Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )


	Filed by the Registrant x
	Filed by a Party other than the Registrant o

	Check the appropriate box:


	o Preliminary Proxy Statement
	o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
	x Definitive Proxy Statement
	o Definitive Additional Materials
	o Soliciting Material Pursuant to §240.14a-12


	x No fee required.
	o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.


	3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):


	o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

March ~~31, 2006~~26, 2007

Dear Shareholder:

You are cordially invited to attend the ~~2006~~2007 Annual Meeting of Shareholders of Peabody Energy Corporation (the “Company”), which will be held on ~~Friday,~~Tuesday, May ~~5, 2006,~~1, 2007, at 10:00 A.M., Central Time, at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri 63105.

During this meeting, shareholders will vote on the following items:


	1.	Election of five Class IIIII Directors for three-year terms;

	2.	Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006;~~2007; and

	3.	~~Approval~~Consideration of ~~an increase in the number of shares of Common Stock authorized for issuance by the Company;~~a shareholder proposal and

	4.	~~Consideration of~~ such other matters ~~including four shareholder proposals,~~ as may properly come before the meeting.

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement contain complete details on these ~~proposals~~items and other matters. We also will be reporting on the Company’s operations and responding to shareholder questions. If you have questions that you would like to raise at the meeting, we encourage you to submit written questions in advance (by mail ore-mail) to the Corporate Secretary. This will help us respond to your questions during the meeting. If you would like toe-mail your questions, please send them tostockholder.questions@peabodyenergy.com.

Your understanding of and participation in ~~Peabody Energy’s affairs~~the Annual Meeting is important, regardless of the number of shares you hold. To ensure your representation, ~~at the Annual Meeting,~~ we encourage you to vote over the telephone or Internet or to complete and return the enclosed proxy card as soon as possible. If you attend the Annual Meeting, you may then revoke your proxy and vote in person if you so desire.

Thank you for your continued support of Peabody Energy. We look forward to seeing you on May 5.1.


	~~Very truly yours,~~


	~~Gregory H. Boyce~~
	~~President & Chief Executive Officer~~

Very truly yours,

Gregory H. Boyce

President & Chief Executive Officer

PEABODY ENERGY CORPORATION

701 Market Street

St. Louis, Missouri63101-1826

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Peabody Energy Corporation (the “Company”) will hold its Annual Meeting of Shareholders at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri, 63105 on ~~Friday,~~Tuesday, May ~~5, 2006,~~1, 2007, at 10:00 A.M., Central Time, to:


	•	Elect five Class IIIII Directors for three-year terms;

	•	Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006;~~

	•	~~Approve an increase in the number of shares of Common Stock authorized for issuance by the Company from 400,000,000 shares to 800,000,000 shares;~~2007; and

	•	Consider ~~four~~a shareholder ~~proposals~~proposal and transact any other business that may properly come before the Annual Meeting.

The Board of Directors has fixed March ~~15, 2006~~9, 2007 as the record date for determining shareholders who will be entitled to receive notice of and vote at the Annual Meeting or any adjournment. Each share of Common Stock is entitled to one vote. As of the record date, there were ~~264,634,854~~264,690,754 shares of Common Stock outstanding.

If you own shares of the Company’s Common Stock as of March ~~15, 2006,~~9, 2007, you can vote those shares by completing and mailing the enclosed proxy card or by attending the Annual Meeting and voting in person. Shareholders of record also may submit their proxies electronically or by telephone as follows:


	•	By visiting the website atwww.voteproxy.comand following the voting instructions provided; or

	•	By calling~~1-800~~1-800-PROXIES~~-PROXIESon~~on a touch-tone telephone and following the recorded instructions.

An admittance card or other proof of ownership is required to attend the Annual Meeting. Please retain the top portion of your proxy card for this purpose. Also, please indicate your intention to attend the Annual Meeting by checking the appropriate box on the proxy card, or, if voting by the Internet or by telephone, when prompted. If your shares are held by a bank or broker, you will need to ask them for an admission card in the form of a confirmation of beneficial ownership. If you do not receive a confirmation of beneficial ownership or other admittance card from your bank or broker, you must bring proof of share ownership (such as a copy of your brokerage statement) to the Annual Meeting.

Your vote is important. Whether or not you plan to attend the Annual Meeting, please cast your vote by telephone or the Internet, or complete, date and sign the enclosed proxy card and return it in the envelope provided. If you attend the meeting, you may withdraw your proxy and vote in person, if you so choose.



	~~Jeffery L. Klinger~~
	~~Vice President, General Counsel~~
	~~and Corporate Secretary~~

Jeffery L. Klinger

Vice President, General Counsel

and Corporate Secretary

March ~~31, 2006~~26, 2007

PEABODY ENERGY CORPORATION

PROXY STATEMENT

FOR THE

~~2006~~
2007 ANNUAL MEETING OF SHAREHOLDERS

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING


Q:		Why did I receive this Proxy Statement?

A:		Because you are a shareholder of Peabody Energy Corporation as of March ~~15, 2006,~~9, 2007, the record date, and are entitled to vote at the ~~2006~~2007 Annual Meeting of Shareholders, the Board of Directors is soliciting your proxy to vote at the meeting. As of the record date, there were ~~264,634,854~~264,690,754 shares of Common Stock outstanding. Each share of Common Stock is entitled to one vote.

		This Proxy Statement summarizes the information you need to know to vote at the Annual Meeting. This Proxy Statement and proxy card were first mailed to shareholders on or about March ~~31, 2006.~~26, 2007.

Q:		What am I being asked to vote on?

A:		You are being asked to vote on the following items:


		• Election of ~~Gregory~~William A. Coley, Irl F. Engelhardt, William C. Rusnack, John F. Turner and Alan H. ~~Boyce, William E. James, Robert B. Karn III, Henry E. Lentz and Blanche M. Touhill~~Washkowitz as ~~Class II Directors,~~directors of the Company, each for a term of three years;

		• Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006;~~2007;

		• ~~Approval of an increase in the number of shares of Common Stock authorized for issuance by the Company from 400,000,000 shares to 800,000,000 shares;~~

		~~• Four~~A shareholder ~~proposals;~~proposal; and

		• Any other matter properly introduced at the meeting.


Q:		What are the voting recommendations of the Board of Directors?

A:		The Board recommends the following votes:


		• FOR each of the director nominees (Item 1);

		• FOR ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006~~2007 (Item 2);

		~~• FOR approval of an increase in the number of shares of Common Stock authorized for issuance by the Company (Item 3)~~; and

		• AGAINST the shareholder ~~proposals (Items 4 through 7)~~proposal (Item 3).


Q:		Will any other matters be voted on?

A:		We are not aware of any other matters that will be brought before the shareholders for a vote at the Annual Meeting. If any other matter is properly brought before the meeting, your proxy will authorize each of ~~Gregory H. Boyce,~~Blanche M. Touhill, Alexander C. Schoch and Jeffery L. Klinger ~~and Richard A. Navarre~~ to vote on such matters in their discretion.


Q:		How do I vote?

A:		If you are a shareholder of record or hold stock through the Peabody Investments Corp. Employee Retirement Account (or any of the other 401(k) plans sponsored by ~~the Company’s~~our subsidiaries), you may vote using any of the following methods:


		• Via the Internet, by ~~going to~~visiting the websitewww.voteproxy.comand following the instructions for Internet voting on your proxy card;

		• From the United States, Canada or Puerto Rico, by dialing~~1-800~~1-800-PROXIES~~-PROXIES~~ and following the instructions for telephone voting on your proxy card;


		• By completing and mailing your proxy/voting instruction card; or

		• By casting your vote in person at the Annual Meeting.


		~~Please be aware that if~~If you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. The telephone and Internet voting facilities for the shareholders of record of all shares, other than those held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), will close at 10:59 P.M. Central Time on ~~May 4, 2006.~~April 30, 2007. The Internet and telephone voting procedures are designed to authenticate shareholders by use of a control number and to allow you to confirm ~~that~~ your instructions have been properly recorded.


		If you participate in athe Company Stock Fund under the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by ~~the Company’s~~our subsidiaries), and had shares of the Company’s common stock credited toin your account on the record date of March ~~15, 2006,~~9, 2007, you will receive a single proxy/voting instruction card with respect to all shares registered in ~~the same~~your name, whether inside or outside of the plan. If your accounts inside and outside of the plan are not registered in the same name, you will receive a separate proxy/voting instruction card with respect to the shares credited toin your plan account. Voting instructions regarding plan shares must be received by ~~11:~~4:00 P.M. Central Time on ~~May 2, 2006,~~April 26, 2007, and all telephone and Internet voting facilities with respect to plan shares will close at that time.

		Shares of common stock in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by ~~the Company’s~~our subsidiaries) will be voted by Vanguard Fiduciary Trust Company (“Vanguard”), as trustee of the plan. Plan participants should indicate their voting instructions to Vanguard for each action to be taken under proxy by completing and returning the proxy/voting instruction card, by using the toll-free telephone number or by indicating their instructions over the Internet. All voting instructions from plan participants will be kept confidential. If a plan participant fails to sign or to timely return the proxy/voting instruction card or otherwise timely indicate his or her instructions by telephone or over the Internet, the shares allocated to such participant, together with unallocated shares, will be voted in the same proportion as plan shares for which the trustee receives voting instructions.

		If you return your signed proxy card or vote by Internet or telephone, your shares will be voted as you indicate. If you do not indicate how your shares are to be voted on a matter, the shares represented by your properly completed proxy/voting instruction card will be voted ~~“FOR”~~“For” the nominees for director, ~~“FOR”~~“For” ratification of the appointment of Ernst & Young LLP ~~“FOR” approval of an increase in~~and “Against” the ~~number of shares of Common Stock authorized for issuance by the Company, and “AGAINST” each~~ shareholder proposal.

		If your shares are held in a brokerage account in your broker’s name (also known as “street name”), you should follow the instructions for voting provided by your broker or nominee. You

may complete and mail a voting instruction card to your broker or nominee or, if your broker or nominee allows, submit voting instructions by Internet or telephone. If you provide specific voting instructions by mail, telephone or Internet, your broker or nominee will vote your shares as you have directed. Please note that shares in the Peabody Energy Corporation Employee Stock Purchase Plan are held in street name by A. G. Edwards & Sons, Inc., the plan administrator.


		Ballots will be provided during the Annual Meeting to anyone who wants to vote in person at the meeting. If you hold ~~your~~ shares in street name, you must request a confirmation of beneficial ownership from your broker to vote in person at the meeting.


Q:		Can I change my vote?

A:		Yes. If you are a shareholder of record, you can change your vote or revoke your proxy ~~any time~~ before the Annual Meeting by:


		• Submitting a valid, later-dated proxy;

		• Submitting a valid, subsequent vote by telephone or the Internet at any time prior to 10:59 P.M. Central Time on ~~May 4, 2006;~~April 30, 2007;

		• Notifying the Company’s Corporate Secretary in writing that you have revoked your proxy; or

		• Completing a written ballot at the Annual Meeting.

		You can revoke your voting instructions with respect to shares held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by ~~the Company’s~~our subsidiaries) at any time prior to ~~11:~~4:00 P.M. Central Time on ~~May 2, 2006~~April 26, 2007 by timely delivery of a properly executed, later-dated voting instruction card (or an Internet or telephone vote), or by delivering a written revocation of your voting instructions to Vanguard.


Q:		Is my vote confidential?

A:		Yes. All proxies, ballots and vote tabulations that identify how individual shareholders voted will be kept confidential and not be disclosed to the Company’s directors, officers or employees, except in limited circumstances, including:


		• When disclosure is required by law;

		• During any contested solicitation of proxies; or

		• When written comments by a shareholder appear on a proxy card or other voting material.


Q:		What will happen if I do not instruct my broker how to vote?

A:		If your shares are held in street name and you do not instruct your broker how to vote, your broker may vote your shares at its discretion on routine matters such as the election of directors (Item 1) or ratification of the independent registered public accounting firm (Item 2). On non-routine matters, brokers and other nominees cannot vote without instructions from the beneficial owner, resulting in so-called “broker non-votes.” Broker non-votes will have ~~the same effect as votes cast against the proposal to increase the Company’s authorized shares (Item 3), but will have~~ no impact on the shareholder ~~proposals (Items 4 though 7)~~proposal (Item 3).

Q:		How will my Company stock in the Peabody Investments Corp. Employee Retirement Account or other 401(k) plans sponsored by the Company’s subsidiaries be voted?

A:		Vanguard, as the plan trustee, will vote your shares in accordance with your instructions if you send in a completed proxy/voting instruction card or vote by telephone or the Internet before

~~11:~~ 4:00 P.M. Central Time on ~~May 2, 2006.~~April 26, 2007. All telephone and Internet voting facilities with respect to plan shares will close at that time. Vanguard will vote allocated shares of Company Common Stock for which it has not received direction, as well as shares not allocated to individual participant accounts, in the same proportion as plan shares for which the trustee receives voting instructions.

Q: How many shares must be present to hold the Annual Meeting?

A: Holders of a majority of the shares of outstanding Common Stock as of the record date must be represented in person or by proxy at the Annual Meeting in order to conduct business. This is called a quorum. If you vote, your shares will be part of the quorum. Abstentions, ~~“withhold”~~“Withheld” votes and broker non-votes also will be counted in determining whether a quorum exists.


Q:		What vote is required to approve the proposals?

A:		In the election of directors, the five nominees receiving the highest number of ~~“FOR”~~“For” votes will be elected. Abstentions and proxies marked “Withhold” will have no effect on the election of directors, except, if a nominee receives more “Withhold” than “For” votes, the nominee must tender his resignation in accordance with our Director Election Procedures. The ~~proposal~~Board will then determine whether to ~~increase~~accept or reject the resignation based on all factors affecting the nominee’s qualifications and contributions to the Company. Our Director Election Procedures can be accessed on the Company’s ~~authorized shares~~website (www.peabodyenergy.com) by clicking on “Investors,” then “Corporate Governance,” and then “Corporate Governance Guidelines.” Information on our website is not considered part of this Proxy Statement.


		The other proposals will require ~~the affirmative vote of a majority of shares outstanding for approval. The remaining proposals will require~~approval by a majority of the ~~votes cast for approval. Abstentions~~shares present in person or by proxy at the meeting and ~~proxies marked “withhold” will have no impact on the election of directors.~~entitled to vote. Broker non-votes ~~will have the same effect as votes cast against the proposal to increase the Company’s authorized shares (Item 3), but~~ will have no impact on the other proposals.


Q:		What does it mean if I receive more than one proxy card?

A:		It means your shares are held in more than one account at the transfer agentand/or with banks or brokers. Please vote all of your shares.

Q:		Who can attend the Annual Meeting?

A:		All Peabody Energy Corporation shareholders as of March ~~15, 2006~~9, 2007 may attend the Annual Meeting.

Q:		What do I need to do to attend the Annual Meeting?

A:		If you are a shareholder of record or a participant in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by ~~the Company’s~~our subsidiaries), your admission card is attached to your proxy card or voting instruction form. You will need to bring this admission card with you to the Annual Meeting.


		If you own shares in street name, you will need to ask your bank or broker for an admission card in the form of a confirmation of beneficial ownership. You will need to bring a confirmation of beneficial ownership with you to vote at the Annual Meeting. If you do not receive your confirmation of beneficial ownership in time, bring your most recent brokerage statement with you to the Annual Meeting. We can use that to verify your ownership of Common Stock and admit you to the meeting; however, you will not be able to vote your shares at the meeting without a confirmation of beneficial ownership.


Q:		Where can I find the voting results of the Annual Meeting?

A:		We plan to announce preliminary voting results at the Annual Meeting and to publish final results in our Quarterly Report on SECForm 10-Q for the ~~Quarter~~Quarterly Period Ended June 30, ~~2006.~~2007.

ELECTION OF DIRECTORS (ITEM 1)

In accordance with the terms of the Company’s certificate of incorporation, the Board of Directors is divided into three classes, with each class serving a staggered three-year term. At this year’s Annual Meeting, the terms of current Class IIIII Directors will expire. The terms of Class ~~III~~I Directors and Class III Directors will expire at the Annual Meetings to be held in ~~2007~~2008 and ~~2008,~~2009, respectively.

The Board of Directors has nominated the following individuals for election as Class IIIII Directors with terms expiring in ~~2009: Gregory~~2010: William A. Coley, Irl F. Engelhardt, William C. Rusnack, John F. Turner and Alan H. ~~Boyce, William E. James, Robert B. Karn III, Henry E. Lentz and Blanche M. Touhill.~~Washkowitz. Each of the nominees currently is serving as a director of the Company. All nominees have consented to serve for the new term. Should any one or more of the nominees become unavailable for election, your proxy authorizes us to vote for such other persons, if any, as the Board of Directors may recommend.

The Board of Directors recommends that you vote “For” each of the Class IIIII director nominees named below.

Class IIIII Director Nominees — Terms Expiring in ~~2009~~2010

WILLIAM A. COLEY, age 63, has been a director of the Company since March 2004. Since March 2005, Mr. Coley has served as Chief Executive Officer and Director of British Energy Group plc, the U.K.’s largest electricity producer. He was previously a non-executive director of British Energy. Mr. Coley served as President of Duke Power, theU.S.-based global energy company, from 1997 until his retirement in February 2003. During his37-year career at Duke Power, Mr. Coley held various officer level positions in the engineering, operations and senior management areas, including Vice President, Operations(1984-1986), Vice President, Central Division(1986-1988), Senior Vice President, Power Delivery(1988-1990), Senior Vice President, Customer Operations(1990-1991), Executive Vice President, Customer Group(1991-1994) and President, Associated Enterprises Group(1994-1997). Mr. Coley was elected to the board of Duke Power in 1990 and was named President following Duke Power’s acquisition of PanEnergy in 1997. Mr. Coley earned his B.S. in electrical engineering from Georgia Institute of Technology and is a registered professional engineer. He is also a director of CT Communications, Inc.

IRL F. ENGELHARDT, age 60, has been a director of the Company and has served as Chairman since 1998. Mr. Engelhardt served as Chief Executive Officer of the Company from 1998 to 2005 and as Chief Executive Officer of a predecessor of the Company from 1990 to 1998. He also served as Chairman of a predecessor of the Company from 1993 to 1998 and as President from 1990 to 1995. After joining a predecessor of the Company in 1979, he held various officer level positions in the executive, sales, business development and administrative areas, including Chairman of Peabody Resources Ltd. (Australia) and Chairman of Citizens Power LLC. Mr. Engelhardt also served as Co-Chief Executive Officer and executive director of The Energy Group from February 1997 to May 1998, Chairman of Cornerstone Construction & Materials, Inc. from September 1994 to May 1995 and Chairman of Suburban Propane Company from May 1995 to February 1996. He also served as a director and Group Vice President of Hanson Industries from 1995 to 1996. He also previously served as Chairman of the National Mining Association, the Coal Industry Advisory Board of the International Energy Agency, the Center for Energy and Economic Development and the Coal Utilization Research Council, as well as Co-Chairman of the Coal Based Generation Stakeholders Group. He serves on the Boards of Directors of Valero Energy Corporation and The Williams Companies, Inc., and is Chair of The Federal Reserve Bank of St. Louis.

WILLIAM C. RUSNACK, age 62, has been a director of the Company since January 2002. Mr. Rusnack is the former President and Chief Executive Officer of Premcor Inc., one of the largest independent oil refiners in the United States prior to its acquisition by Valero Energy Corporation in

2005. He served as President, Chief Executive Officer and Director of Premcor from 1998 to February 2002. Prior to joining Premcor, Mr. Rusnack was President of ARCO Products Company, the refining and marketing division of Atlantic Richfield Company. During a31-year career at ARCO, he was also President of ARCO Transportation Company and Vice President of Corporate Planning. He is also a director of Sempra Energy and Flowserve Corporation.

JOHN F. TURNER, age 65, has been a director of the Company since July 2005, when his appointment was approved by the Board of Directors upon recommendation by the Nominating & Corporate Governance Committee. Mr. Turner served as Assistant Secretary of State for the Bureau of Oceans and International Environmental and Scientific Affairs from November 2001 to July 2005. Mr. Turner was previously President and Chief Executive Officer of The Conservation Fund, a national nonprofit organization dedicated to public-private partnerships to protect land and water resources. He was director of the U.S. Fish and Wildlife Service from 1989 and 1993. Mr. Turner also served in the Wyoming state legislature for 19 years and is a past president of the Wyoming State Senate. He serves as a consultant to The Conservation Fund. Mr. Turner also serves as a board member of the University of Wyoming, Ruckelshaus Institute of Environment and Natural Resources and as a Visiting Professor of Environment and Natural Resources at the University. He is also a director of International Paper Company and Ashland, Inc.

ALAN H. WASHKOWITZ, age 66, has been a director of the Company since 1998. Until July 2005, Mr. Washkowitz was a Managing Director of Lehman Brothers Inc., an investment-banking firm (“Lehman Brothers”) and part of the firm’s Merchant Banking Group, responsible for oversight of Lehman Brothers Merchant Banking Partners II L.P. He joined Kuhn Loeb & Co. in 1968 and became a general partner of Lehman Brothers in 1978 when it acquired Kuhn Loeb & Co. Prior to joining the Merchant Banking Group, he headed Lehman Brothers’ Financial Restructuring Group. Mr. Washkowitz serves on the Board of Visitors of the Faculty of Law for Columbia University, and on the Advisory Board for the Columbia University Center on Corporate Governance. He is also a director of L-3 Communications Corporation.

Class I Directors — Terms Expiring in 2008

B. R. BROWN, age 74, has been a director of the Company since December 2003. Mr. Brown is the retired Chairman, President and Chief Executive Officer of CONSOL Energy, Inc., a domestic coal and gas producer and energy services provider. He served as Chairman, President and Chief Executive Officer of CONSOL and predecessor companies from 1978 to 1998. He also served as a Senior Vice President of E. I. du Pont de Nemours & Co., CONSOL’s controlling shareholder, from 1981 to 1991. Before joining CONSOL, Mr. Brown was a Senior Vice President at Conoco. From 1990 to 1995, he also was President and Chief Executive Officer of Remington Arms Company, Inc. Mr. Brown has previously served as Director and Chairman of the Bituminous Coal Operators Association Negotiating Committee, Chairman of the National Mining Association, and Chairman of the Coal Industry Advisory Board of the International Energy Agency. He is currently a director of Delta Trust & Bank and Remington Arms Company, Inc.

HENRY GIVENS, JR., PhD, age 74, has been a director of the Company since March 2004. Dr. Givens is President of Harris-Stowe State University in St. Louis, Missouri, a position he has held since 1979. Dr. Givens is actively involved with several civic and charitable boards and has received over one hundred national, state and local awards and recognitions. He earned his baccalaureate degree at Lincoln University in Missouri, his master’s degree at the University of Illinois and his PhD at St. Louis University. Dr. Givens is also a director of The Laclede Group Inc. and serves on the advisory board of U.S. Bank, N.A. (St. Louis).

JAMES R. SCHLESINGER, PhD, age 78, has been a director of the Company since 2001. Dr. Schlesinger is Chairman of the Board of Trustees of MITRE Corporation, anot-for-profit corporation that provides systems engineering, research and development and information technology support to the government, a position he has held since 1985. He also serves as senior advisor to Lehman Brothers and as Trustee for the Center for Strategic and International Studies. Dr. Schlesinger served as U.S. Secretary of Energy from 1977 to 1979. He also held senior executive positions for three U.S. Presidents, serving as Chairman of the U.S. Atomic Energy Commission from 1971 to 1973, Director of the Central Intelligence Agency in 1973 and Secretary of Defense from 1973 to 1975. He also serves as a consultant to the Department of Defense, the Department of State and the Department of Homeland Security. Other past positions include Assistant Director of the Office of Management and Budget, Director of Strategic Studies at the Rand Corporation, Associate Professor of Economics at the University of Virginia and consultant to the Federal Reserve Board of Governors. Dr. Schlesinger is also a director of Evergreen Energy Inc. and Sandia Corporation.

SANDRA VAN TREASE, age 46, has been a director of the Company since January 2003. Ms. Van Trease is Group President, BJC HealthCare, a position she has held since September 2004. BJC Healthcare is one of the largest nonprofit healthcare organizations, delivering services to residents in the greater St. Louis, southern Illinois and mid-Missouri regions. Prior to joining BJC Healthcare, Ms. Van Trease served as President and Chief Executive Officer of UNICARE, an operating affiliate of WellPoint Health Networks Inc., from 2002 to September 2004. Ms. Van Trease also served as President, Chief Financial Officer and Chief Operating Officer of RightCHOICE Managed Care, Inc. from 2000 to 2002, and as Executive Vice President, Chief Financial Officer and Chief Operating Officer from 1997 to 2000. Prior to joining RightCHOICE in 1994, she was a Senior Audit Manager with Price Waterhouse LLP. She is a Certified Public Accountant and Certified Management Accountant. Ms. Van Trease is also a director of Enterprise Financial Services Corporation.

Class II Directors — Terms Expiring in 2009

GREGORY H. BOYCE, age ~~51,~~52, has been a director of the Company since March 2005. Mr. Boyce was named Chief Executive Officer Elect of the Company in March 2005, and assumed the position of Chief Executive Officer in January 2006. He also serves as President of the Company, a position he has held since October 2003. He was Chief Operating Officer of the Company from October 2003 to December 2005. He previously served as Chief Executive — Energy of Rio Tinto plc (an international natural resource company) from 2000 to 2003. Other prior positions include President and Chief Executive Officer of Kennecott Energy Company from 1994 to 1999 and President of Kennecott Minerals Company from 1993 to 1994. He has extensive engineering and operating experience with Kennecott and also served as Executive Assistant to the Vice Chairman of Standard Oil of Ohio from 1983 to 1984. Mr. Boyce is Co-Chairman of the Coal Based Generation Stakeholders Group, and a member of the Coal Industry Advisory Board of the International Energy Agency, ~~and~~ the Advisory Council of the University of Arizona’s Department of Mining and Geological ~~Engineering.~~Engineering and the National Council of the School of Engineering and Applied Science at Washington University in St. Louis. He is a board member of the Center for Energy and Economic Development, the National Mining Association and the National Coal Council, and a past board member of the Western Regional Council, Mountain States Employers Council and Wyoming Business Council.

WILLIAM E. JAMES, age ~~60,~~61, has been a director of the Company since 2001. Since July 2000, Mr. James has been Founding Partner of RockPort Capital Partners LLC, a venture fund specializing in energy and environmental technology and advanced materials. He is also Chairman of RockPort Group, a holding company engaged in international oil trading, banking and communications. Prior to joining RockPort, Mr. James co-founded and served as Chairman and Chief Executive Officer of Citizens Power

LLC, a leading power marketer. He also co-founded the non-profit Citizens Energy Corporation and served as the Chairman and Chief Executive Officer of Citizens Corporation, its for-profit subsidiary, from 1987 to 1996. Mr. James periodically provides consulting services to Lehman Brothers ~~Inc., an investment-banking firm (“Lehman Brothers”)~~ on matters unrelated to the Company.

