|
|
125,356
|
|
|
|
85,640
|
|
|
|
86,458
|
|
|
|
54,979
|
|
|
|
18,610
|
|
Sales contract accretion, net(1)
|
|
|
(249,522
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(76,807
|
)
|
|
|
-
|
|
Asset retirement obligation expense
|
|
|
19,260
|
|
|
|
20,144
|
|
|
|
24,282
|
|
|
|
6,451
|
|
|
|
3,416
|
|
Interest expense
|
|
|
23,648
|
|
|
|
8,337
|
|
|
|
11,419
|
|
|
|
8,593
|
|
|
|
2,322
|
|
Interest income
|
|
|
(17,232
|
)
|
|
|
(11,543
|
)
|
|
|
(1,417
|
)
|
|
|
(3,487
|
)
|
|
|
(3,249
|
)
|
Income tax provision (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,350
|
|
|
|
-
|
|
|
|
(912
|
)
|
Noncontrolling interest
|
|
|
-
|
|
|
|
4,721
|
|
|
|
11,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
44,238
|
|
|
$
|
431
|
|
|
$
|
126,769
|
|
|
$
|
21,872
|
|
|
$
|
17,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net sales contract accretion resulted from the below market coal
sale and purchase contracts acquired in the Magnum acquisition
and was recorded at preliminarily-determined fair values in
purchase accounting. The net liability generated from applying
fair value to these contracts is being accreted over the life of
the contracts as the coal is shipped.
|
S-6
RISK
FACTORS
An investment in our common stock involves risks. We urge you to
consider carefully the risks described below and in Risk
Factors on page 5 of the accompanying prospectus.
Risks
Related to Our Common Stock
Our
stock price may be volatile and you may not be able to resell
shares of our common stock at or above the price you
paid.
The price of our common stock fluctuates significantly, which
may result in losses for investors. The market price of our
common stock has been volatile. From October 18, 2007 (the
day on which our stock began trading) to June 16, 2009, the
closing sale price of our common stock reported by the New York
Stock Exchange ranged from a low of $2.97 per share to a high of
$80.69 per share.
Company-specific issues and developments generally in the coal
mining industry or the economy may cause this volatility. The
market price of our common stock may fluctuate in response to a
number of events and factors, including general economic, market
and political conditions, quarterly variations in results of
operations or results of operations that could be below the
expectations of the public market analysts and investors,
changes in financial estimates and recommendations by securities
analysts, operating and market price performance of other
companies that investors may deem comparable, press releases or
publicity relating to us or our competitors or relating to
trends in our markets and sales of common stock or other
securities by insiders.
In addition, broad market and industry fluctuations, as well as
investor perception and the depth and liquidity of the market
for our common stock, may adversely affect the trading price of
our common stock, regardless of actual operating performance,
and securities markets worldwide recently have experienced, and
are likely to continue to experience, significant price and
volume fluctuations.
The
agreements governing our current and future indebtedness may
limit or prevent the payment of dividends on our common
stock.
Limits and conditions on the payment of dividends and other
restricted payments are imposed under our revolving credit
facility and our 3.25% Convertible Senior Notes due 2013.
These conditions and limitations, as well as conditions and
limitations imposed under any agreements governing our future
indebtedness, may, in certain circumstances, limit or prevent
the payment of dividends independent of our dividend policy.
Additionally, we have not and we do not anticipate that we will
pay cash dividends on our common stock in the near term.
Our
corporate governance documents, our rights plan and Delaware law
may discourage takeovers and business combinations that our
stockholders might consider in their best
interests.
Provisions in our amended and restated certificate of
incorporation and by-laws may make it difficult and expensive
for a third-party to pursue a tender offer, change in control or
takeover attempt that is opposed by our management and Board of
Directors. These provisions include a Board that is divided into
three classes with staggered terms, limitations on the right of
stockholders to remove directors, the right of our Board to
issue preferred stock without stockholder approval, the
inability of our stockholders to act by written consent and
rules regarding how stockholders may present proposals or
nominate directors at stockholders meetings.
Public stockholders who might desire to participate in this type
of transaction may not have an opportunity to do so. These
anti-takeover provisions could substantially impede the ability
of public stockholders to benefit from a change in control or
change our management and Board and, as a result, may adversely
affect the marketability and market price of our common stock.
In addition, our Board has adopted a stockholder rights plan
intended to deter hostile or coercive attempts to acquire us.
Under the plan, if any person or group acquires, or begins a
tender or exchange offer that could result in such person
acquiring, 15% or more of our common stock, without approval of
our Board under
S-7
specified circumstances, our other stockholders will have the
right to purchase shares of our common stock, or shares of the
acquiring company, at a substantial discount to the public
market price. See Description of Capital Stock
Rights Agreement in this prospectus supplement.
Patriot will also be subject to the provisions of Delaware law
regarding business combinations with interested stockholders.
Section 203 of the Delaware General Corporation Law
prohibits, in certain circumstances, a corporation from engaging
in a business combination with an interested stockholder for a
period of three years following the date on which the
stockholder became an interested stockholder.
Non-U.S.
investors may be subject to U.S. income tax with respect to gain
on disposition of our common stock.
We believe that we may be and may remain for the foreseeable
future a U.S. real property holding corporation as defined
in the Internal Revenue Code of 1986, as amended (the
Code). If we are or have been a U.S. real
property holding corporation, certain
non-U.S. investors
may be subject to U.S. federal income tax with respect to
gain on disposition of common stock under the Foreign Investment
in Real Property Tax Act, which we refer to as FIRPTA, in which
case they would also be required to file U.S. tax returns
with respect to such gain. Whether these FIRPTA provisions apply
depends on whether, at the time they dispose of their common
stock, the common stock is regularly traded on an established
securities market within the meaning of the applicable Treasury
Regulations. In addition, even if our common stock continues to
be regularly traded on an established securities market,
non-U.S. investors
will be subject to tax on certain dispositions of their common
stock if such investors have owned or are deemed to have owned
more than 5% of our common stock. See Material
U.S. Federal Tax Considerations for
Non-U.S. Holders
of Common Stock Gain on Disposition of Common
Stock.
S-8
PRICE
RANGE OF COMMON STOCK AND DIVIDEND HISTORY
Our common stock is listed on the New York Stock Exchange
(NYSE) under the symbol PCX. The
following table shows the quarterly high and low closing sale
prices as reported on the NYSE composite tape since our stock
began trading on October 18, 2007 through June 16,
2009.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
Fourth Quarter (from Oct. 18)
|
|
$
|
20.97
|
|
|
$
|
14.31
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
28.49
|
|
|
$
|
16.77
|
|
Second Quarter
|
|
|
80.69
|
|
|
|
23.48
|
|
Third Quarter
|
|
|
76.22
|
|
|
|
26.92
|
|
Fourth Quarter
|
|
|
26.85
|
|
|
|
5.26
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.60
|
|
|
$
|
2.97
|
|
Second Quarter (through June 16, 2009)
|
|
|
10.44
|
|
|
|
3.93
|
|
We have not and we do not anticipate that we will pay cash
dividends on our common stock in the near term. Limits and
conditions on the payment of dividends and other restricted
payments are imposed under our revolving credit facility and our
3.25% Convertible Senior Notes due 2013, and may be imposed
under any agreements governing our future indebtedness. The
declaration and amount of future dividends, if any, will be
determined by our Board of Directors and will depend on our
financial condition, earnings, capital requirements, financial
covenants, regulatory constraints, industry practice and other
factors (including the aforementioned limitations and
conditions) our Board deems relevant.
S-9
USE OF
PROCEEDS
The net proceeds from the sale of the shares, after deducting
underwriting discounts and commissions and estimated offering
expenses, will be approximately $89.3 million, or
approximately $102.8 million if the underwriters
overallotment option is exercised in full.
We intend to use the net proceeds from this offering to repay
the outstanding balance on our revolving credit facility, which
was $65,000,000 as of March 31, 2009, with the remainder
for general corporate purposes. The outstanding balance under
our revolving facility bore interest at a weighted average rate
of 1.93%, as of March 31, 2009, and is set to mature on
October 31, 2011, subject to our right to prepay such
amounts in whole or in part without premium or penalty.
S-10
CAPITALIZATION
The following table sets forth Patriots cash and cash
equivalents and consolidated capitalization as of March 31,
2009 on (i) an actual basis and (ii) as adjusted to
give effect to the issuance of the additional common stock and
the initial application of the estimated net proceeds from the
offering as described under the Use of Proceeds
section of this prospectus supplement. You should read this
table along with Patriots consolidated financial
statements, the related notes and other financial information
contained in our Current Report on
Form 8-K
filed on June 16, 2009 in connection with our adoption of
SFAS No. 160, FSP APB
14-1
and FSP
EITF 03-6-1
and our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009, which are
incorporated by reference into this prospectus supplement and
the accompanying prospectus. The following table assumes that
the underwriters have not exercised their over-allotment option.
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As of March 31, 2009
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Pro Forma
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Actual
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as Adjusted
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(Dollars in thousands)
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(Unaudited)
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Cash and cash equivalents
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$
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6,200
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$
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30,523
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Revolving credit facility
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$
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65,000
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$
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3.25% Convertible Senior Notes due 2013(1)
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161,541
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161,541
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Other long-term debt (including a current portion of $5,271)
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19,631
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19,631
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Total debt
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246,172
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181,172
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Stockholders equity:
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Common stock
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781
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901
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Additional paid-in capital
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845,717
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934,920
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Retained earnings
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141,508
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141,508
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Accumulated other comprehensive loss
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(108,325
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)
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(108,325
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Total stockholders equity
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$
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879,681
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$
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969,004
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Total capitalization
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$
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1,125,853
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$
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1,150,176
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(1)
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The face value of the 3.25% Convertible Senior Notes due
2013 is $200 million. The balance as of March 31,
2009, reflects the adoption of FSP APB
14-1,
which
required us to record the convertible notes at fair value
excluding the conversion feature at inception and to amortize
the difference between the fair value and face value over the
contractual life of the notes.
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S-11
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock is based upon our
certificate of incorporation (Certificate of
Incorporation), our by-laws (By-laws), the
Rights Agreement dated as of October 22, 2007, as amended,
between the Registrant and American Stock Transfer &
Trust Company, as Rights Agent (Rights
Agreement) and applicable provisions of law. We have
summarized certain portions of the Certificate of Incorporation
and By-laws below. The summary is not complete. The Certificate
of Incorporation and By-laws are incorporated by reference in
the registration statement for these securities that we have
filed with the SEC and have been filed as exhibits to our Annual
Report on
Form 10-K
for the year ended December 31, 2008. You should read the
Certificate of Incorporation and By-laws for the provisions that
are important to you. This description replaces in its entirety
the information included under the caption Description of
Capital Stock in the accompanying prospectus.
Certain provisions of the Delaware General Corporation Law
(DGCL), the Certificate of Incorporation and the
By-laws summarized in the following paragraphs may have an
anti-takeover effect. This may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in
its best interests, including those attempts that might result
in a premium over the market price for its shares. See also
Anti-Takeover Effects of Provisions of Delaware Law and
Patriots Charter and By-laws.
Patriots authorized capital stock consists of
100 million shares of common stock, par value $0.01 per
share, and 10 million shares of preferred stock, par value
$0.01 per share. The authorized preferred shares include
1 million shares of Series A Junior Participating
Preferred Stock. Immediately after completion of this offering,
90,079,523 shares (or 91,879,523 shares if the
underwriters exercise in full their option to purchase an
additional 1,800,000 shares) of common stock will be issued
and outstanding and no shares of preferred stock will be issued
and outstanding. The number of shares of common stock to be
outstanding after this offering includes 951,616 restricted
shares outstanding under our equity compensation plans, but
excluding options, restricted stock units and deferred stock
units granted under our equity compensation plans for up to
2,514,613 shares (as of June 15, 2009) with
vesting dates prior to May 31, 2013, the maturity date of
our convertible notes, which has up to 4,137,788 shares that
could be delivered upon conversion of our outstanding private
convertible notes. The company also has 817,954 shares
reserved for our employee stock purchase plan.
Description
of Common Stock
Dividends
Subject to preferences that may be applicable to any series of
preferred stock, the owners of Patriot common stock may receive
dividends when declared by the Board of Directors out of funds
legally available for the payment of dividends. All decisions
regarding the declaration and payment of dividends will be
evaluated from time to time in light of Patriots financial
condition, earnings, growth prospects, funding requirements,
applicable law and other factors the Patriot Board of Directors
deems relevant.
Voting
Rights
Each share of common stock is entitled to one vote in the
election of directors and all other matters submitted to
stockholder vote. Except as otherwise required by law or
provided in any resolution adopted by Patriots Board of
Directors with respect to any series of preferred stock, the
holders of Patriot common stock possess all voting power. No
cumulative voting rights exist. In general, all matters
submitted to a meeting of stockholders, other than as described
below, are decided by vote of a majority of the shares of
Patriots common stock present in person or represented by
proxy at the meeting and entitled to vote on the matter.
Directors are elected by a plurality of the shares of
Patriots common stock present in person or represented by
proxy at the meeting and entitled to vote on the election of
directors.
The approval of at least 75% of the shares of Patriots
outstanding common stock entitled to vote is necessary to
approve certain actions, such as amending the provisions of
Patriots by-laws or certificate of incorporation relating
to the plurality voting standard for the election of directors,
the number and manner of
S-12
election and removal of directors, the classified nature of
Patriots Board of Directors, the manner of filling
vacancies thereon or prohibiting action by the stockholders by
written consent, or electing a director to fill a vacancy if the
stockholders power to do so is expressly conferred by
applicable Delaware law. Other amendments to Patriots
by-laws and certificate of incorporation, and certain
extraordinary transactions (such as a merger or consolidation
involving Patriot or a sale of all or substantially all of the
assets of Patriot), must be approved by a majority of
Patriots outstanding common stock entitled to vote.
Liquidation
Rights
If Patriot liquidates, dissolves or
winds-up
its
business, whether voluntarily or not, Patriots common
stockholders will share equally in the distribution of all
assets remaining after payment to creditors and preferred
stockholders.
Preemptive
Rights
The common stock does not carry preemptive or similar rights.
Listing
Patriots common stock is listed on the New York Stock
Exchange under the trading symbol PCX.
Transfer
Agent and Registrar
The transfer agent and registrar for Patriots common stock
is American Stock Transfer & Trust Company.
Authorized
but Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the New York Stock Exchange, which would apply so long as the
common stock remains listed on the New York Stock Exchange,
require stockholder approval of certain issuances equal to or
exceeding 20% of the then-outstanding number of shares of common
stock. These additional shares may be used for a variety of
corporate purposes, including future public offerings, to raise
additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable Patriots
Board of Directors to issue shares to persons friendly to
current management, which issuance could render more difficult
or discourage an attempt to obtain control of Patriot by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of Patriots management and
possibly deprive the stockholders of opportunities to sell their
shares of common stock at prices higher than prevailing market
prices.
Anti-Takeover
Effects of Provisions of Delaware Law and Patriots Charter
and By-laws
Delaware
Law
Patriot is subject to the provisions of Section 203 of the
Delaware General Corporation Law, which applies to a broad range
of business combinations between a Delaware corporation and an
interested stockholder. The Delaware law definition of business
combination includes mergers, sales of assets, issuances of
voting stock and certain other transactions. An interested
stockholder is defined as any person who owns, directly or
indirectly, 15% or more of the outstanding voting stock of a
corporation.
S-13
Section 203 prohibits a corporation from engaging in a
business combination with an interested stockholder for a period
of three years following the date on which the stockholder
became an interested stockholder, unless:
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the Board of Directors approved the business combination before
the stockholder became an interested stockholder, or the board
approved the transaction that resulted in the stockholder
becoming an interested stockholder;
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upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, such stockholder
owned at least 85% of the voting stock outstanding when the
transaction began other than shares held by directors who are
also officers and other than shares held by certain employee
stock plans; or
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the Board approved the business combination after the
stockholder became an interested stockholder and the business
combination was approved at a meeting by at least two-thirds of
the outstanding voting stock not owned by such stockholder.
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These limitations on business combinations with interested
stockholders do not apply to a corporation that does not have a
class of stock listed on a national securities exchange,
authorized for quotation on an interdealer quotation system of a
registered national securities association or held of record by
more than 2,000 stockholders.
The provisions of Section 203 may encourage companies
interested in acquiring Patriot to negotiate in advance with
Patriots Board of Directors because the stockholder
approval requirement would be avoided if Patriots Board of
Directors approves either the business combination or the
transaction which results in the stockholder becoming an
interested stockholder. These provisions also may have the
effect of preventing changes in Patriots Board of
Directors and may make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in
their best interests.
Certificate
of Incorporation; By-laws
Patriots certificate of incorporation and by-laws contain
provisions that could make more difficult the acquisition of
Patriot by means of a tender offer, a proxy contest or
otherwise. These provisions are summarized below.
Classes of Preferred Stock.
Under Patriots
certificate of incorporation, Patriots Board of Directors
has the full authority permitted by Delaware law to determine
the voting rights, if any, and designations, preferences,
limitations and special rights of any class or any series of any
class of the preferred stock, which may be greater than those of
Patriots common stock. The effects of the issuance of a
new series or class of preferred stock might include, among
other things, restricting dividends on Patriots common
stock, diluting the voting power of Patriots common stock,
impairing the liquidation rights of Patriots common stock,
or delaying or preventing a change in control of Patriot.
Removal of Directors; Filling Vacancies.
Patriots
certificate of incorporation and by-laws provide that directors
may be removed only for cause and only upon the affirmative vote
of holders of at least 75% of the voting power of all the
outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
Additionally, only Patriots Board of Directors will be
authorized to fix the number of directors and to fill any
vacancies on Patriots Board. These provisions could make
it more difficult for a potential acquirer to gain control of
Patriots Board.
Stockholder Action.
Patriots certificate of
incorporation and by-laws provide that stockholder action can be
taken only at an annual or special meeting of stockholders and
may not be taken by written consent in lieu of a meeting.
Patriots certificate of incorporation and by-laws provide
that special meetings of stockholders can be called only by
Patriots Chief Executive Officer or pursuant to a
resolution adopted by Patriots Board. Stockholders are not
permitted to call a special meeting or to require that the Board
call a special meeting of stockholders.
S-14
Advance Notice Procedures.
Patriots by-laws
establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or bring
other business before an annual or special meeting of
stockholders. This notice procedure provides that only persons
who are nominated by, or at the direction of Patriots
Board, the chairman of the Board, or by a stockholder who has
given timely written notice to the secretary of Patriot prior to
the meeting at which directors are to be elected, will be
eligible for election as directors. This procedure also requires
that, in order to raise matters at an annual or special meeting,
those matters be raised before the meeting pursuant to the
notice of meeting Patriot delivers or by, or at the direction
of, the chairman or by a stockholder who is entitled to vote at
the meeting and who has given timely written notice to the
secretary of Patriot of his intention to raise those matters at
the annual meeting. If the chairman or other officer presiding
at a meeting determines that a person was not nominated, or
other business was not brought before the meeting, in accordance
with the notice procedure, that person will not be eligible for
election as a director, or that business will not be conducted
at the meeting.
Classified Board of Directors.
Patriots certificate
of incorporation provides for Patriots Board to be divided
into three classes of directors, as nearly equal in number as
possible, serving staggered terms. Approximately one-third of
Patriots Board will be elected each year. Under
Section 141 of the Delaware General Corporation Law,
directors serving on a classified Board can only be removed for
cause. The initial term of Class I directors expired in
2008, the initial term of Class II directors expired in
2009 and the initial term of Class III directors expires in
2010.