ROBERT B. KARN III, age ~~64,~~65, has been a director of the Company since January 2003. Mr. Karn is a financial consultant and former managing partner in financial and economic consulting with Arthur Andersen LLP in St. Louis. Before retiring from Arthur Andersen in 1998,

Mr. Karn served in a variety of accounting, audit and financial roles over a33-year career, including Managing Partner in charge of the global coal mining practice from 1981 through 1998. He is a Certified Public Accountant and has served as a Panel Arbitrator with the American Arbitration Association. Mr. Karn is also a director of Natural Resource Partners L.P., a coal-oriented master limited partnership that is listed on the New York Stock Exchange, the Fiduciary/Claymore MLP Opportunity Fund and the Fiduciary/Claymore Dynamic Equity Fund.

HENRY E. LENTZ, age ~~61,~~62, has been a director of the Company since 1998. Mr. Lentz is currently employed as an Advisory Director by Lehman Brothers. He joined Lehman Brothers in 1971 and became a Managing Director in 1976. He left the firm in 1988 to become Vice Chairman of Wasserstein Perella Group, Inc., an investment banking firm. In 1993, he returned to Lehman Brothers as a Managing Director and served as head of the firm’s worldwide energy practice. In 1996, he joined Lehman Brothers’ Merchant Banking Group as a Principal and in January 2003 became a consultant to the Merchant Banking Group. He assumed his current role with Lehman Brothers effective January 2004. Mr. Lentz is also a director of Rowan Companies, Inc. and CARBO Ceramics, Inc.

BLANCHE M. TOUHILL, PhD, age ~~74,~~75, has been a director of the Company since 2001. Dr. Touhill is Chancellor Emeritus and Professor Emeritus at the University of Missouri — St. Louis. She previously served as Chancellor and Professor of History and Education at the University of Missouri — St. Louis from 1991 through 2002. Prior to her appointment as Chancellor, Dr. Touhill held the positions of Vice Chancellor for Academic Affairs and Interim Chancellor at the University of Missouri — St. Louis. Dr. Touhill also has served on the Boards of Directors of Trans World Airlines and Delta Dental. She holds bachelor’s and doctoral degrees in history and a master’s degree in geography from St. Louis University.

~~Class III Directors — Terms Expiring in 2007~~

WILLIAM A. COLEY, age 62, has been a director of the Company since March 2004. Since March 2005, Mr. Coley has served as Chief Executive Officer and Director of British Energy Group plc, the U.K.’s largest electricity producer. He was previously a non-executive director of British Energy. Mr. Coley served as President of Duke Power, the~~U.S.-based~~ ~~global energy company, from 1997 until his retirement in February 2003. During his37-year~~ career at Duke Power, Mr. Coley held various officer level positions in the engineering, operations and senior management areas, including Vice President, Operations (1984-1986), Vice President, Central Division (1986-1988), Senior Vice President, Power Delivery (1988-1990), Senior Vice President, Customer Operations (1990-1991), Executive Vice President, Customer Group (1991-1994) and President, Associated Enterprises Group (1994-1997). Mr. Coley was elected to the board of Duke Power in 1990 and was named President following Duke Power’s acquisition of PanEnergy in 1997. Mr. Coley earned his B.S. in electrical engineering from Georgia Institute of Technology and is a registered professional engineer. He is also a director of CT Communications, Inc.

IRL F. ENGELHARDT, age 59, has been a director of the Company and has served as Chairman since 1998. Mr. Engelhardt served as Chief Executive Officer of the Company from 1998 to 2005 and as Chief Executive Officer of a predecessor of the Company from 1990 to 1998. He also served as Chairman of a predecessor of the Company from 1993 to 1998 and as President from 1990 to 1995. After joining a predecessor of the Company in 1979, he held various officer level positions in the executive, sales, business development and administrative areas, including Chairman of Peabody Resources Ltd. (Australia) and Chairman of Citizens Power LLC. Mr. Engelhardt also served as Co-Chief Executive Officer and executive director of The Energy Group from February

1997 to May 1998, Chairman of Cornerstone Construction & Materials, Inc. from September 1994 to May 1995 and Chairman of Suburban Propane Company from May 1995 to February 1996. He also served as a director and Group Vice President of Hanson Industries from 1995 to 1996. He also previously served as Chairman of the National Mining Association, the Coal Industry Advisory Board of the International Energy Agency, the Center for Energy and Economic Development and the Coal Utilization Research Council, as well as Co-Chairman of the Coal Based Generation Stakeholders Group. He serves on the Boards of Directors of Valero Energy Corporation and The Williams Companies, Inc., and is Deputy Chairman of The Federal Reserve Bank of St. Louis.

WILLIAM C. RUSNACK, age 61, has been a director of the Company since January 2002. Mr. Rusnack is the former President and Chief Executive Officer of Premcor Inc., one of the largest independent oil refiners in the United States prior to its acquisition by Valero Energy Corporation in 2005. He served as President, Chief Executive Officer and Director of Premcor from 1998 to February 2002. Prior to joining Premcor, Mr. Rusnack was President of ARCO Products Company, the refining and marketing division of Atlantic Richfield Company. During a~~31-year~~ ~~career at ARCO, he was also President of ARCO Transportation Company and Vice President of Corporate Planning. He is also a director of Sempra Energy and Flowserve Corporation.~~

JOHN F. TURNER, age 64, has been a director of the Company since July 2005. Mr. Turner served as Assistant Secretary of State for the Bureau of Oceans and International Environmental and Scientific Affairs from November 2001 to July 2005. Mr. Turner was previously President and Chief Executive Officer of The Conservation Fund, a national nonprofit organization dedicated to public-private partnerships to protect land and water resources. He was director of the U.S. Fish and Wildlife Service from 1989 and 1993. He also serves as a consultant to The Conservation Fund and the National Fish and Wildlife Foundation, and as a board member of the University of Wyoming, Ruckelshaus Institute of Environment and Natural Resources. Mr. Turner also served in the Wyoming state legislature for 19 years and is a past president of the Wyoming State Senate. He is also a director of International Paper Company.

ALAN H. WASHKOWITZ, age 65, has been a director of the Company since 1998. Until July 2005, Mr. Washkowitz was a Managing Director of Lehman Brothers and part of the firm’s Merchant Banking Group, responsible for oversight of Lehman Brothers Merchant Banking Partners II L.P. Mr. Washkowitz joined Kuhn Loeb & Co. in 1968 and became a general partner of Lehman Brothers in 1978 when it acquired Kuhn Loeb & Co. Prior to joining the Merchant Banking Group, he headed Lehman Brothers’ Financial Restructuring Group. Mr. Washkowitz serves on the Board of Visitors of the Faculty of Law for Columbia University, and on the Advisory Board for the Columbia University Center on Corporate Governance. He is also a director of L-3 Communications Corporation.

~~Class I Directors — Terms Expiring in 2008~~

B. R. BROWN, age 73, has been a director of the Company since December 2003. Mr. Brown is the retired Chairman, President and Chief Executive Officer of CONSOL Energy, Inc., a domestic coal and gas producer and energy services provider. He served as Chairman, President and Chief Executive Officer of CONSOL and predecessor companies from 1978 to 1998. He also served as a Senior Vice President of E. I. du Pont de Nemours & Co., CONSOL’s controlling shareholder, from 1981 to 1991. Before joining CONSOL, Mr. Brown was a Senior Vice President at Conoco. From 1990 to 1995, he also was President and Chief Executive Officer of Remington Arms Company, Inc. Mr. Brown has previously served as Director and Chairman of the Bituminous Coal Operators Association Negotiating Committee, Chairman of the National Mining Association, and

~~Chairman of the Coal Industry Advisory Board of the International Energy Agency. He is currently a director of Delta Trust & Bank and Remington Arms Company, Inc.~~

HENRY GIVENS, JR., PhD, age 73, has been a director of the Company since March 2004. Dr. Givens is President of Harris-Stowe State University in St. Louis, Missouri, a position he has held since 1979. Dr. Givens is actively involved with several civic and charitable boards and has received over one hundred national, state and local awards and recognitions. He earned his baccalaureate degree at Lincoln University in Missouri, his master’s degree at the University of Illinois and his PhD at St. Louis University. Dr. Givens is also a director of The Laclede Group Inc. and serves on the advisory board of U.S. Bank, N.A. (St. Louis).

JAMES R. SCHLESINGER, PhD, age 77, has been a director of the Company since 2001. Dr. Schlesinger is Chairman of the Board of Trustees of MITRE Corporation, a not-for-profit corporation that provides systems engineering, research and development and information technology support to the government, a position he has held since 1985. Dr. Schlesinger also serves as senior advisor to Lehman Brothers and as Trustee for the Center for Strategic and International Studies. Dr. Schlesinger served as U.S. Secretary of Energy from 1977 to 1979. He also held senior executive positions for three U.S. Presidents, serving as Chairman of the U.S. Atomic Energy Commission from 1971 to 1973, Director of the Central Intelligence Agency in 1973 and Secretary of Defense from 1973 to 1975. He also serves as a consultant to the Department of Defense, the Department of State and the Department of Homeland Security. Other past positions include Assistant Director of the Office of Management and Budget, Director of Strategic Studies at the Rand Corporation, Associate Professor of Economics at the University of Virginia and consultant to the Federal Reserve Board of Governors. Dr. Schlesinger is also a director of KFx, Inc. and Sandia Corporation.

SANDRA VAN TREASE, age 45, has been a director of the Company since January 2003. Ms. Van Trease is Group President, BJC HealthCare, a position she has held since September 2004. BJC Healthcare is one of the largest nonprofit healthcare organizations, delivering services to residents in the greater St. Louis, southern Illinois and mid-Missouri regions. Prior to joining BJC Healthcare, Ms. Van Trease served as President and Chief Executive Officer of UNICARE, an operating affiliate of WellPoint Health Networks Inc., from 2002 to September 2004. Ms. Van Trease also served as President, Chief Financial Officer and Chief Operating Officer of RightCHOICE Managed Care, Inc. from 2000 to 2002, and as Executive Vice President, Chief Financial Officer and Chief Operating Officer from 1997 to 2000. Prior to joining RightCHOICE in 1994, she was a Senior Audit Manager with Price Waterhouse LLP. She is a Certified Public Accountant and Certified Management Accountant. Ms. Van Trease is also a director of Enterprise Financial Services Corporation.

INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES

Director Independence

As required by the rules of the New York Stock Exchange (“NYSE”), the Board of Directors evaluates the independence of its members at least annually, and at other appropriate times ~~(e.g., in connection with a change in employment status or other significant status changes)~~ when a change in circumstances could potentially impact the independence or effectiveness of one or more ~~directors.~~directors (e.g., in connection with a change in employment status or other significant status changes). This process is administered by the Nominating ~~and~~& Corporate Governance Committee of the Board of Directors, which consists entirely of directors who are independent under applicable NYSE rules. After carefully considering all relevant relationships with the Company, the Nominating ~~and~~& Corporate

Governance Committee submits its recommendations regarding independence to the full Board, which then makes an affirmative determination with respect to each director.

In making independence determinations, the Nominating ~~and~~& Corporate Governance Committee and the Board consider all relevant facts and circumstances, including (1) the nature of any relationships with the Company, (2) the significance of the relationship to the Company, the other organization and the individual director, (3) whether or not the relationship is solely a business relationship in the ordinary course of the Company’s and the other organization’s businesses and does not afford the director any

special benefits, and (4) any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. For purposes of this determination, the Board deems any relationships that have expired for more than three years ~~(e.g. industrial, banking, consulting, legal, accounting, charitable or familial relationships)~~ to be immaterial.

After considering the standards for independence adopted by the NYSE and various other factors as described herein, the Board of Directors has determined that all directors other than Messrs. Boyce and Engelhardt are independent. None of the directors other than Messrs. Boyce and Engelhardt receives any compensation from the Company other than customary director and committee fees.

The Board has determined that Directors Brown, Coley, Karn, Turner and Van Trease are independent, based upon the fact that they have no relationships with the Company (other than serving as directors). The Board has also determined that ~~the following directors~~Directors Givens, James, Lentz, Rusnack, Schlesinger, Touhill and Washkowitz are independent after evaluating their relationships with the Company and concluding that such relationships are ~~immaterial: Directors Givens, James, Lentz, Rusnack, Schlesinger, Touhill and Washkowitz.~~immaterial. All such relationships are outlined below.

Mr. Rusnack and Drs. ~~Touhill~~Givens and ~~Givens~~Touhill serve as trustees of the St. Louis Science Center, a non-profit organization that receives annual contributions of approximately $25,000 from the Company. Dr. Givens also serves as President of Harris-Stowe State University, which receives annual contributions of $25,000 from the Company. The Board has concluded that these relationships are not material, since the Company’s contributions represent less than 1% of each institution’s total annual charitable contributions. In addition to the foregoing, Dr. Givens serves on the regional advisory board of U.S. Bank, N.A. (St. Louis), which is a participating lender under the Company’s ~~revolving~~senior credit facility and provides various other commercial banking services to the Company. ~~Mr. Engelhardt and Ms. Van Trease also served on the advisory board prior to December 2004.~~ These banking services are offered to the Company on the same general terms and conditions as other large commercial customers. The Company’s directors did not solicit these commercial relationships and were not involved in any related discussions or deliberations.

Certain of the Company’s directors, Messrs. James, Lentz, Schlesinger and Washkowitz, have been employed by or served as consultants to Lehman Brothers Inc. within the past three years. The Board has determined that these employment and consulting relationships involve matters unrelated to the Company, and that these relationships are not material to the Company. Their specific relationships with Lehman Brothers are described in more detail in the biographies set forth on pages 56 through 8 of this Proxy Statement. When evaluating the materiality of these relationships to the Company, the Board considered the fact that Lehman Brothers Merchant Banking Partners II L.P. and other affiliates of Lehman Brothers (collectively, the “Merchant Banking Fund”) owned a significant percentage of the Company’s stock prior to completely selling its

holdings in March 2004.~~(1)~~¹ The Board also considered the fact that the Company has paid Lehman Brothers fees from time to time for investment banking and related services. These fees have not been significant to the Company or Lehman Brothers, ~~(i.e. $7.4 million in 2003, $1.4 million in 2004 and $2.1 million in 2005),~~ and since March 2004 all such fees have been reviewed and approved in advance by the independent Audit Committee. Directors who are affiliated with Lehman Brothers do not participate in any decisions or discussions related to these services, and they do not receive any benefit from related fees. After careful consideration, the Board of Directors has determined that these relationships do not impair, or appear to impair, the directors’ independent judgment.

~~Director Compensation~~

~~Directors who are employees of~~For 2006, the Company ~~receive no additional pay for serving as directors.~~


	*~~2005 Compensation~~*

~~Prior~~paid fees of $11.5 million to ~~January~~Lehman Brothers compared to $2.1 million in 2005 and $1.4 million in 2004. The fees were higher in 2006 ~~each director who was not an employee of~~than the two prior years because the Company ~~(a “non-employee director”) was paid an annual cash retainer of $45,000. Committee chairpersons~~utilized Lehman Brothers’ services, along with several other than the Audit Committee Chair also received an annual $3,500 cash retainer for committee service. The Audit Committee Chair received a $10,000 annual cash retainer, and other Audit Committee members received $5,000 annual cash retainers for committee service. Non-employee directors also received $1,500 for each day that they attended Board and/or committee meetings. The Company paid the travel and accommodation expenses of directors to attend meetings and other corporate functions.investment banks, in establishing

Non-employee directors also received options to purchase 1,000 shares of Company Common Stock and a grant of restricted stock valued at $50,000 when they were first elected to the Board of Directors. The shares subject to the restricted stock awards vest after three years if the recipient continues to serve on the Board of Directors. Non-employee directors also received annual stock option grants valued at $25,000 (based on~~Black-Scholes~~methodology). All non-employee director stock options were granted at an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant. These options vest in one-third increments over three years and expire ten years after grant. In the event of a change of control of the Company, any previously unvested options will vest and all restrictions related to the restricted stock awards will lapse.

~~(1)~~¹Prior to May 2001, the Merchant Banking Fund owned in excess of 90% of the Company’s outstanding ~~common stock.~~Common Stock. Over the ensuing three-year period, the Merchant Banking Fund sold all of its Company holdings through a series of registered public offerings, falling below a 50% controlling interest level in April 2002 and completing its exit in March 2004.

~~The following table summarizes~~

the ~~compensation paid~~Company’s $2.75 billion senior unsecured credit facility, and in offering its $900 million senior notes and $732 million convertible junior subordinated debentures. These services, as well as other ordinary course financial services, were provided to the ~~non-employee directors of the~~ Company ~~during 2005.~~

~~Director Compensation Table~~

Fees Earned Non-Stock
or Paid Stock Option Incentive Plan All Other
Total in Cash Awards Awards Compensation Compensation
Name ($) ($) ($)⁽¹⁾⁽²⁾ ($)⁽³⁾ ($) ($)

B. R. Brown 91,157 65,250 907 25,000 — —
William A. Coley 86,519 60,750 769 25,000 — —
Henry Givens, Jr. 86,519 60,750 769 25,000 — —
William E. James 90,250 65,250 — 25,000 — —
Robert B. Karn III 108,368 82,125 1,243 25,000 — —
Henry E. Lentz 89,469 63,750 719 25,000 — —
William C. Rusnack 102,250 77,250 — 25,000 — —
James R. Schlesinger 82,750 57,750 — 25,000 — —
Blanche M. Touhill 89,875 64,875 — 25,000 — —
John F. Turner⁽⁴⁾
99,863 25,500 50,151 24,212 — —
Sandra Van Trease 90,743 64,500 1,243 25,000 — —
Alan H. Washkowitz 87,969 62,250 719 25,000 — —


⁽¹⁾	~~Awards are valued at the time of grant at fair market value.~~

⁽²⁾	Dollar amounts include dividends paid on restricted stock awards as follows: Mr. Brown, $907; Mr. Coley, $769; Dr. Givens, $769; Mr. Karn, $1,243; Mr. Lentz, $719; Mr. Turner, $151; Ms. Van Trease, $1,243; and Mr. Washkowitz, $719. Dividends are paid at the same rate applicable to all outstanding shares of Common Stock.

⁽³⁾	~~Awards are valued at the time of grant based on~~~~Black-Scholes~~ ~~methodology, as applied with guidance from the Compensation Committee’s independent compensation consultants.~~

⁽⁴⁾	~~In accordance with the Board’s compensation program, Mr. Turner received restricted stock and stock option awards upon his election to the Board of Directors in July 2005.~~


	*~~2006 Compensation~~*

In October 2005, the Company commissioned a compensation analysis conducted by an independent third party to determine whether the Company’s compensation for the Board of Directors was consistent with other publicly held companies of similar size. Based upon such analysis, the Board of Directors approved certain amendments to the director compensation program for non-employee directors. Effective January 1, 2006, non-employee directors will receive an annual cash retainer of $75,000 and annual equity compensation valued at $75,000, awarded one-half in restricted shares (based on the ~~fair market value of the common stock on the date of grant)~~same general terms and ~~one-half~~conditions as provided to other large commercial customers. The Company’s directors did not solicit these relationships and were not involved in ~~stock options (based on~~~~Black-Scholes~~ ~~methodology). The restricted stock awards will vest upon the third anniversary of the date of grant~~any related discussions or such other period designated by the Board of Directors pursuant to the Company’s Long-Term Equity Incentive Plan. The stock option awards will be granted at an exercise price equal to the fair market value of the common stock on the date of grant, will vest in equal annual installments over three years, and will expire ten years after grant. In the event of a change of control of the Company (as defined in the Company’s Long-Term Equity Incentive Plan), all restrictions related to the restricted stock awards will lapse and anydeliberations.

~~previously unvested options will vest. The restricted stock awards and options also provide for vesting in the event of death or disability or termination of service without cause with Board consent.~~

~~Members of various committees of the Board of Directors will receive the following additional compensation:~~


	•	~~The Audit Committee Chairperson will receive an annual $15,000 cash retainer.~~

	•	~~Other Audit Committee members will receive annual $5,000 cash retainers.~~

	•	~~Chairpersons of the Compensation and Nominating & Corporate Governance Committees will receive annual $10,000 cash retainers.~~

	•	~~Directors who serve on more than one committee will receive an additional annual $10,000 cash retainer.~~

~~The Company will continue to pay the travel and accommodation expenses of directors to attend meetings and other corporate functions. Directors will no longer receive per diem meeting attendance fees.~~

Board Attendance and Executive Sessions

The Board of Directors met ~~eleven~~thirteen times in ~~2005.~~2006. During that period, each incumbent director attended ~~85%~~75% or more of the aggregate number of meetings of the Board and the committees on which he or she served, ~~that were held during his or her tenure as director,~~ and average attendance was ~~96%~~93%. Mr. Engelhardt serves as chairman at all meetings of the Board of Directors, including portions of meetings where all directors are present. Pursuant to the Company’s Corporate Governance Guidelines, the non-management directors meet in executive session at least quarterly. ~~The~~In past years, the chair of each executive session iswas selected in advance by ~~non-management directors~~the Chair of the Nominating & Corporate Governance Committee and iswas rotated at each meeting so that (i) the same non-management director ~~does~~did not lead two consecutive sessions, and (ii) to the extent practical, each non-management director ~~has~~had an opportunity to serve as chair before repeating the rotational cycle. This year, to enhance consistency from meeting to meeting, the Board changed its policy so that the chair of each executive session rotates among the chairs of the Audit Committee, Compensation Committee and Nominating & Corporate Governance Committee. During ~~2005,~~2006, the Company’s non-management directors met in executive session ~~ten~~seven times.

Committees of the Board of Directors

The Board has appointed four standing committees from among its members to assist it in carrying out its obligations. These committees ~~include an~~are the Audit Committee, Compensation Committee, Executive Committee and Nominating ~~and~~& Corporate Governance Committee. Each standing committee has adopted a formal charter that describes in more detail its purpose, organizational structure and responsibilities. A copy of each committee charter can be found on the Company’s website (www.peabodyenergy.com) by clicking on “Investors,” and then “Corporate Governance” and is available in print to any shareholder who requests it. Information on our website is not considered part of this Proxy Statement. A description of each committee and its current membership follows:

Compensation Committee


	*~~Compensation Committee~~*

The members of the Compensation Committee are Robert B. Karn III (Chair), B. R. Brown and William E. James. The Board of Directors has affirmatively determined that, in its judgment, all members of the Compensation Committee are independent under rules established by the New York Stock Exchange.

The Compensation Committee met ~~eleven~~eight times during ~~2005.~~2006. Some of the primary responsibilities of the Compensation Committee include the following:


	•	To annually review and approve corporate goals and objectives relevant to the Company’s CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and together with the other independent members of the Board of Directors, determine and approve the CEO’s compensation levels based on this evaluation;

	•	To annually review with the CEO, the performance of the Company’s executive officers and make recommendations to the Board of Directors with respect to the compensation plans for such officers;


	•	To annually review and approve the CEO’s and the executive officers’ base salary, annual incentive opportunity and long-term incentive opportunity and as appropriate, employment agreements, severance agreements, change in control provisions and any special supplemental benefits;

	•	To approve annual bonus awards for executive officers other than the CEO;

	•	To oversee the Company’s annual and long-term incentive programs;

	•	To periodically assess the Company’s director compensation program and, when appropriate, recommend modifications for Board consideration;

	•	To review and make recommendations to the Board of Directors in conjunction with the CEO, as appropriate, with respect to succession planning and management development; and

	•	To make regular reports on its activities to the Board of Directors.

~~A separate Report of the Compensation~~

Executive Committee ~~on Executive Compensation is set forth on pages 32 through 40 of this Proxy Statement.~~


	*~~Executive Committee~~*

The members of the Executive Committee are Gregory H. Boyce ~~(Chair since March 2005), Irl F. Engelhardt (Chair prior to March 2005)~~(Chair), William A. Coley, Irl F. Engelhardt, Henry E. Lentz and William C. Rusnack. The Executive Committee met ~~nine~~three times during ~~2005.~~2006.

When the Board of Directors is not in session, the Executive Committee ~~will have~~has all of the power and authority as delegated by the Board of Directors, except with respect to:


	•	Amending the Company’s certificate of incorporation and bylaws;

	•	Adopting an agreement of merger or consolidation;

	•	Recommending to shareholders the sale, lease or exchange of all or substantially all of the Company’s property and assets;

	•	Recommending to shareholders dissolution of the Company or revocation of any dissolution;

	•	Declaring a dividend;

	•	Issuing stock; and

	•	Appointing members of Board committees.

Nominating & Corporate Governance Committee


	*~~Nominating and Corporate Governance Committee~~*

The members of the Nominating ~~and~~& Corporate Governance Committee are Blanche M. Touhill (Chair), Henry Givens, Jr., James R. Schlesinger, John F. Turner and Alan H. Washkowitz. The Board of Directors has affirmatively determined that, in its judgment, all members of the Nominating ~~and~~& Corporate Governance Committee are independent under ~~rules established by the~~ New York Stock ~~Exchange.~~Exchange rules.

The Nominating ~~and~~& Corporate Governance Committee met ~~nine~~seven times during ~~2005.~~2006. Some of the primary responsibilities of the Nominating ~~and~~& Corporate Governance Committee include the following:


	•	To identify, evaluate and recommend qualified candidates for election to the Board of Directors;

	•	To advise the Board of Directors on matters related to corporate governance;

	•	To assist the Board of Directors in conducting its annual assessment of Board performance;

	•	To recommend the structure, composition and responsibilities of other Board committees;

	•	To advise the Board of Directors on matters related to corporate social responsibility;


	•	To ensure ~~that~~ the Company maintains an effective orientation program for new directors and a continuing education and development program to supplement the skills and needs of the Board of Directors; and

	•	To make regular reports on its activities to the Board of Directors.

Audit Committee


	*~~Audit Committee~~*

The members of the Audit Committee are William C. Rusnack (Chair), Robert B. Karn III and Sandra Van Trease. The Board of Directors has affirmatively determined that, in its judgment, ~~each member~~all members of the Audit Committee ~~meets all applicable independence standards established by the~~are independent under New York Stock ~~Exchange.~~Exchange and SEC rules. The Board of Directors also has determined that each of Messrs. Rusnack and Karn and Ms. Van Trease is an “audit committee financial expert” under ~~rules and regulations adopted by the Securities and Exchange Commission.~~SEC rules.

The Audit Committee met ~~eight~~ten times during ~~2005.~~2006. The Audit Committee’s primary purpose is to provide assistance to the Board of Directors in fulfilling its oversight responsibility with respect to:


	•	The quality and integrity of the Company’s financial statements and financial reporting processes;

	•	The Company’s systems of internal accounting and financial controls and disclosure controls;

	•	The independent registered public accounting firm’s qualifications and independence;

	•	The performance of the Company’s internal audit function and independent registered public accounting firm; and

	•	Compliance with legal and regulatory requirements, and codes of conduct and ethics programs established by management and the Board of Directors.

Some of the primary responsibilities of the Audit Committee include the following:


	•	To appoint the Company’s independent registered public accounting firm, which ~~shall report~~reports directly to the Audit Committee;


	•	To approve all audit engagement fees and terms and all permissible non-audit engagements with the Company’s independent registered public accounting firm;

	•	To ensure that the Company maintains an internal audit function and to review the appointment of the senior internal audit teamand/or provider;

	•	To approve the terms of engagement for the internal audit provider;

	•	To meet on a regular basis with the Company’s financial management, internal audit management and independent registered public accounting firm to review matters relating to the Company’s internal accounting controls, internal audit program, accounting practices and procedures, the scope and procedures of the outside audit, the independence of the independent registered public accounting firm and other matters relating to the Company’s financial condition;

	•	To oversee the Company’s financial reporting process and to review in advance of filing or issuance the Company’s quarterly reports on Form10-Q, annual reports onForm 10-K, annual reports to shareholders, proxy materials and earnings press releases;

	•	To review the Company’s guidelines and policies with respect to risk assessment and risk management, and to monitor the Company’s major financial risk exposures and steps management has taken to control such exposures; and

	•	To make regular reports to the Board of Directors regarding the activities and recommendations of the Audit Committee.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee has reviewed and discussed the Company’s audited financial statements and management’s report on internal control over financial reporting as of and for the fiscal year ended December 31, ~~2005~~2006 with management and Ernst & Young LLP, the Company’s independent registered public accounting firm. Management is responsible for the Company’s internal control over financial reporting and the financial statements, while Ernst & Young is responsible for conducting its audit in accordance with generally accepted auditing standards including Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, and expressing opinions on the Company’s financial statements in accordance with U.S. generally accepted accounting principles and management’s report on internal control over financial reporting.

The Audit Committee reviewed with Ernst & Young the overall scope and plans for their audit of the Company’s financial statements and management’s report on internal control over financial reporting. The Audit Committee also discussed with Ernst & Young matters relating to the quality and acceptability of the Company’s accounting principles, as applied in its financial reporting processes, as required by Statement of Auditing Standards (SAS) No. 61, ~~and~~as amended by SAS No. 90. In addition, the Audit Committee reviewed and discussed with Ernst & Young the auditor’s independence from management and the Company, as well as the matters included in written disclosures received from Ernst & Young as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. As part of its review, the Audit Committee reviewed fees paid to Ernst & Young and considered whether Ernst & Young’s performance of non-audit services for the Company was compatible with the auditor’s independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements and management’s report on internal

control over financial reporting be included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, ~~2005~~2006 for filing with the Securities and Exchange Commission.


	~~MEMBERS OF THE AUDIT COMMITTEE:~~

	~~WILLIAM C. RUSNACK, CHAIR~~
	~~ROBERT B. KARN III~~
	~~SANDRA VAN TREASE~~

MEMBERS OF THE AUDIT COMMITTEE:

WILLIAM C. RUSNACK, CHAIR
ROBERT B. KARN III
SANDRA VAN TREASE

~~APPOINTMENT OF~~FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ~~AND FEES~~

Ernst & Young LLP served as the Company’s independent registered public accounting firm for the fiscal ~~year~~years ended December 31, ~~2005~~2006 and ~~has been appointed to serve in that capacity again for fiscal 2006, subject to ratification by the Company’s shareholders.~~~~See~~~~Ratification of Appointment of Independent Registered Public Accounting Firm (Item 2) on page 42 of this Proxy Statement.~~December 31, 2005.

The following fees were paid to Ernst & Young for services rendered during the Company’s last two fiscal years:


	•	Audit Fees: $3,317,000 (for the fiscal year ended December 31, 2006) and $2,672,000 (for the fiscal year ended December 31, 2005) ~~and $2,680,000 (for the fiscal year ended December 31, 2004)~~ for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in the Company’sForm 10-Qs and services that are normally provided by Ernst & Young in connection with statutory and regulatory filings or engagements for those fiscal years.

	•	Audit-Related Fees: $405,000 (for the fiscal year ended December 31, 2006) and $279,000 (for the fiscal year ended December 31, 2005) ~~and $225,000 (for the fiscal year ended December 31, 2004)~~ for assurance-related services for audits of employee


		benefit plans, due diligence services related to acquisitions or divestitures, internal control reviews and consultation services related to proposed or newly released accounting standards.


	•	Tax Fees: $958,000 (for the fiscal year ended December 31, 2006) and $693,000 (for the fiscal year ended December 31, 2005) ~~and $733,000 (for the fiscal year ended December 31, 2004)~~ for tax compliance, tax advice and tax planning services.

	•	All Other Fees: $6,000 (for the fiscal year ended December 31, 2006) and $6,000 (for the fiscal year ended December 31, 2005) for fees related to an on-line research tool.

Under procedures established by the Board of Directors, the Audit Committee is required to pre-approve all audit and non-audit services performed by the Company’s independent registered public accounting firm to ensure that the provisions of such services do not impair such firm’s independence. The Audit Committee may delegate its pre-approval authority to one or more of its members, but not to management. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Each fiscal year, the Audit Committee reviews with management and the independent registered public accounting firm the types of services that are likely to be required throughout the year. Those services are comprised of four categories, including audit services, audit-related services, tax services and all other permissible services. At that time, the Audit Committee pre-approves a list of specific services that may be provided within each of these categories, and sets fee limits for each specific service or project. Management is then authorized to engage the independent registered public accounting firm to perform the pre-approved services as needed throughout the year, subject to providing the Audit Committee with regular updates. The Audit Committee reviews the amount

of all billings submitted by the independent registered public accounting firm on a regular basis to ensure that their services do not exceed pre-defined limits. The Audit Committee must review and approve in advance, on acase-by-case basis, all other projects, services and fees to be performed by or paid to the independent registered public accounting firm. The Audit Committee also must approve in advance any fees for pre-approved services that exceed the pre-established limits, as described above.

Under Company policyand/or applicable rules and regulations, the Company’s independent registered public accounting firm is prohibited from providing the following types of services to the Company: (1) bookkeeping or other services related to the Company’s accounting records or financial statements, (2) financial information systems design and implementation, (3) appraisal or valuation services, fairness opinions or~~contribution-in~~contribution-in-kind~~-kind~~ reports, (4) actuarial services, (5) internal audit outsourcing services, (6) management functions, (7) human resources, (8) broker-dealer, investment advisor or investment banking services, (9) legal services, ~~and~~ (10) expert services unrelated to ~~audit.~~audit, (11) any services entailing a contingent fee or commission, and (12) tax services to an officer of the Company whose role is in a financial oversight capacity.

During the fiscal year ended December 31, ~~2005,~~2006, all of the services described under the headings “Audit-Related Fees,” “Tax Fees” and ~~“Tax~~“All Other Fees” were approved by the Audit Committee pursuant to the procedures described above.

CORPORATE GOVERNANCE MATTERS

Good corporate governance has been a priority at Peabody Energy for many years. The Company’s key governance practices are outlined in its Corporate Governance Guidelines, committee charters, and Code of Business Conduct and Ethics. These documents can be found on the Company’s Corporate Governance webpage (www.peabodyenergy.com on the Internet) by clicking on “Investors” and then “Corporate Governance,” and are available in print to any shareholder upon request. Information on our website is not considered part of this Proxy Statement. The Code of Business Conduct and Ethics applies

to the Company’s directors, Chief Executive Officer, Chief Financial Officer, Controller and other Company personnel.

The Nominating ~~and~~& Corporate Governance Committee of the Board of Directors is responsible for reviewing the Corporate Governance Guidelines from time to time and reporting and making recommendations to the Board concerning corporate governance matters. Each year, the Nominating ~~and~~& Corporate Governance Committee, with the assistance of outside experts, reviews the Company’s corporate governance practices, not only to ensure that they comply with applicable laws and NYSE listing requirements, but also to ensure that they continue to reflect what the Committee believes are best practices and promote the best interests of the Company and its shareholders.

~~In 2005,~~

Recently, the Board of Directors ~~amended its Corporate Governance Guidelines to establish a new~~carefully considered the Company’s director election process ~~to address situations where~~and reached a ~~director nominee receives more “withheld” than “for” votes.~~consensus view that the Company should move toward adoption of a majority voting standard applicable in uncontested elections. The Board ~~took~~intends to have such a standard in place for the 2008 Annual Meeting of Shareholders. The Nominating & Corporate Governance Committee of the Board is presently reviewing this ~~action after consulting with independent governance experts~~matter at the direction of the Board and ~~considering~~anticipates presenting a ~~variety~~bylaw amendment for Board approval sufficiently in advance of ~~alternatives.~~the 2008 Annual Meeting.

To facilitate succession planning, the Board established a mandatory director retirement policy in 2006. Under the new ~~process, the Company’s~~policy, directors are not eligible for appointment or reelection after reaching age 75. Directors who turn 75 during their term will continue to ~~be elected by a plurality vote. However, in uncontested elections, if a director nominee receives more “withheld” than “for” votes,~~serve the director nominee will be required to promptly tender his or her resignation. The Board will then determine whether to accept or reject the resignation based on such factors as the nominee’s qualifications and contributions to the Company, and whether any special interest groups conducted a campaign involving the election to furtherremainder of their ~~own interests rather than shareholders as a whole.~~term.

~~The new director election process is set forth in the Corporate Governance Principle on Majority Voting appearing asAnnex A~~ ~~to this Proxy Statement.~~

The Board also ~~approved several other important changes~~took the following actions relative to ~~the Corporate Governance Guidelines, which are accessible on the Company’s website as indicated above. Under the new Corporate Governance Guidelines:~~its governance practices in 2006, including:


	•	~~Individual directors may not serve~~Adoption of a policy for approval of “related person” transactions, a summary of which appears on ~~more than four other public company boards;~~

	•	~~Individual directors are required to submit their resignation to the Board~~page 49 of ~~Directors for consideration following a job change;~~this Proxy Statement; and

	•	~~The Company has adopted and will disclose stock ownership guidelines for officers and directors.~~Publication of the Company’s inaugural Corporate & Social Responsibility Report, a copy of which can be found atwww.peabodyenergy.com on the Internet. Information on our website is not considered part of this Proxy Statement.

Shareholder Communications with the Board of Directors

The Board of Directors has adopted the following procedures for shareholders and other interested persons to send communications to the Board, individual directorsand/or Committee Chairs (collectively, “Shareholder Communications”):

Shareholders and other interested persons seeking to communicate with the Board should submit their written comments to the Chairman, Peabody Energy Corporation, 701 Market Street, St. Louis, Missouri 63101. The Chairman will forward such Shareholder Communications to each Board member (excluding routine advertisements and business solicitations, as instructed by the Board), and provide a report on the disposition of matters stated in such communications at the next regular meeting of the Board of Directors. If a Shareholder Communication (excluding routine advertisements and business solicitations) is addressed to a specific individual director or Committee Chair, the Chairman will forward that communication to the named director, and will discuss with that director whether the full Boardand/or one of its committees should address the subject matter.

If a Shareholder Communication raises concerns about the ethical conduct of management or the Company, it should be sent directly to the Company’s ~~Vice President and General Counsel~~Chief Legal Officer at 701 Market Street, St. Louis, Missouri 63101. The ~~Vice President and General Counsel~~Chief Legal Officer will promptly forward a copy of such Shareholder Communication to the Chairman of the Audit Committee and, if appropriate, the Chairman of the Board, and take such actions as they authorize to ensure that the subject matter is addressed by the appropriate Board committee, managementand/or the full Board.

If a shareholder or other interested person seeks to communicate exclusively with the Company’s non-management directors, such Shareholder Communications should be sent directly to the Corporate Secretary who will forward any such communications directly to the Chair of the Nominating ~~and~~& Corporate Governance Committee. The Corporate Secretary will first consult with and receive the approval of the Chair of the Nominating ~~and~~& Corporate Governance Committee before disclosing or otherwise discussing the communication with members of management or directors who are members of management.

At the direction of the Board, the Company reserves the right to screen all materials sent to its directors for potential security risksand/or harassment purposes.

Shareholders also have an opportunity to communicate with the Board of Directors at the Company’s Annual Meeting of Shareholders. Pursuant to Board policy, each director is expected to attend the Annual Meeting in person, subject to occasional excused absences due to illness or unavoidable conflicts. Each of the Company’s ~~thirteen then-incumbent~~ directors attended the last Annual Meeting of Shareholders in May ~~2005.~~2006.

Overview of Director Nominating Process

The Board of Directors believes that one of its primary goals is to advise management on strategy and to monitor the Company’s performance. The Board also believes that the best way to accomplish this goal is by choosing directors who possess a diversity of experience, knowledge and skills that are particularly relevant and helpful to the Company. As such, current Board members possess a wide array of skills and experience in the coal industry, related energy industries and other important areas, including finance and accounting, operations, environmental management, education, governmental affairs and administration, and healthcare. When evaluating potential members, the Board seeks to enlist the services of candidates who possess ~~the highest~~high ethical standards and a combination of skills and experience which the Board determines are the most appropriate to meet its objectives. The Board believes all candidates should be committed to creating value over the long term and to serving the best interests of the Company and all of its shareholders.

The Nominating ~~and~~& Corporate Governance Committee (“Committee”) is responsible for identifying, evaluating and recommending qualified candidates for election to the Board of Directors. The Committee will consider director candidates submitted by shareholders. Any shareholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, Peabody Energy Corporation, 701 Market Street, St. Louis, Missouri 63101:


	•	Shareholder’s name, number of shares owned, length of period held, and proof of ownership;

	•	Name, age and address of candidate;

	•	A detailed resume describing among other things the candidate’s educational background, occupation, employment history, and material outside commitments (e.g., memberships on other boards and committees, charitable foundations, etc.);

	•	A supporting statement which describes the candidate’s reasons for seeking election to the Board of Directors, and documentshis/her ability to satisfy the director qualifications described below;

	•	A description of any arrangements or understandings between the shareholder and the candidate; and

	•	A signed statement from the candidate, confirminghis/her willingness to serve on the Board of Directors.

The Corporate Secretary will promptly forward such materials to the Committee Chair and the Chairman of the Board. The Corporate Secretary also will maintain copies of such materials for future reference by the Committee when filling Board positions.

Shareholders may submit potential director candidates at any time pursuant to these procedures. The Committee will consider such candidates if a vacancy arises or if the Board decides to expand its membership, and at such other times as the Committee deems necessary or appropriate. Separate procedures apply if a shareholder wishes to nominate a director candidate at the ~~2007~~2008 Annual Meeting. Those procedures are described on page 5552 of this Proxy Statement under the heading “Information About Shareholder Proposals.”

Pursuant to its charter, the Committee must review with the Board of Directors, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. When assessing potential new directors, the Committee considers individuals from various and diverse backgrounds. While the selection of qualified

directors is a complex and subjective process that requires consideration of many intangible factors, the Committee believes that candidates should generally meet the following criteria:


	•	Candidates should possess broad training, experience and a successful track record at senior policy-making levels in business, government, education, technology, accounting, law, consultingand/or administration;

	•	Candidates should possess the highest personal and professional ethics, integrity and values. Candidates also should be committed to representing the long-term interests of the Company and all of its shareholders;

	•	Candidates should have an inquisitive and objective perspective, strength of character and the mature judgment essential to effective decision-making;

	•	Candidates need to possess expertise that is useful to the Company and complementary to the background and experience of other Board members; and

	•	Candidates need to be willing to devote sufficient time to Board and Committee activities and to enhance their knowledge of the Company’s business, operations and industry.

The Committee will consider candidates submitted by a variety of sources (including, without limit, incumbent directors, shareholders, Company management and third-party search firms) when filling vacanciesand/or expanding the Board. If a vacancy arises or the Board decides to expand its membership, the Committee generally asks each director to submit a list of potential candidates for consideration. The Committee then evaluates each potential candidate’s educational background, employment history, outside commitments and other relevant factors to determine whetherhe/she is potentially qualified to serve on the Board. At that time, the Committee also will consider potential nominees submitted by shareholders in accordance with the procedures described above. The Committee seeks to identify and recruit the best available candidates, and it intends to evaluate qualified shareholder nominees on the same basis as those submitted by Board members or other sources.

After completing this process, the Committee will determine whether one or more candidates are sufficiently qualified to warrant further investigation. If the process yields one or more desirable candidates, the Committee will rank them by order of preference, depending on their respective qualifications and the Company’s needs. The Committee Chair, or another director designated by the Committee Chair, will then contact the preferred candidate(s) to evaluate their potential interest and to set up interviews with members of the Committee. All such interviews are held in person, and include only the candidate and the independent Committee members. Based upon interview results and appropriate

background checks, the Committee then decides whether it will recommend the candidate’s nomination to the full Board.

The Committee believes this process has consistently produced highly qualified, independent Board members to date. However, the Committee may choose, from time to time, to use additional resources (including independent third-party search firms) after determining that such resources could enhance a particular director search. The Committee has not used third-party firms for prior searches.

OWNERSHIP OF COMPANY SECURITIES

The following table sets forth information as of March 1, ~~2006~~2007 with respect to persons or entities who are known to beneficially own more than 5% of the Company’s outstanding Common Stock, each director, each executive officer named in the Summary Compensation Table below, and all directors and executive officers as a group.

Beneficial Owners of More Than Five Percent, Directors and Management

Amount and Nature
of Beneficial Percent of
Name and Address of Beneficial Owner Ownership^(1)(2)(3) Class⁽⁴⁾

FMR Corp. 35,215,620 13.3 %
82 Devonshire Street
Boston, MA 02109
Gregory H. Boyce 852,546 *
B. R. Brown 10,267 *
William A. Coley 9,466 *
Irl F. Engelhardt 1,302,479 *
Henry Givens, Jr. 9,455 *
William E. James 53,241 *
Robert B. Karn III 25,575 *
Henry E. Lentz 9,163 *
Richard A. Navarre 159,535 *
William C. Rusnack 25,753 *
James R. Schlesinger 25,769 *
Blanche M. Touhill 25,769 *
John F. Turner 2,464 *
Sandra Van Trease 26,253 *
Roger B. Walcott, Jr. 109,899 *
Alan H. Washkowitz 9,163 *
Richard M. Whiting 114,535 *
All directors and executive officers as a group (21 people) 3,015,257 1.1 %


	Amount and Nature
	of Beneficial		Percent of
Name and Address of Beneficial Owner	Ownership^(1)(2)(3)		Class⁽⁴⁾

FMR Corp.		38,274,880		14.499	%
82 Devonshire Street
Boston, MA 02109
Gregory H. Boyce		994,050		*
B. R. Brown		15,440		*
William A. Coley		19,181		*
Irl F. Engelhardt		540,508		*
Sharon D. Fiehler		129,352		*
Henry Givens, Jr.		19,152		*
William E. James		44,420		*
Robert B. Karn III		33,012		*
Henry E. Lentz		18,568		*
Richard A. Navarre		154,820		*
William C. Rusnack		31,932		*
James R. Schlesinger		31,948		*
Blanche M. Touhill		31,948		*
John F. Turner		4,878		*
Sandra Van Trease		32,432		*
Roger B. Walcott, Jr.		70,481		*
Alan H. Washkowitz		18,568		*
Richard M. Whiting		139,339		*
All directors and executive officers as a group (23 people)		2,512,683		0.9	%


⁽¹⁾		Amounts shown are based on the latest available filings on Form 13G or other relevant filings made with the Securities and Exchange Commission (“SEC”). Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned.

⁽²⁾		Includes shares issuable pursuant to stock options exercisable within 60 days after March 1, ~~2006,~~2007, as follows: Mr. ~~Boyce, 809,476; Mr. Brown, 4,061; Mr.~~ Coley, ~~4,061; Mr. Engelhardt, 699,772;~~5,857; Dr. Givens, ~~4,061; Mr. James, 44,851; Mr. Karn, 10,071;~~5,857; Mr. Lentz, ~~4,061;~~5,565; Mr. Navarre, ~~56,750; Mr. Rusnack, 17,251; Dr. Schlesinger, 17,251; Dr. Touhill, 17,251; Mr. Turner, 0; Ms. Van Trease, 10,071; Mr. Walcott, 40,061;~~3,600; Mr. Washkowitz, ~~4,061; Mr. Whiting, 27,539;~~5,565; and all directors and executive officers as a group, ~~1,811,140.~~27,008. Also includes shares of restricted


		stock that remain unvested as of March 1, ~~2006~~2007 as follows: Mr. Boyce, ~~40,000;~~100,000; Mr. Brown, ~~6,206;~~1,861; Mr. Coley, ~~5,394; Mr. Engelhardt, 0;~~6,385; Dr. Givens, ~~5,394;~~6,385; Mr. James, ~~870;~~1,861; Mr. Karn, ~~870;~~1,861; Mr. Lentz, ~~5,102; Mr. Navarre, 0;~~6,093; Mr. Rusnack, ~~870;~~1,861; Dr. Schlesinger, ~~870;~~1,861; Dr. Touhill, ~~870;~~1,861; Mr. Turner, ~~2,464;~~3,455; Ms. Van Trease, ~~870; Mr. Walcott, 0;~~1,861; Mr. Washkowitz, ~~5,105; Mr. Whiting, 0;~~6,093; and all directors and executive officers as a group ~~74,882.~~172,560.

⁽³⁾		Amounts shown in this table and these footnotes have been adjusted to reflect the effects of the Company’s2-for-1 stock splits effected in March 2005 and February 2006.


⁽⁴⁾		An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares.

Section 16(a) Beneficial Ownership Reporting Compliance

The Company’s executive officers and directors and persons beneficially holding more than ten percent of the Company’s Common Stock are required under the Securities Exchange Act of 1934 to file reports of ownership and changes in ownership of Company Common Stock with the Securities and Exchange Commission and the New York Stock Exchange. The Company files these reports of ownership and changes in ownership on behalf of its executive officers and directors. To the best of the Company’s knowledge, based solely on its review of the copies of such reports furnished to the Company during the fiscal year ended December 31, ~~2005,~~2006, filings with the Commission and written representations from certain reporting persons that no additional reports were required, all required reports were timely filed.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Overview of Compensation Philosophy and Program

The Company continuously strives to provide detailed and clear information related to executive compensation. While the Securities and Exchange Commission has not yet implemented its new proposed executive compensation rules, the Company has decided to provide additional information about executive compensation in this sectionobjective of the Proxy Statement. The Company has included where practicable additional tables and narrative incorporating many of the proposed new disclosures in an effort to make as transparent as possible its compensation practices for our shareholders. The Company’s executive compensation ~~disclosures may differ in future years depending upon the rules ultimately adopted by the SEC.~~

~~The following table summarizes the annual~~program is to attract, retain and motivate key executives to enhance long-term ~~compensation paid~~profitability and create shareholder value. Compensation programs are designed to ~~the Chief Executive Officer and the four other most highly compensated executive officers~~align incentives for executives with achievement of the ~~Company for their service to the Company during the periods indicated.~~Company’s business strategies:

~~Summary Compensation Table~~

Long-Term Compensation

LTIP
Annual Compensation Restricted Securities Payments
Stock Underlying From Prior- All Other
Salary Bonus Awards Options Year Grants Compensation
Name and Principal Position Year ($) ($) (#)⁽¹⁾ (#)⁽¹⁾⁽²⁾ ($)⁽³⁾ ($)⁽⁴⁾

Gregory H. Boyce⁽⁵⁾
2005 790,750 1,272,370 — 77,364 1,473,103 ⁽⁷⁾ 100,984
Chief Executive Officer, 2004 659,750 838,403 — 92,968 — 189,730
President and Director 2003 162,500 415,000 40,000 ⁽⁶⁾ 1,322,564 — 216,276

Richard A. Navarre 2005 568,750 1,410,000 ⁽⁸⁾ — 49,606 2,568,581 66,248
Executive Vice President and 2004 469,938 670,030 — 62,400 880,087 48,700
Chief Financial Officer 2003 432,438 420,000 — 58,240 164,004 44,000

Richard M. Whiting 2005 521,250 1,697,440 ⁽⁹⁾ — 26,516 2,659,264 59,576
Executive Vice President — 2004 506,250 666,156 — 47,676 1,246,909 52,134
Sales, Marketing & Trading 2003 462,200 410,136 — 60,296 232,331 48,467

Long-Term Compensation

LTIP
Annual Compensation Restricted Securities Payments
Stock Underlying From Prior- All Other
Salary Bonus Awards Options Year Grants Compensation
Name and Principal Position Year ($) ($) (#)⁽¹⁾ (#)⁽¹⁾⁽²⁾ ($)⁽³⁾ ($)⁽⁴⁾

Roger B. Walcott, Jr. 2005 440,500 490,390 — 22,560 2,508,346 49,033
Executive Vice President — 2004 431,725 413,770 — 40,760 1,173,449 44,031
Corporate Development 2003 421,225 374,000 — 56,868 218,672 43,040

Irl F. Engelhardt⁽¹⁰⁾
2005 1,000,000 1,654,935 — 111,044 14,505,315 120,102
Chairman and Director 2004 975,000 1,659,450 — 203,816 3,190,494 103,273
2003 875,000 1,500,000 — 164,440 594,484 94,693


⁽¹⁾	~~Number adjusted to reflect2-for-1~~ ~~stock splits effected by the Company in March 2005 and February 2006.~~

⁽²⁾	~~Represents number of shares of Common Stock underlying options.~~

⁽³⁾	Long-term performance awards earned in 2005 were based on achievement of performance objectives for the period January 2, 2003 to December 31, 2005. The material terms of these performance units are described under the caption “Performance Units” in the Report of the Compensation Committee on page 34 of this Proxy Statement.

⁽⁴⁾	~~Amounts included in this column are described below in the All Other Compensation Table.~~

⁽⁵⁾	Mr. Boyce was employed by the Company effective October 1, 2003. He was elected Chief Executive Officer Elect on March 1, 2005 and assumed the position of Chief Executive Officer on January 1, 2006.