After the initial term of each class, Patriots directors
will serve three-year terms. At each annual meeting of
stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose
terms are then expiring. Patriots Board currently consists
of ten directors.
The provision for a classified Board could prevent a party that
acquires control of a majority of the outstanding voting stock
from obtaining control of Patriots Board until the second
annual stockholders meeting following the date the acquiror
obtains the controlling stock interest. The classified Board
provision could have the effect of discouraging a potential
acquiror from making a tender offer for Patriots shares or
otherwise attempting to obtain control of Patriot and could
increase the likelihood that Patriots incumbent directors
will retain their positions.
Amendments.
Patriots certificate of incorporation
provides that the affirmative vote of the holders of at least
75% of the voting power of the outstanding shares entitled to
vote, voting together as a single class, is required to amend
the provisions of Patriots certificate of incorporation
relating to the prohibition of stockholder action without a
meeting, the number, election and term of Patriots
directors, the classified Board and the removal of directors.
Patriots certificate of incorporation further provides
that Patriots by-laws may be amended by Patriots
Board or by the affirmative vote of the holders of at least 75%
of the outstanding shares entitled to vote, voting together as a
single class.
Rights
Agreement
Patriots Board of Directors adopted a Rights Agreement
dated as of October 22, 2007, as amended. Under the rights
agreement, one preferred share purchase right was issued for
each outstanding share of common stock.
Purchase
Price
Once the rights become exercisable, each right will entitle the
registered holder to purchase from Patriot one-half of one
one-hundredths of a share of Patriots Series A Junior
Participating Preferred Stock, or preferred shares, par value
$0.01 per share, at a price of $125 per one-half of one
one-hundredths of a preferred share, subject to adjustment.
Flip-In
In the event that any person or group of affiliated or
associated persons acquires beneficial ownership of 15% or more
of Patriots outstanding common stock, each holder of a
right, other than rights beneficially
S-15
owned by the acquiring person (which will thereafter be void),
will thereafter have the right to receive upon exercise at a
price equal to one-half the exercise price that number of shares
of Patriots common stock having a market value equal to
the full exercise price of the right.
Flip-Over
If Patriot is acquired in a merger or other business combination
transaction or 50% or more of Patriots combined assets or
earning power are sold after a person or group acquires
beneficial ownership of 15% or more of Patriots
outstanding common stock, each holder of a right (other than
rights beneficially owned by the acquiring person, which will be
void) will thereafter have the right to receive upon exercise at
a price equal to one-half the exercise price that number of
shares of common stock of the acquiring company which at the
time of such transaction will have a market value equal to the
full exercise price of the right.
Distribution
Date
The distribution date is the earlier of: (1) 10 days
following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial
ownership of 15% or more of Patriots outstanding common
stock; or (2) 10 business days (or such later date as may
be determined by action of Patriots Board of Directors
prior to such time as any person or group of affiliated persons
acquires beneficial ownership of 15% or more of Patriots
outstanding common stock) following the commencement of, or
announcement of an intention to make, a tender offer or exchange
offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of Patriots
outstanding common stock.
Transfer
and Detachment
Until the distribution date, the rights will be evidenced by
book entry in Patriots direct registration system. Until
the distribution date (or earlier redemption or expiration of
the rights), the rights will be transferred with and only with
the common stock, and transfer of those shares will also
constitute transfer of the rights.
Exercisability
The rights are not exercisable until the distribution date. The
rights will expire at the earliest of (1) October 22,
2017, unless that date is extended, (2) the time at which
Patriot redeems the rights, as described below, or (3) the
time at which Patriot exchanges the rights, as described below.
Adjustments
The purchase price payable, and the number of preferred shares
or other securities or property issuable, upon exercise of the
rights are subject to adjustment from time to time to prevent
dilution in the event of stock dividends, stock splits,
reclassifications, or certain distributions with respect to
preferred shares. The number of outstanding rights and the
number of one one-hundredths of a preferred share issuable upon
exercise of each right are also subject to adjustment if, prior
to the distribution date, there is a stock split of
Patriots common stock or a stock dividend on
Patriots common stock payable in common stock or
subdivisions, consolidations or combinations of Patriots
common stock. With certain exceptions, no adjustment in the
purchase price will be required until cumulative adjustments
require an adjustment of at least 1% in the purchase price.
Preferred
Shares
Preferred shares purchasable upon exercise of the rights will
not be redeemable. Each preferred share will be entitled to the
greater of (a) a minimum preferential quarterly dividend
payment of $1.00 per share and (b) 200 times the aggregate
dividend declared per share of common stock, subject to
adjustment. In the event of liquidation, the holders of the
preferred shares will be entitled to a preferential liquidation
payment equal to the greater of (i) $100 per share plus
accrued and unpaid dividends and (ii) 200 times the payment
made per share of common stock. Each preferred share will have
200 votes, voting together with the common stock.
S-16
Finally, in the event of any merger, consolidation or other
transaction in which shares of Patriots common stock are
exchanged, each preferred share will be entitled to receive 200
times the amount received per share of common stock. These
rights are protected by customary anti-dilution provisions.
The value of the one-half of one one-hundredths interest in a
preferred share purchasable upon exercise of each right should,
because of the nature of the preferred shares dividend,
liquidation and voting rights, approximate the value of one
share of Patriots common stock.
Exchange
At any time after any person or group acquires beneficial
ownership of 15% or more of Patriots outstanding common
stock, and prior to the acquisition by such person or group of
beneficial ownership of 50% or more of Patriots
outstanding common stock, Patriots Board of Directors may
exchange the rights (other than rights owned by the acquiring
person, which will have become void), in whole or in part, at an
exchange ratio of one share of Patriots common stock or,
in certain circumstances, a fraction of a preferred share with a
market value equal to the market value of a share of common
stock.
Redemption
At any time prior to any person or group acquiring beneficial
ownership of 15% or more of Patriots outstanding common
stock, Patriots Board of Directors may redeem the rights
in whole, but not in part, at a price of $0.0005 per right. The
redemption of the rights may be made effective at such time on
such basis with such conditions as Patriots Board in its
sole discretion may establish. Immediately upon any redemption
of the rights, the right to exercise the rights will terminate
and the only right of the holders of rights will be to receive
the redemption price.
Amendments
The terms of the rights may be amended by Patriots Board
of Directors without the consent of the holders of the rights,
including an amendment to lower certain thresholds described
above to not less than 10%, except that the Board may not reduce
or cancel the redemption price and from and after such time as
any person or group of affiliated or associated persons acquires
beneficial ownership of 15% or more of Patriots
outstanding common stock, no such amendment may adversely affect
the interests of the holders of the rights.
Rights
of Holders
Until a right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Patriots company,
including, without limitation, the right to vote or to receive
dividends.
Anti-Takeover
Effects
The rights have certain anti-takeover effects. If the rights
become exercisable, the rights will cause substantial dilution
to a person or group that attempts to acquire Patriot on terms
not approved by Patriots Board of Directors, except
pursuant to any offer conditioned on a substantial number of
rights being acquired. The rights should not interfere with any
merger or other business combination approved by Patriots
Board since the rights may be redeemed by Patriot at a nominal
price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of Patriots common
stock. Thus, the rights are intended to encourage persons who
may seek to acquire control of Patriot to initiate such an
acquisition through negotiations with Patriots Board.
However, the effect of the rights may be to discourage a third
party from making a partial tender offer or otherwise attempting
to obtain a substantial equity position in Patriots equity
securities or seeking to obtain control of Patriot. To the
extent any potential acquirors are deterred by the rights, the
rights may have the effect of preserving incumbent management in
office.
S-17
Voting
and Standstill Agreement
Patriot, ArcLight Energy Partners Fund I, L.P. and ArcLight
Energy Partners Fund II, L.P. (together, ArcLight
Funds), acting jointly, as stockholder representative (the
Stockholder Representative), and certain
stockholders of Magnum Coal Company (Stockholders)
entered into a Voting and Standstill Agreement dated as of
April 2, 2008 (the Voting Agreement).
Stockholder
Nominees to the Patriot Board
Pursuant to the Voting Agreement, Patriots Board of
Directors will appoint two nominees designated by certain former
holders of Magnum Coal Company common stock, acting through the
Stockholder Representative. If elected, one such nominee will
serve as a Class I director and the other nominee will
serve as a Class II director on Patriots Board of
Directors. Any Board nominee or replacement selected by the
stockholder representative must be reasonably acceptable to the
nominating and governance committee of Patriots Board of
directors and must, to the reasonable satisfaction of the
nominating and governance committee, be an independent
director under the New York Stock Exchanges
listing standards, disregarding certain disclosed relationships.
At such time as certain former holders of Magnum common stock
own less than twenty percent (but at least ten percent) of the
Patriot common stock outstanding or the ArcLight Funds own less
than ten percent of the Patriot common stock outstanding, the
Stockholder Representative will be entitled to one Board nominee
only. At such time as certain former holders of Magnum common
stock own less than ten percent of the Patriot common stock
outstanding, the Stockholder Representative will not be entitled
to any Board nominees. For purposes of the determinations under
this paragraph, the number of shares of Patriot common stock
outstanding will be deemed to be the sum of the
number of shares outstanding as of April 2, 2008 plus the
number of shares issued in the Magnum acquisition.
Voting
Obligations of Stockholders
Pursuant to the Voting Agreement, so long as the Stockholder
Representative is entitled to nominate any members to
Patriots Board of Directors, Stockholders agree to vote
all of their shares of Patriot common stock in favor of the
entire slate of directors recommended for election by the
Patriot Board of Directors to Patriots stockholders and
certain Stockholders agree to vote all of their shares of
Patriot common stock as recommended by Patriots Board of
Directors in the case of (1) any stockholder proposal
submitted for a vote at any meeting of Patriots
stockholders and (2) any proposal submitted by Patriot for
a vote at any meeting of Patriots stockholders relating to
the appointment of Patriots accountants or a Patriot
equity compensation plan.
Registration
Rights Agreement
Patriot and the ArcLight Funds entered into a registration
rights agreement as of July 23, 2008 which provides the
ArcLight Funds with customary registration rights with respect
to the shares of Patriot common stock issued to the ArcLight
Funds in the Magnum merger.
Private
Convertible Notes Issuance
On May 28, 2008, Patriot completed a private offering of
$200 million in aggregate principal amount of
3.25% Convertible Senior Notes due 2013 (the convertible
notes). Interest on the convertible notes is payable
semi-annually in arrears on May 31 and November 30 of each year,
beginning November 30, 2008. The convertible notes mature
on May 31, 2013, unless converted, repurchased or redeemed
in accordance with their terms prior to such date. The
convertible notes are senior unsecured obligations and rank
equally with all of the Companys existing and future
senior debt and are senior to any subordinated debt. The
convertible notes are convertible into cash and, if applicable,
shares of Patriots common stock during the period from
issuance to February 15, 2013, subject to certain
conditions of conversion.
S-18
MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S.
HOLDERS OF COMMON STOCK
The following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of common stock by a beneficial owner
that is a
non-U.S. holder.
A
non-U.S. holder
is a person or entity that, for U.S. federal income tax
purposes, is a:
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non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates,
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foreign corporation or
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foreign estate or trust.
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A
non-U.S. holder
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition and is not otherwise a resident of the United States
for U.S. federal income tax purposes. Such an individual is
urged to consult his or her own tax advisor regarding the
U.S. federal income tax consequences of the sale, exchange
or other disposition of common stock.
This discussion is based on the Code and administrative
pronouncements, judicial decisions and final, temporary and
proposed Treasury Regulations, changes to any of which
subsequent to the date of this prospectus supplement may affect
the tax consequences described herein. This discussion does not
address all aspects of U.S. federal income and estate
taxation that may be relevant to
non-U.S. holders
in light of their particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction. Prospective holders are urged to
consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of common stock,
including the consequences under the laws of any state, local or
foreign jurisdiction.
Dividends
As discussed under Price Range Of Common Stock And
Dividend History above, we do not currently expect to pay
dividends. In the event that we do pay dividends, dividends paid
to a
non-U.S. holder
of common stock generally will be subject to withholding tax at
a 30% rate or a reduced rate specified by an applicable income
tax treaty. In order to obtain a reduced rate of withholding, a
non-U.S. holder
will be required to provide an Internal Revenue Service
Form W-8BEN
certifying its entitlement to benefits under a treaty.
If a
non-U.S. holder
is engaged in a trade or business in the United States, and if
dividends paid to such holder are effectively connected with the
conduct of this trade or business, the
non-U.S. holder,
although exempt from the withholding tax discussed in the
preceding paragraph, will generally be taxed on such dividends
in the same manner as a U.S. person, subject to an
applicable income tax treaty providing otherwise, except that
the holder will generally be required to provide an Internal
Revenue Service
Form W-8ECI
in order to claim an exemption from withholding. A
non-U.S. corporation
receiving effectively connected dividends may also be subject to
an additional branch profits tax imposed at a rate
of 30% (or a lower treaty rate).
Gain on
Disposition of Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of common stock
unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States, subject to an applicable treaty providing
otherwise, or
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we are or have been a U.S. real property holding
corporation, as defined below, at any time within the five-year
period preceding the disposition or the
non-U.S. holders
holding period, whichever period is shorter, and our common
stock has ceased to be regularly traded on an established
securities market
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prior to the beginning of the calendar year in which the sale or
disposition occurs or the
non-U.S. holder
owns or has owned a threshold amount of common stock, as
described below.
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Generally, a corporation is a U.S. real property holding
corporation if the fair market value of its U.S. real
property interests, as defined in the Code and applicable
Treasury Regulations, equals or exceeds 50% of the aggregate
fair market value of its worldwide real property interests and
its other assets used or held for use in a trade or business. We
believe that we may be and may remain for the foreseeable future
a U.S. real property holding corporation.
Even if we are a U.S. real property holding corporation, as
long as our common stock continues to be regularly traded on an
established securities market, a
non-U.S. holder
would not be subject to U.S. federal income tax on a sale
or other disposition of our common stock unless such
non-U.S. holder
has owned or is deemed to have owned more than 5% of our common
stock. A
non-U.S. holder
who meets such threshold would generally be subject to
U.S. federal income tax with respect to any gains on the
disposition of our common stock, in which case such holder would
be required to file a U.S. tax return with respect to such
gain. A
non-U.S. holder
should consult its own tax advisor regarding the possible
application of these rules to the holder.
Information
Reporting Requirements and Backup Withholding
Information returns will be filed with the Internal Revenue
Service in connection with payments of dividends. Unless the
non-U.S. holder
complies with certification procedures to establish that it is
not a U.S. person, information returns may be filed with
the Internal Revenue Service in connection with the proceeds
from a sale or other disposition of common stock and the
non-U.S. holder
may be subject to backup withholding on dividend payments or on
the proceeds from a sale or other disposition of common stock.
The certification procedures required to claim a reduced rate of
withholding under a treaty will satisfy the certification
requirements necessary to avoid backup withholding as well. The
amount of any backup withholding from a payment to a
non-U.S. holder
will be allowed as a credit against such holders
U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service.
The Obama
Administrations Proposed Changes to Withholding Tax
Rules
The Obama Administration has recently proposed legislation that
could limit the ability of
non-U.S.
holders that hold our common stock through a
non-U.S.
intermediary that is not a qualified intermediary to
claim relief from U.S. withholding tax and could impose a 20%
withholding tax on the gross proceeds of the sale of our common
stock if effected through such an intermediary in some
circumstances. The Administrations proposals also would
limit the ability of certain
non-U.S.
entities to claim relief from U.S. withholding tax unless those
entities have provided documentation of their beneficial owners
to the withholding agent. It is unclear whether, or in what
form, these proposals may be enacted.
Non-U.S.
holders are encouraged to consult with their tax advisers
regarding the possible implications of the Administrations
proposals on their investment in respect of our common stock.
Federal
Estate Tax
Individual
non-U.S. holders
and entities the property of which is potentially includible in
such an individuals gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, the common stock will be treated as
U.S. situs property subject to U.S. federal estate tax.
S-20
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus
supplement, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated and UBS Securities LLC are
acting as representatives, have severally agreed to purchase,
and Patriot has agreed to sell to them, severally, the number of
shares indicated below:
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Number of
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Name
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Shares
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Morgan Stanley & Co. Incorporated
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4,898,400
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UBS Securities LLC
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4,898,400
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Barclays Capital Inc.
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367,200
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PNC Capital Markets LLC
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367,200
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Natixis Bleichroeder Inc.
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367,200
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Piper Jaffray & Co.
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367,200
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Santander Investment Securities Inc.
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367,200
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SG Americas Securities, LLC
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367,200
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Total
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12,000,000
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The underwriters are offering the shares of common stock subject
to their acceptance of the shares from Patriot and subject to
prior sale. The underwriting agreement provides that the
obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered by this
prospectus supplement are subject to the approval of certain
legal matters by their counsel and to certain other conditions.
The underwriters are obligated to take and pay for all of the
shares of common stock offered by this prospectus supplement if
any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the
underwriters over-allotment option described below.
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus supplement. Any shares sold by the
underwriters to securities dealers may be sold at a discount
from the initial public offering price not to exceed $0.21330
per share. After the initial offering of the shares of common
stock, the offering price and other selling terms may from time
to time be varied by the representatives.
Patriot has granted to the underwriters an option, exercisable
for 30 days from the date of this supplement, to purchase
up to an aggregate of 1,800,000 additional shares of common
stock at the public offering price listed on the cover page of
this prospectus supplement, less underwriting discounts and
commissions. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock
offered by this prospectus supplement. To the extent the option
is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to
the underwriters name in the preceding table bears to the
total number of shares of common stock listed next to the names
of all underwriters in the preceding table. If the
underwriters option is exercised in full, the total price
to the public would be $109,020,000, the total
underwriters discounts and commissions would be $5,723,550
and total proceeds to Patriot would be $103,296,450.
In compliance with the guidelines of the Financial Industry
Regulatory Authority (the FINRA), the aggregate
maximum discount, commission or agency fees or other items
constituting underwriting compensation to be received by any
FINRA member or independent broker-dealer will not exceed 8% of
the public offering price.
The underwriters have informed Patriot that they do not intend
sales to discretionary accounts to exceed five percent of the
total number of shares of common stock offered by them.
The shares of common stock are expected to be approved for
listing on the New York Stock Exchange subject to official
notice of issuance under the symbol PCX.
S-21
Each of Patriot, the directors and executive officers of Patriot
has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated and UBS Securities LLC, on
behalf of the underwriters, it will not, during the period
ending 90 days after the date of the underwriting
agreement, directly or indirectly:
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offer, sell, contract to sell, pledge or otherwise dispose of;
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enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash
settlement or otherwise) of;
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participate in the filing of a registration statement in respect
of; or
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establish or increase a put equivalent position or liquidate or
decrease a call equivalent position with in the meaning of
Section 16 of the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder in
respect of
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any shares of capital stock of Patriot or any securities
convertible into, or exercisable or exchangeable for such
capital stock, or publicly announce an intention to effect any
such transaction.
The restrictions described in this paragraph do not apply to:
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issuances and sales by Patriot of shares of common stock or
securities convertible into or exchangeable for shares of common
stock pursuant to any employee stock option or benefit plan,
stock ownership plan or dividend reinvestment plan already in
effect;
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issuances by Patriot of shares of common stock issuable upon the
conversion of outstanding securities (including Patriots
3.25% Convertible Senior Notes due 2013) or the
exercise of outstanding warrants;
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shares of common stock disposed of as bona fide gifts approved
by Morgan Stanley & Co. Incorporated and UBS
Securities LLC;
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transfers of common stock by will or intestacy, including
without limitation, transfers by will or intestacy to such
directors or such executive officers family members
or to any trust; or
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the exercise by such director or executive officer of options or
other rights to purchase common stock.