⁽⁶⁾	~~The restricted stock award was granted on October 1, 2003 and vests on October 14, 2009. At the close of the last trading day of 2005, the market value was $1,648,400.~~

⁽⁷⁾	~~Mr. Boyce’s performance award was prorated because his employment with the Company began after the commencement of the performance period.~~

⁽⁸⁾	~~Includes a retention bonus of $600,000 paid on August 31, 2005 under an employment agreement between the Company and Mr. Navarre.~~

⁽⁹⁾	~~Includes a retention bonus of $1,001,020 paid on August 31, 2005 under the terms of an employment agreement between the Company and Mr. Whiting.~~


⁽¹⁰⁾	~~Mr. Engelhardt served as Chief Executive Officer until December 31, 2005.~~


	*~~Estimated Fair Value of 2005 Total Annual Compensation~~*

Because elements of the Summary Compensation Table do not lend themselves to being totaled due to different presentation requirements and to provide additional transparency on the total compensation for our named executive officers, we are providing the following “supplemental” Estimated Fair Value of 2005 Total Annual Compensation table. The components of executive compensation included in this table are as follows:


	•	~~Cash compensation, consisting of salary~~Executing the basics: best in class safety, operations and ~~annual incentive compensation (bonus);~~marketing;

	•	~~Estimated fair value of long-term incentive compensation granted~~Capitalizing on organic growth opportunities;

	•	Expanding in ~~2005, consisting of stock options and performance unit awards;~~high-growth global markets; and

	•	~~Other compensation, including group term life insurance, savings plan matching payments~~Participating in new generation and ~~performance contributions, and restricted stock dividends.~~

~~Estimated Fair Value of 2005 Total Annual Compensation~~

Long-Term Incentive
Compensation

Cash Compensation Stock
Option Performance All Other
Salary Bonus Awards Unit Awards Compensation
Name ($) ($) ($)⁽¹⁾ ($)⁽²⁾ ($)⁽³⁾ Total ($)

Gregory H. Boyce 790,750 1,272,370 626,793 990,356 100,984 3,781,253
Richard A. Navarre 568,750 1,410,000 392,915 553,651 66,248 2,991,564
Richard M. Whiting 521,250 1,697,440 200,761 281,991 59,576 2,761,018
Roger B. Walcott, Jr. 440,500 490,390 170,809 239,884 49,033 1,390,616
Irl F. Engelhardt 1,000,000 1,654,935 881,417 1,237,966 120,102 4,894,420


⁽¹⁾	~~Estimated fair value of stock option awards granted in 2005 is based on the grant date fair value using~~~~Black-Scholes~~methodology, as applied with guidance from the Compensation Committee’s independent compensation consultants. The Company cautions that the amount ultimately realized by the named executive officer from the award will likely vary based on a number of factors, including the Company’s actual operating performance, stock price fluctuations and the timing of exercise.

⁽²⁾	~~Performance units with stock market performance conditions have been valued utilizing~~~~Black-Scholes~~~~methodology (as applied with guidance from the Compensation Committee’s independent compensation consultants) within a~~~~Monte Carlo~~simulation which incorporates the total shareholder return hurdles set for each grant. Performance units with internal performance conditions have been valued based on the market price at the grant date (adjusted for dividends foregone during the service period), assuming a targeted achievement rate. The Company cautions that the amount ultimately realized by the named executive officer from the award will likely vary based on a number of factors, including the performance of the Company’s common stock price relative to an industry peer group and the S&P MidCap 400 Index, the Company’s three-year Adjusted EBITDA Return on Invested Capital, and the timing of vesting. The material terms of these performance units are described under the caption “Performance Units” in the Report of the Compensation Committee on page 34 of this Proxy Statement.

⁽³⁾	~~Amounts included in this column are described below in the All Other Compensation Table.~~


	*~~2005 Total Compensation Received in Cash~~*Btu Conversion projects.

~~To provide additional transparency about the total cash~~

The Company’s compensation ~~earned by our named executive officers for 2005, we are providing~~program is based on the following “supplemental” 2005 Total Compensation Received in Cash table. A significant portion of each named executive officer’s cash compensation shown for 2005 was paid pursuant to performance units granted in 2003. These amounts were earned over a three-year periodpolicies and ~~reflect the Company’s performance and stock price appreciation over that three-year period.~~objectives:

~~The components of executive compensation included in this table are as follows:~~


	•	~~Cash compensation, consisting of salary and annual incentive compensation (bonus);~~Programs have a clear link to shareholder value;

	•	~~Payments pursuant~~Programs are designed to support achievement of the Company’s business objectives;

	•	Total compensation opportunities are established at levels which are competitive with companies of similar size and complexity and other pertinent criteria, taking into account such factors as executive performance, ~~units granted in 2003 as described above;~~level of experience and retention value;


	•	Performance-based pay constitutes a significant portion of each executive’s compensation;

	•	Incentive pay is designed to:


	•	Reflect company-wide, business unit and individual performance, based on each individual’s position and level;

	•	Balance rewards for short-term performance with long-term performance based incentives;

	•	Balance rewards for financial and operating performance with compensation for shareholder value creation; and

	•	~~Other compensation, including group term life insurance, savings plan matching payments~~Incorporate internal and external performance ~~contributions, and restricted stock dividends.~~measures.


	•	Programs are communicated so that participants understand how their decisions and actions affect business results and their compensation.

With these policies and objectives in mind, the Compensation Committee has approved a compensation structure for the named executive officers that incorporates four key components: base salary, annual incentive payments, long-term incentive compensation consisting of stock options and performance units, and retirement and other benefits.

Role of the Compensation Committee

The Compensation Committee is comprised entirely of independent directors and has responsibility for review and approval of evaluation and compensation of the Company’s executives, excluding the Chief Executive Officer. The Committee has overall responsibility for monitoring the performance of the Company’s executives and evaluating and approving the Company’s executive compensation plans, policies and programs. The Committee also reviews and approves executive participation in any company-wide benefit plans. In addition, the Committee oversees the Company’s annual and long-term incentive plans and programs and periodically assesses the Company’s director compensation program.

The Board of Directors has established a Special Committee of the Board, comprised of the members of the Compensation Committee and the other independent members of the Board of Directors, which reviews and approves the Chief Executive Officer’s compensation, including base salary, annual incentive and long-term incentive compensation, deferred compensation, perquisites, equity compensation, employment agreements, severance arrangements, retirement and other post-employment benefits andchange-in-control benefits (in each case, as and when appropriate). In determining the Chief Executive Officer’s compensation, the Special Committee reviews and approves corporate goals and objectives relevant to such compensation and evaluates the Chief Executive Officer’s performance in light of those goals and objectives. In determining the long-term incentive component of the Chief Executive Officer’s compensation, the Special Committee considers, among other things, the Company’s performance and relative shareholder return, the value of similar incentive awards to similarly situated chief executive officers at comparable companies, and awards previously made to the Chief Executive Officer.

Deductibility of Compensation Expenses

Pursuant to Section 162(m) under the Internal Revenue Code, certain compensation paid to executive officers in excess of $1 million is not tax deductible, except to the extent such excess constitutes performance-based compensation. Prior to May 2005, the limit on deductibility did not apply to plans in existence prior to the Company’s initial public offering in 2001. The Committee has and will continue to carefully consider the impact of Section 162(m) when establishing incentive compensation

plans that apply to periods after May 2005. As a result, a significant portion of the Company’s executive compensation satisfies the requirements for deductibility under Section 162(m). At the same time, the Committee considers its primary goal to design compensation strategies that further the best interests of the Company and its shareholders. In certain cases, the Compensation Committee may determine that the amount of tax deductions lost is insignificant when compared to the potential opportunity a compensation program provides for creating shareholder value. The ~~numbers reported in this table are reported~~Compensation Committee therefore retains the ability to evaluate the performance of the Company’s executive officers and to pay appropriate compensation, even if it may result in the ~~Summary~~non-deductibility of certain compensation.

Role of the Compensation ~~Table~~Consultant

The Compensation group in Peabody’s Human Resources Department supports the Compensation Committee in its work. In addition, the Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Committee. In accordance with this authority, the Committee engaged Towers Perrin for guidance on executive compensation issues in 2005 and early 2006. In 2006, in connection with an annual review of the Company’s compensation practices, the Committee issued a “request for proposal” to several ~~elements of this table are also reported in various~~outside compensation advisors, and after a thorough review, the Committee changed its outside compensation advisor to Mercer Human Resource Consulting for all matters related to Chief Executive Officer and other ~~tables, including the Estimated Fair Value of 2005 Total Annual Compensation table.~~executive compensation.

~~2005 Total~~Review of External Data

Each year, the Compensation ~~Received~~Committee commissions a compensation analysis conducted by its outside compensation consultant to determine whether the Company’s executive compensation programs are consistent with those of other publicly held companies of similar size and in ~~Cash~~a similar industry. For positions that require specific industry knowledge and experience, the Company uses a mining comparator group for benchmarking purposes. This helps to ensure the Company’s executive compensation levels are competitive relative to the companies with which the Company competes for industry-specific talent. The mining comparator group is composed of CONSOL Energy, Inc., Arch Coal, Inc., Massey Energy Company, Alpha Natural Resources, Inc., Foundation Coal Holdings, Inc., International Coal Group, Inc., James River Coal Company, and Westmoreland Coal Company. Talent for other key roles in the organization can be acquired across a broader spectrum of companies. As such, the Company utilizes both the above-mentioned mining comparator group and a group of publicly held companies of similar size and complexity to assess competitiveness. This group of companies is composed of Phelps Dodge Corporation, Air Products & Chemicals, Inc., Rohm and Haas Company, Praxair, Inc., ITT Corporation, Anadarko Petroleum Corporation, Eastman Chemical Company, Monsanto Company, Smith International, Inc., Goodrich Corporation, Timken Company, Rockwell Automation, National Oilwell Varco, Inc., Ecolab, Inc., Newmont Mining Corporation, SPX Corporation, Freeport-McMoRan Copper & Gold, Inc., Southern Copper Corporation, Lubrizol Corporation, Teck Cominco Ltd., and Barrick Gold Corporation. In addition the Company reviews international companies such as Anglo American, plc, Rio Tinto, plc, and BHP Billiton Limited when relevant compensation data is available.

LTIP Payments
from Prior-Year All Other
Salary Bonus Grants Compensation Total
Name ($) ($) ($)⁽¹⁾ ($)⁽²⁾ ($)

Gregory H. Boyce 790,750 1,272,370 1,473,103 ⁽³⁾ 100,984 3,637,207
Richard A. Navarre 568,750 1,410,000 2,568,581 66,248 4,613,579
Richard M. Whiting 521,250 1,697,440 2,659,264 59,576 4,937,530
Roger B. Walcott, Jr. 440,500 490,390 2,508,346 49,033 3,488,269
Irl F. Engelhardt 1,000,000 1,654,935 14,505,315 120,102 17,280,352

Overall, the outside consultants confirmed that the Company’s executive compensation programs, as structured, are competitive. Based upon the review of the compensation plans discussed below, peer group compensation levels and assessments of individual and corporate performance, the Compensation Committee assisted by the outside consultants determined that the value and design of the Company’s executive compensation programs are appropriate.

2006 Executive Compensation Components

For the year ended December 31, 2006, the principal components of compensation for the named executive officers were:


⁽¹⁾	Long-term performance awards earned in 2005 were based on achievement of performance objectives for the period January 2, 2003 to December 31, 2005. The material terms of these performance units are described under the caption “Performance Units” in the Report of the Compensation Committee on page 34 of this Proxy Statement. Under the terms of the performance awards, the Compensation Committee has the discretion to pay these amounts in cash or stock.•	Annual Base Salary;

⁽²⁾	~~Amounts included in this column are described below in the All Other Compensation Table.~~•	Annual Incentive Compensation;

⁽³⁾	~~Mr. Boyce’s performance award was prorated because his employment with the Company began after the commencement of the performance period.~~•	Long-term Incentives; and

	•	Retirement and Other Benefits.

~~The following table sets forth detail~~

Annual Base Salary

In general, base salary for each employee, including the named executive officers, is established based on the individual’s job responsibilities, performance and experience; the Company’s overall budget for merit increases; and the competitive environment. In 2006, Peabody provided a base pay increase to its employees, but in accordance with the Company’s philosophy of providing a strong link between pay and performance, the exact amount of the ~~amounts reported~~increase (if any) varied among employees based on their performance levels.

For the Company’s executive officers, the Compensation Committee reviewed the base salaries of the Chief Executive Officer and his direct reports to ensure competitiveness in the marketplace. Consistent with Peabody’s philosophy, adjustments (and in the case of the Chief Executive Officer, approved by the Special Committee of the Board of Directors) were made based on market information and individual performance. The Compensation Committee will continue to review the base salaries of the named executive officers to ensure they take into account performance, experience and retention value and that salary levels continue to be competitive with companies of similar size and complexity.

Annual Incentive Compensation

The Company’s annual incentive compensation plan provides opportunities for key executives to earn annual cash incentive payments tied to the successful achievement of pre-established objectives that support the business strategy.

Named executive officers are assigned threshold, target and maximum incentive levels. If performance does not meet the threshold level, no incentive is earned. At threshold levels, the incentive that can be earned generally equals 50% of the target incentive. Under the plan, the target incentive is established through an analysis of compensation for comparable positions in industries of similar size and complexity and is intended to provide a competitive level of compensation when participants, including the named executive officers, achieve their performance objectives.

Target incentive payouts generally are received for achieving budgeted financial and safety goals, and meeting individual performance goals. The Company’s philosophy is to set stretch goals at budget. Maximum incentive payments generally are received when financial goals and individual performance goals are significantly exceeded. A participant’s annual incentive opportunity is based upon his or her level of participation in the plan.

Awards for the named executive officers are based on achievement of corporate and individual performance goals. Achievement of corporate goals is determined by comparing the Company’s actual performance against objective goals, and achievement of individual goals is determined by evaluating a combination of both objective and subjective performance measures. All ~~Other~~goals are established by the Company, and goals for the named executive officers, excluding the Chief Executive Officer, are reviewed and approved by the Compensation Committee for each calendar year. The Special Committee

of the Board of Directors reviews and approves goals for the Chief Executive Officer for each calendar year.

The Compensation Committee reviews and approves annual incentive payouts to the named executive officers, excluding the Chief Executive Officer. The Special Committee of the Board of Directors reviews and approves annual incentive payouts to the Chief Executive Officer.

2006 Annual Incentive Payouts

For 2006, the performance measures for the named executive officers included goals for Adjusted EBITDA, Return on Invested Capital, Safety and Individual Performance. In 2006, the Company exceeded its targeted goals for both Adjusted EBITDA and Return on Invested Capital. However, the safety target, set at a 15% improvement over 2005’s actual record results, was not achieved. Safety performance, however, for 2006 was the Company’s second best year of performance in its history.

In 2006, the Chief Executive Officer, the Chief Financial Officer and the other named executive officers earned annual incentive payouts, as reflected in the ““Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 32 of this Proxy Statement. Other eligible executives received payouts under the same annual incentive plan. Annual incentive payouts for 2006 were based on the Company’s achievement of goals for Adjusted EBITDA, Return on Invested Capital, Safety and inIndividual Performance. In determining final incentive awards, the ~~Estimated Fair Value of 2005 Total Annual~~Chief Executive Officer has discretion for his direct reports up to the maximum allowable award, provided such award is approved by the Compensation ~~table~~Committee; and the ~~2005 Total Compensation Received in Cash table.~~Special Committee of the Board has discretion for the Chief Executive Officer and Chairman up to the maximum allowable award.

The following table shows the target annual incentive payout and the applicable payout range (each shown as a percentage of base salary) for each of the named executive officers and the actual annual incentive award received for 2006. The payout range for each executive is based on his or her position with the Company.

~~All Other~~2006 Annual Incentives


	Target Payout			Payout Range			Actual Award		Actual Award
Name	as a % of Salary			as a % of Salary			($)		as a % of Salary

Gregory H. Boyce		100	%		0-175	%		1,329,620		150	%
Richard A. Navarre		80	%		0-150	%		850,000		139	%
Richard M. Whiting		80	%		0-150	%		700,000		129	%
Sharon D. Fiehler		80	%		0-150	%		500,000		123	%
Roger B. Walcott, Jr.		80	%		0-150	%		500,000		110	%

Long-Term Incentive Compensation ~~Table~~

Annual 401(k)
Group Matching and Dividends on
Term Life Performance Restricted
Insurance Contributions Relocation Stock Perquisites
Name Year ($) ($) ($) ($)⁽¹⁾ ($) Total

Gregory H. Boyce 2005 2,039 92,145 — 6,800 — 100,984
2004 1,683 66,365 116,432 5,250 — 189,730
2003 — 16,520 198,506 1,250 — 216,276

Richard A. Navarre 2005 923 65,325 — — — 66,248
2004 504 48,196 — — — 48,700
2003 459 43,541 — — — 44,000

Richard M. Whiting 2005 1,301 58,275 — — — 59,576
2004 1,259 50,875 — — — 52,134
2003 735 47,732 — — — 48,467

The Company’s long-term incentive compensation plan provides opportunities for key executives to earn payments if certain pre-established long-term (greater than one year) objectives are successfully achieved.

The Compensation Committee approved a long-term incentive opportunity for each of the named executive officers through annual awards of stock options and performance units. The targeted value of these awards generally is split evenly between stock options and performance units. The Compensation Committee intends that these long-term incentive opportunities be competitive and based on actual Company performance. When evaluating awards to be granted, the Compensation Committee and the

Annual 401(k)
Group Matching and Dividends on
Term Life Performance Restricted
Insurance Contributions Relocation Stock Perquisites
Name Year ($) ($) ($) ($)⁽¹⁾ ($) Total

Roger B. Walcott, Jr. 2005 703 48,330 — — — 49,033
2004 687 43,344 — — — 44,031
2003 668 42,372 — — — 43,040

Irl F. Engelhardt 2005 4,902 115,200 — — — 120,102
2004 4,773 98,500 — — — 103,273
2003 4,193 90,500 — — — 94,693


⁽¹⁾	~~Dividends are paid at the same rate applicable to all outstanding shares of Common Stock.~~

~~The following table sets forth information concerning the grant of stock options to each~~Special Committee of the Board of Directors consider competitive market data and the retention value of the individual executives.

Stock Options

The Company’s stock option program is a long-term plan designed to create a direct link between executive ~~officers listed on~~compensation and increased shareholder value, provide an opportunity for increased equity ownership by executives, and maintain competitive levels of total compensation.

The Compensation Committee and Special Committee of the ~~Summary Compensation Table on page 22 during~~Board of Directors meet in December of each year to evaluate, review and approve the ~~fiscal year ended December 31, 2005. Each~~annual stock option award design and level of award for each named executive officer ~~received~~and the Chief Executive Officer. The process for stock option awards atis to approve grants prospectively. For example, the ~~beginning of the fiscal year and certain named executive officers received supplemental~~annual stock option awards are approved in ~~connection with~~December for granting on the ~~implementation~~first business day in January at the Company’s closing market price per share. At times, the Compensation Committeeand/or Special Committee of the Board of Directors may approve stock option awards other than the first business day of the year, because of promotions or new hires. In these cases the Compensation Committee approves the award in advance of the grant date, and the stock option grant is awarded on the determined date at the Company’s ~~succession plan in March 2005.~~closing market price per share. The Company uses aBlack-Scholesvaluation model to establish the expected value of all stock option grants.

All stock options are granted at an exercise price ~~for all options granted is~~ equal to the ~~fair~~closing market ~~value~~price of the Company’s Common Stock on the date of grant. ~~The number and exercise~~Accordingly, those stock options will have intrinsic value to employees only if the market price of ~~all~~the Common Stock increases after that date. Stock options ~~have been adjusted to reflect the2-for-1~~ ~~stock splits effected by~~generally vest in one-third increments over a period of three years or cliff vest after three years; however, options will immediately vest upon a change of control of the Company or a recapitalization event or upon the holder’s death or disability. If the holder terminates employment without good reason (as defined in ~~March 2005 and February 2006.~~his or her employment agreement), all unvested stock options are forfeited. Stock options expire ten years from the date of grant.

~~Option Grants in Last Fiscal Year~~

Individual Grants

Number of
Securities Percent of
Underlying Options
Options Granted to Exercise or Grant Date
Granted Employees in Base Price Expiration Vesting Fair Value
Name (#)⁽¹⁾⁽²⁾ Fiscal Year ($/share)⁽²⁾ Date Dates⁽³⁾ Grant Date ($)⁽⁴⁾

Gregory H. Boyce 51,960 12.41 % 19.33 01/03/2015 01/03/06 01/03/05 393,337
25,404 6.07 % 23.45 03/01/2015 03/01/06 03/01/05 233,456

77,364 626,793

Richard A. Navarre 38,804 9.27 % 19.33 01/03/2015 01/03/06 01/03/05 293,746
10,802 2.58 % 23.73 04/01/2015 04/01/06 04/01/05 99,169

49,606 392,915

Richard M. Whiting 26,516 6.33 % 19.33 01/03/2015 01/03/06 01/03/05 200,761
Roger B. Walcott, Jr. 22,560 5.39 % 19.33 01/03/2015 01/03/06 01/03/05 170,809
Irl F. Engelhardt 111,044 26.53 % 20.26 01/25/2015 01/25/06 01/25/05 881,417

Performance Units

Similar to the stock option program, the Company’s performance unit program is a long-term plan designed to create a direct link between executive compensation and increased shareholder value, and maintain competitive levels of total compensation. Certain key executives are eligible to receive long-term incentive awards in the form of performance units.

Performance units granted in 2006 will be payable, if earned, in shares of the Company’s Common Stock. The value of the performance units is tied to the relative performance of the Company’s Common Stock and a three-year Adjusted EBITDA Return on Invested Capital measure. The percentage of the performance units earned is based on the Company’s total shareholder return (“TSR”) over a period beginning January 3, 2006 and ending December 31, 2008 relative to an industry comparator group (the Industry Peer Group) and the S&P MidCap 400 Index (together weighted as 50% of the total award) and Adjusted EBITDA Return on Invested Capital (weighted as 50% of the total award). TSR measures cumulative stock price appreciation plus dividends. The Industry Peer Group is generally perceived to be subject to similar market conditions and investor reactions as the Company. At the time of the 2006 award, the Company was included in the S&P MidCap 400 Index. The Industry Peer Group is weighted at 30% of the total award, while the S&P MidCap 400 Index is weighted at 20% of the total reward.

Performance unit payout formulas are as follows:


⁽¹⁾	~~Other material terms of these options are described under the caption “Stock Options” in the Report~~•	Threshold payouts (equal to 50% of the ~~Compensation Committee~~value of the performance units, as measured at the end of the performance period) begin for TSR performance at the 40th percentile of the Industry Peer


		Group, the 35th percentile of the S&P MidCap 400 Index and a threshold goal for three-year Adjusted EBITDA Return on ~~page 34~~Invested Capital.


	•	Target payouts (equal to 100% of ~~this Proxy Statement.~~the value of the performance units, as measured at the end of the performance period) are earned for performance at the 55th percentile of the Industry Peer Group, 50th percentile of the S&P MidCap 400 Index and a target goal for three-year Adjusted EBITDA Return on Invested Capital.

⁽²⁾	~~The number~~•	Maximum payouts (equal to 200% of the value of the performance units, as measured at the end of the performance period) are earned for performance at the 80th percentile of the Industry Peer Group, the 75th percentile of the S&P MidCap 400 Index and ~~exercise price of all options have been adjusted to reflect~~a maximum goal for the~~2-for-1~~ ~~stock splits effected by the Company in March 2005 and February 2006.~~ three-year Adjusted EBITDA Return on Invested Capital.

⁽³⁾	~~The options vest in three equal annual installments beginning on the first anniversary of the date of grant.~~

•
⁽⁴⁾	~~Represents grant date value determined using~~~~Black-Scholes~~ ~~methodology, as applied with guidance from the Compensation Committee’s independent compensation consultants.~~

The following tables set forth detail from stock option exercises by named executive officers in the last fiscal year, and the number and value of unexercised stock options held by these individuals as of December 31, 2005. The options in these tables were granted between May 1998 and April 2005.

In May 1998, Peabody Energy entered into a leveraged buyout transaction or “LBO”, and acquired Peabody Holding Company. On May 21, 2001, Peabody Energy became a public company. All of the named executive officers, except Mr. Boyce, were employed by the Company prior to May 21, 2001, and received stock options both prior to the initial public offering (“IPO”) and after. The size and terms of the pre-IPO stock options or “LBO grants” were determined according to standard practices at that time for private companies. The LBO grants, many of which remain unexercised, were designed to be competitive in the industry marketplace for top executives, to compensate the management group on a basis commensurate with the risks associated with a highly leveraged transaction, to reward performance and to align their interests with the Company’s owners.

The options granted after the IPO have been made in accordance with the executive compensation philosophy stated in this proxy, which calls for total compensation in line with marketplace practices for similarly-sized public companies, to reward performance and to provide a clear link between executive pay and shareholder value.

~~Aggregated Option Exercises in Last Fiscal Year~~

Shares Acquired on Exercise (#)(1)

Post IPO Value
Name LBO Grants Grants Total Realized ($)

Gregory H. Boyce — 160,000 160,000 4,139,780
Richard A. Navarre — 62,568 62,568 1,344,840
Richard M. Whiting 22,612 157,388 180,000 4,158,707
Roger B. Walcott, Jr. — 52,400 52,400 804,158
Irl F. Engelhardt 1,047,860 — 1,047,860 $ 28,817,885


⁽¹⁾	~~Amounts~~Payouts are ratably adjusted ~~to reflect the2-for-1~~ ~~stock splits effected by the Company in March 2005~~for performance between threshold and ~~February 2006.~~

~~Fiscal Year-End Option Values~~

Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End(1) Options at Fiscal Year-End(2)

Exercisable (#) Unexercisable (#)

LBO Post IPO Post IPO
Name Grants Grants Total LBO Grants Grants Total Exercisable ($) Unexercisable ($)

Gregory H. Boyce — 752,700 752,700 — 180,196 180,196 24,073,756 4,850,845
Richard A. Navarre — 6,820 6,820 388,372 110,618 498,990 197,695 17,568,066
Richard M. Whiting — 22,710 22,710 435,208 78,398 513,606 719,457 18,618,435
Roger B. Walcott, Jr. — — — 435,208 68,688 503,896 — 18,351,447
Irl F. Engelhardt 245,132 494,874 740,006 1,246,272 301,734 1,548,006 25,932,397 55,265,987


⁽¹⁾	~~Amounts adjusted to reflect the2-for-1~~ ~~stock splits effected by the Company in March 2005~~target, and ~~February 2006.~~between target and maximum levels.

⁽²⁾	~~Values are calculated based on~~•	No payouts will be made if TSR over the ~~closing price~~performance period is negative and performance is below the 50th percentile of ~~Peabody Energy Corporation Common Stock on~~ the ~~last trading day~~Industry Peer Group. Also, the maximum payout cannot exceed 150% of ~~2005 (i.e., $41.21 per share) less~~ the ~~applicable exercise price, in each case adjusted to reflect the Company’s2-for-1~~ ~~stock splits in March 2005 and February 2006. Stock splits do not affect the monetary~~ value of ~~stock options.~~the performance units (as measured at the end of the performance period) if TSR over the performance period is negative and performance is at or above the 50th percentile of the Industry Peer Group.

~~When~~

Performance units are issued at a price that equals the ~~Company was acquired by its prior owners in 1998, it had an estimated~~average closing market ~~capitalization~~price per share of ~~$480 million. Today, less than 8 years later,~~ the ~~market capitalization is approximately $12 billion, a compound annual growth rate~~Company’s Common Stock during the four weeks of ~~55%, compared to the S&P 500, which grew less than 10% per year in the same period.~~

This market-leading growth over time has resulted in substantial stock option gains to executives, especially those options held for the longest period of time (all Company stock options, granted either pre- or post-IPO, have a~~10-year~~ ~~term from~~trading immediately following the date of ~~grant). This growth in market capitalization has also enabled executives to obtain ownership~~grant.

The Company’s TSR over the performance period is based on the average closing price during the first four weeks and the last four weeks of trading in the performance cycle. Units vest over, and are payable subject to the achievement of performance goals at the conclusion of, the measurement period. Upon a change of control of the Company, ~~and further align their interest with other shareholders.~~

~~The following table sets forth information concerning~~a recapitalization event or the ~~grant~~holder’s retirement or termination without cause, the holder would receive from the Company payment in proportion to the number of vested performance units based upon performance as of the date the event occurs. Upon the holder’s death or disability, the holder would receive from the Company payment for 100% of performance units ~~to each~~outstanding as of the ~~Company’s~~date the event occurs. If the holder terminates employment without good reason (as defined in his or her employment agreement), all performance units are forfeited.

Retirement Benefits

Defined Contribution Plan

The Company maintains a defined contribution retirement plan and other health and welfare benefit plans for its employees. Named executive officers ~~listed~~participate in these plans on the ~~Summary Compensation Table above during~~same terms as other eligible employees, subject to any legal limits on the ~~fiscal year ended December 31, 2005. Except as otherwise shown in~~amount that may be contributed by or paid to executives under the ~~table, the performance period with respect to such awards is January 3, 2005 through December 31, 2007.~~plans.

~~Long-Term Incentive Plans —~~

~~Awards in Last Fiscal Year~~

Number of Shares, Performance or Other Fair Value on
Units or Other Period Until Date of
Name Rights (#)⁽¹⁾⁽²⁾ Maturation or Payout Grant ($)⁽³⁾

Gregory H. Boyce 45,628 1/3/05-12/31/07 990,356
Richard A. Navarre 25,508 1/3/05-12/31/07 553,651
Richard M. Whiting 12,992 1/3/05-12/31/07 281,991
Roger B. Walcott, Jr. 11,052 1/3/05-12/31/07 239,884
Irl F. Engelhardt 57,036 1/3/05-12/31/07 1,237,966


⁽¹⁾	The material terms of these performance units, including performance payout formulas, are described under the caption “Performance Units” in the Report of the Compensation Committee on page 34 of this Proxy Statement.

⁽²⁾	~~Amounts adjusted to reflect the2-for-1~~Pension Plan ~~stock splits effected by the Company in March 2005 and February 2006.~~

⁽³⁾	~~Performance units with stock market performance conditions have been valued utilizing~~~~Black-Scholes~~~~methodology (as applied with guidance from the Compensation Committee’s independent compensation consultants) within a~~~~Monte Carlo~~simulation which incorporates the total shareholder return hurdles set for each grant. Performance units with internal performance conditions have been valued based on the market price at the grant date (adjusted for dividends foregone during the service period), assuming a targeted achievement rate.

~~Equity Compensation Plan Information~~

~~The table below provides information regarding the Company’s equity compensation plans as of December 31, 2005. Share totals and exercise prices have been adjusted to reflect the Company’s2-for-1~~ ~~stock splits in March 2005 and February 2006.~~

Number of Securities
(a) Remaining Available for
Number of Securities Future Issuance Under
to Be Issued upon Weighted-Average Equity Compensation
Exercise of Outstanding Exercise Price of Plans (Excluding
Options, Warrants Outstanding Options, Securities Reflected in
Plan Category and Rights Warrants and Rights Column (a))

Equity compensation plans approved by security holders 10,783,786 $ 6.37 15,853,254
Equity compensation plans not approved by security holders — — —
Total 10,783,786 $ 6.37 15,853,254

~~Pension Benefits~~

The Company’s Salaried Employees Retirement Plan, or pension plan, is a “defined benefit” plan. The pension plan provides a monthly annuity to eligible salaried employees when they retire. ~~A salaried~~An employee must have at least five years of service to be vested in the pension plan. A full benefit is available to a retiree at age 62. A retiree can begin receiving a benefit as early as age 55; however, a 4% reduction factor applies for each year a retiree receives a benefit prior to age 62.

An individual’s retirement benefit under the pension plan is equal to the sum of (1) 1.112% of the highest average monthly earnings over 60 consecutive months up to the “covered compensation limit” multiplied by the employee’s years of service, not to exceed 35 years, and (2) 1.5% of the average monthly earnings over 60 consecutive months over the “covered compensation limit” multiplied by the employee’s years of service, not to exceed 35 years.

The Company announced in February 1999 that the pension plan would be phased out beginning January 1, 2001. Certain transition benefits were introduced based on the age and service of the employee

at December 31, 2000: (1) employees age 50 or older ~~will~~ continue to accrue service at 100%; (2) employees between the ages of 45 and 49 or under age 45 with 20 years or more of service ~~will~~continue to accrue service at the rate of 50% for each year of service worked after December 31, 2000; and (3) employees under age 45 with less than 20 years of service ~~will~~ have had their pension benefits frozen. In all cases, final average earnings for retirement purposes ~~will be~~are capped at December 31, 2000 levels.

~~The estimated annual pension benefits payable upon retirement at normal retirement age~~

Excess Defined Benefit and ~~early retirement age for the Chief Executive Officer and the other named executive officers are as follows:~~

Excess Defined Contribution Retirement Plan ~~Potential Annual Payments and Benefits~~⁽¹⁾

Estimated Estimated
Normal Early
Number of Normal Retirement Early Retirement
Years Credited Retirement Annual Retirement Annual Benefit
Name Service (#)⁽²⁾ Age (#) Benefit($) Age (#) ($)⁽³⁾

Gregory H. Boyce — — — — —
Richard A. Navarre 7.75 62 37,993 55 27,355
Richard M. Whiting 26.50 62 264,786 55 169,685
Roger B. Walcott, Jr. 2.58 62 24,663 55 17,757
Irl F. Engelhardt 26.75 62 490,008 59 ⁽⁴⁾ 398,268


⁽¹⁾	~~Future pension payments to be made pursuant to the Company’s Salaried Employees Retirement Plan.~~

⁽²⁾	~~Due to the phase-out of the Company’s pension plan as described above, years of service may differ from years of employment.~~

⁽³⁾	~~A 4% reduction factor applies for each year a retiree receives a benefit prior to age 62.~~

⁽⁴⁾	~~Mr. Engelhardt is 59 years old.~~

The Company ~~has~~maintains one ~~supplemental~~excess defined benefit retirement plan and one excess defined contribution plan that ~~provides~~provide retirement benefits to executives whose pay exceeds legislative limits for qualified ~~defined~~ benefit ~~plans.~~plans, which include the named executive officers.

~~Employment Agreements~~Other Benefits Provided by the Company

The following benefits are provided by the Company to the named executive officers and all other employees.

Medical Benefits. Employees have a choice of three coverage options. Each option covers the same services and supplies, but differs in the amount of its deductibles, co-payments andout-of-pocket limits. Employees located in St. Louis can also elect coverage through an HMO. Employees pay on average 20% of the monthly cost.

Dental Benefits. The plan covers preventive, basic and major services for employees and their dependents. Orthodontia care is also provided for eligible dependents. Preventive care is covered at 100%. Basic services are covered at 80% and major and orthodontia services at 60% after the applicable deductibles are met. The plan has an annual maximum of $1,000 for preventive, basic and major care and a lifetime maximum of $1,000 for orthodontia. Employees pay on average 20% of the monthly cost.

Vision Benefits. Employees can elect optional vision coverage, and pay the entire cost. If this coverage is elected, benefits are provided for eye examinations once every 12 months. Vision care benefits also include coverage for eyeglass lenses and frames, or contact lenses, once every 24 months.

Employee Retirement Account. Employees can elect to put 1% to 60% of salary into the plan, up to limits determined by the IRS using before-tax money, after-tax money, or both. The company matches 100% of contributions up to 6% of base salary. Employees may also be eligible for an additional annual performance contribution equal to as much as 6% of base salary, based on the Company’s performance for the fiscal year. Amounts that exceed the IRS limits are placed in a supplemental plan, if the executive makes such an election.

Employee Stock Purchase Plan (ESPP). Through the ESPP, employees have the opportunity to purchase Peabody Energy stock at a discount. Employees can choose to participate in the plan at any rate between 1% and 15% of base salary for the offering period and can purchase up to $25,000 of shares at fair market value in a calendar year. At the end of the offering period, contributions are used to buy shares of Peabody Energy stock at a discounted price. The price for the shares is 85% of the closing market price on the first or last day of the offering period, whichever is lower.

Life Insurance. Employees receive a basic benefit equal to one times annual base salary. In addition, employees may choose additional coverage, from one to four times annual base salary, through the supplemental life insurance program. Coverage is also available for a spouse in the amount of $10,000 or $20,000and/or eligible children in the amounts of $5,000 or $10,000 per child.

Business Travel Accident. For accidental death, paralysis, or loss of hands, feet, hearing or sight due to an accident while traveling for the Company, the plan pays all or part of a “principal sum”

depending on the loss. This principal sum is equal to five times base annual salary, with a $500,000 maximum and $150,000 minimum.

Accidental Death and Dismemberment (AD&D). The company provides a benefit equal to three times annual base salary. All or a portion of the coverage amount is paid for the loss of hands, feet, sight, speech, hearing or paralysis. In addition, through the optional AD&D program, employees may choose supplemental coverage in any amount from $10,000 to $500,000, in multiples of $10,000. Employees may also choose optional AD&D coverage for their family. Coverage for their spouse and eligible dependent children will be based on a percentage of their own optional coverage amount.

Short-Term Disability. If an employee becomes disabled, the Company provides a short-term disability benefit for up to 180 days. For employees with less than five years service, the plan pays 100% of monthly basic salary for the first 30 days of disability and 60% for 150 additional days of disability. For employees with five or more years of service, the plan pays 100% of basic monthly salary for up to 180 days of disability.

Long-Term Disability (LTD). If an employee is disabled for longer than 180 days, the LTD plan begins to pay a monthly benefit equal to 60% of basic monthly salary.

Health Care Flexible Spending Account. Employees can deposit before-tax money from $120 to $5,000 per year into an account through payroll deductions to pay for a wide range of health care expenses not covered by the medical, dental, vision plan, including someover-the-counter drugs, deductibles and co-payments.

Dependent Care Flexible Spending Account. Employees can deposit before-tax money from $120 to $5,000 per year into an account through payroll deductions to pay for day care for a child or dependent disabled adult.

Vacation. All employees are eligible for vacation based on years of service. Each executive, including the named executive officers, is eligible for 20 days of vacation each year.

Holidays. The company provides 12 paid holidays each year.

Perquisites

The Company provided certain perquisites to senior management in 2006.

Company Aircraft. The Company’s aircraft may be used in the following situations:


	•	Senior management may use the aircraft for business purposes;

	•	Spouses/partners may accompany senior management members on the corporate aircraft for business purposes;

	•	On rare occasions, non-employee Directors, when traveling on business, may be accompanied by a spouse/partner.

Other Perquisites. The Company does not provide or reimburse for country club memberships for any officers, nor provides vehicles. Upgrades to existing home security systems that were substandard were made available to members of senior management.

Stock Ownership Guidelines

Both Management and the Board of Directors believe the Company’s executives and directors should acquire and retain a significant amount of Company Common Stock in order to further align their interests with those of shareholders.

Under the Company’s share ownership guidelines, the Chief Executive Officer is encouraged to acquire and retain Company Common Stock having a value equal to at least five times his or her base salary. Other named executive officers are encouraged to acquire and retain Company Common Stock having a value equal to at least three times their base salary. All such executives are encouraged to meet these ownership levels within five years after assuming their executive positions.

The following table summarizes the named executive officers’ ownership of Company Common Stock as of December 31, 2006.

Named Executive Officer Stock Ownership

Ownership

Share

Guidelines,

Relative to

Ownership

Relative to

Actual Base

Name

(#)⁽¹⁾

($)⁽²⁾

Base Salary

Salary

Gregory H. Boyce⁽³⁾

183,690

7,422,913

7.8x

Richard A. Navarre

102,813

4,154,673

6.6x

Richard M. Whiting

101,892

4,117,456

7.5x

Sharon D. Fiehler

106,443

4,301,362

10.3x

Roger B. Walcott, Jr.

42,504

1,717,587

3.7x


⁽¹⁾		Includes shares acquired through 401(k) plan and the Employee Stock Purchase Plan. Numbers have been adjusted to reflect the2-for-1 stock split effected by the Company in February 2006.

⁽²⁾		Calculated based on the Company’s closing market price per share on the last trading day of 2006, $40.41.

⁽³⁾		Share ownership includes 80,000 phantom shares granted to Mr. Boyce on October 1, 2003 under the terms of his employment agreement.

Also under the Company’s share ownership guidelines for directors, directors are encouraged to acquire and retain Company Common Stock having a value equal to at least three times their annual retainer. Directors are encouraged to meet these ownership levels by the later of December 31, 2007 or three years after joining the Board.

The following table summarizes the Director ownership of Company Common Stock as of December 31, 2006.

Director Stock Ownership


					Ownership
					Guidelines,			Ownership
	Share Ownership		Share Ownership		Relative to Base			Relative to Base
Name⁽¹⁾	(#)⁽²⁾		($)⁽³⁾		Annual Retainer⁽⁴⁾			Annual Retainer⁽⁴⁾

Chairman
Irl F. Engelhardt		603,144		24,373,049		—			—
Non-Employee Directors
B. R. Brown		6,206		250,784		3	x		3.3x
William A. Coley		5,423		219,143		3	x		2.9x
Henry Givens, Jr.		5,394		217,972		3	x		2.9x
William E. James		8,390		339,040		3	x		4.5x
Robert B. Karn III		16,292		658,360		3	x		8.8x
Henry E. Lentz		5,102		206,172		3	x		2.7x
William C. Rusnack		8,502		343,566		3	x		4.6x
James R. Schlesinger		8,518		344,212		3	x		4.6x
Blanche M. Touhill		8,518		344,212		3	x		4.6x
John F. Turner		2,464		99,570		3	x		1.3x
Sandra Van Trease		16,182		653,915		3	x		8.7x
Alan H. Washkowitz		5,102		206,172		3	x		2.7x


⁽¹⁾		Mr. Boyce’s stock ownership is shown on the Named Executive Officer Stock Ownership Table above.

⁽²⁾		Numbers have been adjusted to reflect the2-for-1 stock split effected by the Company in February 2006.

⁽³⁾		Value is calculated based on the closing market price per share of the Company’s Common Stock on the last trading day of 2006, $40.41.

⁽⁴⁾		The base annual retainer for the non-employee directors in 2006 was $75,000.

Employment Agreements

To remain competitive in the market, and to attract and retain executives key to the success of its business, the Company has entered into employment agreements with each of the named executive officers and with certain other key executives.

The Chief Executive Officer’s employment agreement provides for a three-year term that extends~~day-to~~day-to-day~~-day~~ so that there is at all times remaining a term of three years. Following a termination without cause or resignation for good reason, the Chief Executive Officer would be entitled to ~~a payment~~the following benefits, payable in ~~substantially~~either (a) equal installments ~~equal to~~over three ~~years’~~years or (b) a lump sum, as determined by the Board of Directors: (1) three times base salary and (2) three times the higher of ~~(1)~~(A) the target annual ~~bonus for the year of termination~~incentive or ~~(2)~~(B) the average of the actual annual ~~bonuses~~incentive paid in the three prior years. HeIn addition, he would ~~also~~ be entitled to a one-time prorated ~~bonus~~annual incentive for the year of termination (based on the Company’s actual performance multiplied by a fraction, the numerator of which is the number of business days he was employed during the year of termination, and the denominator of which is the total number of business days during that year), payable when ~~bonuses,~~annual incentives, if any, are paid to other executives. He would also be entitled to receive qualified and nonqualified retirement, life insurance, medical and other benefits for three years. In addition, ~~to the aforementioned,~~ following a termination without cause or resignation for good reason (as defined in the employment agreement), he would be paid a lump sum of ~~$800,000 if the termination occurred on or after age 52.~~$800,000. If the Chief Executive Officer were to terminate for any reason on or after age 55 or die

or became disabled, the lump sum of $800,000 would also be paid. Upon termination without cause, resignation for good reason, death, disability, or termination for any reason after reaching age 55, he would be entitled to deferred compensation payable in cash in one of the following amounts: if termination occurred (a) prior to age 55, the greater of (i) the cash

equivalent of the fair market value of 80,000 shares of Company ~~common stock~~Common Stock on October 1, 2003 plus interest or (ii) an amount equal to the fair market value of 80,000 shares on the date of termination; (b) on or after age 55 but prior to age 62, the greater of (i) the amount referenced in (a) on the date of termination, (ii) $1.6 million, reduced by ~~.333%~~0.333% for each month that termination occurs before reaching age 62, or (iii) the fair market value of 80,000 shares on the date of termination; (c) on or after age 62, the greater of the amount referenced in (b) on the date of termination or $1.6 million. If he were to terminate for any other reason prior to reaching age 55, the deferred compensation amount would be forfeited.

The Company entered into amended employment agreement with Mr. Engelhardt effective January 1, 2006 at a reduced salary and bonus level as described on page 36. Mr. Engelhardt’s amended agreement is for a term of two years, which may be extended by mutual agreement. The Company may only terminate employment for cause, disability or death. Mr. Engelhardt may terminate his employment at any time; however, if he terminates employment for good reason, he would be entitled to his base salary through December 31, 2007, a one-time prorated bonus for the year of termination (based on the Company’s actual performance multiplied by a fraction, the numerator of which is the number of business days he was employed during the year of termination, and the denominator of which is the total number of business days during that year), payable when bonuses, if any, are paid to other executives. He will also receive qualified and nonqualified retirement, life insurance, medical and other benefits through December 31, 2007.

Other ~~executives’~~named executive officers’ employment agreements have ~~either one-year or~~ two-year terms which extend~~day-to~~day-to-day~~-day~~ so that there is at all times a remaining term of ~~one or~~ two ~~years, respectively.~~years. The other key executives are entitled to the following benefits, payable in either (a) equal installments over ~~one~~two years or ~~two years:~~(b) a lump sum, as determined by the Chief Executive Officer and Board of Directors: (1) ~~one or~~ two times base salary and (2) ~~one or~~ two times the higher of (A) the target annual ~~bonus~~incentive or (B) the average of the actual annual ~~bonuses~~incentive paid in the three prior years. In addition, the other executives are entitled to (1) a one-time prorated ~~bonus~~annual incentive for the year of termination (based on the Company’s actual performance multiplied by a fraction, the numerator of which is the number of business days the executive officer was employed during the year of termination, and the denominator of which is the total number of business days during that year), payable when ~~bonuses,~~annual incentives, if any, are paid to the Company’s other executives, and (2) qualified and nonqualified pension, life insurance, medical and other benefits for the ~~one or~~ two-year period ~~as applicable,~~ following termination.

Under all executives’ employment agreements, the Company is not obligated to provide any benefits under tax qualified plans that are not permitted by the terms of each plan or by applicable law or that could jeopardize the plan’s tax status. Continuing benefit coverage will terminate to the extent an executive is offered or obtains comparable coverage from any other employer. The employment agreements provide for confidentiality during and following employment, and include a noncompetition and nonsolicitation agreement that is effective during and for one year following employment. If an executive breaches any of his or her confidentiality, noncompetition or nonsolicitation agreements, the executive will forfeit any unpaid amounts or benefits. To the extent that excise taxes are incurred by an executive as a result of “excess parachute payments,” as defined by IRS regulations, the Company will pay additional amounts so that executives would be in the same financial position as if the excise taxes were not incurred.

REPORT OF THE COMPENSATION COMMITTEE

~~Report~~

The Compensation Committee has reviewed and discussed with management the Company’s disclosures under “Compensation Discussion and Analysis” beginning on page 19 of this Proxy Statement.

Based on such review and discussion, the Compensation Committee

The Compensation Committee is comprised entirely of independent directors and has the responsibility for the evaluations and compensation of the Company’s executives. The Committee has overall responsibility for monitoring the performance of the Company’s executives and evaluating and approving the Company’s executive compensation plans, policies and programs. The Committee will also review and approve any benefit plans that directly impact the Company’s executives. In addition, the Compensation Committee administers the Company’s annual and long-term incentive plans and programs and periodically assesses the Company’s director compensation program.

~~On March 1, 2005, following a thorough succession planning process,~~ recommended to the Board of Directors ~~selected Gregory H. Boyce~~that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s annual report onForm 10-K for the fiscal year ended December 31, 2006 for filing with the Securities and Exchange Commission.

MEMBERS OF THE COMPENSATION COMMITTEE:

ROBERT B. KARN III, CHAIR
B. R. BROWN
WILLIAM E. JAMES

SUMMARY COMPENSATION TABLE

The following table summarizes the total compensation paid to ~~succeed Irl F. Engelhardt as~~the Chief Executive Officer, ~~effective January 1, 2006. The Compensation Committee~~the Chief Financial Officer and Board, in conjunction with Messrs. Boyce and Engelhardt, also developed an orderly transition plan which took place in 2005. To facilitate a successful transition, Mr. Engelhardt continued his CEO duties through 2005 and will remain as Chairman of the ~~Board and a senior officer of~~three other most highly compensated executive officers for their service to the Company ~~after January 1,~~during the fiscal year ended December 31, 2006. One of the Committee’s primary objectives during 2005 was to work closely with Messrs. Boyce and Engelhardt to ensure a seamless transfer, and to develop appropriate compensation packages commensurate with their new roles and responsibilities.


	*~~Compensation Philosophy~~*

~~The fundamental objective of the Company’s executive compensation program is to attract, retain and motivate key executives to enhance long-term profitability and shareholder value.~~

~~The Company’s compensation program is based on the following policies and objectives:~~


														Change in
														Pension Value
														and Non-
														Qualified
												Non-Equity		Deferred
							Stock			Option		Incentive Plan		Compensation		All Other
			Salary		Bonus		Awards			Awards		Compensation		Earnings		Compensation		Total
Name and Principal Position	Year		($)		($)		($)⁽¹⁾			($)⁽¹⁾		($)⁽²⁾		($)⁽³⁾		($)⁽⁴⁾		($)

Gregory H. Boyce		2006		887,500		—		2,434,902	⁽⁵⁾		1,258,513		1,329,620		—		132,177		6,042,712
Chief Executive Officer, President and Director
Richard A. Navarre		2006		612,500		—		1,782,473			1,002,098		850,000		12,326		85,782		4,345,179
Chief Financial Officer and Executive Vice President Corporate Development
Richard M. Whiting		2006		540,750		—		1,334,488			716,977		700,000		137,567		67,879		3,497,661
Executive Vice President and Chief Marketing Officer
Sharon D. Fiehler		2006		408,000		—		877,306			515,915		500,000		27,160		59,171		2,387,552
Executive Vice President Human Resources and Administration
Roger B. Walcott, Jr.		2006		452,500		—		844,467			362,607		500,000		10,830		58,046		2,228,450
Executive Vice President Strategy and Business Services


⁽¹⁾	•	~~Programs~~Long-term incentive awards to the named executive officers consist of both performance units (reflected in the “Stock Award” column above) and stock options (reflected in the “Option Awards” column above). The value of stock awards and option awards is the compensation charge dollar amount recognized for financial statement reporting purposes for 2006 in accordance with FAS 123R. The grant date fair value of stock awards and option awards for financial statement reporting purposes in accordance with FAS 123R is included in the Grants of Plan-Based Awards in 2006 Table on page 34 of this Proxy Statement. A discussion of the relevant fair value assumptions is set forth in Note 18 to the Company’s consolidated financial statements on pages F-49 through F-51 of the Annual Report onForm 10-K for the year ended December 31, 2006. The Company cautions that the amount ultimately realized by the named executive officers from the stock and option awards will ~~have~~likely vary based on a ~~clear link to shareholder value.~~number of factors, including the Company’s actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.

⁽²⁾	•	~~Programs will be designed to support achievement~~The material terms of these awards are described under the ~~Company’s business objectives.~~caption “Annual Incentive Compensation” in the Compensation Discussion and Analysis on page 22 of this Proxy Statement.

⁽³⁾	•	~~Total compensation opportunities will be established~~The change in pension value for 2006 resulted from an increase in the discount rate from 5.9% to 6.0% and a change in the applicable mortality table. For Mr. Whiting only, the change in pension value was also attributable to additional credited service under the plan. In accordance with the terms of the phase-out of the pension plan, Mr. Whiting continues to accrue credited service under the plan at ~~levels which are competitive with marketplace practices and~~the rate of 50% for each year of actual service. None of the other ~~pertinent criteria, taking into account such factors as~~named executive ~~performance, level~~officers continue to accrue credited service under the plan. See page 39 of ~~experience and retention value.~~this Proxy Statement for further discussion about the Pension Plan. None of the named executive officers participated in the Company’s Deferred Compensation Plan.

⁽⁴⁾	•	~~Variable incentive pay will constitute a significant portion of each executive’s compensation.~~

	•	~~Incentive pay will be designed to:~~Amounts included in this column are described in the All Other Compensation Table below.


	•	~~Reflect company-wide, business unit and individual performance, based on each individual’s position and level; and~~

	•	~~Incorporate “absolute” (internal) and “relative” (external) performance measures.~~

⁽⁵⁾
	•	~~Programs will be communicated so that participants understand how their decisions~~Mr. Boyce received a restricted stock award of 60,000 shares on October 2, 2006 pursuant to the terms of his stock grant agreement dated October 1, 2003. The 2006 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R was $109,080, and ~~actions affect business results and their compensation.~~is included in the amount reported. The grant date fair value of this award determined under FAS 123R for financial statement reporting purposes is included in the Grants of Plan-Based Awards in 2006 Table on page 34 of this Proxy Statement.