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In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the over allotment option. The underwriters
can close out a covered short sale by exercising the over
allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of shares compared to the price available
under the over allotment option. The underwriters may also sell
shares in excess of the over allotment option, creating a naked
short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering. As an
additional means of facilitating the offering, the underwriters
may bid for, and purchase, shares of common stock in the open
market to stabilize the price of the common stock. The
underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases
previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock. These
activities may raise or maintain the market price of the common
stock above independent market levels or prevent or retard a
decline in the market price of the common stock. The
underwriters are not required to engage in these activities, and
may end any of these activities at any time.
From time to time, Morgan Stanley & Co. Incorporated,
UBS Securities LLC, Barclays Capital Inc., Natixis Bleichroeder
Inc. and SG Americas Securities, LLC have provided, and continue
to provide, investment banking services to Patriot. In addition,
because affiliates of Barclays Capital Inc., PNC Capital
S-22
Markets LLC, Natixis Bleichroeder Inc., Santander Investment
Securities Inc. and SG Americas Securities, LLC are lenders
under our revolving credit facility, and such affiliates will,
in the aggregate, receive more than 10% of the net proceeds of
this offering when we repay that facility with the proceeds of
this offering of our common stock, such underwriters may be
deemed to have a conflict of interest with us under
Rule 5110(h) of the Financial Industry Regulatory Authority
(FINRA). When a FINRA member with a conflict of
interest participates as an underwriter in a public offering,
that rule requires that the initial public offering price may be
no higher than that recommended by a qualified independent
underwriter, as defined by FINRA. Because a bona fide
independent market (as defined under FINRA rules) in the shares
of the companys stock exists, a qualified independent
underwriter is not required to be appointed for this offering;
however, the offering will be conducted in accordance with all
other applicable provisions of FINRA Rule 5110(h).
Patriot estimates that the total expenses of this offering,
including registration, filing and listing fees, printing fees
and legal and accounting expenses, but excluding the
underwriting discounts and commissions, will be approximately
$500,000.
Patriot and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the
Securities Act.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the Relevant Implementation
Date) it has not made and will not make an offer of shares
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
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(a)
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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(b)
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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(c)
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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(d)
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in any other circumstances which do not require the publication
by the issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
United
Kingdom
Each underwriter has represented and agreed that it has only
communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000
S-23
(FSMA)) received by it in connection with the issue
or sale of the shares of common stock in circumstances in which
Section 21(1) of the FSMA does not apply to the issuer and
it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
any shares of common stock in, from or otherwise involving the
United Kingdom.
Switzerland
This prospectus supplement, as well as any other material
relating to the common shares which are the subject of the
offering contemplated by this prospectus supplement, do not
constitute an issue prospectus pursuant to Article 652a of
the Swiss Code of Obligations. The common shares will not be
listed on the SIX Swiss Exchange and, therefore, the documents
relating to the common shares, including, but not limited to,
this document, do not claim to comply with the disclosure
standards of the listing rules of SIX Swiss Exchange and
corresponding prospectus schemes annexed to the listing rules of
the SIX Swiss Exchange. The common shares are being offered in
Switzerland by way of a private placement, i.e., to a small
number of selected investors only, without any public offer and
only to investors who do not purchase the common shares with the
intention to distribute them to the public. The investors will
be individually approached by us from time to time. This
document, as well as any other material relating to the common
shares, is personal and confidential and do not constitute an
offer to any other person. This document may only be used by
those investors to whom it has been handed out in connection
with the offering described herein and may neither directly nor
indirectly be distributed or made available to other persons
without our express consent. It may not be used in connection
with any other offer and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Japan
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each
underwriter has agreed that it will not offer or sell any
securities, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan (which term as used herein
means any person resident in Japan, including any corporation or
other entity organized under the laws of Japan), or to others
for re-offering or resale, directly or indirectly, in Japan or
to a resident of Japan, except pursuant to an exemption from the
registration requirements of, and otherwise in compliance with,
the Financial Instruments and Exchange Law and any other
applicable laws, regulations and ministerial guidelines of Japan.
Hong
Kong
The shares of common stock may not be offered or sold by means
of any document other than (i) in circumstances which do
not constitute an offer to the public within the meaning of the
Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
Singapore
This prospectus supplement has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement and any other document
or material in connection with the offer or sale, or invitation
for subscription or purchase, of the shares may not be
circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription
or purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person
S-24
pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
S-25
LEGAL
MATTERS
Joseph W. Bean, our General Counsel, and Davis Polk &
Wardwell, New York, New York, will pass upon certain legal
matters in connection with the offered securities. As of
June 15, 2009, Mr. Bean owned 19,200 shares of
our common stock, including 11,000 shares of restricted
stocks, 112,542 non-qualified stock options and 91,741
restricted stock units. The validity of the offered securities
will be passed upon for the underwriters by Cleary Gottlieb
Steen & Hamilton LLP.
EXPERTS
The consolidated financial statements of Patriot Coal
Corporation for the year ended December 31, 2008 included
in Patriot Coal Corporations Current Report on
Form 8-K
filed with the SEC on June 16, 2009 (including the schedule
included therein), and the effectiveness of Patriot Coal
Corporations internal control over financial reporting as
of December 31, 2008 (excluding the internal control over
financial reporting of Magnum Coal Company) appearing in Patriot
Coal Corporations Annual Report
(Form 10-K),
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in its reports
thereon, which as to the report on the effectiveness of Patriot
Coal Corporations internal control over financial
reporting contains an explanatory paragraph describing the above
referenced exclusion of Magnum Coal Company from the scope of
such firms audit of internal control over financial
reporting, included therein, and incorporated herein by
reference which, as to the year 2006, are based in part on the
report of PricewaterhouseCoopers LLP, independent registered
public accounting firm. Such consolidated financial statements
have been incorporated herein by reference in reliance upon such
reports given on the authority of such firm as experts in
accounting and auditing.
The audited financial statements of KE Ventures, LLC for the
year ended December 31, 2006, not separately presented in
this registration statement, had been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report thereon appears in Patriot Coal
Corporations Current Report on Form
8-K
filed
with the SEC on June 16, 2009 which is incorporated into this
registration statement. Such financial statements, to the extent
they have been included in the financial statements of Patriot
Coal Corporation for the year ended December 31, 2006, have
been included in reliance on the report of such independent
registered public accounting firm given on the authority of said
firm as experts in auditing and accounting.
The estimates of Magnums proven and probable coal reserves
referred to in this prospectus supplement and accompanying
supplement, including the information incorporated by reference
herein or therein, to the extent described in this prospectus
supplement and accompanying supplement, including the
information incorporated by reference herein or therein, have
been prepared by Weir International, Inc.
S-26
PROSPECTUS
PATRIOT COAL
CORPORATION
COMMON
STOCK PREFERRED STOCK DEBT
SECURITIES
WARRANTS PURCHASE
CONTRACTS UNITS
We may offer from time to time, in one or more series, any one
or any combination of the following:
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common stock;
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preferred stock;
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debt securities;
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warrants;
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purchase contracts; and
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units.
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The common stock of Patriot Coal Corporation is traded on the
New York Stock Exchange under the symbol PCX.
Specific terms of these securities will be provided in
supplements to this prospectus. You should read this prospectus
and any supplement carefully before you invest.
You should read this prospectus and the applicable prospectus
supplement, as well as the risks contained, or described in the
documents incorporated by reference, in this prospectus or any
accompanying prospectus supplement, before you invest.
Investing in these securities involves certain risks. See
Risk Factors beginning on page 5 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 4, 2009
You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this
prospectus is accurate as of any date other than the date on the
front of this prospectus. Unless the context indicates
otherwise, all references in this report to Patriot, the
Company, us, we, or our include Patriot Coal Corporation and its
subsidiaries.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the SEC utilizing a shelf registration
process. Under this shelf process, we may sell any combination
of the securities described in this prospectus in one or more
offerings. This prospectus provides you with a general
description of the securities we may offer. Each time we sell
securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering.
The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both
this prospectus and any prospectus supplement together with
additional information described under the heading Where
You Can Find More Information.
1
THE
COMPANY
We are a leading producer of thermal coal in the eastern United
States, with operations and coal reserves in Appalachia and the
Illinois Basin. We are also a leading U.S. producer of
metallurgical quality coal. We and our predecessor companies
have operated in these regions for more than 50 years. Our
operations consist of sixteen mining complexes which include
company-operated mines, contractor-operated mines and coal
preparation facilities. One of our mining complexes is located
in northern West Virginia, twelve are located in southern West
Virginia and three are located in western Kentucky. We ship coal
to electric utilities, industrial users and metallurgical coal
customers via various company-owned and third-party loading
facilities and multiple rail and river transportation routes.
In 2008, we sold 28.5 million tons of coal, of which 79%
was sold to domestic electric utilities and 21% was sold to
domestic and global steel producers. We control approximately
1.8 billion tons of proven and probable coal reserves. Our
proven and probable coal reserves include metallurgical coal and
medium and
high-Btu
thermal coal, with low, medium and high sulfur content. We
believe we are well-positioned to meet customers demand
for various products, given the diverse coal qualities available
in our proven and probable coal reserves.
Effective October 31, 2007, we were spun-off from Peabody
Energy Corporation (Peabody) and became a separate, public
company traded on the New York Stock Exchange (symbol PCX).
Prior to the spin-off, we were wholly-owned subsidiaries of
Peabody and our operations were a part of Peabodys
operations. Many of our subsidiaries were acquired during the
1980s and 1990s, when Peabody grew through expansion and
acquisition. The spin-off from Peabody, including coal assets
and operations in Appalachia and the Illinois Basin, was
accomplished through a dividend of all outstanding shares of
Patriot. Distribution of the Patriot stock to Peabodys
stockholders occurred on October 31, 2007, at a ratio of
one share of Patriot stock for every 10 shares of Peabody
stock.
On July 23, 2008, we consummated the acquisition of Magnum
Coal Company (Magnum). Magnum stockholders received
23,803,312 shares of newly-issued Patriot common stock and
cash in lieu of fractional shares. The fair value of $25.29 per
share of Patriot common stock issued to the Magnum shareholders
was based on the average of the Patriot stock price for the five
business days surrounding and including the merger announcement
date, April 2, 2008. The total purchase price was
$739.0 million, including the assumption of
$148.6 million of long-term debt, $11.8 million of
which related to capital lease obligations. In conjunction with
the acquisition, we issued debt in order to repay Magnums
existing senior secured indebtedness. Magnum was one of the
largest coal producers in Appalachia, operating 11 mines and 7
preparation plants with production from surface and underground
mines and controlling more than 600 million tons of proven
and probable coal reserves.
Effective August 11, 2008, we implemented a
2-for-1
stock split effected in the form of a 100% stock dividend. All
share and per share amounts in this Registration Statement on
Form S-3
reflect this stock split.
Our principal executive offices are located at 12312 Olive
Boulevard, Suite 400, St. Louis, Missouri, 63141 and
our telephone number is
(314) 275-3600.
We maintain a website at
www.patriotcoal.com
where
general information about us is available. We are not
incorporating the contents of the website into this prospectus.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document that we file at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an Internet site at
http://www.sec.gov,
from which interested persons can electronically access our SEC
filings, including the registration statement and the exhibits
and schedules thereto.
2
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus, and information that we file
later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed
below and all documents subsequently filed with the SEC pursuant
to Section 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, prior to the termination of
the offering under this prospectus:
(a) Current Reports on
Form 8-K
dated February 4, February 6, February 10 (for the
Form 8-K
filed on such date with respect to Items 5.02 and 9.01) and
February 26, 2009;
(b) Annual Report on
Form 10-K
for the year ended December 31, 2008; and
(c) Definitive Proxy Statement on Schedule 14A filed
on April 1, 2009.
You may also request copies of our filings, free of charge, by
telephone at
(314) 275-3680
or by mail at: Patriot Coal Corporation, 12312 Olive Boulevard,
St. Louis, Missouri 63141, attention: Investor Relations.
SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
We have based these forward-looking statements on our current
expectations and projections about future events. These
forward-looking statements are subject to risks, uncertainties,
and assumptions about our business, including, among other
things:
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difficulty in implementing our business strategy;
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geologic, equipment and operational risks associated with mining;
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changes in general economic conditions, including coal and power
market conditions;
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availability and costs of credit, surety bonds and letters of
credit;
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the outcome of commercial negotiations involving sales contracts
or other transactions;
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economic strength and political stability of countries in which
we serve customers;
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downturns in consumer and company spending;
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supplier and contract miner performance, and the availability
and cost of key equipment and commodities;
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availability and costs of transportation;
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worldwide economic and political conditions;
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labor availability and relations;
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our ability to replace proven and probable coal reserves;
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the effects of mergers, acquisitions and divestitures, including
our ability to successfully integrate mergers and acquisitions;
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our ability to respond to changing customer preferences;
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our dependence on Peabody Energy for a significant portion of
our revenues;
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price volatility and demand, particularly in higher margin
products;
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reductions of purchases by major customers;
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failure to comply with debt covenants;
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customer performance and credit risks;
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regulatory and court decisions including, but not limited to,
those impacting permits issued pursuant to the Clean Water Act;
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environmental laws and regulations including those affecting our
operations and those affecting our customers coal usage;
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developments in greenhouse gas emission regulation and
treatment, including any development of commercially successful
carbon capture and storage techniques;
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coal mining laws and regulations;
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the outcome of pending or future litigation;
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weather patterns affecting energy demand;
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competition in our industry;
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changes in postretirement benefit obligations;
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changes to contribution requirements to multi-employer benefit
funds;
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availability and costs of competing energy resources;
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interest rate fluctuation;
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inflationary trends, including those impacting materials used in
our business;
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wars and acts of terrorism or sabotage;
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impact of pandemic illness; and
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other factors, including those discussed in Legal Proceedings
set forth in Item 3 of our Annual Report on
Form 10-K
for the year ended December 31, 2008.
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These factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements that
are included in the documents incorporated by reference. If one
or more of these or other risks or uncertainties materialize, or
if our underlying assumptions prove to be incorrect, actual
results may vary materially from what we projected.
Consequently, actual events and results may vary significantly
from those included in or contemplated or implied by our
forward-looking statements. We do not undertake any obligation
to update the forward-looking statements, except as required by
federal securities laws.
4
RISK
FACTORS
An investment in our securities involves risks. We urge you to
consider carefully the risks described below. Additional risks,
including those that relate to any particular securities we
offer, may be included in a prospectus supplement that we
authorize from time to time.
Our business, financial condition, results of operations and
cash flows could be materially adversely affected by any of the
risks described below. The market or trading price of our
securities could decline due to any of the risks described
below. Additional risks not presently known to us or that we
currently deem immaterial also may impair our business and
operations or cause the price of our securities to decline.
Risk
Factors Relating to Our Business
Our
operations are subject to geologic, equipment and operational
risks, including events beyond our control, which could result
in higher operating expenses and/or decreased production and
sales and adversely affect our operating results.
Our coal mining operations are conducted in underground and
surface mines. The level of our production at these mines is
subject to operating conditions and events beyond our control
that could disrupt operations, affect production and the cost of
mining at particular mines for varying lengths of time and have
a significant impact on our operating results. Adverse operating
conditions and events that coal producers have experienced in
the past include changes or variations in geologic conditions,
such as the thickness of the coal deposits and the amount of
rock embedded in or overlying the coal deposit; mining and
processing equipment failures and unexpected maintenance
problems; adverse weather and natural disasters, such as
snowstorms, ice storms, heavy rains and flooding; accidental
mine water inflows and unexpected mine safety accidents,
including fires and explosions from methane and other sources.
Our Federal mine experienced two roof falls during the first
quarter of 2008 and experienced hard cutting and soft floor
conditions in the second half of 2008, leading to reduced
productivity. Also in the second half of 2008, our Panther mine
experienced sandstone intrusions that led to hard cutting
conditions. The decrease in production caused by each of these
events resulted in us invoking the force majeure provisions of
several coal sales contracts, requiring us to make up lost
tonnages in certain instances during 2009.
If any of these conditions or events occur in the future at any
of our mines or affect deliveries of our coal to customers, they
may increase our cost of mining, delay or halt production at
particular mines, or negatively impact sales to our customers
either permanently or for varying lengths of time, which could
adversely affect our results of operations, cash flows and
financial condition. We cannot assure you that these risks would
be fully covered by our insurance policies.
In addition, the geological characteristics of underground coal
reserves in Appalachia and the Illinois Basin, such as rock
intrusions, overmining, undermining and coal seam thickness,
make these coal reserves complex and costly to mine. As mines
become depleted, replacement reserves may not be mineable at
costs comparable to those characteristic of the depleting mines.
These factors could materially and adversely affect the mining
operations and the cost structures of, and customers
willingness to purchase coal produced by, our mines.
A
decline in coal prices could reduce our revenues and the value
of our coal reserves.
Our results of operations are dependent upon the prices we
charge for our coal as well as our ability to maximize
productivity and control costs. Declines in the prices we
receive for our coal could adversely affect our operating
results and our ability to generate the cash flows we require to
fund our existing operations and obligations, improve our
productivity and reinvest in our business. The prices we receive
for coal depend upon numerous factors beyond our control,
including coal and power market conditions, weather patterns
affecting energy demand, competition in our industry,
availability and costs of competing energy resources, worldwide
economic and political conditions, economic strength and
political stability in the U.S. and countries in which we
have customers, the outcome of commercial negotiations involving
sales contracts or other transactions, customer performance and
credit risk, availability and costs of transportation, our
ability to respond to
5
changing customer preferences, reductions of purchases by major
customers, and legislative and regulatory developments,
including new environmental regulations affecting the use of
coal, such as mercury and carbon dioxide-related limitations.
Any material decrease in demand would cause coal prices to
decline and require us to decrease costs in order to maintain
our margins.
The
downturn in the domestic and international financial markets,
and the risk of prolonged global recessionary conditions, could
adversely affect our financial condition and results of
operations.
Because we sell substantially all of our coal to electric
utilities and steel mills, our business and results of
operations remain closely linked to global demand for
electricity and steel production. The downturn in the domestic
and international financial markets has created economic
uncertainty and raised the risk of prolonged global recessionary
conditions. Historically, global demand for basic inputs,
including electricity and steel production, has decreased during
periods of economic downturn. The downturn in the domestic and
international financial markets and the onset of global
recessionary conditions have decreased global demand for
electricity and steel production, which could adversely affect
our financial condition and results of operations.
Certain
of our customers have deferred, and other customers may in the
future seek to defer, contracted shipments of coal, which could
affect our results of operations and liquidity.
As the ongoing global economic recession has caused the price
of, and demand for, coal to decline, certain of our thermal and
metallurgical coal customers have delayed shipments or requested
deferrals pursuant to our existing long-term coal supply
agreements. Other customers may, in the future, seek to delay
shipments or request deferrals under existing agreements. In the
current economic environment, the spot market does not provide
an acceptable alternative to sell our inventory tons resulting
from customer deferrals. Therefore, our inventory of saleable
coal has increased. We are currently evaluating customer
deferrals and are in negotiations with a number of such
customers. We have recently settled some such customer requests
and are seeking to resolve another through arbitration. There is
no assurance we will be able to resolve existing and potential
deferrals on favorable terms, or at all.