~~With these policies and objectives in mind, the~~

All Other Compensation Committee has designed a pay structure for the named executive officers that incorporates three key components: base salary, annual incentive payments, and long-term incentive compensation consisting of stock options and performance units.


	*~~Compensation Program Competitiveness Study~~*

The Compensation Committee commissioned a compensation analysis conducted by an independent third party in June 2005 to determine whether the Company’s executive compensation programs were consistent with those of other publicly held companies of similar size and in a similar industry. The results of this study confirmed that the Company’s executive compensation programs are consistent with those of other publicly held companies of similar size and in a similar industry, including, those companies that comprise the “Custom Composite Index” componentfollowing table sets forth detail of the ~~“Stock Performance Graph” (~~~~see~~~~page 41 of this Proxy Statement) and several other public companies~~amounts reported in the coal and energy sectors. The Compensation Committee will continue to periodically review the Company’s executive compensation programs to ensure that such programs remain competitive and continue to meet their objectives.


	*~~Annual Base Salary~~*

Based upon the above-referenced study, the Compensation Committee reviewed the base salaries of the Company’s executive officers to ensure competitiveness in the marketplace. The Compensation Committee will continue to review the base salaries of the named executive officers to ensure salaries continue to reflect marketplace practices and take into account performance, experience and retention value.


	*~~Perquisites~~*

The Company does not believe that perquisites are necessary at this time to attract and retain highly qualified management personnel. The Company’s named executive officers did not receive perquisites in 2005.


	*~~Annual Incentive Plan~~*

~~The Company’s annual incentive compensation plan provides opportunities for key executives to earn annual cash incentive payments tied to the successful achievement of pre-established objectives.~~

All annual incentive plan participants are assigned threshold, target and maximum incentive percentages. If performance does not meet the threshold level, no incentive is earned. At threshold levels, the incentive that can be earned generally equals 50% of the target incentive. The target incentive represents the level of compensation that is considered to be required to stay competitive with the desired pay position in the market. Target incentive payments generally are received for achieving budgeted financial goals and meeting individual performance goals. Maximum incentive payments generally are received when financial goals and individual performance goals are significantly exceeded. A participant’s annual incentive opportunity is based upon his or her level of participation in the incentive plan. The incentive opportunity increases based upon an executive’s potential to affect operations or profitability.

Awards for corporate employees, including the Chief Executive Officer, are based on achievement of corporate and individual performance goals. Awards to operating employees are based on achievement of a combination of corporate, business unit and individual performance goals. Achievement of corporate performance is determined by comparing the Company’s actual performance against objective goals, and achievement of individual goals is determined by evaluating a combination of both objective and subjective performance measures. All goals are established by the Company, and goals for the named executive officers are reviewed and approved by the Compensation Committee at the beginning of each calendar year. In 2005, the performance measures for the

named executive officers included Adjusted EBITDA (50%), Value Creation (20%) and individual performance (30%). In 2006, these measures will include Adjusted EBITDA (40%), Return on Invested Capital (20%), safety (10%) and individual performance (30%).

All award payments to the named executive officers are subject to the review and approval of the Compensation Committee. In addition, annual incentive payments for 2005 for both the Chief Executive Officer and the Chairman were reviewed and approved by the independent members of the Board of Directors.


	*~~2005 Incentive Payments~~*

For the fiscal year ended December 31, 2005, the Company awarded annual incentive payments to the Chief Executive Officer, the Chairman and the other named executive officers, as reflected in the bonus“All Other Compensation” column of the Summary Compensation Table. Other eligible executives were paid under the same annual incentive plan. Annual incentive payouts for 2005 were based on the Company’s achievement of goals for Adjusted EBITDA, Value Creation and individual performance.


	*~~Long-Term Incentives~~*

The Compensation Committee has determined that a long-term incentive opportunity will be made available to each of the Company’s named executive officers through annual awards of stock options and performance units. The targeted value of these awards generally is split evenly between stock options and performance units and equals 225% of base salary for the Chief Executive Officer and 100% of base salary for other named executive officers. The Compensation Committee intends that these long-term incentive opportunities be competitive and based on actual Company performance. When evaluating awards to be granted, the Compensation Committee considers competitive market data and retention value of the individual executives.


	~~Stock Options~~

The Company’s stock option program is a long-term plan designed to create a direct link between executive compensation and increased shareholder value. The targeted value of annual option awards to the named executive officers equals 112.5% of base salary for the Chief Executive Officer and 50% of base salary for other named executive officers as described above. However, awards can deviate from these guidelines at the discretion of the Compensation Committee. The Company uses a~~Black-Scholesvaluation model to establish the value of its stock option grants. The grants are currently made in the form of nonqualified stock options and are awarded on the first business day of each year.~~

All stock options are granted at an exercise price equal to the closing price of the Company’s Common Stock on the date of grant. Stock options generally vest in one-third increments over a period of three years; however, options will immediately vest upon a change of control of the Company or upon an employee’s death, disability or a recapitalization event. Options expire ten years from the date of grant.


					Annual 401(k)
			Group		Matching and
			Term Life		Performance		Dividends on		Tax
			Insurance		Contributions		Restricted Stock		Gross-Ups		Perquisites		Total
Name	Year		($)		($)		($)⁽¹⁾		($)⁽²⁾		($)⁽³⁾		($)

Gregory H. Boyce⁽⁴⁾		2006		1,656		100,750		13,200		2,019		14,552		132,177
Richard A. Navarre⁽⁴⁾		2006		810		68,000		—		3,435		13,537		85,782
Richard M. Whiting		2006		1,242		60,045		—		2,728		3,864		67,879
Sharon D. Fiehler⁽⁴⁾		2006		988		45,280		—		1,967		10,936		59,171
Roger B. Walcott, Jr.		2006		1,111		50,150		—		3,181		3,604		58,046


	~~Performance Units~~

Certain key executives are eligible to receive long-term incentive awards in the form of performance units. The targeted value of performance unit awards to the named executive officers equals 112.5% of base salary for the Chief Executive Officer and 50% of base salary for other named executive officers as described above. However, awards can deviate from these guidelines at the

discretion of the Compensation Committee. Performance units granted in 2005 will be payable in shares of the Company’s common stock, if earned. For units granted in January 2005, the value of the performance units is tied to the relative performance of the Company’s Common Stock and a three-year Adjusted EBITDA Return on Invested Capital measure. The percentage of the performance units earned is based on the Company’s total shareholder return (TSR) over a period beginning January 3, 2005 and ending December 31, 2007 relative to an industry comparator group (the Industry Peer Group) and the S&P MidCap 400 Index (together weighted 50% of the total award) and Adjusted EBITDA Return on Invested Capital (weighted 50%). TSR measures cumulative stock price appreciation plus dividends. The Industry Peer Group generally is perceived to be subject to similar market conditions and investor reactions as the Company. For this reason, the Industry Peer Group is weighted at 60% while the S&P MidCap 400 Index is weighted at 40%.

~~Performance payout formulas are as follows:~~


⁽¹⁾	•	~~Threshold payouts (equal to 50% of the value of the performance units, as measured~~Dividends are paid at the ~~end~~same rate applicable to all outstanding shares of the performance period) begin for TSR performance at the 40th percentile of the Industry Peer Group, the 35th percentile of the S&P MidCap 400 Index and a threshold measure for three-year Adjusted EBITDA Return on Invested Capital.Common Stock.

⁽²⁾	•	~~Target payouts (equal~~Represents the taxes due for use of corporate aircraft (as defined and calculated in accordance with Internal Revenue Service guidelines), reimbursed by the Company. The amounts herein reflect the tax gross up for expenses related to ~~100% of~~when a spouse accompanied the ~~value of the performance units, as measured at the end of the performance period) are based~~named executive officer on ~~performance at the 55th percentile of the Industry Peer Group, 50th percentile of the S&P MidCap 400 Index and a target measure~~corporate aircraft for ~~three-year Adjusted EBITDA Return on Invested Capital.~~Company business purposes.

⁽³⁾	•	~~Maximum payouts (equal~~Represents the aggregate incremental cost to ~~200%~~the Company of use of corporate aircraft as determined on a per flight basis, including the ~~value~~cost of fuel, landing fees, the ~~performance units, as measured at~~cost of in-flight meals, sales tax, crew expenses, the ~~end~~hourly cost of ~~the performance period) are based on performance at the 80th percentile of the Industry Peer Group, the 75th percentile of the S&P MidCap 400 Index and a maximum measure~~aircraft maintenance for the ~~three-year Adjusted EBITDA Return~~applicable number of flight hours, and other variable costs specifically incurred. Amounts represent trips where a spouse/guest accompanied the named executive officer on ~~Invested Capital.~~corporate aircraft for select Company business purposes. Corporate aircraft are not used for personal purposes.

⁽⁴⁾	•	~~Results between threshold~~For Mr. Boyce, Mr. Navarre and ~~target~~Ms. Fiehler, the “Perquisites” column also includes the cost of home security system upgrades.

GRANTS OF PLAN-BASED AWARDS IN 2006

The following table sets forth information concerning the grant of plan-based awards to each of the named executive officers during the year ended December 31, 2006. Each named executive officer received performance units and stock option awards at the beginning of the year.

Equity

All

Incentive

Other

All Other

Plan

Stock

Option

Awards:

Exercise

Awards:

Estimated Possible Payouts

Estimated Future Payouts

Grant

Number of

Grant

Number of

or Base

Grant

Under Non-Equity Incentive

Under Equity Incentive

Date

Shares of

Date

Securities

Price of

Date

Plan Awards

Plan Awards(1)(2)

Fair

Stock or

Fair

Underlying

Option

Fair

Grant

Action

Threshold

Target

Maximum

Threshold

Target

Maximum

Value

Units

Value

Options

Awards

Value

Name

Date

($)

(#)

($)⁽³⁾

(#)⁽²⁾

($)⁽³⁾

(#)⁽²⁾

($/Sh)⁽²⁾⁽⁴⁾

($)⁽³⁾

Gregory H.
Boyce

1/3/2006

475,000

950,000

1,662,500

1/3/2006

12/8/05

17,748

35,496

70,992

3,360,939

10/2/2006

⁽⁵⁾

60,000

2,181,600

1/3/2006

⁽⁶⁾

12/8/05

84,740

43.10

1,387,624

Richard A.
Navarre

1/3/2006

250,000

500,000

937,500

1/3/2006

12/7/05

18,440

36,880

73,760

3,491,983

1/3/2006

⁽⁶⁾

12/7/05

44,020

43.10

720,765

1/3/2006

⁽⁷⁾

12/7/05

45,394

43.10

743,370

Richard M.
Whiting

1/3/2006

220,600

441,200

827,250

1/3/2006

12/7/05

15,980

31,960

63,920

3,026,133

1/3/2006

⁽⁶⁾

12/7/05

38,150

43.10

625,127

1/3/2006

⁽⁷⁾

12/7/05

39,342

43.10

644,254

Sharon D.
Fiehler

1/3/2006

166,400

332,800

624,000

1/3/2006

12/7/05

12,293

24,586

49,172

2,327,926

1/3/2006

⁽⁶⁾

12/7/05

23,478

43.10

384,292

1/3/2006

⁽⁷⁾

12/7/05

36,316

43.10

594,696

Roger B.
Walcott, Jr.

1/3/2006

184,000

368,000

690,000

1/3/2006

12/7/05

4,302

8,604

17,208

814,670

1/3/2006

⁽⁶⁾

12/7/05

20,542

43.10

336,473


⁽¹⁾		Performance unit awards are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column above. Performance unit awards granted in 2006 will be earned based on achievement of performance objectives for the period January 3, 2006 to December 31, 2008. The material terms of these awards, including payout ~~levels,~~formulas, are described under the caption “Performance Units” in the Compensation Discussion and ~~target and maximum payout levels, are ratably adjusted.~~Analysis on page 24 of this Proxy Statement.

⁽²⁾	•	~~No payments will be made if TSR is negative~~The numbers and exercise price have been adjusted to reflect the2-for-1 stock split effected by the Company in February 2006.

⁽³⁾		The value of stock awards, option awards and performance unit awards is ~~below~~ the ~~50th percentile~~grant date fair value determined under FAS 123R for financial statement reporting purposes. A discussion of the ~~Industry Peer Group. Also,~~relevant fair value assumptions is set forth in Note 18 to the ~~maximum payout cannot exceed 150%~~Company’s consolidated financial statements on pages F-49 through F-51 of the ~~value~~Annual Report onForm 10-K for the year ended December 31, 2006. The Company cautions that the amount ultimately realized by the named executive officers from the stock and option awards will likely vary based on a number of factors, including the Company’s actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.

⁽⁴⁾		The exercise price for all options is equal to the closing market price per share of the ~~performance units (as measured at~~Company’s Common Stock on the ~~end~~date of grant.

⁽⁵⁾		The restricted stock award was granted to Mr. Boyce on October 2, 2006 pursuant to his stock grant agreement dated October 1, 2003.


⁽⁶⁾		The options vest in three equal annual installments beginning on the first anniversary of the ~~performance period) if TSR is negative~~date of grant. Other material terms of these awards are described under the caption “Stock Options” in the Compensation Discussion and ~~performance is above~~Analysis on page 24 of this Proxy Statement.

⁽⁷⁾		The options cliff vest on the ~~50th percentile~~third anniversary of the ~~Industry Peer Group.~~date of grant. Other material terms of these awards are described under the caption “Stock Options” in the Compensation Discussion and Analysis on page 24 of this Proxy Statement.

~~Performance units~~

Employment agreements with the named executive officers are ~~issued at a price that equals~~described under the ~~average closing price~~caption “Employment Agreements” in the Compensation Discussion and Analysis on page 29 of this Proxy Statement.

OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR END

The following table sets forth detail about the outstanding equity awards for each of the named executive officers as of December 31, 2006. The Company cautions that the amount ultimately realized by the named executive officers from the outstanding equity awards will likely vary based on a number of factors, including the Company’s ~~Common Stock during~~actual operating performance, stock price fluctuations and the ~~four weeks~~timing of ~~trading immediately following~~exercises and sales. In the ~~date~~case of ~~grant. TSR~~equity incentive awards, the amount ultimately realized will also likely vary with the Company’s stock performance relative to an Industry Peer Group and the S&P MidCap 400 Index, and the Company’s Adjusted EBITDA Return on Invested Capital.

A substantial portion of the outstanding equity awards for the ~~Company at~~named executive officers, other than Mr. Boyce, is attributable to stock options granted to them prior to the ~~end~~Company’s May 2001 initial public offering (“IPO”). These options were granted in 1998 in connection with a leveraged buyout transaction or “LBO” involving Peabody Energy’s acquisition of Peabody Holding Company. The size and terms of the ~~cycle is based on the average closing price during the last four weeks~~pre-IPO stock options or “LBO grants” were determined according to standard practices at that time for private companies. The LBO grants, many of ~~trading~~which remain unexercised, were designed to be competitive in the industry marketplace for top executives, to compensate the management group on a basis commensurate with the risks associated with a highly leveraged transaction, to reward performance ~~cycle. Units~~and to align their interests with the Company’s owners. The LBO grants vest ~~over,~~in November 2007 and July 2010, and expire in May 2008 and January 2011, respectively.

All unexercisable options and unvested shares or units of stock reflected in the table below are ~~payable~~ subject to the achievement of performance goals at the conclusion of, the measurement period. Upon a change of control of the Company, a recapitalization event or the executive’s death, disability, retirement or termination without cause, paymentsforfeiture by the ~~Company will be paid~~holder if the holder terminates employment without good reason (as defined in ~~proportion to~~ the holder’s employment agreement).


	Option Awards										Stock Awards
																		Equity
																		Incentive
																Equity		Plan
																Incentive		Awards:
																Plan		Market or
																Awards:		Payout
											Number of			Market		Number of		Value of
											Shares or			Value of		Unearned		Unearned
	Number of			Number of							Units of			Shares or		Shares,		Shares,
	Securities			Securities							Stock			Units of		Units or		Units or
	Underlying			Underlying							That			Stock		Other		Other
	Unexercised			Unexercised			Option				Have			That		Rights		Rights
	Options			Options			Exercise		Option		Not			Have Not		That Have		That Have
	(#)⁽¹⁾			(#)⁽¹⁾			Price		Expiration		Vested			Vested		Not Vested		Not Vested
Name	Exercisable			Unexercisable			($)⁽¹⁾		Date		(#)⁽²⁾			($)⁽³⁾		(#)⁽²⁾⁽⁴⁾		($)⁽³⁾⁽⁵⁾
Gregory H. Boyce																	45,628		1,843,827
																	35,496		1,434,393
												80,000	⁽⁶⁾		3,232,800
												40,000	⁽⁶⁾		1,616,400
												60,000	⁽⁶⁾		2,424,600
	Post-IPO Grants
		87,564	⁽⁷⁾					7.9550		10/1/2013
		240,000	⁽⁷⁾					8.6250		10/1/2013
		400,000	⁽⁷⁾					9.7500		10/1/2013
		61,979	⁽⁸⁾		30,989	⁽⁸⁾		10.4875		1/2/2014
		17,320	⁽⁹⁾		34,640	⁽⁹⁾		19.3275		1/3/2015
		8,468	⁽¹⁰⁾		16,936	⁽¹⁰⁾		23.4525		3/1/2015
					84,740	⁽¹¹⁾		43.1000		1/3/2016
Total		815,331			167,305							180,000			7,273,800		81,124		3,278,221
Richard A. Navarre																	25,508		1,030,778
																	36,880		1,490,321
	LBO Grants
					293,784	⁽¹²⁾		3.5725		5/19/2008
					94,588	⁽¹³⁾		3.5725		1/1/2011
	Post-IPO Grants
					13,981	⁽⁸⁾		10.4875		1/2/2014
		6,818	⁽⁹⁾		6,819	⁽¹⁴⁾		12.2225		6/15/2014
					25,869	⁽⁹⁾		19.3275		1/3/2015
					7,201	⁽¹⁵⁾		23.7250		4/1/2015
					45,394	⁽¹⁶⁾		43.1000		1/3/2016
					44,020	⁽¹¹⁾		43.1000		1/3/2016
Total		6,818			531,656												62,388		2,521,099
Richard M. Whiting																	12,992		525,007
																	31,960		1,291,504
	LBO Grants
					391,628	⁽¹²⁾		3.5725		5/19/2008
					43,580	⁽¹³⁾		3.5725		1/1/2011
	Post-IPO Grants
					15,892	⁽⁸⁾		10.4875		1/2/2014
					17,677	⁽⁹⁾		19.3275		1/3/2015
					39,342	⁽¹⁶⁾		43.1000		1/3/2016
					38,150	⁽¹¹⁾		43.1000		1/3/2016
Total					546,269												44,952		1,816,510
Sharon D. Fiehler																	8,620		348,334
																	24,586		993,520
	LBO Grants
					195,788	⁽¹²⁾		3.5725		5/19/2008
					83,688	⁽¹³⁾		3.5725		1/1/2011
	Post-IPO Grants
					9,217	⁽⁸⁾		10.4875		1/2/2014
					11,728	⁽⁹⁾		19.3275		1/3/2015
					36,316	⁽¹⁶⁾		43.1000		1/3/2016
					23,478	⁽¹¹⁾		43.1000		1/3/2016
Total					360,215												33,206		1,341,854
Roger B Walcott, Jr																	11,052		446,611
																	8,604		347,688
	LBO Grants
					391,628	⁽¹²⁾		3.5725		5/19/2008
					43,580	⁽¹³⁾		3.5725		1/1/2011
	Post-IPO Grants
					13,587	⁽⁸⁾		10.4875		1/2/2014
					15,040	⁽⁹⁾		19.3275		1/3/2015
					20,542	⁽¹¹⁾		43.1000		1/3/2016
Total					484,377												19,656		794,299


⁽¹⁾		The number and exercise price of all options have been adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005 and February 2006.

⁽²⁾		The numbers have been adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005 and February 2006.

⁽³⁾		The market value was calculated based on the closing market price per share of the Company’s Common Stock on the last trading day of 2006, $40.41 per share.

⁽⁴⁾		The number of performance units disclosed is based on the assumption that target performance goals were achieved.

⁽⁵⁾		The payout value was calculated based on the closing market price per share of the Company’s Common Stock on the last trading day of 2006, $40.41 per share, and the assumption that target performance goals were achieved.

⁽⁶⁾		The restricted shares were granted per Mr. Boyce’s employment agreement and stock grant agreement.

⁽⁷⁾		The options were granted on October 1, 2003. All of them vested on October 1, 2003.

⁽⁸⁾		The options were granted on January 2, 2004 and vest in three equal annual installments beginning January 2, 2005.

⁽⁹⁾		The options were granted on January 3, 2005 and vest in three equal annual installments beginning January 3, 2006.

⁽¹⁰⁾		The options were granted on March 1, 2005 and vest in three equal annual installments beginning March 1, 2006.

⁽¹¹⁾		The options were granted on January 3, 2006 and vest in three equal annual installments beginning January 3, 2007.

⁽¹²⁾		The options were granted on May 19, 1998 and vest on November 19, 2007.

⁽¹³⁾		The options were granted on January 1, 2001 and vest on July 1, 2010.

⁽¹⁴⁾		The options were granted on June 15, 2004 and vest in three equal annual installments beginning June 15, 2005.

⁽¹⁵⁾		The options were granted on April 1, 2005 and vest in three equal annual installments beginning April 1, 2006.

⁽¹⁶⁾		The options were granted on January 3, 2006 and vest on January 3, 2009.

OPTION EXERCISES AND STOCK VESTED IN 2006

The following table sets forth detail about stock option exercises by the named executive officers during 2006 and stock awards that vested during 2006. The options in this table were granted between April 2002 and April 2005. The stock awards were granted in January 2004 as performance ~~units based upon the TSR performance as of the date the event occurs.~~unit awards.

Option Exercises and Stock Vested


	Option Awards				Stock Awards
	Number of				Number of
	Shares				Shares
	Acquired on		Value Realized		Acquired on		Value Realized
	Exercise		on Exercise		Vesting		on Vesting
Name	(#)⁽¹⁾		($)⁽²⁾		(#)⁽¹⁾⁽³⁾		($)⁽⁴⁾

Gregory H. Boyce		35,000		2,093,075		93,640		4,123,906
Richard A. Navarre		56,750		2,962,916		66,256		2,917,914
Richard M. Whiting		67,539		2,556,360		48,016		2,114,625
Sharon D. Fiehler		29,887		1,711,421		27,848		1,226,426
Roger B. Walcott, Jr.		40,061		2,171,749		41,048		1,807,754


⁽¹⁾		Numbers have been adjusted to reflect the~~Other Plans~~2-for-1 stock splits effected by the Company in March 2005 and February 2006.

⁽²⁾		The value realized by the named executive officer was calculated based on the difference between the closing market price per share of the Company’s Common Stock on the date of exercise and the applicable exercise price.

⁽³⁾		Represents the number of performance units earned for the period January 2, 2004 to December 31, 2006, which was paid in cash.

⁽⁴⁾		Additional information about the value realized by the named executive officers is included in the Peabody Relative Performance for Performance Period Ended December 31, 2006 and Resulting Performance Unit Awards Table on page 39 of this Proxy Statement.

The Company maintains a Deferred Compensation Plan pursuant to which certain executives can defer base, annual incentive and any cash-based long-term incentive compensation. Effective December 8, 2004,

In February 2007, the ~~Company amended the Deferred Compensation Plan to no longer allow new contributions.~~

The Company also maintains a defined contribution retirement plan, a defined benefit retirement plan (which plan is being phased out as discussed on page 29 of the Proxy Statement) and other health and welfare benefit plans for its employees. Executives participate in these plans on the same terms as other eligible employees, subject to any legal limits on the amount that may be contributed by or paid to executives under the plans. In addition, the Company maintains one excess defined benefit retirement plan and one excess defined contribution plan that provides retirement benefits to executives whose pay exceeds legislative limits for qualified benefit plans.


	*~~Compensation of the Chief Executive Officer and Chairman~~*

Upon his election as Chief Executive Officer Elect in March 2005, Mr. Boyce’s base salary was increased to $825,000. During 2005, Mr. Engelhardt’s base salary was $1,000,000. Effective January 1, 2006, Mr. Engelhardt’s base salary was adjusted to $350,000 to reflect his continuing roles as Chairman of the Board and senior officer of the Company. A review of competitive market data conducted in June 2005 by an independent compensation consultant (selected by and reporting to the Compensation Committee) supports the competitiveness of these salaries.

For the fiscal year ended December 31, 2005, Mr. Boyce’s maximum incentive opportunity under the Company’s annual incentive compensation plan for 2005 was 175% of his base salary, or $1,443,750. Mr. Engelhardt’s maximum incentive opportunity under the Company’s annual incentive compensation plan was also 175% of his base salary, or $1,750,000. The maximum incentive opportunity for the other named executive officers was 150% of their base salary. Based on Company and individual performance for the fiscal year ended December 31, 2005, Mr. Boyce was awarded a bonus payout equal to 154.2% of his 2005 base salary, or $1,272,370. Mr. Engelhardt was awarded a bonus payout equal to 165.5% of his 2005 annual base salary, or $1,654,935. The full Board of Directors evaluated Mr. Boyce’s and Mr. Engelhardt’s performance during 2005, and this evaluation of their individual performance combined with the Company’s performance versus pre-established targets were the major considerations in setting the amount of annual incentive compensation plan awards. The Compensation Committee and the independent members of the Board of Directors approved the salary and bonus amounts for Messrs. Boyce and Engelhardt.

~~During the fiscal year ended December 31, 2005, Messrs. Boyce and Engelhardt also~~ received ~~long-term incentive awards consisting of stock options and performance units. The specific terms of such awards are outlined in this report~~payouts under the ~~captions “Long Term Incentives,” “Stock Options” and “Performance Units,” and in the compensation tables above.~~

~~In February 2006, Messrs. Boyce and Engelhardt received performance payouts of $1,473,103 and $14,505,315, respectively, pursuant to~~ terms of performance units awards granted in ~~2003~~2004 (described above under “Performance Units”) in the Compensation Discussion and Analysis on page 24 of this Proxy Statement). The value realized is shown in the “Stock Awards” column in the above table. These payouts were consistent with the Company’s stated executive compensation philosophy to create a clear link to shareholder value and to base ~~payments,~~compensation, in part, on relative external performance. Specifically, the percentage of these performance units earned was based on the Company’s ~~total shareholder return~~TSR over the three-year performance period beginning January 2, ~~2003~~2004 and ending December 31, ~~2005,~~2006, relative to the ~~total shareholder return (“TSR”)~~TSR of an industry comparator group and anthe S&P ~~Industrial Index.~~MidCap 400 Index, and the Company’s Adjusted EBITDA Return on Invested Capital over the same period.

~~During this~~

Over the three-year performance period, the ~~Company created~~Company’s shareholder value increased approximately $9$8.4 billion, ~~in additional shareholder value,~~ while setting records for safety. The Company’s TSR of 332% was the highest in the industry comparator group and at the 99th percentile of the ~~relevant~~ S&P ~~Industrial~~MidCap 400 Index. ~~It was also the highest three-year total shareholder return since the Company’s initial public offering. Messrs. Boyce and Engelhardt~~The named executive officers were instrumental in leading the Company through this ~~unprecedented~~ period of growth and ~~improvements~~improvement in safety that resulted in a ~~70.9%~~86.7% increase in revenues, a

~~524%~~ 293% increase in stock price and a ~~48%~~31.9% improvement in safety ratings. ~~Future performance unit payouts, if any, will require continued above-median relative TSR.~~

The following table sets forth additional details regarding performance unit ~~payments~~payouts earned by each of the named executive officers in ~~2005.~~2006. The ~~payments~~payouts relate to performance units granted in ~~2003~~2004 and

reflect the Company’s performance and stock price appreciation during the ensuing three-year performance period.

The table compares the Company’s ~~total shareholder return~~TSR for the three-year period ended December 31, ~~2005~~2006 to the performance of a peer group ~~comprising seven~~of four publicly-traded mining companies and to the performance of ~~an index comprising 375 publicly-traded industrial companies.~~the S&P MidCap 400 Index. Based on the Company’s relative performance, the named executive officers earned the following awards under the program:

Peabody Relative Performance for Performance Period ~~Ending~~Ended December 31, ~~2005~~
2006 and

Resulting Performance Unit Awards⁽¹⁾

Peabody Peabody
Percentile Percentile
Ranking Ranking
Among Peer Compared Peabody
Companies- Peabody to Industrial Ranking
Total Ranking Index-Total Among Payout as Target Actual Award Actual Award
Performance Shareholder Among 7 Peer Shareholder Industrial a % of Award Units Units Value
Name Period Return Companies Return Companies Target (#)⁽²⁾ (#)⁽²⁾ ($)⁽³⁾

Gregory H. Boyce 2003-2005 100 % 1 99.1 % 3 of 375 200 % 17,804 35,608 $ 1,473,103 ⁽⁴⁾
Richard A. Navarre 2003-2005 100 % 1 99.1 % 3 of 375 200 % 31,044 62,088 $ 2,568,581
Richard M. Whiting 2003-2005 100 % 1 99.1 % 3 of 375 200 % 32,140 64,280 $ 2,659,264
Roger B. Walcott, Jr. 2003-2005 100 % 1 99.1 % 3 of 375 200 % 30,316 60,632 $ 2,508,346
Irl F. Engelhardt 2003-2005 100 % 1 99.1 % 3 of 375 200 % 175,312 350,624 $ 14,505,315


			Peabody					Peabody
			Percentile					Percentile
			Ranking					Ranking
			Among Peer			Peabody		Compared to			Peabody
			Companies —			Ranking		MidCap			Ranking
			Total			Among 4		Index-Total			Among					Target Award		Actual Award		Actual Award
	Performance		Shareholder			Peer		Shareholder			MidCap		Payout as a %			Units		Units		Value
Name	Period		Return			Companies		Return⁽¹⁾			Companies⁽¹⁾		of Target			(#)⁽²⁾		(#)⁽²⁾		($)⁽³⁾

Gregory H. Boyce		2004 - 2006		100	%		1		98.7	%		6 of 397		200	%		46,820		93,640		4,123,906
Richard A. Navarre		2004 - 2006		100	%		1		98.7	%		6 of 397		200	%		33,128		66,256		2,917,914
Richard M. Whiting		2004 - 2006		100	%		1		98.7	%		6 of 397		200	%		24,008		48,016		2,114,625
Sharon D. Fiehler		2004 - 2006		100	%		1		98.7	%		6 of 397		200	%		13,924		27,848		1,226,426
Roger B. Walcott, Jr.		2004 - 2006		100	%		1		98.7	%		6 of 397		200	%		20,524		41,048		1,807,754


⁽¹⁾		The index is designed to track the performance of companies included in the S&P ~~500 Index, excluding companies in the financial services, utility and transportation sectors.~~MidCap 400.

⁽²⁾		Number of ~~shares~~units has been adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005 and February 2006.

⁽³⁾		The value of the awards was calculated based on the average closing price per share of the Company’s Common Stock for the four-week period ended December 31, ~~2005~~2006 ($~~41.37, which has been adjusted~~44.04) and based on exceeding the target performance goals.

PENSION BENEFITS IN 2006

The Company’s Salaried Employees Retirement Plan, or pension plan, is a “defined benefit” plan. The pension plan provides a monthly annuity to eligible salaried employees when they retire. An employee must have at least five years of service to be vested in the pension plan. A full benefit is available to a retiree at age 62. A retiree can begin receiving a benefit as early as age 55; however, a 4% reduction factor applies for each year a retiree receives a benefit prior to age 62.

The Company announced in February 1999 that the pension plan would be phased out beginning January 1, 2001. Certain transition benefits were introduced based on the age and service of the employee at December 31, 2000: (1) employees age 50 or older continue to accrue service at 100%; (2) employees between the ages of 45 and 49 or under age 45 with 20 years or more of service continue to accrue service at the rate of 50% for each year of service worked after December 31, 2000; and (3) employees under age 45 with less than 20 years of service have had their pension benefits frozen. In all cases, final average earnings for retirement purposes are capped at December 31, 2000 levels.

Listed below is the estimated present value of the current accumulated pension benefit for each of the named executive officers as of December 31, 2006. The estimated present value was determined assuming the named executive officer retires at age 62, the normal retirement age under the plan, using a discount rate of 6.0% and the RP 2000 White Collar Mortality with Mortality Improvements Projected to 2007 with Scale AA Table. Other material assumptions used in making the calculation are discussed in Note 15 to the Company’s consolidated financial statements on pages F-35 through F-40 of the Annual Report onForm 10-K for the year ended December 31, 2006. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that will be paid to the named executive officers, which will be known only at the time they become eligible for payment.

Number of

Present Value

Years Credited

of Accumulated

Payments in

Service

Benefit

2006

Name

Plan Name

(#)⁽¹⁾

($)

Gregory H. Boyce⁽²⁾

Salaried Employees

—

Retirement Plan

Richard A. Navarre⁽³⁾

Salaried Employees

7.8

186,561

—

Retirement Plan

Richard M. Whiting⁽⁴⁾

Salaried Employees

27.0

1,555,245

—

Retirement Plan

Sharon D. Fiehler⁽³⁾

Salaried Employees

19.8

426,075

—

Retirement Plan

Roger B. Walcott, Jr.⁽³⁾

Salaried Employees

2.6

155,137

—

Retirement Plan


⁽¹⁾		Due to the phase-out of the Company’s pension plan as described above, years of credited service may be less than years of actual service. Actual years of service for the ~~February 2006 stock split).~~named executive officers are as follows: Mr. Boyce: 3.25; Mr. Navarre: 13.76; Mr. Whiting: 29.98; Ms. Fiehler: 25.79; and Mr. Walcott: 8.59.

~~(4)~~ ⁽²⁾		Mr. ~~Boyce’s performance award was prorated~~Boyce is not eligible to receive benefits under the Company’s pension plan because his employment with the Company began after the ~~commencement~~phase-out of the ~~performance period.~~plan.

⁽³⁾		Under the terms of the phase-out, Mr. Navarre’s, Ms. Fiehler’s and Mr. Walcott’s pension benefits were frozen as of December 31, 2000, and years of credited service, for the purpose of the pension plan, ceased to accrue.

⁽⁴⁾		Under the terms of the phase-out, Mr. Whiting accrues credited service at the rate of 50% for each year of actual service after December 31, 2000.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The ~~following graphs illustrate~~tables below reflect the ~~Company’s strong performance over~~amount of compensation that would have been payable to each of the ~~past three years~~named executive officers in the event of termination of such executives’ employment, per the terms of ~~its market capitalization, share price appreciation,~~their employment agreements and ~~share price appreciation relative~~long-term incentive agreements. The amount of compensation payable to ~~its peer group.~~

~~Share prices~~each named executive officer upon Retirement, “For Cause” Termination, Death or Disability, Voluntary Termination, Involuntary Termination “Without Cause” or “For Good Reason”, and Involuntary Termination as a Result of Change in Control is shown below. The amounts shown assume that termination was effective as of December 31, 2006, and are estimates of the amounts that would have been ~~adjusted for~~paid to the~~2-for-1~~ ~~stock splits effective March 2005 and February 2006.~~ executives upon their termination. The actual amounts that would be payable can be determined only at the time of the executives’ termination.

~~Source: Thomson Financial.~~

Estimated Incremental Value Upon Termination

~~Source: Thompson Financial.~~


									Involuntary
									Termination		Involuntary
									“Without Cause”		Termination as a
			‘‘For Cause”		Death or		Voluntary		or “For Good		Result of Change
	Retirement		Termination		Disability		Termination		Reason”		in Control
Name	($)⁽¹⁾		($)⁽²⁾		($)⁽³⁾		($)⁽⁴⁾		($)⁽⁵⁾		($)⁽⁶⁾

Gregory H. Boyce		—		—		14,246,779		484,920		19,208,918		21,153,676
Richard A. Navarre		—		76,923		4,374,111		76,923		4,370,006		23,482,518
Richard M. Whiting		—		134,038		3,240,352		134,038		3,719,065		20,599,243
Sharon D. Fiehler		—		62,769		2,260,475		62,769		2,631,011		16,008,607
Roger B. Walcott, Jr.		—		33,538		1,919,475		33,538		2,687,374		19,442,987


⁽¹⁾		None of the named executive officers was eligible for retirement (age 55, with 10 years of service) as of December 31, 2006.

⁽²⁾		“For Cause” means (i) any material and uncorrected breach by the executive of the terms of their employment agreement, including but not limited to engaging in disclosure of secret or confidential information, (ii) any willful fraud or dishonesty of the executive involving the property or business of the Company, (iii) a deliberate or willful refusal or failure to comply with any major corporate policies which are communicated in writing or (iv) the executive’s conviction of, or plea of no contest to, any felony if such conviction results in imprisonment. Compensation payable to an executive would include only accrued but unused vacation.

⁽³⁾		For all named executive officers, except Mr. Boyce, compensation payable would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of outstanding performance units, and d) the value realized as a result of the accelerated vesting of any unvested stock option awards, per the terms of the executive’s stock option grant agreement. Mr. Boyce’s compensation payable would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of outstanding performance units, d) the value realized as a result of the accelerated vesting of any unvested stock option awards, per the terms of his stock option grant agreement, e) a lump sum of $800,000, f) deferred compensation equal to the fair market value of 80,000 shares of Common Stock on the date of termination, and g) the fair market value on the date of termination of 100,000 restricted shares of Common Stock that accelerate vest. For 2006, the prorated annual incentive was equal to 100% of the non-equity incentive plan compensation, as shown in the Summary Compensation Table on page 32 of this Proxy Statement, and payout of performance units reflects the values for the 2005 and 2006 performance units as shown in the Outstanding Equity Awards at 2006 Fiscal Year End Table on page 35 of this Proxy Statement. Amounts do not include life insurance payments in the case of death.

	*~~Policy~~*
⁽⁴⁾		For all named executive officers, except Mr. Boyce, the compensation payable would include accrued but unused vacation. Mr. Boyce’s compensation payable would include a) accrued but unused vacation ($0 as of December 31, 2006), and b) the prorated value of outstanding restricted shares as determined by his October 1, 2003 restricted stock grant agreement. The compensation payable to Mr. Boyce for voluntary termination at December 31, 2006 would have been $484,920 (40,000 shares x 30% x $40.41), assuming he complied with the non-compete and non-solicitation provisions of his employment agreement for one year after termination.

⁽⁵⁾		For all named executive officers, except Mr. Boyce, the compensation payable would include a) severance payments of two times base salary, b) a payment equal to two times the higher of (1) the target annual incentive or (2) the average of the actual annual incentives paid in the three prior years, c) prorated annual incentive for year of termination, d) continuation of benefits for two years, and e) prorated payout of outstanding performance units. Mr. Boyce’s compensation payable would include a) severance payments of three times base salary, b) a payment equal to three times the higher of (1) the target annual incentive or (2) the average of the actual annual incentives paid in the three prior years, c) prorated annual incentive for year of termination, d) continuation of benefits for three years, e) prorated payout of outstanding performance units, f) a lump sum of $800,000, g) deferred compensation equal to the fair market value of 80,000 shares of Common Stock on ~~Deductibility~~the date of ~~Compensation Expenses~~termination, and h) the fair market value on the date of termination of 160,000 restricted shares of Common Stock, which would accelerate vest.

⁽⁶⁾		Reflects total estimate of compensation payable as a result of both a Change in Control and a termination of employment, as detailed in the Estimated Current Value of Change in Control Benefits Table below. With the exception of Mr. Boyce, this includes the value of stock options granted prior to the Company’s May 2001 IPO, which vest in November 2007 and July 2010, and expire in May 2008 and January 2011, respectively.

~~Pursuant~~

The named executive officers would be entitled to receive certain benefits upon a change in control of the Company under the terms of their individual employment agreements and long-term incentive agreements. The actual value of these benefits would be known only if and when they become eligible for payment. The following table provides an estimate of the value that would have been payable to each named executive officer assuming a change in control of the Company had occurred on December 31, 2006, including agross-up for certain taxes in the event that any payment made in connection with the change in control was subject to the excise tax imposed by Section ~~162(m) under~~4999 of the Internal Revenue ~~Code,~~Code.

Estimated Current Value of Change in Control Benefits


					Accelerated Vesting of Unvested
					Stock Option Awards
	Severance		Estimated Tax		($)⁽³⁾
	Amount		Gross Up		LBO Grants		Post-IPO Grants		Total
Name	($)⁽¹⁾		($)⁽²⁾		($)⁽⁴⁾		($)		($)

Gregory H. Boyce		19,208,918		—		—		1,944,758		21,153,676
Richard A. Navarre		4,370,006		3,529,770		14,306,654		1,276,089		23,482,518
Richard M. Whiting		3,719,065		—		16,031,975		848,204		20,599,243
Sharon D. Fiehler		2,631,011		2,559,348		10,295,197		523,051		16,008,607
Roger B. Walcott, Jr.		2,687,374		—		16,031,975		723,638		19,442,987


⁽¹⁾		The severance amount is equal to the amount shown in the “Involuntary Termination ‘Without Cause’ or ‘For Good Reason’ ” column in the Estimated Incremental Value Upon Termination Table above.

⁽²⁾		Includes excise tax, plus the effect of 35% federal income taxes, 6% state income taxes, and 1.45% FICA-HI taxes on the excise tax. Excise tax is equal to 20% times the excess parachute payment


		subject to excise tax. An excess parachute payment is triggered when the change in control amount is greater than the safe harbor amount (equal to 3x the base amount; base amount is the average of the previous 5 years’W-2 earnings); actual excess parachute payment is equal to the difference between the preliminary change in control amount and the base amount.


⁽³⁾		Reflects the value an executive could realize as a result of the accelerated vesting of any unvested stock option awards, based on the Company’s stock price on the last trading day of 2006, $40.41. The value realized is not and would not be a liability of the Company.

⁽⁴⁾		A substantial portion of the value payable upon a change in control to the named executive officers, other than Mr. Boyce, is attributable to stock options granted to them prior to the Company’s May 2001 IPO. These options were granted in 1998 in connection with a leveraged buyout transaction or “LBO” involving Peabody Energy’s acquisition of Peabody Holding Company. The size and terms of the pre-IPO stock options or “LBO grants” were determined according to standard practices at that time for private companies. The LBO grants, many of which remain unexercised, were designed to be competitive in the industry marketplace for top executives, to compensate the management group on a basis commensurate with the risks associated with a highly leveraged transaction, to reward performance and to align their interests with the Company’s owners. The LBO grants vest in November 2007 and July 2010, and expire in May 2008 and January 2011, respectively. Additional detail about the LBO grants is set forth in the Outstanding Equity Awards at 2006 Fiscal Year End Table on page 35 of this Proxy Statement.

DIRECTOR COMPENSATION IN 2006

Annual compensation of non-employee directors for 2006 was comprised of cash compensation, consisting of annual retainer and committee fees, and equity compensation, consisting of stock option awards and restricted stock awards. Each of these components is described in more detail below. The total 2006 compensation of the Company’s non-employee directors is shown in the following table.

Annual Board/Committee Fees

In 2006, non-employee directors received an annual cash retainer of $75,000. Non-employee directors who served on more than one committee received an additional annual $10,000 cash retainer. The Audit Committee Chairperson received an additional annual $15,000 cash retainer, and the other Audit Committee members received additional annual $5,000 cash retainers. The Chairpersons of the Compensation and Nominating & Corporate Governance Committees each received an additional annual $10,000 cash retainer.

The Company pays travel and accommodation expenses of directors to attend meetings and other corporate functions. Directors do not receive meeting attendance fees.

Annual Equity Compensation

Non-employee directors received annual equity compensation valued at $75,000 in 2006, awarded one-half in restricted shares (based on the fair market value of the Common Stock on the date of grant) and one-half in stock options (based onBlack-Scholesmethodology). The restricted stock awards will vest on the third anniversary of the date of grant or such other period designated by the Board of Directors pursuant to the Company’s Long-Term Equity Incentive Plan. The stock option awards were granted at an exercise price equal to the fair market value of the Common Stock on the date of grant, will vest in equal annual installments over three years, and will expire ten years after grant. In the event of a change in control of the Company (as defined in the Company’s Long-Term Equity Incentive Plan), all restrictions related to the restricted stock awards will lapse and any previously unvested options will vest. The

restricted stock awards and options also provide for vesting in the event of death or disability or termination of service without cause with Board consent.

Director Compensation


									Change in
									Pension Value
									and Non-
									Qualified
	Fees Earned						Non-Equity		Deferred
	or Paid in				Option		Incentive Plan		Compensation		All Other
	Cash		Stock Awards		Awards		Compensation		Earnings		Compensation		Total
Name	($)		($)⁽¹⁾⁽²⁾		($)⁽¹⁾⁽³⁾		($)		($)		($)⁽⁴⁾		($)

Chairman
Irl F. Engelhardt⁽⁵⁾		—		—		—		—		—		—		—
Non-Employee Directors
B. R. Brown		75,000		12,500		35,829		—		—		1,489		124,819
William A. Coley		75,000		29,167		41,320		—		—		1,295		146,781
Henry Givens, Jr.		75,000		29,167		41,320		—		—		2,387		147,873
William E. James		75,000		12,500		35,829		—		—		209		123,538
Robert B. Karn III^*		100,000		12,500		35,829		—		—		209		148,538
Henry E. Lentz		75,000		29,167		41,320		—		—		1,224		146,711
William C. Rusnack^*		100,000		12,500		35,829		—		—		209		148,538
James R. Schlesinger		75,000		12,500		35,829		—		—		209		123,538
Blanche M. Touhill^*		85,000		12,500		35,829		—		—		1,301		134,630
John F. Turner		75,000		29,167		29,611		—		—		1,646		135,424
Sandra Van Trease		80,000		12,500		35,829		—		—		710		129,039
Alan H. Washkowitz		75,000		29,167		41,320		—		—		1,224		146,711


^*		Committee Chair

⁽¹⁾		The value of stock awards and option awards was the 2006 compensation charge dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R. For all non-employee directors the grant date fair value for stock awards determined under FAS 123R for financial reporting purposes was $37,500, and the grant date fair value for option awards determined under FAS 123R for financial reporting purposes was also $37,500. A discussion of the relevant fair value assumptions is set forth in Note 18 to the Company’s consolidated financial statements on pages F-49 through F-51 of the Annual Report onForm 10-K for the year ended December 31, 2006. The Company cautions that the amount ultimately realized by the non-employee directors from the stock and option awards will likely vary based on a number of factors, including the Company’s actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.

⁽²⁾		As of December 31, 2006, the aggregate number of restricted stock awards outstanding for each non-employee director was as follows: Mr. Brown, 870; Mr. Coley, 5,394; Dr. Givens, 5,394; Mr. James, 870; Mr. Karn, 870; Mr. Lentz, 5,102; Mr. Rusnack, 870; Dr. Schlesinger, 870; Dr. Touhill, 870; Mr. Turner, 2,464; Ms. Van Trease, 870; and Mr. Washkowitz, 5,102.

⁽³⁾		As of December 31, 2006, the aggregate number of option awards outstanding for each non-employee director was as follows: Mr. Brown, 12,546; Mr. Coley, 12,546; Dr. Givens, 12,546; Mr. James, 226,942; Mr. Karn, 19,562; Mr. Lentz, 12,546; Mr. Rusnack, 26,742; Dr. Schlesinger, 26,742; Dr. Touhill, 26,742; Mr. Turner, 4,266; Ms. Van Trease, 19,562; and Mr. Washkowitz, 12,546.


⁽⁴⁾		Includes (a) dividends paid on restricted stock awards, and (b) the aggregate incremental cost of use of corporate aircraft as determined on a per flight basis, including the cost of fuel, landing fees, the cost of in-flight meals, sales tax, crew expenses, the hourly cost of aircraft maintenance for the applicable number of flight hours, and other variable costs specifically incurred. Amounts represent trips where a spouse accompanied a non-employee director on corporate aircraft for Company business purposes. Dividends are paid at the same rate applicable to all outstanding shares of Common Stock.

⁽⁵⁾		Mr. Engelhardt, Chairman of the Board and former Chief Executive Officer of the Company, continues to serve as a senior officer of the Company and receives a salary and other compensation pursuant to the terms of an employment agreement with the Company which is discussed in detail below. He receives no additional compensation for serving as a director.

COMPENSATION OF THE CHAIRMAN IN 2006

Mr. Engelhardt, the Chairman of the Board and former Chief Executive Officer of the Company, continues to serve as a senior officer of the Company and receives a salary and other compensation pursuant to the terms of an employment agreement with the Company. He receives no additional compensation for serving as a director.

The Company entered into an amended employment agreement with Mr. Engelhardt effective January 1, 2006 at a salary and bonus level as described below. The amended employment agreement spells out Mr. Engelhardt’s duties as Chairman. In addition, specific assignments involving his experience and relationships, such as acquisitions, development of Btu generation projects and select operational issues, are jointly developed with the CEO at the beginning of each year and are approved by the Board of Directors. At the end of each year, Mr Engelhardt’s performance is evaluated by the independent directors. Mr. Engelhardt’s amended agreement is for a term of two years, which may be extended by mutual agreement. The Company may only terminate employment for cause, disability or death. Mr. Engelhardt may terminate his employment at any time; however, if he terminates employment for good reason, he would be entitled to his base salary through December 31, 2007, a one-time prorated bonus for the year of termination, payable when bonuses, if any, are paid to other executives. He would also receive qualified and nonqualified retirement, life insurance, medical and other benefits through December 31, 2007.

The tables below reflect the amount of compensation that would have been payable to Mr. Engelhardt in the event of termination of his employment, per the terms of his employment agreement and long-term incentive agreements. The amount of compensation payable to Mr. Engelhardt upon Retirement, “For Cause” Termination, Death or Disability, Voluntary Termination, Involuntary Termination “Without Cause” or “For Good Reason”, and Involuntary Termination as a Result of Change in Control is shown below. The amounts shown assume that termination was effective as of December 31, 2006, and are estimates of the amounts that would have been paid to Mr. Engelhardt upon his termination. The actual amounts that would be payable can be determined only at the time of his termination.

Estimated Incremental Value Upon Termination

Involuntary

Termination

Involuntary

“Without Cause”

Termination as a

“For Cause”

Death or

Voluntary

or “For Good

Result of Change

Retirement

Termination

Disability

Termination

Reason”

in Control

Name

($)⁽¹⁾

($)⁽¹⁾⁽²⁾

($)⁽³⁾

($)⁽¹⁾

($)⁽⁴⁾

($)⁽⁵⁾

Irl F. Engelhardt

234,615

6,238,844

234,615

2,298,320

51,732,269


⁽¹⁾		Compensation payable would include accrued but unused vacation.

⁽²⁾		“For Cause” means (i) any material and uncorrected breach by the executive of the terms of his employment agreement, including but not limited to engaging in disclosure of secret or confidential information, (ii) any willful fraud or dishonesty of the executive involving the property or business of the Company, (iii) a deliberate or willful refusal or failure to comply with any major corporate policies which are communicated in writing or (iv) the executive’s conviction of, or plea of no contest to, any felony if such conviction results in imprisonment. Compensation payable would include only accrued but unused vacation.

⁽³⁾		Compensation payable would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of outstanding performance units, and d) the value realized as a result of the accelerated vesting of any unvested stock option awards, per the terms of his stock option grant agreement.

⁽⁴⁾		Compensation payable would include a) lump sum severance payment of base salary through December 31, 2007, b) prorated annual incentive for year of termination, c) continuation of benefits through December 31, 2007, and d) prorated payout of outstanding performance units.

⁽⁵⁾		Reflects total estimate of compensation payable as a result of both a Change in Control and a termination of employment, as detailed in the Estimated Current Value of Change in Control Benefits Table below. The compensation payable includes $45,909,545 of value realized as a result of the accelerated vesting of stock options granted to Mr. Engelhardt prior to the Company’s May 2001 initial public offering. Of the $45,909,545 of value realized, $41,228,088 is attributable to options which vest in November 2007 and expire in May 2008, and $4,681,457 is attributable to options which vest in July 2010 and expire in January 2011. Additional detail about these option grants is set forth below.

Mr. Engelhardt would be entitled to receive certain benefits upon a change in control of the Company under the terms of his individual employment agreement and long-term incentive agreements. The actual value of these benefits would be known only if and when they become eligible for payment. The following table provides an estimate of the value that would have been payable to Mr. Engelhardt assuming a change in control of the Company had occurred on December 31, 2006, including agross-up for certain taxes in the event that any payment made in connection with the change in control was subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.

Estimated Current Value of Change in Control Benefits

Accelerated Vesting of Unvested

Severance

Estimated Tax

Stock Option Awards ($)⁽³⁾

Amount

Gross Up

LBO Grants

Post-IPO Grants

Name

($)⁽¹⁾

($)⁽²⁾

($)⁽⁴⁾

($)

Total ($)

Irl F. Engelhardt

2,298,320

—

45,909,545

3,524,404

51,732,269


⁽¹⁾		The severance amount is equal to the amount shown in the “Involuntary Termination ‘Without Cause’ or ‘For Good Reason’ ” column in the Estimated Incremental Value Upon Termination Table above.