Customer deferrals, if agreed to, could affect the amount of
revenue we recognize in 2009. Customer deferrals could adversely
affect our results of operations and liquidity if we do not
receive equivalent value from such customers and we are unable
to sell committed coal at the contracted prices under our
existing coal supply agreements.
In an effort to curtail further excess coal production and limit
costs, we have cancelled mining shifts, idled certain existing
mining complexes and delayed the opening of an additional mining
complex. See Part I, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Outlook Patriot
Operations of our Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009 for more
information.
Certain of our contracts establish prices and terms that allow
us to expect relatively higher levels of profitability than
other contracts, assuming both we and our customer perform under
the terms of these agreements. From time to time, our
profitability may be impacted by negotiated customer
settlements, rather than the delivery of the volume of coal. To
the extent we or a customer do not fully perform under one of
these relatively more profitable contracts, our results of
operations and operating profit in the reporting period during
which such non performance occurs would be materially and
adversely affected.
Our
operations may depend on the availability of additional
financing and access to funds under our credit
facility.
We expect to have sufficient liquidity to support the
development of our business. In the future, however, we may
require additional financing for liquidity, capital requirements
and growth initiatives. We are dependent on our ability to
generate cash flows from operations and to borrow funds and
issue securities in the capital markets to maintain and expand
our business. We may need to incur debt on terms and at interest
rates that may not be as favorable as they were in the past.
6
Our current credit facility is comprised of a group of lenders,
each of which has severally agreed to make loans to us under the
facility. Currently each of these lenders has met their
individual obligation; however, based on the recent instability
related to financial institutions we can make no assurances that
all future obligations will be met. A failure by one or more of
the participants to meet its obligation in the future could have
a materially adverse impact on our liquidity, results of
operations and financial condition.
The credit markets have been experiencing extreme volatility and
disruption for more than 12 months. The market for new debt
financing is extremely limited and in some cases not available
at all. Any inability by us to obtain financing in the future on
favorable terms could have a negative effect on our results of
operations, cash flows and financial condition.
As our
coal supply agreements expire, our revenues and operating
profits could be negatively impacted if we are unable to extend
existing agreements or enter new long-term supply agreements due
to competition, changing coal purchasing patterns or other
variables.
As our coal supply agreements expire, we will compete with other
coal suppliers to obtain business. If we cannot renew these coal
supply agreements with our customers or find alternate customers
willing to purchase our coal at market prices, our revenue and
operating profits could suffer. We continue to supply coal to
Peabody under contracts that existed at the date of spin-off.
Contracts with Peabody to purchase coal sourced from our
operations accounted for 43% of our combined revenues for 2008,
compared to 96% of our revenue in 2007.
Our customers may decide not to extend existing agreements or
enter into new long-term contracts or, in the absence of
long-term contracts, may decide to purchase fewer tons of coal
than in the past or on different terms, including under
different pricing terms. The recent global recession has
resulted in decreased demand worldwide for steel and
electricity. This decrease in demand may cause our customers to
delay negotiations for new contracts and request lower pricing
terms. Furthermore, uncertainty caused by laws and regulations
affecting electric utilities could deter our customers from
entering into long-term coal supply agreements. Some long-term
contracts contain provisions for termination due to
environmental changes if these changes prohibit utilities from
burning the contracted coal. To the degree that we operate
outside of long-term contracts, our revenues are subject to
pricing in the spot market that can be significantly more
volatile than the pricing structure negotiated through a
long-term coal supply agreement. This volatility could adversely
affect the profitability of our operations if spot market
pricing for coal becomes unfavorable.
In a limited number of contracts, failure of the parties to
agree on price adjustments may allow either party to terminate
the contract. Coal supply agreements typically contain force
majeure provisions allowing temporary suspension of performance
by us or the customer during the duration of specified events
beyond the control of the affected party. Most of our coal
supply agreements contain provisions requiring us to deliver
coal meeting quality thresholds for certain characteristics such
as heat value, sulfur content, ash content, chlorine content,
hardness and ash fusion temperature in the case of thermal coal.
Failure to meet these specifications could result in economic
penalties, including price adjustments, purchasing replacement
coal in a higher priced open market, the rejection of deliveries
or termination of the contracts.
Many agreements also contain provisions that permit the parties
to adjust the contract price upward or downward for specific
events, including inflation or deflation, changes in the factors
affecting the cost of producing coal, such as taxes, fees,
royalties and changes in the law regulating the timing,
production, sale or use of coal. Moreover, some of these
agreements permit the customer to terminate the contract if
transportation costs, which are typically borne by the customer,
increase substantially or in the event of changes in regulations
affecting the coal industry, that increase the price of coal
beyond specified amounts.
7
Any
change in coal consumption patterns, in particular by United
States electric power generators or steel producers, could
result in a decrease in the use of coal by those consumers,
which could result in lower prices for our coal, a reduction in
our revenues and an adverse impact on our earnings and the value
of our coal reserves.
Thermal coal accounted for approximately 79%, 77% and 77% of our
coal sales volume during 2008, 2007 and 2006, respectively. The
majority of our sales of thermal coal was to U.S. electric
power generators. The amount of coal consumed for
U.S. electric power generation is affected primarily by the
overall demand for electricity; the location, availability,
quality and price of competing fuels for power such as natural
gas, nuclear, fuel oil and alternative energy sources such as
wind and hydroelectric power; technological developments;
limitations on financings for coal-fueled power plants and
governmental regulations, including increasing difficulties in
obtaining permits for coal-fueled power plants and more
burdensome restrictions in the permits received for such
facilities. In addition, the increasingly stringent requirements
of the Clean Air Act or other laws and regulations, including
tax credits that have been or may be provided for alternative
energy sources and renewable energy mandates that have been or
may be imposed on utilities, may result in more electric power
generators shifting away from coal-fueled generation, the
closure of existing coal-fueled plants and the building of more
non-coal power electrical generating sources in the future. All
of the foregoing could reduce demand for our coal, which could
reduce our revenues, earnings and the value of our coal reserves.
Weather patterns can greatly affect electricity generation.
Extreme temperatures, both hot and cold, cause increased power
usage and, therefore, increased generating requirements from all
sources. Mild temperatures, on the other hand, result in lower
electrical demand, which allows generators to choose the
lowest-cost sources of power generation when deciding which
sources to utilize. Accordingly, significant changes in weather
patterns could reduce the demand for our coal.
Overall economic activity and the associated demands for power
by industrial users can also have significant effects on overall
electricity demand. Deterioration in U.S. electric power
demand would reduce the demand for our thermal coal and could
impact the collectability of our accounts receivable from
electric utility customers.
Metallurgical coal accounted for approximately 21%, 23% and 23%
of our coal sales volume during 2008, 2007 and 2006,
respectively. A significant portion of our sales of
metallurgical coal was to the U.S. steel industry. The
majority of our metallurgical coal production is priced
annually, and as a result, a decrease in near term metallurgical
coal prices could decrease our profitability. The recent global
recession has resulted in decreased demand worldwide for steel
and electricity. Deterioration in global steel production
reduces the demand for our metallurgical coal and resulted in
customer deferrals and cancellations of deliveries in the fourth
quarter of 2008. In addition, the steel industry increasingly
relies on electric arc furnaces or pulverized coal processes to
make steel. These processes do not use furnace coke, an
intermediate product produced from metallurgical coal.
Therefore, growth in future steel production may not represent
increased demand for metallurgical coal. If the demand or
pricing for metallurgical coal decreases in the future, the
amount of metallurgical coal we sell and prices that we receive
for it could decrease, thereby reducing our revenues and
adversely impacting our earnings and the value of our coal
reserves.
Because we sell substantially all of our coal to electric
utilities and steel producers, our business and results of
operations are closely linked to the global demand for
electricity and steel production. Historically, global demand
for basic inputs, including for electricity and steel
production, has decreased during periods of economic downturn.
The recent recession has created economic uncertainty, and
electric utilities and steel producers have responded by
decreasing production.
If the recent global recession results in sustained decreases in
the global demand for electricity and steel production, our
financial condition, results of operations and cash flows could
be materially and adversely affected. Any downward pressure on
coal prices, whether due to increased use of alternative energy
sources, changes in weather patterns, decreases in overall
demand or otherwise, would likely reduce our revenues and
adversely impact our earnings and the value of our coal reserves.
8
Failures
of contractor-operated sources to fulfill the delivery terms of
their contracts with us could reduce our
profitability.
Within our normal mining operations, we utilize third party
sources for some coal production, including contract miners, to
fulfill deliveries under our coal supply agreements.
Approximately 13% of our total sales volume for 2008 was
attributable to contractor-operated mines. Certain of our
contractor-operated mines have experienced adverse geologic
conditions, escalated operating costs
and/or
financial difficulties that have made their delivery of coal to
us at the contracted price difficult or uncertain and, in many
instances, these costs have been passed along to us. Our
profitability or exposure to loss on transactions or
relationships such as these is dependent upon a variety of
factors, including the availability and reliability of the
third-party supply; the price and financial viability of the
third-party supply; our obligation to supply coal to our
customers in the event that adverse geologic conditions restrict
deliveries from our suppliers; our willingness to reimburse
temporary cost increases experienced by third-party coal
suppliers; our ability to pass on temporary cost increases to
customers; our ability to substitute, when economical,
third-party coal sources with internal production or coal
purchased in the market; and other factors.
A
shortage of skilled labor and qualified managers in our
operating regions could pose a risk to labor productivity and
competitive costs and could adversely affect our
profitability.
Efficient coal mining using modern techniques and equipment
requires skilled laborers with mining experience and proficiency
as well as qualified managers and supervisors. In recent years,
a shortage of experienced coal miners and managers in Appalachia
and the Illinois Basin has at times negatively impacted our
production levels and increased our costs. A shortage of
experienced labor could have an adverse impact on our
productivity and costs and our ability to expand production in
the event there is an increase in the demand for our coal, which
could adversely affect our profitability.
A
decrease in the availability or increase in costs of key
supplies, capital equipment or commodities used in our mining
operations could decrease our profitability.
Our purchases of some items of underground mining equipment are
concentrated with one principal supplier. Further, our coal
mining operations use significant amounts of steel, diesel fuel,
explosives and tires. The price of each of these materials and
supplies rose significantly in the first half of 2008, but
prices declined by the end of 2008. Steel is used in roof
control for roof bolts that are required by the
room-and-pillar
method of mining. If the cost of any of these inputs increases
significantly, or if a source for such mining equipment or
supplies was unavailable to meet our replacement demands, our
profitability could be reduced.
Increased
competition both within the coal industry, and outside of it,
such as competition from alternative fuel providers, may
adversely affect our ability to sell coal, and any excess
production capacity in the industry could put downward pressure
on coal prices.
The coal industry is intensely competitive both within the
industry and with respect to other fuels. The most important
factors with which we compete are price, coal quality and
characteristics, transportation costs from the mine to the
customer and reliability of supply. Our principal competitors
include Alliance Resource Partners, L.P., Alpha Natural
Resources, Inc., Arch Coal, Inc., CONSOL Energy, Inc.,
Foundation Coal Holdings, Inc., International Coal Group, Inc.,
James River Coal Company, Massey Energy Company and Peabody
Energy Corporation. We also compete directly with all other
Central Appalachian coal producers, as well as producers from
other basins including Northern and Southern Appalachia, the
Western United States and the Interior United States, and
foreign countries, including Colombia, Venezuela, Australia and
Indonesia.
Depending on the strength of the U.S. dollar relative to
currencies of other coal-producing countries, coal from such
origins could enjoy cost advantages that we do not have. Several
domestic coal-producing regions have lower-cost production than
Central Appalachia, including the Powder River Basin in Wyoming.
Coal with lower delivered production costs shipped east from
western coal mines and from offshore sources can result in
increased competition for coal sales in regions historically
sourced from Appalachian producers.
9
During the mid-1970s and early 1980s, a growing coal market and
increased demand for coal attracted new investors to the coal
industry, spurred the development of new mines and resulted in
production capacity in excess of market demand throughout the
industry. We could experience decreased profitability if future
coal production is consistently greater than coal demand.
Increases in coal prices could encourage the development of
expanded coal producing capacity in the United States and
abroad. Any resulting overcapacity from existing or new
competitors could reduce coal prices and, therefore, our revenue.
We also face competition from renewable energy providers, like
wind and solar, and other alternative fuel sources, like natural
gas. At the end of 2008, increases in natural gas production and
decreases in industrial demand for natural gas caused natural
gas prices to decrease and negatively affected U.S. thermal
coal prices. Should renewable energy sources become more
competitively priced, which may be more likely to occur given
the federal tax incentives for alternative fuel sources that are
already in place and that may be expanded in the future, or
sought after as an energy substitute for fossil fuels, the
demand for such fuels may adversely impact the demand for coal.
We
could be negatively affected if we fail to maintain satisfactory
labor relations.
As of December 31, 2008, Patriot had approximately
4,300 employees. Approximately 47% of the employees at
company operations were represented by an organized labor union
and they generated approximately 41% of the 2008 sales volume.
Relations with our employees and, where applicable organized
labor, are important to our success. Union labor is represented
by the UMWA under labor agreements which expire
December 31, 2011. Our represented workers are in
Appalachia and at the Illinois Basin Highland complex.
Due to the increased risk of strikes and other work-related
stoppages that may be associated with union operations in the
coal industry, our competitors who operate without union labor
may have a competitive advantage in areas where they compete
with our unionized operations. If some or all of our current
non-union operations or those of third party contract miners
were to become organized, we could incur an increased risk of
work stoppages.
Our
future success depends upon our ability to develop our existing
coal reserves and to acquire additional reserves that are
economically recoverable.
Our recoverable reserves decline as we produce coal. We have not
yet applied for the permits required or developed the mines
necessary to use all of our proven and probable coal reserves
that are economically recoverable. Furthermore, we may not be
able to mine all of our proven and probable coal reserves as
profitably as we do at our current operations. Our future
success depends upon our conducting successful exploration and
development activities and acquiring properties containing
economically recoverable proven and probable coal reserves. Our
current strategy includes using our existing properties and
increasing our proven and probable coal reserves through
acquisitions of leases and producing properties.
Our planned mine development projects and acquisition activities
may not result in significant additional proven and probable
coal reserves and we may not have continuing success developing
additional mines. A substantial portion of our proven and
probable coal reserves is not located adjacent to current
operations and will require significant capital expenditures to
develop. In order to develop our proven and probable coal
reserves, we must receive various governmental permits. We make
no assurances that we will be able to obtain the governmental
permits that we would need to continue developing our proven and
probable coal reserves.
Our mining operations are conducted on properties owned or
leased by us. We may not be able to negotiate new leases from
private parties or obtain mining contracts for properties
containing additional proven and probable coal reserves or
maintain our leasehold interest in properties on which mining
operations are not commenced during the term of the lease.
10
Fluctuations
in transportation costs, the availability or reliability of
transportation facilities and our dependence on a single rail
carrier for transport from certain of our mining complexes could
affect the demand for our coal or temporarily impair our ability
to supply coal to our customers.
Coal producers depend upon rail, barge, truck, overland
conveyor, ocean-going vessels and port facilities to deliver
coal to customers. While our coal customers typically arrange
and pay for transportation of coal from the mine or port to the
point of use, disruption of these transportation services
because of weather-related problems, infrastructure damage,
strikes, lock-outs, lack of fuel or maintenance items,
transportation delays, lack of port capacity or other events
could temporarily impair our ability to supply coal to customers
and thus could adversely affect our results of operations, cash
flows and financial condition.
Transportation costs represent a significant portion of the
total cost of coal for our customers, and the cost of
transportation is an important factor in a customers
purchasing decision. Increases in transportation costs,
including increases resulting from emission control requirements
and fluctuations in the price of diesel fuel and demurrage,
could make coal a less competitive source of energy when
compared to alternative fuels such as natural gas, or could make
Appalachian or Illinois Basin coal production less competitive
than coal produced in other regions of the United States or
abroad. One of our coal supply agreements, which accounts for
less than 10% of 2008 tons sold, permits the customer to
terminate such agreement if the barge transportation rates
applicable to our shipments increase by more than a specified
amount and we do not agree to reduce our selling price by the
excess over such amount.
Significant decreases in transportation costs could result in
increased competition from coal producers in other parts of the
country and from abroad. Coordination of the many eastern
loading facilities, the large number of small shipments, terrain
and labor issues all combine to make shipments originating in
the Eastern United States inherently more expensive on a per
ton-mile
basis than shipments originating in the Western United States.
Historically, high coal transportation rates from the western
coal producing areas into Central Appalachian markets limited
the use of western coal in those markets. However, a decrease in
rail rates from the western coal producing areas to markets
served by eastern U.S. producers could create major
competitive challenges for eastern producers. Increased
competition due to changing transportation costs could have an
adverse effect on our business, financial condition and results
of operations.
Coal produced at certain of our mining complexes is transported
to its customers by a single rail carrier. If there are
significant disruptions in the rail services provided by that
carrier or if the rail rates rise significantly, then costs of
transportation for our coal could increase substantially.
Additionally, if there are disruptions of the transportation
services provided by the railroad and we are unable to find
alternative transportation providers to ship our coal, our
business and profitability could be adversely affected.
Failure
to obtain or renew surety bonds in a timely manner and on
acceptable terms could affect our ability to secure reclamation
and employee-related obligations, which could adversely affect
our ability to mine coal.
U.S. federal and state laws require us to secure certain of
our obligations relating to reclaiming lands used for mining,
paying federal and state workers compensation, and
satisfying other miscellaneous obligations. The primary method
for us to meet those obligations is to provide a third-party
surety bond or letters of credit. As of December 31, 2008,
we had outstanding surety bonds and letters of credit
aggregating $505.8 million, of which $227.7 million
was for post-mining reclamation, $189.5 million related to
workers compensation obligations, $49.9 million was
for retiree health obligations, $13.4 million was for coal
lease obligations and $25.3 million was for other
obligations (including collateral for surety companies and bank
guarantees, road maintenance and performance guarantees). These
bonds are typically renewable on an annual basis and the letters
of credit are available through our credit facility.
The current economic recession and volatility and disruption in
the credit markets could result in surety bond issuers deciding
not to continue to renew the bonds or to demand additional
collateral upon those renewals. Our failure to maintain, or
inability to acquire, surety bonds or to provide a suitable
alternative would have a material adverse effect on us. That
failure could result from a variety of factors including lack of
availability, higher expense or unfavorable market terms of new
surety bonds, restrictions on the availability of
11
collateral for current and future third-party surety bond
issuers under the terms of our credit facility and the exercise
by third-party surety bond issuers of their right to refuse to
renew the surety.
If our
business does not generate sufficient cash for operations, we
may not be able to repay borrowings under our credit facility or
fund other liquidity needs, and the amount of our indebtedness
could affect our ability to grow and compete.
Our ability to pay principal and interest on our debt and to
refinance our debt, if necessary, will depend upon the operating
performance of our subsidiaries. Our business may not generate
sufficient cash flows from operations, and future borrowings may
not be available to us under our credit facility or otherwise in
an amount sufficient to enable us to repay any borrowings under
our credit facility or convertible debt or to fund our other
liquidity needs. We also have significant lease and long-term
royalty obligations. Our ability to meet our debt, lease and
royalty obligations will depend upon the operating performance
of our subsidiaries, which will be affected by economic
conditions and a variety of other business factors, many of
which are beyond our control.
The amount of our indebtedness, as well as the recent global
recession, could have significant consequences, including, but
not limited to: (i) limiting our ability to pay principal
on our obligations; (ii) limiting our ability to refinance
the revolver under our credit facility, which expires October
2011, or our convertible debt, which matures on May 31,
2013, on commercially reasonable terms, or terms acceptable to
us or at all; (iii) limiting our ability to obtain
additional financing to fund capital expenditures, future
acquisitions, working capital or other general corporate
requirements; (iv) placing us at a competitive disadvantage
with competitors with lower amounts of debt; and
(v) limiting our flexibility in planning for, or reacting
to, changes in the coal industry. Any inability by us to obtain
financing in the future on favorable terms could have a negative
effect on our results of operations, cash flows and financial
condition.
The
acquisition of Magnum presents integration challenges and
incremental costs.
The acquisition of Magnum was consummated on July 23, 2008.
While we have made significant progress towards the integration
of the two companies, we may face challenges in combining
Magnums operations into our operations in a timely and
efficient manner. The integration of the two companies requires
resources and management attention in the areas of information
technology, human resources, land management and finance. The
failure to successfully integrate Magnum and to successfully
manage the challenges presented by the integration process may
result in us not achieving the anticipated benefits of the
merger. Although we expect that the realization of efficiencies
related to the integration of the businesses will offset
incremental integration and restructuring costs over time, we
cannot give any assurance that this net benefit will be achieved
in the near term, if at all.
The
covenants in our credit facility and other debt indentures
impose restrictions that could limit our operational and
financial flexibility.
The credit facility contains certain customary covenants,
including financial covenants limiting our total indebtedness
(maximum leverage ratio of 2.75) and requiring minimum EBITDA
coverage of interest expense (minimum interest coverage ratio of
4.0), as well as certain limitations on, among other things,
additional debt, liens, investments, acquisitions and capital
expenditures, future dividends, common stock repurchases and
asset sales. Compliance with debt covenants may limit our
ability to draw on our credit facility. In addition, the
indenture for our convertible notes prohibits us from engaging
in certain mergers or acquisitions unless, among other things,
the surviving entity assumes our obligations under the notes.
These and other provisions could prevent or deter a third party
from acquiring us even where the acquisition could be beneficial
to our stockholders.
12
Inaccuracies
in our estimates of economically recoverable coal reserves could
result in lower than expected revenues, higher than expected
costs or decreased profitability.
We base our proven and probable coal reserve information on
engineering, economic and geological data assembled and analyzed
by our staff, which includes various engineers and geologists,
and outside firms. The reserve estimates as to both quantity and
quality are annually updated to reflect production of coal from
the reserves and new drilling or other data received. There are
numerous uncertainties inherent in estimating quantities and
qualities of and costs to mine recoverable reserves, including
many factors beyond our control. Estimates of economically
recoverable coal reserves and net cash flows necessarily depend
upon a number of variable factors and assumptions relating to
geological and mining conditions, relevant historical production
statistics, the assumed effects of regulation and taxes, future
coal prices, operating costs, mining technology improvements,
development costs and reclamation costs.
For these reasons, estimates of the economically recoverable
quantities and qualities attributable to any particular group of
properties, classifications of coal reserves based on risk of
recovery and estimates of net cash flows expected from
particular reserves prepared by different engineers or by the
same engineers at different times may vary substantially. Actual
coal tonnage recovered from identified reserve areas or
properties and revenues and expenditures with respect to our
proven and probable coal reserves may vary materially from
estimates. These estimates, thus, may not accurately reflect our
actual coal reserves. Any inaccuracy in our estimates related to
our proven and probable coal reserves could result in lower than
expected revenues, higher than expected costs or decreased
profitability.
Our
ability to operate our company effectively could be impaired if
we lose key personnel or fail to attract qualified
personnel.
We manage our business with a number of key personnel, the loss
of a number of whom could have a material adverse effect on us.
In addition, as our business develops and expands, we believe
that our future success will depend greatly on our continued
ability to attract and retain highly skilled and qualified
personnel. We cannot be certain that key personnel will continue
to be employed by us or that we will be able to attract and
retain qualified personnel in the future. Failure to retain or
attract key personnel could have a material adverse effect on us.
We
could be adversely affected by a decline in the creditworthiness
or financial condition of our customers.
A substantial portion of our revenues is generated through sales
to a marketing affiliate of Peabody, and we supply coal to
Peabody on a contract basis so Peabody can meet its commitments
under pre-existing customer agreements sourced from our
operations. Our remaining sales are made directly to electric
utilities, industrial companies and steelmakers.
Our ability to receive payment for coal sold and delivered
depends on the continued creditworthiness of our customers. Our
customer base has changed with deregulation as some utilities
have sold their power plants to their non-regulated affiliates
or third parties. These new power plant owners or other
customers may have credit ratings that are below investment
grade. If the creditworthiness of our customers declines
significantly and customers fail to stay current on their
payments, our business could be adversely affected.
In addition, many companies are struggling to maintain their
business given the current economic conditions. If any of our
customers are significantly and negatively impacted by the
current economic conditions, or by other business factors, our
results of operations and financial condition could be
materially adversely affected.
Any
defects in title of leasehold interests in our properties could
limit our ability to mine these properties or could result in
significant unanticipated costs.
We conduct a significant part of our mining operations on
properties that we lease. These leases were entered into over a
period of many years by certain of our predecessors and title to
our leased properties and
13
mineral rights may not be thoroughly verified until a permit to
mine the property is obtained. Our right to mine some of our
proven and probable coal reserves may be materially adversely
affected if there were defects in title or boundaries. In order
to obtain leases or mining contracts to conduct our mining
operations on property where these defects exist, we may in the
future have to incur unanticipated costs, which could adversely
affect our profitability.
The
ownership and voting interest of Patriot stockholders could be
diluted as a result of the issuance of shares of our common
stock to the holders of convertible notes upon
conversion.
The issuance of shares of our common stock upon conversion of
the convertible notes could dilute the interests of
Patriots existing stockholders. The convertible notes are
convertible at the option of the holders during the period from
issuance to February 15, 2013 into a combination of cash
and shares of our common stock, unless we elect to deliver cash
in lieu of the common stock portion. The number of shares of our
common stock that we may deliver upon conversion will depend on
the price of our common stock during an observation period as
described in the indenture. Specifically, the number of shares
deliverable upon conversion will increase as the common stock
price increases above the conversion price of $67.67 per share
during the observation period. The maximum number of shares that
we may deliver is 2,955,560. However, if certain fundamental
changes occur in our business that are deemed make-whole
fundamental changes as defined by the indenture, the
number of shares deliverable on conversion may increase, up to a
maximum amount of 4,137,788 shares. These maximum amounts,
the conversion rate and conversion price are subject to
adjustment for certain dilutive events, such as a stock split or
a distribution of a stock dividend.
The
net share settlement feature of our convertible notes may have
adverse consequences on our liquidity.
We will pay an amount in cash equal to the aggregate principal
portion of our convertible notes calculated as described under
the indenture for the convertible notes. Because we must settle
at least a portion of the conversion obligation with regard to
the convertible notes in cash, the conversion of our convertible
notes may significantly reduce our liquidity.
Peabody
and its shareholders who received Patriot shares at the time of
the spin-off could be subject to material amounts of taxes if
the spin-off is determined to be a taxable
transaction.
On September 26, 2007, Peabody received a ruling from the
IRS to the effect that the spin-off qualified as a tax-free
transaction under Section 355 of the Code. The IRS did not
rule on whether the spin-off satisfied certain requirements
necessary to obtain tax-free treatment under Section 355 of
the Code. Therefore, in addition to obtaining the ruling from
the IRS, Peabody received a favorable opinion from
Ernst & Young LLP as to the satisfaction of these
qualifying conditions required for the application of
Section 355 to the spin-off. Ernst & Young
LLPs tax opinion is not binding on the IRS or the courts.
The letter ruling and the Ernst & Young LLP opinion
relied on certain representations, assumptions and undertakings,
including those relating to the past and future conduct of our
business, and neither the letter ruling nor the
Ernst & Young LLP opinion would be valid if such
representations, assumptions and undertakings were incorrect.
Moreover, the letter ruling did not address all of the issues
that are relevant to determining whether the distribution would
qualify for tax-free treatment. Notwithstanding the letter
ruling and the Ernst & Young LLP opinion, the IRS
could determine that the distribution should be treated as a
taxable transaction if it determines that any of the
representations, assumptions or undertakings that were included
in the request for the letter ruling are false or have been
violated or if it disagrees with the conclusions in the
Ernst & Young LLP opinion that are not covered by the
letter ruling. If, notwithstanding the letter ruling and
opinion, the spin-off is determined to be a taxable transaction,
Peabody shareholders who received Patriot shares at the time of
the spin-off and Peabody could be subject to material amounts of
taxes.
14
Patriot
could be liable to Peabody for adverse tax consequences
resulting from certain change in control transactions and
therefore could be prevented from engaging in strategic or
capital raising transactions.
Peabody could recognize taxable gain if the spin-off is
determined to be part of a plan or series of related
transactions pursuant to which one or more persons acquire,
directly or indirectly, stock representing a 50% or greater
interest in either Peabody or Patriot. Under the Code, any
acquisitions of Peabody or Patriot within the four-year period
beginning two years before the date of the spin-off are presumed
to be part of such a plan unless they are covered by at least
one of several mitigating rules established by IRS regulations.
Nonetheless, a merger, recapitalization or acquisition, or
issuance or redemption of Patriot common stock after the
spin-off could, in some circumstances, be counted toward the 50%
change of ownership threshold. The tax separation agreement
precludes Patriot from engaging in some of these transactions
unless Patriot first obtains a tax opinion acceptable to Peabody
or an IRS ruling to the effect that such transactions will not
result in additional taxes. The tax separation agreement further
requires Patriot to indemnify Peabody for any resulting taxes
regardless of whether Patriot first obtains such opinion or
ruling. As a result, Patriot may not be able to engage in
strategic or capital raising transactions that stockholders
might consider favorable, or to structure potential transactions
in the manner most favorable to Patriot.
Although not required pursuant to the terms of the tax
separation agreement, in connection with the execution of the
Magnum merger agreement, Patriot obtained an opinion dated
April 2, 2008 from Ernst & Young LLP to the
effect that the issuance of the Patriot common stock pursuant to
the merger agreement would not result in an acquisition of a 50%
or greater interest in Patriot within the meaning of
Sections 355(d)(4) and (3)(4)(A) of the Code.
Terrorist
attacks and threats, escalation of military activity in response
to such attacks or acts of war may negatively affect our
business, financial condition and results of
operations.
Terrorist attacks against U.S. targets, rumors or threats
of war, actual conflicts involving the United States or its
allies, or military or trade disruptions affecting our customers
or the economy as a whole may materially adversely affect our
operations or those of our customers. As a result, there could
be delays or losses in transportation and deliveries of coal to
our customers, decreased sales of our coal and extension of time
for payment of accounts receivable from our customers. Strategic
targets such as energy-related assets may be at greater risk of
future terrorist attacks than other targets in the United
States. In addition, disruption or significant increases in
energy prices could result in government-imposed price controls.
Any of these occurrences, or a combination of them, could have a
material adverse effect on our business, financial condition and
results of operations.
Risks
Related to Environmental and Other Regulation
New
and significantly more stringent environmental laws and
regulations may be adopted which could materially adversely
affect our mining operations, cost structure or our
customers ability to use coal.
Most producers of coal, and particularly those involved in
mountaintop mining, are being impacted by governmental
regulations and enforcement to a much greater extent than just a
few years ago. Considerable uncertainty is associated with many
of these potential changes, but the U.S. Environmental
Protection Agency (EPA) as well as state regulators
are increasingly focused on initiatives that have or are
expected to result in increased administrative costs, in
difficulty obtaining new permits, in particular for our
mountaintop removal mining operations, and in a potential
reduction in the demand for coal. For instance, the Council on
Environmental Quality announced in June 2009 that the EPA, the
Department of the Interior (DOI) and the Army Corps of Engineers
(Corps) had entered into a Memorandum of Understanding and
Interagency Action Plan on Appalachian Surface Coal Mining (IAP)
which is designed to coordinate actions between the agencies and
to increase Federal scrutiny and oversight of State permitting,
enforcement and other activities affecting Appalachian surface
mining all with the goal of reducing the environmental impacts
of mountaintop removal coal mining in West Virginia and other
Appalachian states. Among other things, the IAP sets forth a
proposal to prohibit use of the general Nationwide Permit 21 for
surface coal mining operations and a commitment by DOI to issue
guidance clarifying the rules on the use of valley fills within
a set distance of a stream. The IAP
15
also states that there will be a general review of how surface
mining is evaluated, authorized and regulated under the Clean
Water Act, which may lead to further changes to relevant laws or
enforcement thereof. Pursuant to the IAP, EPA and the Corps have
issued enhanced coordination procedures for pending permits that
would expedite review and final decisions for certain of our
pending Clean Water Act Section 404 permit applications. In
addition, the EPA also announced in April 2009 that it has taken
formal steps to declare the emission of carbon dioxide to be an
endangerment to human health, which could result in increased
costs to our customers and a decrease in their usage of coal as
well as possible movement to alternative forms of electrical
generation. These are but two examples of recent trends in
environmental legislation and enforcement that could materially
adversely affect our results of operations, cash flows and
financial conditions.
Concerns
about the environmental impacts of air emissions relating to
coal mining and coal combustion, particularly the impact of
greenhouse gas emissions on global climate change, are resulting
in increased regulation of our industry and could significantly
affect demand for our products and adversely affect our results
of operations, cash flows and financial condition.
Our operations and those of our customers are subject to
extensive environmental regulation relating to air emissions of
pollutants, including sulfur dioxide, nitrogen oxide, mercury,
and particulate matter. Costs related to these requirements can
be significant, particularly for our customers. As environmental
regulation and enforcement becomes more stringent over time,
these costs are likely to increase and could have an adverse
effect on our results of operations, cash flows and financial
condition.
Considerable and increasing government attention in the United
States and elsewhere is being paid to reducing greenhouse gas
emissions, particularly from coal combustion power plants, which
are the largest end-users of our coal. Legislators are
considering the passage of significant new laws and regulators
are considering using existing laws, including the Clean Air
Act, to limit greenhouse gas emissions, and tax incentives and
other measures are being imposed or offered by various laws and
governmental agencies with the ultimate goal of reducing
greenhouse gas emissions. For instance, Congress is expected to
evaluate greenhouse gas legislation, perhaps in the coming year,
and the EPA currently is seeking public comment on the
feasibility of regulating greenhouse gas emissions under the
Clean Air Act. The EPA has also announced that it will
reconsider an interpretive memo it had released in December 2008
declaring that carbon dioxide is not currently subject to
regulation under the Clean Air Acts Prevention of
Significant Deterioration permit program, and will publish a
notice of proposed rulemaking relating to that reconsideration
in the near future. Many states have adopted measures, sometimes
as part of a regional collaboration, to reduce greenhouse gases
generated within their own jurisdiction. These measures include
emission regulations, mandates for utilities to generate a
portion of their electricity without using coal, incentives or
goals for generating electricity using renewable resources, and
moratoriums on new coal fueled power plants. Some municipalities
have also adopted similar measures. As new requirements are
imposed, we and our customers may be materially adversely
affected.
Demand for and use of coal also may be limited by any global
treaties which place restrictions on carbon dioxide emissions.
As part of the United Nations Framework Convention on Climate
Change, representatives from 187 nations met in Bali, Indonesia
in December 2007 to discuss a program to limit greenhouse gas
emissions after 2012. The United States participated in the
conference. The convention adopted what is called the Bali
Action Plan. The Bali Action Plan contains no binding
commitments, but concludes that deep cuts in global
emissions will be required and provides a timetable for
two years of talks to shape the first formal addendum to the
1992 United Nations Framework Convention on Climate Change
treaty since the Kyoto Protocol. The ultimate outcome of the
Bali Action Plan, and any treaty or other arrangement ultimately
adopted by the United States or other countries, may have an
adverse impact on the global supply and demand for coal, which
in turn could have an adverse impact on our business.
In addition, proposed coal-fueled electric generating facilities
are facing both increasing opposition, including through
litigation, from environmental groups who are concerned with,
among other things, global climate change as well as the
uncertain financial impact of potential greenhouse gas
regulations.
16
As a result of all of the above, certain power generating
companies may reconsider plans to build or significantly modify
coal-fueled plants or may elect to build capacity using
alternative forms of electrical generation in the near-term and
beyond. Any movement away from the use of coal could adversely
affect our results of operations, cash flows and financial
condition.
We may
be unable to obtain, renew or comply with permits necessary for
our operation, which could reduce our production, cash flows and
profitability.
Mining companies must obtain numerous permits and approvals that
impose strict requirements relating to environmental and safety
matters. These include permits issued by various federal and
state agencies and regulatory bodies. We have at times been
unable to comply with all applicable requirements, and such
failure has resulted in the past, and may in the future result
in, lawsuits against us by regulators or private parties and has
in the past and may in the future require us to pay material
fines or penalties. In addition, because the permitting rules
are complex, change frequently and have become more stringent
over time, it may be even more difficult or even impossible to
obtain, renew or comply with applicable requirements in the
future, which could preclude continuing or future mining
operations.
Private individuals and the public have certain rights to
comment upon, submit objections to, and otherwise engage in the
permitting process, including through court intervention. Some
permit programs necessary to the operation of coal companies,
such as the authorizations issued under Section 404 of the
Clean Water Act, have been subject to recent and significant
legal challenges. In addition, companies in the coal industry,
including some of our subsidiaries, have been subject to a
number of governmental investigations and court cases relating
to a failure to comply with the terms of existing Clean Water
Act permits or objecting to the issuance or terms of Clean Water
Act permits. As a result of the foregoing, it has become more
difficult, takes longer and costs more to obtain and maintain
permits necessary for our operations, and in some cases the
permits we need may not be issued, maintained or renewed in a
timely fashion, may be subject to additional future challenges
and may impose extremely burdensome conditions on our operations
and activities. In addition, we have recently been issued court
orders or have settled cases relating to Clean Water Act permits
and we may in the future be issued additional court orders or be
required to enter into new settlements, all of which may require
us to pay material fines or penalties, undertake time-consuming
and expensive investigations, and make changes or shutdown some
of our operations. Any of the foregoing could materially
adversely affect our production, results of operations, cash
flows and financial condition.
Like
many of our competitors, we cannot always completely comply with
permit restrictions relating to the discharge of selenium into
surface water, which has led to court challenges and related
orders and settlements, has required us to pay fines and
penalties, is requiring us to incur other significant costs and
may be difficult to resolve in a timely basis given current
technology.
Selenium is a naturally occurring substance that is discharged
to surface water when our mine tailings are exposed to rain and
other natural elements. Many coal companies that have surface
mining operations in Appalachia have similar risks relating to
the discharge of selenium. Some of our permits have currently
effective limits on the selenium that can be discharged, and
other permits have limits that will be effective in the future.
There is currently no reasonably available technology that has
been proven to effectively address selenium exceedances in
permitted water discharges, and as a result the West Virginia
Department of Environmental Protection (WVDEP) deferred most of
the obligations of our company and of other coal companies to
comply with any selenium discharge limit obligations until April
2010. However, a federal court decision determined that the
deferral of the obligations with respect to a permit of Apogee
Coal Company, LLC (Apogee), one of Magnums subsidiaries,
failed to meet certain procedural requirements, and as a result
ordered Apogee to develop and implement a treatment plan
relating to the outfalls governed by that permit, or to show
cause of its inability to do so. In addition, as a result of a
lawsuit filed by the WVDEP in state court in West Virginia,
Hobet Mining, LLC (Hobet), a subsidiary of Magnum, has entered
into a settlement agreement with the WVDEP requiring Hobet to
pay fines and penalties with respect to past violations of
selenium limitations under four NPDES permits, to meet permit
limitations on selenium by December 31, 2009 with respect
to one permit, and to study potential treatments to address the
selenium discharges.
17
As a result of the above, we are actively engaged in studying
potential solutions to controlling selenium discharges and we
have been installing test treatment facilities at various
permitted outfalls. Because the levels and frequency of selenium
discharges at any given outfall will be different, the solution
for each outfall may be very different and a variety of
solutions will therefore ultimately be required. The potential
solutions identified to date, some of which have been provided
to the federal court in West Virginia, have not been proven to
be effective and otherwise may not be feasible due to a range of
problems concerning technological issues, prohibitive
implementation costs and other issues. While we are actively
continuing to explore options, there can be no assurance as to
when a definitive solution will be identified and implemented.
As a result, it is possible that we will be unable to meet
either the court order or WVDEP settlement deadlines or the
ultimate April 2010 deadline. While these selenium discharge
issues generally relate to historical rather than ongoing mining
operations, any failure to meet the deadlines or to otherwise
comply with selenium limits in our permits could result in
further litigation against us, an inability to obtain new
permits or to maintain existing permits, the incurrence of
significant and material fines and penalties or other costs and
could otherwise materially adversely affect our results of
operations, cash flows and financial condition.
Any
restrictions on the disposal of mining spoil material could
significantly increase our operating costs and materially harm
our financial condition and operating results.
As is the case with other coal mining companies operating in
Appalachia, our construction and mining activities, including
our mountaintop removal mining operations, frequently require,
and depend on, the use of valley fills for the disposal of
excess spoil (rock and soil material). These operations require
us to obtain Section 404 Clean Water Act permits from ACOE
to construct and operate valley fills and surface impoundments.
During the last few years, certain environmental groups have
filed lawsuits challenging the ACOEs authority to issue
Section 404 Clean Water Act permits relating to valley
fills and surface impoundments and, in some instances,
environmental groups have also sought to enjoin the use of such
permits previously issued by the ACOE. While a recent federal
court decision held that ACOE had the authority to issue certain
404 Clean Water Act permits known as individual permits,
other court cases permitting the issuance of certain 404 Clean
Water Act permits known as nationwide permits are still under
appeal. In addition, as noted above, the IAP entered in June
2009 sets forth a proposal to prohibit the use of nationwide
permits for surface coal mining operations, and to issue
guidance clarifying the rules on the use of valley fills within
a set distance of a stream. As a result, there can be no
assurance that future laws or judicial rulings will not
adversely affect the issuance of or the renewal or ongoing use
of valley fill or surface impoundment permits under the Clean
Water Act. If these mining methods are limited or prohibited, it
could significantly increase our operational costs and make it
more difficult to economically recover a significant portion of
our reserves. In the event that we cannot increase the price we
charge for coal to cover the higher production costs without
reducing customer demand for our coal, there could be an adverse
effect on our financial condition and results of operations.
Our
operations may impact the environment or cause exposure to
hazardous substances, and our properties may have environmental
contamination, which could result in material liabilities to
us.
Certain of our current and historical coal mining operations
have used hazardous materials and, to the extent that such
materials are not recycled, they could become hazardous waste.
We may be subject to claims under federal and state statutes
and/or
common law doctrines for toxic torts and other damages, as well
as for natural resource damages and the investigation and
remediation of soil, surface water, groundwater, and other media
under laws such as CERCLA, commonly known as Superfund. Such
claims may arise, for example, out of current or former
conditions at sites that we own or operate currently, as well as
at sites that we and companies we acquired owned or operated in
the past, and at contaminated sites that have always been owned
or operated by third parties. Liability may be without regard to
fault and may be strict, joint and several, so that we may be
held responsible for more than our share of the contamination or
other damages, or even for the entire share.
We maintain coal slurry impoundments at a number of our mines.
Such impoundments are subject to extensive regulation.
Structural failure of an impoundment can result in extensive
damage to the environment
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and natural resources, such as streams or bodies of water and
wildlife, as well as related personal injuries and property
damages which in turn can give rise to extensive liability. Some
of our impoundments overlie areas where some mining has
occurred, which can pose a heightened risk of failure and of
damages arising out of failure. If one of our impoundments were
to fail, we could be subject to substantial claims for the
resulting environmental contamination and associated liability,
as well as for fines and penalties. A recent well publicized
failure of an ash slurry impoundment maintained by the Tennessee
Valley Authority has led to new legislative and regulatory
proposals that, if enacted, may impose significant obligations
on us or our customers. In addition, the EPA administrator has
publicly called for more inspections of coal slurry impoundments.
These and other similar unforeseen impacts that our operations
may have on the environment, as well as exposures to hazardous
substances or wastes associated with our operations, could
result in costs and liabilities that could adversely affect us.
Our
mining operations are extensively regulated, which imposes
significant costs on us, and future regulations or violations of
regulations could increase those costs or limit our ability to
produce coal.
Federal and state authorities regulate the coal mining industry
with respect to matters such as employee health and safety,
permitting and licensing requirements, the protection of the
environment, plants and wildlife, reclamation and restoration of
mining properties after mining is completed, surface subsidence
from underground mining and the effects that mining has on
groundwater quality and availability. Numerous governmental
permits and approvals are required for mining operations. We are
required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any
proposed exploration for or production of coal may have upon the
environment. In addition, significant legislation mandating
specified benefits for retired coal miners affects our industry.
The costs, liabilities and requirements associated with these
regulations are often costly and time-consuming and may delay
commencement or continuation of exploration or production. New
or revised legislation or administrative regulations (or
judicial or administrative interpretations of existing laws and
regulations), including proposals related to the protection of
the environment or employee health and safety that would further
regulate and tax the coal industry, may also require us or our
customers to change operations significantly or incur increased
costs, which may materially adversely affect our mining
operations and our cost structure. The majority of our coal
supply agreements contain provisions that allow a purchaser to
terminate its contract if legislation is passed that either
restricts the use or type of coal permissible at the
purchasers plant or results in specified increases in the
cost of coal or its use. These factors could have a material
adverse effect on our results of operations, cash flows and
financial condition.
In the event of certain violations of safety rules, the Mine
Safety and Health Administration may order the temporary closure
of mines. Our customers may challenge our issuance of force
majeure notices in connection with such closures. If these
challenges are successful, we could be obligated to make up lost
shipments, to reimburse customers for the additional costs to
purchase replacement coal, or, in some cases, to terminate
certain sales contracts.
We are
involved in legal proceedings that if determined adversely to
us, could significantly impact our profitability, financial
position or liquidity.
We are involved in various legal proceedings that arise in the
ordinary course of business. Some of the lawsuits seek fines or
penalties and damages in very large amounts, or seek to restrict
our business activities. In particular, we are subject to legal
proceedings relating to our receipt of and compliance with
permits under the Clean Water Act and to other legal proceedings
relating to environmental matters involving current and
historical operations and ownership of land. It is currently
unknown what the ultimate resolution of these proceedings will
be, but the costs of resolving these proceedings could be
material, and could result in an obligation to change our
operations in a manner that could have an adverse effect on us.
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We
have significant reclamation and mine closure obligations. If
the assumptions underlying our accruals are inaccurate, we could
be required to expend greater amounts than
anticipated.
The Surface Mining Control and Reclamation Act of 1977, or
SMCRA, establishes operational, reclamation and closure
standards for all aspects of surface mining as well as most
aspects of deep mining. We calculated the total estimated
reclamation and mine-closing liabilities according to the
guidance provided by U.S. accounting standards. Estimates
of our total reclamation and mine-closing liabilities are based
upon permit requirements and our engineering expertise related
to these requirements. As of December 31, 2008, we had
accrued reserves of $121.6 million for reclamation
liabilities and mine closures and an additional
$102.6 million for medical benefits for employees due to
mine closure. The estimate of ultimate reclamation liability is
reviewed annually by our management and engineers. The estimated
liability could change significantly if actual costs vary from
assumptions, if the underlying facts change or if governmental
requirements change significantly.
If our
assumptions regarding our likely future expenses related to
employee benefit plans are incorrect, then expenditures for
these benefits could be materially higher than we have
assumed.
We provide post-retirement health and life insurance benefits to
eligible union and non-union employees. We calculated the total
accumulated postretirement benefit obligation according to the
guidance provided by U.S. accounting standards. We
estimated the present value of the obligation to be
$1.1 billion as of December 31, 2008. We have
estimated these unfunded obligations based on actuarial
assumptions described in the notes to our consolidated financial
statements. If our assumptions do not materialize as expected,
cash expenditures and costs that we incur could be materially
higher.
Due to
our participation in multi-employer pension plans and statutory
retiree healthcare plans, we may have exposure that extends
beyond what our obligations would be with respect to our
employees.
Certain of our subsidiaries participate in two defined benefit
multi-employer pension funds that were established as a result
of collective bargaining with the UMWA pursuant to the 2007
NBCWA as periodically negotiated. These plans provide pension
and disability pension benefits to qualifying represented
employees retiring from a participating employer where the
employee last worked prior to January 1, 1976, in the case
of the UMWA 1950 Pension Plan, or after December 31, 1975,
in the case of the UMWA 1974 Pension Plan. In December 2006, the
2007 NBCWA was signed, which required funding of the 1974
Pension Plan through 2011 under a phased funding schedule. The
funding is based on an hourly rate for active UMWA workers.
Under the labor contract, the per hour funding rate increased to
$3.50 in 2008 and will increase each year thereafter until
reaching $5.50 in 2011. Our subsidiaries with UMWA-represented
employees are required to contribute to the 1974 Pension Plan at
the new hourly rates. Contributions to these funds could
increase as a result of future collective bargaining with the
UMWA, a shrinking contribution base as a result of the
insolvency of other coal companies who currently contribute to
these funds, lower than expected returns on pension fund assets
or other funding deficiencies.
The 2006 Act authorized $490 million in general fund
revenues to pay for certain benefits, including the healthcare
costs under the Combined Fund, 1992 Benefit Plan and 1993
Benefit Plan for orphans who are retirees and their
dependents. Under the 2006 Act, these orphan benefits will be
the responsibility of the federal government on a phased-in
basis through 2012. If Congress were to amend or repeal the 2006
Act or if the $490 million authorization were insufficient
to pay for these healthcare costs, certain of our subsidiaries,
along with other contributing employers and their affiliates,
would be responsible for the excess costs. Our aggregate cash
payments to the Combined Fund, 1992 Benefit Plan and 1993
Benefit Plan were $17.9 million and $21.4 million
during 2008 and 2007, respectively.
We
could be liable for certain retiree healthcare obligations to be
assumed by Peabody in connection with the
spin-off.
In connection with the spin-off, a Peabody subsidiary assumed
certain retiree healthcare obligations of Patriot and its
subsidiaries having a present value of $597.6 million as of
December 31, 2008. These
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obligations arise under the Coal Act, the 2007 NBCWA and
predecessor agreements and a subsidiarys salaried retiree
healthcare plan.
Although the Peabody subsidiary is obligated to pay such
obligations, certain Patriot subsidiaries also remain jointly
and severally liable for the Coal Act obligations, and
secondarily liable for the assumed 2007 NBCWA obligations and
retiree healthcare obligations for certain participants under a
subsidiarys retiree healthcare plan. As a consequence,
Patriots recorded retiree healthcare obligations and
related cash costs could increase substantially if the Peabody
subsidiary would fail to perform its obligations under the
liability assumption agreements. These additional liabilities
and costs, if incurred, could have a material adverse effect on
our results of operations, cash flows and financial condition.
RATIO OF
EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges presented below should be
read together with the financial statements and the notes
accompanying them and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in our Annual Report on
Form 10-K
for the year ended December 31, 2008, incorporated by
reference into this prospectus. For purposes of the computation
of the ratio of earnings to fixed charges, earnings consist of
pre-tax income from continuing operations before adjustment for
minority interest in a consolidated subsidiary and income from
equity investees plus fixed charges and distributed income of
equity investees. Fixed charges consist of interest expense on
all indebtedness plus the interest component of lease rental
expense.
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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December 31,
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December 31,
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December 31,
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December 31,
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December 31,
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2008
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2007
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2006
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2005
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2004
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Ratio of earnings to fixed charges(1)
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6.2
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N/A
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1.9
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2.7
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N/A
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(1)
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Earnings were insufficient to cover fixed charges by
$102.5 million and $72.6 million for the years ended
December 31, 2007 and 2004, respectively.
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USE OF
PROCEEDS
Unless otherwise indicated in the prospectus supplement, we will
use all or a portion of the net proceeds from the sale of our
securities offered by this prospectus and the prospectus
supplement for general corporate purposes. General corporate
purposes may include repayment of other debt, capital
expenditures, possible acquisitions and any other purposes that
may be stated in any prospectus supplement. The net proceeds may
be invested temporarily or applied to repay short-term or
revolving debt until they are used for their stated purpose.
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock is based upon our
certificate of incorporation (Certificate of
Incorporation), our bylaws (Bylaws), the
Rights Agreement dated as of October 22, 2007, as amended,
between the Registrant and American Stock Transfer &
Trust Company, as Rights Agent (Rights
Agreement) and applicable provisions of law. We have
summarized certain portions of the Certificate of Incorporation
and Bylaws below. The summary is not complete. The Certificate
of Incorporation and Bylaws are incorporated by reference in the
registration statement for these securities that we have filed
with the SEC and have been filed as exhibits to our
10-K
for the
year ended December 31, 2008. You should read the
Certificate of Incorporation and Bylaws for the provisions that
are important to you.
Certain provisions of the Delaware General Corporation Law
(DGCL), the Certificate of Incorporation and the
Bylaws summarized in the following paragraphs may have an
anti-takeover effect. This may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in
its best interests,
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including those attempts that might result in a premium over the
market price for its shares. See also Anti-Takeover
Effects of Provisions of Delaware Law and Patriots Charter
and By-Laws.
Patriots authorized capital stock consists of
100 million shares of common stock, par value $0.01 per
share, and 10 million shares of preferred stock, par value
$0.01 per share. The authorized preferred shares include
1 million shares of Series A Junior Participating
Preferred Stock. At the close of business on March 31,
2009, approximately 78,125,159 shares of common stock were
issued and outstanding and no shares of preferred stock were
issued and outstanding.
Description
of Common Stock
Dividends
S
ubject to preferences that may be applicable to any
series of preferred stock, the owners of Patriot common stock
may receive dividends when declared by the board of directors
out of funds legally available for the payment of dividends. All
decisions regarding the declaration and payment of dividends
will be evaluated from time to time in light of Patriots
financial condition, earnings, growth prospects, funding
requirements, applicable law and other factors the Patriot board
of directors deems relevant.
Voting
Rights
Each share of common stock is entitled to one vote in the
election of directors and all other matters submitted to
stockholder vote. Except as otherwise required by law or
provided in any resolution adopted by Patriots board of
directors with respect to any series of preferred stock, the
holders of Patriot common stock possess all voting power. No
cumulative voting rights exist. In general, all matters
submitted to a meeting of stockholders, other than as described
below, are decided by vote of a majority of the shares of
Patriots common stock present in person or represented by
proxy at the meeting and entitled to vote on the matter.
Directors are elected by a plurality of the shares of
Patriots common stock present in person or represented by
proxy at the meeting and entitled to vote on the election of
directors.
The approval of at least 75% of the shares of Patriots
outstanding common stock entitled to vote is necessary to
approve certain actions, such as amending the provisions of
Patriots by-laws or certificate of incorporation relating
to the plurality voting standard for the election of directors,
the number and manner of election and removal of directors, the
classified nature of Patriots board of directors, the
manner of filling vacancies thereon or prohibiting action by the
stockholders by written consent, or electing a director to fill
a vacancy if the stockholders power to do so is expressly
conferred by applicable Delaware law. Other amendments to
Patriots by-laws and certificate of incorporation, and
certain extraordinary transactions (such as a merger or
consolidation involving Patriot or a sale of all or
substantially all of the assets of Patriot), must be approved by
a majority of Patriots outstanding common stock entitled
to vote.
Liquidation
Rights
If Patriot liquidates, dissolves or
winds-up
its
business, whether voluntarily or not, Patriots common
stockholders will share equally in the distribution of all
assets remaining after payment to creditors and preferred
stockholders.
Preemptive
Rights
The common stock does not carry preemptive or similar rights.
Listing
Patriots common stock is listed on the New York Stock
Exchange under the trading symbol PCX.
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Transfer
Agent and Registrar
The transfer agent and registrar for Patriots common stock
is American Stock Transfer & Trust Company.
Authorized
but Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the New York Stock Exchange, which would apply so long as the
common stock remains listed on the New York Stock Exchange,
require stockholder approval of certain issuances equal to or
exceeding 20% of the then-outstanding number of shares of common
stock. These additional shares may be used for a variety of
corporate purposes, including future public offerings, to raise
additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable Patriots
board of directors to issue shares to persons friendly to
current management, which issuance could render more difficult
or discourage an attempt to obtain control of Patriot by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of Patriots management and
possibly deprive the stockholders of opportunities to sell their
shares of common stock at prices higher than prevailing market
prices.
Anti-Takeover
Effects of Provisions of Delaware Law and Patriots Charter
and By-Laws
Delaware
Law
Patriot is subject to the provisions of Section 203 of the
Delaware General Corporation Law, which applies to a broad range
of business combinations between a Delaware corporation and an
interested stockholder. The Delaware law definition of business
combination includes mergers, sales of assets, issuances of
voting stock and certain other transactions. An interested
stockholder is defined as any person who owns, directly or
indirectly, 15% or more of the outstanding voting stock of a
corporation.
Section 203 prohibits a corporation from engaging in a
business combination with an interested stockholder for a period
of three years following the date on which the stockholder
became an interested stockholder, unless:
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the board of directors approved the business combination before
the stockholder became an interested stockholder, or the board
approved the transaction that resulted in the stockholder
becoming an interested stockholder;
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upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, such stockholder
owned at least 85% of the voting stock outstanding when the
transaction began other than shares held by directors who are
also officers and other than shares held by certain employee
stock plans;
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or the board approved the business combination after the
stockholder became an interested stockholder and the business
combination was approved at a meeting by at least two-thirds of
the outstanding voting stock not owned by such stockholder.
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These limitations on business combinations with interested
stockholders do not apply to a corporation that does not have a
class of stock listed on a national securities exchange,
authorized for quotation on an interdealer quotation system of a
registered national securities association or held of record by
more than 2,000 stockholders.
The provisions of Section 203 may encourage companies
interested in acquiring Patriot to negotiate in advance with
Patriots board of directors because the stockholder
approval requirement would be avoided if Patriots board of
directors approves either the business combination or the
transaction which results in the stockholder becoming an
interested stockholder. These provisions also may have the
effect of preventing
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changes in Patriots board of directors and may make it
more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
Certificate
of Incorporation; By-Laws
Patriots certificate of incorporation and by-laws contain
provisions that could make more difficult the acquisition of
Patriot by means of a tender offer, a proxy contest or
otherwise. These provisions are summarized below.
Classes of Preferred Stock.
Under
Patriots certificate of incorporation, Patriots
board of directors has the full authority permitted by Delaware
law to determine the voting rights, if any, and designations,
preferences, limitations and special rights of any class or any
series of any class of the preferred stock, which may be greater
than those of Patriots common stock. The effects of the
issuance of a new series or class of preferred stock might
include, among other things, restricting dividends on
Patriots common stock, diluting the voting power of
Patriots common stock, impairing the liquidation rights of
Patriots common stock, or delaying or preventing a change
in control of Patriot.
Removal of Directors; Filling
Vacancies.
Patriots certificate of
incorporation and by-laws provide that directors may be removed
only for cause and only upon the affirmative vote of holders of
at least 75% of the voting power of all the outstanding shares
of stock entitled to vote generally in the election of
directors, voting together as a single class. Additionally, only
Patriots board of directors will be authorized to fix the
number of directors and to fill any vacancies on Patriots
board. These provisions could make it more difficult for a
potential acquirer to gain control of Patriots board.
Stockholder Action.
Patriots certificate
of incorporation and by-laws provide that stockholder action can
be taken only at an annual or special meeting of stockholders
and may not be taken by written consent in lieu of a meeting.
Patriots certificate of incorporation and by-laws provide
that special meetings of stockholders can be called only by
Patriots Chief Executive Officer or pursuant to a
resolution adopted by Patriots board. Stockholders are not
permitted to call a special meeting or to require that the Board
call a special meeting of stockholders.
Advance Notice Procedures.
Patriots
by-laws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or
bring other business before an annual or special meeting of
stockholders. This notice procedure provides that only persons
who are nominated by, or at the direction of Patriots
board, the chairman of the board, or by a stockholder who has
given timely written notice to the secretary of Patriot prior to
the meeting at which directors are to be elected, will be
eligible for election as directors. This procedure also requires
that, in order to raise matters at an annual or special meeting,
those matters be raised before the meeting pursuant to the
notice of meeting Patriot delivers or by, or at the direction
of, the chairman or by a stockholder who is entitled to vote at
the meeting and who has given timely written notice to the
secretary of Patriot of his intention to raise those matters at
the annual meeting. If the chairman or other officer presiding
at a meeting determines that a person was not nominated, or
other business was not brought before the meeting, in accordance
with the notice procedure, that person will not be eligible for
election as a director, or that business will not be conducted
at the meeting.
Classified board of directors.
Patriots
certificate of incorporation provides for Patriots board
to be divided into three classes of directors, as nearly equal
in number as possible, serving staggered terms. Approximately
one-third of Patriots board will be elected each year.
Under Section 141 of the Delaware General Corporation Law,
directors serving on a classified Board can only be removed for
cause. The initial term of Class I directors expired in
2008, the initial term of Class II directors expires in
2009 and the initial term of Class III directors expires in
2010. After the initial term of each class, Patriots
directors will serve three-year terms. At each annual meeting of
stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose
terms are then expiring. Patriots board currently consists
of ten directors.
The provision for a classified board could prevent a party that
acquires control of a majority of the outstanding voting stock
from obtaining control of Patriots board until the second
annual stockholders meeting
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following the date the acquiror obtains the controlling stock
interest. The classified board provision could have the effect
of discouraging a potential acquiror from making a tender offer
for Patriots shares or otherwise attempting to obtain
control of Patriot and could increase the likelihood that
Patriots incumbent directors will retain their positions.
Amendments.
Patriots certificate of
incorporation provides that the affirmative vote of the holders
of at least 75% of the voting power of the outstanding shares
entitled to vote, voting together as a single class, is required
to amend the provisions of Patriots certificate of
incorporation relating to the prohibition of stockholder action
without a meeting, the number, election and term of
Patriots directors, the classified board and the removal
of directors. Patriots certificate of incorporation
further provides that Patriots by-laws may be amended by
Patriots board or by the affirmative vote of the holders
of at least 75% of the outstanding shares entitled to vote,
voting together as a single class.
Rights
Agreement
Patriots board of directors adopted a Rights Agreement
dated as of October 22, 2007, as amended. Under the rights
agreement, one preferred share purchase right was issued for
each outstanding share of common stock.
Purchase
Price
Once the rights become exercisable, each right will entitle the
registered holder to purchase from Patriot one-half of one
one-hundredths of a share of Patriots Series A Junior
Participating Preferred Stock, or preferred shares, par value
$0.01 per share, at a price of $125 per one-half of one
one-hundredths of a preferred share, subject to adjustment.
Flip-In
In the event that any person or group of affiliated or
associated persons acquires beneficial ownership of 15% or more
of Patriots outstanding common stock, each holder of a
right, other than rights beneficially owned by the acquiring
person (which will thereafter be void), will thereafter have the
right to receive upon exercise at a price equal to one-half the
exercise price that number of shares of Patriots common
stock having a market value equal to the full exercise price of
the right.
Flip-Over
If Patriot is acquired in a merger or other business combination
transaction or 50% or more of Patriots combined assets or
earning power are sold after a person or group acquires
beneficial ownership of 15% or more of Patriots
outstanding common stock, each holder of a right (other than
rights beneficially owned by the acquiring person, which will be
void) will thereafter have the right to receive upon exercise at
a price equal to one-half the exercise price that number of
shares of common stock of the acquiring company which at the
time of such transaction will have a market value equal to the
full exercise price of the right.
Distribution
Date
The distribution date is the earlier of: (1) 10 days
following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial
ownership of 15% or more of Patriots outstanding common
stock; or (2) 10 business days (or such later date as may
be determined by action of Patriots board of directors
prior to such time as any person or group of affiliated persons
acquires beneficial ownership of 15% or more of Patriots
outstanding common stock) following the commencement of, or
announcement of an intention to make, a tender offer or exchange
offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of Patriots
outstanding common stock.
Transfer
and Detachment
Until the distribution date, the rights will be evidenced by
book entry in Patriots direct registration system. Until
the distribution date (or earlier redemption or expiration of
the rights), the rights will be transferred with and only with
the common stock, and transfer of those shares will also
constitute transfer of the rights.
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Exercisability
The rights are not exercisable until the distribution date. The
rights will expire at the earliest of (1) October 22,
2017, unless that date is extended, (2) the time at which
Patriot redeems the rights, as described below, or (3) the
time at which Patriot exchanges the rights, as described below.
Adjustments
The purchase price payable, and the number of preferred shares
or other securities or property issuable, upon exercise of the
rights are subject to adjustment from time to time to prevent
dilution in the event of stock dividends, stock splits,
reclassifications, or certain distributions with respect to
preferred shares. The number of outstanding rights and the
number of one one-hundredths of a preferred share issuable upon
exercise of each right are also subject to adjustment if, prior
to the distribution date, there is a stock split of
Patriots common stock or a stock dividend on
Patriots common stock payable in common stock or
subdivisions, consolidations or combinations of Patriots
common stock. With certain exceptions, no adjustment in the
purchase price will be required until cumulative adjustments
require an adjustment of at least 1% in the purchase price.
Preferred
Shares
Preferred shares purchasable upon exercise of the rights will
not be redeemable. Each preferred share will be entitled to the
greater of (a) a minimum preferential quarterly dividend
payment of $1.00 per share and (b) 200 times the aggregate
dividend declared per share of common stock, subject to
adjustment. In the event of liquidation, the holders of the
preferred shares will be entitled to a preferential liquidation
payment equal to the greater of (i) $100 per share plus
accrued and unpaid dividends and (ii) 200 times the payment
made per share of common stock. Each preferred share will have
200 votes, voting together with the common stock. Finally, in
the event of any merger, consolidation or other transaction in
which shares of Patriots common stock are exchanged, each
preferred share will be entitled to receive 200 times the amount
received per share of common stock. These rights are protected
by customary anti-dilution provisions.
The value of the one-half of one one-hundredths interest in a
preferred share purchasable upon exercise of each right should,
because of the nature of the preferred shares dividend,
liquidation and voting rights, approximate the value of one
share of Patriots common stock.
Exchange
At any time after any person or group acquires beneficial
ownership of 15% or more of Patriots outstanding common
stock, and prior to the acquisition by such person or group of
beneficial ownership of 50% or more of Patriots
outstanding common stock, Patriots board of directors may
exchange the rights (other than rights owned by the acquiring
person, which will have become void), in whole or in part, at an
exchange ratio of one share of Patriots common stock or,
in certain circumstances, a fraction of a preferred share with a
market value equal to the market value of a share of common
stock.
Redemption
At any time prior to any person or group acquiring beneficial
ownership of 15% or more of Patriots outstanding common
stock, Patriots board of directors may redeem the rights
in whole, but not in part, at a price of $0.0005 per right. The
redemption of the rights may be made effective at such time on
such basis with such conditions as Patriots board in its
sole discretion may establish. Immediately upon any redemption
of the rights, the right to exercise the rights will terminate
and the only right of the holders of rights will be to receive
the redemption price.
Amendments
The terms of the rights may be amended by Patriots board
of directors without the consent of the holders of the rights,
including an amendment to lower certain thresholds described
above to not less than 10%, except that the board may not reduce
or cancel the redemption price and from and after such time as
any person or group of affiliated or associated persons acquires
beneficial ownership of 15% or more of Patriots
outstanding common stock, no such amendment may adversely affect
the interests of the holders of the rights.
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Rights
of Holders
Until a right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Patriots company,
including, without limitation, the right to vote or to receive
dividends.
Anti-takeover
Effects
The rights have certain anti-takeover effects. If the rights
become exercisable, the rights will cause substantial dilution
to a person or group that attempts to acquire Patriot on terms
not approved by Patriots board of directors, except
pursuant to any offer conditioned on a substantial number of
rights being acquired. The rights should not interfere with any
merger or other business combination approved by Patriots
board since the rights may be redeemed by Patriot at a nominal
price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of Patriots common
stock. Thus, the rights are intended to encourage persons who
may seek to acquire control of Patriot to initiate such an
acquisition through negotiations with Patriots board.
However, the effect of the rights may be to discourage a third
party from making a partial tender offer or otherwise attempting
to obtain a substantial equity position in Patriots equity
securities or seeking to obtain control of Patriot. To the
extent any potential acquirors are deterred by the rights, the
rights may have the effect of preserving incumbent management in
office.
Voting
and Standstill Agreement
Patriot, ArcLight Energy Partners Fund I, L.P. and ArcLight
Energy Partners Fund II, L.P. (together, ArcLight
Funds), acting jointly, as stockholder representative (the
Stockholder Representative), and certain
stockholders of Magnum Coal Company (Stockholders)
entered into a Voting and Standstill Agreement dated as of
April 2, 2008 (the Voting Agreement).
Stockholder
Nominees to the Patriot Board
Pursuant to the Voting Agreement, Patriots board of
directors will appoint two nominees designated by certain former
holders of Magnum Coal Company (Magnum) common
stock, acting through the Stockholder Representative. If
elected, one such nominee will serve as a Class I director
and the other nominee will serve as a Class II director on
Patriots board of directors. Any board nominee or
replacement selected by the stockholder representative must be
reasonably acceptable to the nominating and governance committee
of Patriots board of directors and must, to the reasonable
satisfaction of the nominating and governance committee, be an
independent director under the New York Stock
Exchanges listing standards, disregarding certain
disclosed relationships.
At such time as certain former holders of Magnum common stock
own less than twenty percent (but at least ten percent) of the
Patriot common stock outstanding or the ArcLight Funds own less
than ten percent of the Patriot common stock outstanding, the
Stockholder Representative will be entitled to one board nominee
only. At such time as certain former holders of Magnum common
stock own less than ten percent of the Patriot common stock
outstanding, the Stockholder Representative will not be entitled
to any board nominees. For purposes of the determinations under
this paragraph, the number of shares of Patriot common stock
outstanding will be deemed to be the sum of the
number of shares outstanding as of April 2, 2008 plus the
number of shares issued in the Magnum acquisition.
Voting
Obligations of Stockholders
Pursuant to the Voting Agreement, so long as the Stockholder
Representative is entitled to nominate any members to
Patriots board of directors, Stockholders agree to vote
all of their shares of Patriot common stock in favor of the
entire slate of directors recommended for election by the
Patriot board of directors to Patriots stockholders and
certain Stockholders agree to vote all of their shares of
Patriot common stock as recommended by Patriots board of
directors in the case of (1) any stockholder proposal
submitted for a vote at any meeting of Patriots
stockholders and (2) any proposal submitted by Patriot for
a vote at any meeting of Patriots stockholders relating to
the appointment of Patriots accountants or a Patriot
equity compensation plan.
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Private
Convertible Notes Issuance
On May 28, 2008, Patriot completed a private offering of
$200 million in aggregate principal amount of
3.25% Convertible Senior Notes due 2013 (the convertible
notes). Interest on the convertible notes is payable
semi-annually in arrears on May 31 and November 30 of each year,
beginning November 30, 2008. The convertible notes mature
on May 31, 2013, unless converted, repurchased or redeemed
in accordance with their terms prior to such date. The
convertible notes are senior unsecured obligations and rank
equally with all of the Companys existing and future
senior debt and are senior to any subordinated debt. The
convertible notes are convertible into cash and, if applicable,
shares of Patriots common stock during the period from
issuance to February 15, 2013, subject to certain
conditions of conversion. For a further description of the
Private Convertible Notes Issuance, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources in
our annual report on
Form 10-K
for the year ended December 31, 2008.
DESCRIPTION
OF PREFERRED STOCK
Patriots certificate of incorporation authorizes
Patriots board of directors, without the approval of
stockholders, to fix the designation, powers, preferences and
rights of one or more series of preferred stock, which may be
greater than those of the common stock. The issuance of shares
of preferred stock, or the issuance of rights to purchase shares
of preferred stock, could be used to discourage an unsolicited
acquisition proposal.
The transfer agent for each series of preferred stock will be
described in the prospectus supplement.
DESCRIPTION
OF WARRANTS
We may issue warrants to purchase our equity or debt securities
or other rights, including rights to receive payment in cash or
our securities (but not securities of third parties) based on
the value, rate or price of one or more specified commodities,
currencies, our securities (but not securities of third
parties), or any combination of the foregoing. Warrants may be
issued independently or together with any of our other
securities and may be attached to, or separate from, such
securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a
warrant agent. The terms of any warrants to be issued and a
description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus
supplement.
DESCRIPTION
OF PURCHASE CONTRACTS
We may issue purchase contracts for the purchase or sale of:
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debt or equity securities issued by us (but not securities of
third parties) or any combination thereof;
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currencies; or
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commodities.
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Each purchase contract will entitle the holder thereof to
purchase or sell, and obligate us to sell or purchase, on
specified dates, such of our securities, currencies or
commodities at a specified purchase price, which may be based on
a formula, all as set forth in the applicable prospectus
supplement. We may, however, satisfy our obligations, if any,
with respect to any purchase contract by delivering the cash
value of such purchase contract or the cash value of the
property otherwise deliverable or, in the case of purchase
contracts on underlying currencies, by delivering the underlying
currencies, as set forth in the applicable prospectus
supplement. The applicable prospectus supplement will also
specify the methods by which the holders may purchase or sell
such securities, currencies or commodities and any acceleration,
cancellation or termination provisions or other provisions
relating to the settlement of a purchase contract.
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The purchase contracts may require us to make periodic payments
to the holders thereof or vice versa, which payments may be
deferred to the extent set forth in the applicable prospectus
supplement, and those payments may be unsecured or prefunded on
some basis. The purchase contracts may require the holders
thereof to secure their obligations in a specified manner to be
described in the applicable prospectus supplement.
Alternatively, purchase contracts may require holders to satisfy
their obligations thereunder when the purchase contracts are
issued. Our obligation to settle such pre-paid purchase
contracts on the relevant settlement date may constitute
indebtedness. Accordingly, pre-paid purchase contracts will be
issued under the senior indenture.
DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more purchase contracts,
warrants, debt securities, shares of preferred stock, shares of
common stock or any combination of such of our securities (but
not securities of third parties).
DESCRIPTION
OF DEBT SECURITIES
This prospectus describes certain general terms and provisions
of the debt securities. The debt securities will be issued under
an indenture between us and Wilmington Trust Company, as
trustee. The debt securities will constitute senior debt of
Patriot. When we offer to sell a particular series of debt
securities, we will describe the specific terms for the
securities in a supplement to this prospectus. The prospectus
supplement will also indicate whether the general terms and
provisions described in this prospectus apply to a particular
series of debt securities.
We have summarized certain terms and provisions of the
indenture. The summary is not complete. The indenture has been
incorporated by reference as an exhibit to the registration
statement for these securities that we have filed with the SEC.
You should read the indenture for the provisions which may be
important to you. The indenture is subject to and governed by
the Trust Indenture Act of 1939, as amended.
The indenture will not limit the amount of debt securities which
we may issue. We may issue debt securities up to an aggregate
principal amount as we may authorize from time to time. The debt
securities will be issued in the form of global securities
unless the prospectus supplement indicates otherwise. The
prospectus supplement will describe the terms of any debt
securities being offered, including:
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the designation, aggregate principal amount and authorized
denominations;
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the maturity date;
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the interest rate, if any, and the method for calculating the
interest rate;
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the interest payment dates and the record dates for the interest
payments;
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any mandatory or optional redemption terms or prepayment,
conversion, sinking fund or exchangeability or convertability
provisions;
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the place where we will pay principal and interest;
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if other than denominations of $1,000 or multiples of $1,000,
the denominations the debt securities will be issued in;
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additional provisions, if any, relating to the defeasance of the
debt securities;
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the currency or currencies, if other than the currency of the
United States, in which principal and interest will be paid;
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any United States federal income tax consequences;
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the dates on which premium, if any, will be paid;
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our right, if any, to defer payment interest and the maximum
length of this deferral period;
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any listing on a securities exchange;
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the initial public offering price; and
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other specific terms, including any additional events of default
or covenants.
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Senior
Debt
Patriot will issue under the indenture debt securities that will
constitute part of the senior debt of Patriot. These senior debt
securities will rank equally and pari passu with all other
unsecured and unsubordinated debt of Patriot.
Events of
Default
When we use the term Event of Default in the
indenture with respect to the debt securities of any series,
here are some examples of what we mean:
(1) default in paying interest on the debt securities when
it becomes due and the default continues for a period of
30 days or more;
(2) default in paying principal, or premium, if any, on the
debt securities when due;
(3) default in the performance, or breach, of any covenant
in the indenture (other than defaults specified in
clause (1) or (2) above) and the default or breach
continues for a period of 30 days or more after we receive
written notice from the trustee or the trustee receives notice
from the holders of at least 25% in aggregate principal amount
of the outstanding debt securities of the series;
(4) certain events of bankruptcy, insolvency,
reorganization, administration or similar proceedings with
respect to Patriot or any material subsidiary has
occurred; or
(5) any other Events of Default set forth in the prospectus
supplement.
If an Event of Default (other than an Event of Default specified
in clause (4) with respect to Patriot under the indenture
occurs with respect to the debt securities of any series and is
continuing, then the trustee or the holders of at least 25% in
principal amount of the outstanding debt securities of that
series may by written notice, and the trustee at the request of
the holders of not less than 25% in principal amount of the
outstanding debt securities of such series will, require us to
repay immediately the entire principal amount of the outstanding
debt securities of that series (or such lesser amount as may be
provided in the terms of the securities), together with all
accrued and unpaid interest and premium, if any.
If an Event of Default under the indenture specified in
clause (4) with respect to Patriot occurs and is
continuing, then the entire principal amount of the outstanding
debt securities (or such lesser amount as may be provided in the
terms of the securities) will automatically become due
immediately and payable without any declaration or other act on
the part of the trustee or any holder.
After a declaration of acceleration or any automatic
acceleration under clause (4) described above, the holders
of a majority in principal amount of outstanding debt securities
of any series may rescind this accelerated payment requirement
if all existing Events of Default, except for nonpayment of the
principal and interest on the debt securities of that series
that has become due solely as a result of the accelerated
payment requirement, have been cured or waived and if the
rescission of acceleration would not conflict with any judgment
or decree. The holders of a majority in principal amount of the
outstanding debt securities of any series also have the right to
waive past defaults, except a default in paying principal or
interest on any outstanding debt security, or in respect of a
covenant or a provision that cannot be modified or amended
without the consent of all holders of the debt securities of
that series.
Holders of at least 25% in principal amount of the outstanding
debt securities of a series may seek to institute a proceeding
only after they have made written request, and offered
reasonable indemnity, to the trustee to institute a proceeding
and the trustee has failed to do so within 60 days after it
received this notice. In addition, within this
60-day
period the trustee must not have received directions
inconsistent with this
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written request by holders of a majority in principal amount of
the outstanding debt securities of that series. These
limitations do not apply, however, to a suit instituted by a
holder of a debt security for the enforcement of the payment of
principal, interest or any premium on or after the due dates for
such payment.
During the existence of an Event of Default, the trustee is
required to exercise the rights and powers vested in it under
the indenture and use the same degree of care and skill in its
exercise as a prudent person would under the circumstances in
the conduct of that persons own affairs. If an Event of
Default has occurred and is continuing, the trustee is not under
any obligation to exercise any of its rights or powers at the
request or direction of any of the holders unless the holders
have offered to the trustee reasonable security or indemnity.
Subject to certain provisions, the holders of a majority in
principal amount of the outstanding debt securities of any
series have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee, or exercising any trust, or power conferred on the
trustee.
The trustee will, within 45 days after any Default occurs,
give notice of the Default to the holders of the debt securities
of that series, unless the Default was already cured or waived.
Unless there is a default in paying principal, interest or any
premium when due, the trustee can withhold giving notice to the
holders if it determines in good faith that the withholding of
notice is in the interest of the holders.
We are required to furnish to the trustee an annual statement as
to compliance with all conditions and covenants under the
indenture.
Modification
and Waiver
The indenture may be amended or modified without the consent of
any holder of debt securities in order to:
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cure ambiguities, defects or inconsistencies;
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provide for the assumption of our obligations in the case of a
merger or consolidation;
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make any change that would provide any additional rights or
benefits to the holders of the debt securities of a series;
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add guarantors with respect to the debt securities of any series;
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secure the debt securities of a series;
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establish the form or forms of debt securities of any series;
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maintain the qualification of the indenture under the
Trust Indenture Act; or
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make any change that does not adversely affect the rights of any
holder.
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Other amendments and modifications of the indenture or the debt
securities issued may be made with the consent of the holders of
not less than a majority of the aggregate principal amount of
the outstanding debt securities of each series affected by the
amendment or modification. However, no modification or amendment
may, without the consent of the holder of each outstanding debt
security affected:
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reduce the principal amount, or extend the fixed maturity, of
the debt securities, alter or waive the redemption provisions of
the debt securities;
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change the currency in which principal, any premium or interest
is paid;
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reduce the percentage in principal amount outstanding of debt
securities of any series which must consent to an amendment,
supplement or waiver or consent to take any action;
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impair the right to institute suit for the enforcement of any
payment on the debt securities;
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waive a payment default with respect to the debt securities or
any guarantee;
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reduce the interest rate or extend the time for payment of
interest on the debt securities;
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adversely affect the ranking of the debt securities of any
series;
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release any guarantor from any of its obligations under its
guarantee or the indenture, except in compliance with the terms
of the indenture.
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Covenants
Consolidation,
Merger or Sale of Assets
We will not consolidate or combine with or merge with or into
or, directly or indirectly, sell, assign, convey, lease,
transfer or otherwise dispose of all or substantially all of our
properties and assets to any person or persons in a single
transaction or through a series of transactions, unless:
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Patriot shall be the continuing person or, if Patriot is not the
continuing person, the resulting, surviving or transferee person
(the surviving entity) is a company organized and
existing under the laws of the United States or any State or
territory;
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the surviving entity will expressly assume all of our
obligations under the debt securities and the indenture, and
will, if required by law to effectuate the assumption, execute a
supplemental indenture which will be delivered to the trustee
and will be in form and substance reasonably satisfactory to the
trustee;
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immediately after giving effect to such transaction or series of
transactions on a pro forma basis, no default has occurred and
is continuing; and
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Patriot or the surviving entity will have delivered to the
trustee an officers certificate and opinion of counsel
stating that the transaction or series of transactions and a
supplemental indenture, if any, complies with this covenant and
that all conditions precedent in the indenture relating to the
transaction or series of transactions have been satisfied.
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If any consolidation, combination or merger or any sale,
assignment, conveyance, lease, transfer or other disposition of
all or substantially all of our assets occurs in accordance with
the indenture, the successor corporation will succeed to, and be
substituted for, and may exercise every right and power of
Patriot under the indenture with the same effect as if such
successor corporation had been named as Patriot. Except for
(1) any lease or (2) any sale, assignment, conveyance,
lease, transfer or other disposition to subsidiaries of Patriot,
we will be discharged from all obligations and covenants under
the indenture and the debt securities upon any consolidation,
combination or merger or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all
of our assets occurs in accordance with the indenture.
Satisfaction,
Discharge and Covenant Defeasance
We may terminate our obligations under the indenture, when:
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all debt securities of any series issued that have been
authenticated and delivered have been delivered to the trustee
for cancellation; or
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all the debt securities of any series issued that have not been
delivered to the trustee for cancellation will become due and
payable within one year (a Discharge) and we have
made irrevocable arrangements satisfactory to the trustee for
the giving of notice of redemption by such trustee in our name,
and at our expense and we have irrevocably deposited or caused
to be deposited with the trustee sufficient funds to pay and
discharge the entire indebtedness on the series of debt
securities to pay principal, interest and any premium;
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we have paid or caused to be paid all other sums then due and
payable under the indenture; and
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we have delivered to the trustee an officers certificate
and an opinion of counsel, each stating that all conditions
precedent under the indenture relating to the satisfaction and
discharge of the indenture have been complied with.
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We may elect to have our obligations under the indenture
discharged with respect to the outstanding debt securities of
any series (legal defeasance). Legal defeasance
means that we will be deemed to have paid and discharged the
entire indebtedness represented by the outstanding debt
securities of such series under the indenture, except for:
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the rights of holders of the debt securities to receive
principal, interest and any premium when due;
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our obligations with respect to the debt securities concerning
issuing temporary debt securities, registration of transfer of
debt securities, mutilated, destroyed, lost or stolen debt
securities and the maintenance of an office or agency for
payment for security payments held in trust;
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the rights, powers, trusts, duties and immunities of the
trustee; and
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the defeasance provisions of the indenture.
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In addition, we may elect to have our obligations released with
respect to certain covenants in the indenture (covenant
defeasance). Any omission to comply with these obligations
will not constitute a default or an event of default with
respect to the debt securities of any series. In the event
covenant defeasance occurs, certain events, not including
non-payment, bankruptcy and insolvency events, described under
Events of Default will no longer constitute an event
of default for that series.
In order to exercise either legal defeasance or covenant
defeasance with respect to outstanding debt securities of any
series:
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we must irrevocably have deposited or caused to be deposited
with the trustee as trust funds for the purpose of making the
following payments, specifically pledged as security for, and
dedicated solely to the benefits of the holders of the debt
securities of a series:
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money in an amount;
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U.S. Government Obligations; or
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a combination of money and U.S. Government Obligations,
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in each case sufficient without reinvestment, in the written
opinion of an internationally recognized firm of independent
public accountants to pay and discharge, and which shall be
applied by the trustee to pay and discharge, all of the
principal, interest and any premium at due date or maturity or
if we have made irrevocable arrangements satisfactory to the
trustee for the giving of notice of redemption by the trustee in
our name and at our expense, the redemption date;
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in the case of legal defeasance, we have delivered to the
trustee an opinion of counsel stating that, under then
applicable federal income tax law, the holders of the debt
securities of that series will not recognize gain or loss for
federal income tax purposes as a result of the deposit,
defeasance and discharge to be effected and will be subject to
the same federal income tax as would be the case if the deposit,
defeasance and discharge did not occur;
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in the case of covenant defeasance, we have delivered to the
trustee an opinion of counsel to the effect that the holders of
the debt securities of that series will not recognize gain or
loss for U.S. federal income tax purposes as a result of
the deposit and covenant defeasance to be effected and will be
subject to the same federal income tax as would be the case if
the deposit and covenant defeasance did not occur;
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no default with respect to the outstanding debt securities of
that series has occurred and is continuing at the time of such
deposit after giving effect to the deposit or, in the case of
legal defeasance, no default relating to bankruptcy or
insolvency has occurred and is continuing at any time on or
before the 91st day after the date of such deposit, it
being understood that this condition is not deemed satisfied
until after the 91st day;
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the legal defeasance or covenant defeasance will not cause the
trustee to have a conflicting interest within the meaning of the
Trust Indenture Act, assuming all debt securities of a
series were in default within the meaning of such Act;
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the legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, any other
agreement or instrument to which we are a party;
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the legal defeasance or covenant defeasance will not result in
the trust arising from such deposit constituting an investment
company within the meaning of the Investment Company Act of
1940, as amended, unless the trust is registered under such Act
or exempt from registration; and
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we have delivered to the trustee an officers certificate
and an opinion of counsel stating that all conditions precedent
with respect to the defeasance or covenant defeasance have been
complied with.
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Concerning
our Relationship with the Trustee
Concerning the trustee and its agents, Citibank, N.A. will
initially act as authenticating agent, paying agent, registrar
and transfer agent for the debt securities on behalf of the
trustee. We and our subsidiaries maintain ordinary banking
relationships and credit facilities with Citibank, N.A. and its
affiliates. We do not currently have other significant financial
relationships with Wilmington Trust Company or its
affiliates.
FORMS OF
SECURITIES
Each debt security, warrant and unit will be represented either
by a certificate issued in definitive form to a particular
investor or by one or more global securities representing the
entire issuance of securities. Certificated securities will be
issued in definitive form and global securities will be issued
in registered form. Definitive securities name you or your
nominee as the owner of the security, and in order to transfer
or exchange these securities or to receive payments other than
interest or other interim payments, you or your nominee must
physically deliver the securities to the trustee, registrar,
paying agent or other agent, as applicable. Global securities
name a depositary or its nominee as the owner of the debt
securities, warrants or units represented by these global
securities. The depositary maintains a computerized system that
will reflect each investors beneficial ownership of the
securities through an account maintained by the investor with
its broker/dealer, bank, trust company or other representative,
as we explain more fully below.
Global
Securities
Registered Global Securities.
We may issue the
registered debt securities, warrants and units in the form of
one or more fully registered global securities that will be
deposited with a depositary or its nominee identified in the
applicable prospectus supplement and registered in the name of
that depositary or nominee. In those cases, one or more
registered global securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate
principal or face amount of the securities to be represented by
registered global securities. Unless and until it is exchanged
in whole for securities in definitive registered form, a
registered global security may not be transferred except as a
whole by and among the depositary for the registered global
security, the nominees of the depositary or any successors of
the depositary or those nominees.
If not described below, any specific terms of the depositary
arrangement with respect to any securities to be represented by
a registered global security will be described in the prospectus
supplement relating to those securities. We anticipate that the
following provisions will apply to all depositary arrangements.
Ownership of beneficial interests in a registered global
security will be limited to persons, called participants, that
have accounts with the depositary or persons that may hold
interests through participants. Upon the issuance of a
registered global security, the depositary will credit, on its
book-entry registration and transfer system, the
participants accounts with the respective principal or
face amounts of the securities beneficially owned by the
participants. Any dealers, underwriters or agents participating
in the distribution of the securities will designate the
accounts to be credited. Ownership of beneficial interests in a
registered global
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security will be shown on, and the transfer of ownership
interests will be effected only through, records maintained by
the depositary, with respect to interests of participants, and
on the records of participants, with respect to interests of
persons holding through participants. The laws of some states
may require that some purchasers of securities take physical
delivery of these securities in definitive form. These laws may
impair your ability to own, transfer or pledge beneficial
interests in registered global securities.
So long as the depositary, or its nominee, is the registered
owner of a registered global security, that depositary or its
nominee, as the case may be, will be considered the sole owner
or holder of the securities represented by the registered global
security for all purposes under the applicable indenture,
warrant agreement or unit agreement. Except as described below,
owners of beneficial interests in a registered global security
will not be entitled to have the securities represented by the
registered global security registered in their names, will not
receive or be entitled to receive physical delivery of the
securities in definitive form and will not be considered the
owners or holders of the securities under the applicable
indenture, warrant agreement or unit agreement. Accordingly,
each person owning a beneficial interest in a registered global
security must rely on the procedures of the depositary for that
registered global security and, if that person is not a
participant, on the procedures of the participant through which
the person owns its interest, to exercise any rights of a holder
under the applicable indenture, warrant agreement or unit
agreement. We understand that under existing industry practices,
if we request any action of holders or if an owner of a
beneficial interest in a registered global security desires to
give or take any action that a holder is entitled to give or
take under the applicable indenture, warrant agreement or unit
agreement, the depositary for the registered global security
would authorize the participants holding the relevant beneficial
interests to give or take that action, and the participants
would authorize beneficial owners owning through them to give or
take that action or would otherwise act upon the instructions of
beneficial owners holding through them.
Principal, premium, if any, and interest payments on debt
securities, warrants or units represented by a registered global
security registered in the name of a depositary or its nominee
will be made to the depositary or its nominee, as the case may
be, as the registered owner of the registered global security.
None of Patriot, the trustee, the warrant agents, the unit
agents or any other agent of Patriot, the trustee, the warrant
agents, the unit agents or any agent of an agent will have any
responsibility or liability for any aspect of the records
relating to payments made on account of beneficial ownership
interests in the registered global security or for maintaining,
supervising or reviewing any records relating to those
beneficial ownership interests.
We expect that the depositary for any of the securities
represented by a registered global security, upon receipt of any
payment of principal, premium, interest or other distribution of
underlying securities or other property to holders on that
registered global security, will immediately credit
participants accounts in amounts proportionate to their
respective beneficial interests in that registered global
security as shown on the records of the depositary. We also
expect that payments by participants to owners of beneficial
interests in a registered global security held through
participants will be governed by standing customer instructions
and customary practices, as is now the case with the securities
held for the accounts of customers in bearer form or registered
in street name, and will be the responsibility of
those participants.
If the depositary for any of these securities represented by a
registered global security is at any time unwilling or unable to
continue as depositary or ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, and a
successor depositary registered as a clearing agency under the
Securities Exchange Act of 1934 is not appointed by us within
90 days, we will issue securities in definitive form in
exchange for the registered global security that had been held
by the depositary. Any securities issued in definitive form in
exchange for a registered global security will be registered in
the name or names that the depositary gives to the relevant
trustee, warrant agent, unit agent or other relevant agent of
ours or theirs. It is expected that the depositarys
instructions will be based upon directions received by the
depositary from participants with respect to ownership of
beneficial interests in the registered global security that had
been held by the depositary.
35
PLAN OF
DISTRIBUTION
We may sell the securities being offered hereby from time to
time in the following manner or any manner specified in a
prospectus supplement:
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directly to purchasers;
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through agents;
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through underwriters; and
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through dealers.
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The prospectus supplement with respect to any offering of
securities will set forth the terms of the offering, including:
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the name or names of any underwriters, dealers or agents;
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the purchase price of the securities and the proceeds to us from
the sale;
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any underwriting discounts and commissions or agency fees and
other items constituting underwriters or agents
compensation; and
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any delayed delivery arrangements.
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We may directly solicit offers to purchase securities, or agents
may be designated to solicit such offers. We will, in the
prospectus supplement relating to such offering, name any agent
that could be viewed as an underwriter under the Securities Act
of 1933, as amended (the Securities Act) and
describe any commissions that we must pay. Any such agent will
be acting on a best efforts basis for the period of its
appointment or, if indicated in the applicable prospectus
supplement, on a firm commitment basis. Agents, dealers and
underwriters may be customers of, engage in transactions with,
or perform services for us in the ordinary course of business.
If any underwriters or agents are utilized in the sale of the
securities in respect of which this prospectus is delivered, we
will enter into an underwriting agreement or other agreement
with them at the time of sale to them, and we will set forth in
the prospectus supplement relating to such offering the names of
the underwriters or agents and the terms of the related
agreement with them.
If a dealer is utilized in the sale of the securities in respect
of which the prospectus is delivered, we will sell such
securities to the dealer, as principal. The dealer may then
resell such securities to the public at varying prices to be
determined by such dealer at the time of resale.
Remarketing firms, agents, underwriters and dealers may be
entitled under agreements which they may enter into with us to
indemnification by us against certain civil liabilities,
including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services
for us in the ordinary course of business.
In order to facilitate the offering of the securities, any
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the securities or any other
securities the prices of which may be used to determine payments
on such securities. Specifically, any underwriters may overallot
in connection with the offering, creating a short position for
their own accounts. In addition, to cover overallotments or to
stabilize the price of the securities or of any such other
securities, the underwriters may bid for, and purchase, the
securities or any such other securities in the open market.
Finally, in any offering of the securities through a syndicate
of underwriters, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for
distributing the securities in the offering if the syndicate
repurchases previously distributed securities in transactions to
cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain
the market price of the securities above independent market
levels. Any such underwriters are not required to engage in
these activities and may end any of these activities at any time.
36
In compliance with the guidelines of the Financial Industry
Regulatory Authority (the FINRA), the aggregate
maximum discount, commission or agency fees or other items
constituting underwriting compensation to be received by any
FINRA member or independent broker-dealer will not exceed 8% of
any offering pursuant to this prospectus and any applicable
prospectus supplement or pricing supplement, as the case may be.
VALIDITY
OF SECURITIES
The validity of the securities in respect of which this
prospectus is being delivered will be passed on for us by Davis
Polk & Wardwell.
EXPERTS
The consolidated financial statements of Patriot Coal
Corporation appearing in Patriot Coal Corporations Annual
Report
(Form 10-K)
for the year ended December 31, 2008 (including the
schedule appearing therein), and the effectiveness of Patriot
Coal Corporations internal control over financial
reporting as of December 31, 2008 (excluding the internal
control over financial reporting of Magnum Coal Company), have
been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in its reports
thereon, which as to the report on the effectiveness of Patriot
Coal Corporations internal control over financial
reporting contains an explanatory paragraph describing the above
referenced exclusion of Magnum Coal Company from the scope of
such firms audit of internal control over financial
reporting, included therein, and incorporated herein by
reference which, as to the year 2006, are based in part on the
report of PricewaterhouseCoopers LLP, independent registered
public accounting firm. Such financial statements have been
incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and
auditing.
The audited financial statements of KE Ventures, LLC for the
year ended December 31, 2006, not separately presented in
this registration statement, had been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report thereon appears in the Annual
Report on
Form 10-K
of Patriot Coal Corporation for the year ended December 31,
2008 which is incorporated into this registration statement.
Such financial statements, to the extent they have been included
in the financial statements of Patriot Coal Corporation for the
year ended December 31, 2006, have been included in
reliance on the report of such independent registered public
accounting firm given on the authority of said firm as experts
in auditing and accounting.
The estimates of Magnums proven and probable coal reserves
referred to in this prospectus to the extent described in this
prospectus, have been prepared by Weir International, Inc.
37
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