⁽²⁾		Includes excise tax, plus the effect of 35% federal income taxes, 6% state income taxes and 1.45% FICA-HI taxes on the excise tax. Excise tax is equal to 20% times the excess parachute payment subject to excise tax. An excess parachute payment is triggered when the change in control amount is greater than the safe harbor amount (equal to 3x the base amount; base amount is the average of the previous 5 years’W-2 earnings); actual excess parachute payment is equal to the difference between the preliminary change in control amount and the base amount.

⁽³⁾		Reflects the value Mr. Engelhardt could realize as a result of the accelerated vesting of any unvested stock option awards, based on the Company’s stock price on the last trading day of 2006, $40.41. The value realized is not and would not be a liability of the Company.

⁽⁴⁾		This number is the value realized as a result of the accelerated vesting of stock options granted to Mr. Engelhardt prior to the Company’s May 2001 initial public offering. Of the $45,909,545 of value realized, $41,228,088 is attributable to options which vest in November 2007 and expire in May 2008, and $4,681,457 is attributable to options which vest in July 2010 and expire in January 2011. Additional detail about these option grants is set forth below.

In 2006 Mr. Engelhardt received an annual salary of $350,000 for his service as a senior officer of the Company, and earned non-equity incentive compensation in the amount of $246,880, equal to 71% of his salary. Mr. Engelhardt received no option awards, performance unit awards or restricted stock awards in 2006. Other compensation paid to ~~executive officers in excess~~Mr. Engelhardt during 2006 includes group term life insurance, $594; 401(k) company match and performance contribution, $38,500; and the aggregate incremental cost of ~~$1 million~~use of corporate aircraft which represents trips where a family member of Mr. Engelhardt accompanied him on corporate aircraft for Company business purposes, $848.

A substantial portion of Mr. Engelhardt’s outstanding awards is ~~not tax deductible, except~~attributable to ~~the extent such excess constitutes performance-based compensation. Prior~~stock options granted to ~~May 2005, the limit on deductibility did not apply to plans in existence~~him prior to the Company’s ~~initial public offering~~May 2001 IPO when he served as Chief Executive Officer and Chairman. These options were granted in ~~2001.~~1998 in connection with a leveraged buyout transaction or “LBO” involving Peabody Energy’s acquisition of Peabody Holding Company. The ~~Committee has~~size and ~~will continue to carefully consider the impact of Section 162(m) when establishing incentive compensation plans that apply to periods after May 2005. As a result, a significant portion~~terms of the ~~Company’s executive compensation satisfies~~pre-IPO stock options or “LBO grants” were determined according to standard practices at that time for private companies. The LBO grants, many of which remain unexercised, were designed to be competitive in the ~~requirements~~industry marketplace for ~~deductibility under Section 162(m). At~~top executives, to compensate the ~~same time,~~management group on a basis commensurate with the ~~Committee considers its primary goal~~risks associated with a highly leveraged transaction, to ~~design compensation strategies that further the best~~reward performance and to align their interests of the Company and its shareholders. In certain cases, the Compensation Committee may determine that the amount of tax deductions lost is insignificant when compared to the potential opportunity a compensation program provides for creating shareholder value. The Compensation Committee therefore retains the ability to evaluate the performance ofwith the Company’s ~~executive officers~~owners. The LBO grants vest in November 2007 and ~~to pay appropriate compensation, even if it may result~~July 2010, and expire in May 2008 and January 2011, respectively. Additional detail about the LBO grants is set forth in the ~~non-deductibility~~“Outstanding Equity Awards at Fiscal Year End” table below.

As of ~~certain compensation.~~December 31, 2006, Mr. Engelhardt’s outstanding equity awards were as follows:

Option Awards

Stock Awards

Equity

Incentive

Plan

Awards: Market

Awards:

or Payout

Number of

Value

Market

Unearned

of Unearned

Number of

Value

Shares,

Shares or

of Shares

Units or

Number of

Units of

or Units

Other

Securities

Stock

of Stock

Rights

Underlying

That

Unexercised

Option

Have

Options

Exercise

Option

Not

(#)⁽¹⁾

Price

Expiration

Vested

Name

Exercisable

Unexercisable

($)⁽¹⁾

Date

(#)

($)

(#)⁽²⁾⁽³⁾

($)⁽⁴⁾

Irl F. Engelhardt

57,036

2,304,825

LBO Grants

1,119,188

⁽⁵⁾

3.5725

5/19/2008

127,084

⁽⁶⁾

3.5725

1/1/2011

Post-IPO Grants

67,939

⁽⁷⁾

10.4875

1/2/2014

⁽⁸⁾

74,029

⁽⁸⁾

20.2625

1/25/2015

Total

1,388,240

57,036

2,304,825


	*~~Stock Ownership Guidelines~~*

The Compensation Committee believes the Company’s executives and directors should acquire and retain a significant amount of Company Common Stock in order to further align their interests with those of other shareholders.

~~Under the executive share ownership guidelines adopted by the Company, the Chief Executive Officer is encouraged to acquire and retain Company stock having a value equal to at least five times~~

his base salary. Other named executive officers are encouraged to acquire and retain Company stock having a value equal to at least three times their base salary. All such executives are encouraged to meet these ownership levels within five years after assuming their executive positions.

Under the Company’s share ownership guidelines for directors, directors are encouraged to acquire and retain Company stock having a value equal to at least three times their annual retainer. Directors are encouraged to meet these ownership levels by the later of December 31, 2007 or three years after joining the Board.


⁽¹⁾	~~MEMBERS OF THE COMPENSATION~~
	~~COMMITTEE:~~The number and exercise price of all options have been adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005 and February 2006.

⁽²⁾	~~ROBERT B. KARN III (CHAIR)~~	The numbers have been adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005 and February 2006.

~~B. R. BROWN~~⁽³⁾		The number of performance units disclosed is based on the assumption that target performance goals were achieved.

~~WILLIAM E. JAMES~~⁽⁴⁾		The payout value was calculated based on the closing market price per share of the Company’s Common Stock on the last trading day of 2006, $40.41 per share, and the assumption that target performance goals were achieved.

⁽⁵⁾		The options were granted on May 19, 1998 and vest on November 19, 2007.

⁽⁶⁾		The options were granted on January 1, 2001 and vest on July 1, 2010.

⁽⁷⁾		The options were granted on January 2, 2004 and vest in three equal annual installments beginning January 2, 2005.

⁽⁸⁾		The options were granted on January 25, 2005 and vest in three equal annual installments beginning January 25, 2006.

The 2006 compensation charge dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R for Mr. Engelhardt’s awards were as follows: option awards, $1,236,989; and performance unit awards, $9,306,935.

As of December 31, 2006, Mr. Engelhardt had 27 years of credited service for the Salaried Employees Retirement Plan, and the estimated present value of his current accumulated pension benefit was $5,014,494. The change in pension value for Mr. Engelhardt for 2006 was $558,061, and resulted from an increase in the discount rate from 5.9% to 6.0% and a change in the applicable mortality table.

In 2006, he exercised 899,722 options and realized a total value of $37,453,315 from the exercise of these options. Mr. Engelhardt earned 250,280 performance units for the period January 2, 2004 to December 31, 2006, which were paid in cash in the amount of $9,040,531, and 374,888 performance units for the period August 1, 2004 to December 31, 2006, which were paid in cash in the amount of $16,510,068.

Compensation Committee Interlocks and Insider Participation

Messrs. Brown, James and Karn currently serve on the Compensation Committee. None of these committee members is employed by the Company.

Policy for Approval of Related Person Transactions

Pursuant to a written policy adopted by the Board of Directors on January 23, 2007, the Nominating & Corporate Governance Committee is responsible for reviewing and approving all transactions between the Company and certain “related persons,” such as its executive officers, directors and owners of more than 5% of the Company’s voting securities. In reviewing a transaction, the Committee considers the relevant facts and circumstances, including the benefits to the Company, any impact on director independence and whether the terms are consistent with a transaction available on an arms-length basis. Only those related person transactions that are determined to be in (or not inconsistent with) the best interests of the Company and shareholders are permitted to be approved. No member of the Committee may participate in any review of a transaction in which the member or any of his or her family members is the related person. A copy of the policy can be found on the Company’s website (www.peabodyenergy.com) by clicking on “Investors,” then “Corporate Governance,” and then “Nominating and Corporate Governance Committee Charter” and is available in print to any shareholder who requests it. Information on our website is not considered part of this Proxy Statement.

Certain Transactions and Relationships

A sibling of Mr. Engelhardt, the Company’s Chairman, is employed as Director of Real Estate Sales for a subsidiary of the Company. His compensation (less than ~~$175,000~~$200,000 in ~~2005)~~2006) is in accordance with the Company’s employment and compensation practices applicable to employees with similar qualifications, responsibilities and positions.

~~STOCK PERFORMANCE GRAPH~~

~~The following performance graph compares~~In the ~~cumulative total return~~third quarter of 2006, the Company sold surplus land to Mr. Engelhardt, the Company’s Chairman, for $2.2 million and recognized a $1.8 million gain on the ~~Company’s Common Stock~~sale. The land was previously mined and reclaimed, and was not a strategic or income producing property. Prior to the sale, the Nominating & Corporate Governance Committee conducted a thorough review of the transaction, including values determined through independent appraisals of the property. Based on its review, the Nominating & Corporate Governance Committee determined the sale would be on terms comparable to terms available to an unrelated third party and would not be inconsistent with the ~~cumulative total return of two indices: (1) the S&P~~^© ~~MidCap 400 Index and (2) a peer group comprised of Arch Coal Inc., Massey Energy Company, CONSOL Energy, Inc. and Westmoreland Coal Company. The graph assumes that the value~~best interests of the ~~investment in~~ Company ~~Common Stock~~ and ~~each index was $100 at May 21, 2001,~~its stockholders. Upon the ~~date~~Nominating & Corporate Governance Committee’s recommendation, the independent members of the ~~Company’s initial public offering. The graph also assumes that all dividends were reinvested~~Board of Directors and that investments were held through December 31, 2005. These indices are included for comparative purposes only and do not necessarily reflect management’s opinion that such indices are an appropriate measure ofMr. Boyce approved the ~~relative performance of the stock involved, and are not intended to forecast or be indicative of possible future performance of the Common Stock.~~sale.

May-01 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05

Peabody Energy Corporation $ 100 $ 101 $ 107 $ 155 $ 304 $ 622

S&P^© MidCap 400 Index
$ 100 $ 94 $ 80 $ 108 $ 126 $ 142

Custom Composite Index (4 Stocks) $ 100 $ 65 $ 46 $ 76 $ 114 $ 182

In accordance with SEC rules, the information contained in (i) the Report of Compensation Committee beginning on page 32, (ii) the Report of the Audit Committee beginning on page 15 and (iii) the Stock Performance Graph above, shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation 14A, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company

specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(ITEM 2)

The Board of Directors has, upon the recommendation of the Audit Committee, appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006,~~2007, subject to ratification by the Company’s shareholders. While the Audit Committee is responsible for the appointment, compensation, retention, termination and oversight of the independent registered public accounting firm, the Audit Committee and the Board are requesting, as a matter of policy, that the shareholders ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm. The Audit Committee is not required to take any action as a result of the outcome of the vote on this proposal. However, if the Company’s shareholders do not ratify the appointment, the Audit Committee may investigate the reasons for shareholder rejection and may

consider whether to retain Ernst & Young LLP or to appoint another independent registered public accounting firm. Furthermore, even if the appointment is ratified, the Audit Committee in its discretion may appoint a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and the Company’s shareholders.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. Such representatives will have an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions by shareholders. For additional information regarding the Company’s relationship with Ernst & Young LLP, please refer to “Report of the Audit Committee” and ~~“Appointment of~~“Fees Paid to Independent Registered Public Accounting ~~Firm and Fees”~~Firm” on ~~pages 15 and 16~~page 13 of this Proxy Statement.

The Board of Directors recommends that you vote ~~“FOR”~~“For” Item 2, which ratifies the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, ~~2006.~~2007.

~~APPROVAL OF INCREASE~~SHAREHOLDER PROPOSAL AND COMPANY’S STATEMENT IN ~~AUTHORIZED SHARES~~

~~(ITEM 3)~~OPPOSITION

~~On February 15, 2006, the~~

Shareholder Proposal Regarding Board of Directors approved an amendment to the Company’s Third Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock and directed that the amendment be submitted to the shareholders of the Company for their approval.

The proposal would amend the Third Amended and Restated Certificate of Incorporation to increase the total authorized capital stock of the Company from 450,000,000 to 850,000,000 shares and to increase the number of authorized shares of Common Stock from 400,000,000 to 800,000,000 shares. No changes would be made to the number of authorized shares of Preferred Stock or Series Common Stock.

~~The proposed amendment provides for Section (1) of the Article numbered “Fourth” to be amended to read as follows:~~

Fourth: (1) The total number of shares of all classes of stock that the Corporation shall have the authority to issue is 850,000,000 shares, consisting of 800,000,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”), 10,000,000 shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”) and 40,000,000 shares of Series Common Stock, par value $0.01 per share (“Series Common Stock”). The number of authorized shares of any of the Preferred Stock, the Common Stock or the Series Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware (or any successor provision thereto), and no vote of the holders of any of the Preferred Stock, the Common Stock or the Series Common Stock voting separately as a class shall be required therefor.

~~The remaining text of the Article numbered “Fourth” would remain unchanged.~~

The Company is currently authorized to issue 400,000,000 shares of Common Stock. As of the record date for the Annual Meeting, 264,634,854 shares of Common Stock were issued and outstanding, and 19,222,356 shares of Common Stock were reserved for issuance pursuant to the Company’s long-term incentive and employee stock purchase plans. As a result of the~~2-for-1~~Declassification (ITEM 3) ~~split of the Common Stock on February 22, 2006, there are only 115,620,430 shares of unissued and unreserved shares of Common Stock available for issuance in addition to 522,360 treasury shares.~~

The Board of Directors believes that it is advisable and in the best interests of the Company and the Company’s shareholders to have available authorized but unissued shares of Common Stock in an amount adequate to provide for future financing needs. The additional shares will be available for issuance from time to time in the discretion of the Board, normally without further shareholder action (except as may be required for a particular transaction by applicable law, requirements of regulatory agencies or by New York Stock Exchange rules), for any proper corporate purpose including, among other things, stock splits, stock dividends, future acquisitions of property or securities of other corporations, convertible debt financing and equity financings. No shareholder has any preemptive rights regarding future issuance of any shares of Common Stock.

The Board of Directors has no present plans to issue additional shares of Common Stock. However, the Board believes that if an increase in the authorized number of shares of Common Stock were to be postponed until a specific need arose, the delay and expense incident to obtaining the approval of the Company’s shareholders at that time could significantly impair the Company’s ability to meet financing requirements or other objectives.

The issuance of additional shares of Common Stock may have the effect of diluting the stock ownership of persons seeking to obtain control of the Company. Although the Board of Directors has no present intention of doing so, the Company’s authorized but unissued Common Stock could be issued in one or more transactions that would make a takeover of the Company more difficult or costly and less likely. The proposed amendment to the Third Amended and Restated Certificate of Incorporation is not being recommended in response to any specific effort of which we are aware to obtain control of the Company, nor is the Board currently proposing to shareholders any anti-takeover measures.

~~The Board of Directors recommends that you vote “FOR” Item 3, to approve an amendment to the Company’s Third Amended and Restated Certificate of Incorporation to increase the~~

~~number of shares of Common Stock authorized for issuance by the Company from 400,000,000 shares to 800,000,000 shares.~~

~~SHAREHOLDER PROPOSALS AND COMPANY’S STATEMENTS IN OPPOSITION~~

~~(ITEMS 4 through 7)~~

~~Introduction~~

As you review the following shareholder proposals, we encourage you to consider our Board’s intense focus on creating shareholder value through good corporate governance and the Company’s sustained outstanding performance since its 2001 initial public offering. During that period, our shareholder value increased by more than 500%, and our market capitalization increased by more than $10 billion.

~~In 2005 alone, our shareholders received a 105% total return and Peabody Energy was ranked among the 10 best performing “large-cap” stocks in the world. The Company has effected two2-for-1~~ stock splits since March 2005, and our dividend has increased by an average of more than 20% each year since the IPO. As further evidence of our shareholder focus, the Company was recently recognized by~~Institutional Investormagazine as a finalist among “America’s Most Shareholder-Friendly Companies.” Peabody was also named to~~~~Fortune~~ ~~magazine’s~~~~Most Admired Companies~~list for 2006, placing first or second in its sector in every category, including innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment and quality of products/services. Importantly, Peabody placed first in its sector for social responsibility due to its strong focus on all dimensions of sustainable development.

In spite of our outstanding record, the Company has received a relatively large number of shareholder proposals for inclusion in this year’s Proxy Statement. The Board of Directors believes it is important for the Company’s shareholders to have a clear understanding of who is responsible for several of these proposals (Items 4, 5 and 6 in this Proxy Statement), and the context in which they are being made.

In December 2005, the AFL-CIO and the United Mine Workers of America held a press conference and rally to announce a carefully-coordinated, well-financed “corporate campaign” against the Company aimed at pressuring the Company and its subsidiaries into adopting policies that we believe would be detrimental to the Company and its subsidiaries and not in the best interests of our shareholders. Union officials have described this Peabody-targeted campaign as the “largest ... in America’s coalfields in decades,” and have asserted they have an estimated $160 million in cash to help fund the organizing drive. In this regard, we note that during the past several years, it has become an increasingly common stratagem for unions to engage in corporate campaigns under similar circumstances in an attempt to advance their agendas.

~~We believe union officials filed the shareholder proposals as part of their campaign to cause the Company not only to abandon its own rights,~~~~but also those of its employees~~, under the National Labor Relations Act. This, the Company is not willing to do. National Labor Relations Board processes have been used successfully for decades in thousands of elections, and are critical to preserving our employees’ right to choose whether to join a union, without fear of intimidation or reprisal. These processes are also important since they preserve the Company’s right to express its views about union organizing activities.

The NLRB election process is similar to the process used in general elections across the United States, in that secret ballot elections are held and employees decide, in the privacy of the voting booth, whether or not they want to join a union. If a majority of employees in the bargaining unit vote in favor of union representation, a company is required to recognize the union. Union officials, however, would have the Company agree to dispense with secret ballot elections and to recognize the union as soon as the union is able to persuade a majority of workers to sign cards saying they are in favor of representation (~~card check~~). We have always recognized our employees’ rights to join or not join a union. However, we believe our employees have the right to make these decisions in private, without fear of intimidation or reprisal.

During NLRB elections, companies also have the right to provide their employees with information about the unions and the potential downsides of union membership. Union officials, however, would have the Company waive this right and agree to remain silent while the union goes about its organizing campaigns (~~neutrality~~). The Board believes it would not be in the best interests of the Company, its employees or its shareholders for our employees to make decisions about union representation after hearing only one side of the issue. We also believe union officials are using the corporate campaign and related proposals as tools to strengthen their bargaining position in advance of the expiration of a collective bargaining agreement between the UMWA and a few of the Company’s subsidiaries in December 2006.

~~Under the circumstances, the proposals and the corporate campaign do not appear to be motivated by a desire to advance the best interests of the Company, our shareholders or our employees.~~

The Board of Directors believes that voting for these union-sponsored proposals will encourage union officials to continue, and perhaps intensify, their efforts, which would be detrimental to the Company and its shareholders. The Board of Directors recommends that you vote AGAINST each of the union-sponsored proposals to discourage union officials from continuing their efforts to use the shareholder proposal process to serve their particular interests to the detriment of our shareholders, and for the additional reasons set forth immediately following each of the three proposals and their supporting statements.

~~The Board of Directors recommends that you vote AGAINST Items 4 through 7.~~


~~ITEM 4 —~~	*~~FORMATION OF SPECIAL COMMITTEE~~*

This proposal was submitted by the Service Employees International Union Master Trust (the “Service Employees International Union”), 1313 L Street, N.W., Washington D.C. 20005. The Service Employees International Union has represented that it is the beneficial owner of 10,000 shares of Common Stock and has advised the Company, that it intends to submit the following proposal at the Company’s 2006 Annual Meeting of Shareholders.~~The words “we” and “our” in the Supporting Statement mean the Service Employees International Union, not the Company:~~

~~“Resolved: The stockholders of Peabody Energy Corporation (the “Company”) urge the Company to take the following steps if a proposal, submitted by a shareholder for a vote pursuant to Rule~~ ~~14a-8~~ ~~of the Securities and Exchange Commission, receives a majority of the votes cast (the~~

~~“Proposal”), and the Board of Directors (the “Board”) does not take the action requested in the Proposal with 180 days of the meeting at which the vote was obtained, then:~~


	(a) The Board shall constitute a “Majority Vote Shareholder Committee” (the “Committee”) composed of the proponent of the Proposal and other shareholders that indicate to the Company an interest in participating in the Committee;

	(b) The purpose of the Committee will be to communicate with the Board regarding the subject matter of the Proposal; the Committee will not be authorized to act on behalf of the Board or to compel the Board to take action, and will not interfere with the Board’s authority to manage the business and affairs of the Company; and

	~~(c) The independent members of the Board shall meet with the Committee no fewer than two times between the date on which the Committee is constituted and the next annual meeting of shareholders.~~

The Board may abolish the Committee if (i) the Board takes the action requested in the Proposal; or (ii) the Proposal’s proponent notifies the Board that it does not object to the abolition of the Committee.

~~Supporting Statement~~

In 2004, a majority of the Company’s voting shareholders supported a proposal seeking declassification of the Company’s board of directors. Nonetheless, our Company’s Board has not taken the necessary steps toward declassification. In our opinion, this inaction contrasts with the responsiveness of other companies’ boards.

According to the Investor Responsibility Research Center, the number of companies seeking to repeal their classified boards increased dramatically in 2004 to a new high of 44 proposals, compared with the previous record of 29 in 2003. During this period, the number of companies with classified boards in the S&P 500 Index fell from 60 percent to 53.6 percent. We believe this trend will continue.

The purpose of this proposal is to create a mechanism by which shareholders can communicate with their representatives, the Board of Directors. This proposal does not aim to supplant the Board’s decision-making power, but to improve that decision-making by ensuring that shareholders’ viewpoints are fully presented to the independent directors.

~~We urge shareholders to vote FOR this proposal.”~~

~~The Board recommends that you vote AGAINST the proposal submitted by the Service Employees International Union for the following reasons:~~


	•	The Board believes the so-called “majority-vote shareholder committee” is and was intended to be a misnomer, since any shareholder could join no matter how few shares they own. In reality, the Board believes the proposed committee would be a vehicle for special interest groups to gain Board access, which could then be used as a tool for harassment and disruption.

	•	~~The proposed committee is unnecessary as there are other avenues available for shareholders to communicate with the Board.~~

	•	~~The Board believes this proposal was submitted as part of a “corporate campaign” aimed at pressuring the Company into adopting policies being promoted by union officials that would~~

~~be detrimental to the Company and its shareholders and employees.~~~~See~~~~Shareholder Proposals and Company’s Statements in Opposition — Introduction.~~
• The Board believes this vaguely worded proposal would give activists an open forum to advance their special purpose agendas at the expense of our shareholders. Once established, such a committee could continue indefinitely as the Board would have no power to end its existence without adopting a proposal that may not serve the best interests of shareholders as a whole.

Due to the nature of its operations and its industry leadership, the Company is sometimes the target of certain special interest groups that seek to promote their own agendas without regard to the interests of the Company and its shareholders. The Board believes that the proposed committee could be used by these groups as a vehicle to gain leverage against the Company to the detriment of its shareholders.

As proposed, the committee would also be unwieldy as there would be no limit to the number of shareholders that could participate. Moreover, once established, such a committee could continue indefinitely as the Board of Directors would have no power to end its existence without adopting a proposal that may not serve the best interests of the shareholders. An obstructionist proponent could simply refuse to abolish the committee, using it as a tool for harassment and causing distraction to the Company and the incurrence of unnecessary costs.

As required by New York Stock Exchange (“NYSE”) rules, the Company already has appropriate procedures in place which provide shareholders and other interested parties a way to communicate directly with non-management directors.~~See~~Shareholder Communications with the Board of Directors on page 18 of this Proxy Statement. Shareholders also have an opportunity to communicate directly with members of the Board of Directors at the Company’s Annual Meeting of Shareholders. All directors are expected to attend the Annual Meeting in person. Creation of the proposed committee would merely add an unwieldy and potentially disruptive process, where appropriate procedures are already in place.

Contrary to the proponent’s assertions, the Board is responsive to shareholder concerns. Each year, the Nominating and Corporate Governance Committee, with the assistance of outside experts, reviews the Company’s corporate governance practices to ensure they continue to reflect best practices and promote the best interests of the Company and its shareholders. As part of this review, the Committee evaluates all shareholder proposals, including those that receive a majority vote, and makes recommendations, as appropriate, to the Board with respect to such proposals. In determining whether implementation of a proposal would be in the best interests of the Company and its shareholders, the Committee considers, among other things, the appropriateness of the proposal, whether adoption of the proposal would appropriately accomplish its stated objectives, trends in shareholder voting, institutional investor and governance rating agency concerns and other shareholder considerations. All of the members of this Committee are independent under the NYSE’s independence standards.

~~The Board recommends that you vote “AGAINST” the proposal submitted by the Service Employees International Union.~~


~~ITEM 5 —~~	*~~MAJORITY VOTING~~*

This proposal was submitted by the Sheet Metal Workers’ National Pension Fund (the “Sheet Metal Workers”), 601 N. Fairfax Street, Suite 500, Alexandria, Virginia 22314. The Sheet Metal Workers represented that it is the beneficial owner of 13,400 shares of Common Stock and has

~~advised the Company that it intends to submit the following proposal at the Company’s 2006 Annual Meeting of Shareholders.~~~~The words “we” and “our” in the Supporting Statement mean the Sheet Metal Workers, not the Company:~~

“Resolved: That the shareholders of Peabody Energy Corporation (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.

Supporting Statement: Our Company is incorporated in Delaware. Delaware law provides that a company’s certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). The law provides that if the level of voting support necessary for a specific action is not specified in a corporation’s certificate or bylaws, directors “shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.”

Our Company presently uses the plurality vote standard to elect directors. This proposal requests that the Board initiate a change in the Company’s director election vote standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.

We believe that a majority vote standard in director elections would give shareholders a meaningful role in the director election process. Under the Company’s current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld” from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.

The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.

Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.

Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard may be appropriate in director elections when the number of director nominees exceeds the available board seats.

~~We urge your support for this important director election reform.”~~

~~The Board recommends that you vote AGAINST the proposal submitted by the Sheet Metal Workers for the following reasons:~~


	•	~~A similar majority-vote proposal was presented, but did not pass, at last year’s Annual Meeting. The Board, however, heard the concerns of shareholders voting in favor of the~~

~~proposal and established a new director election process which it believes is a better alternative to a majority-voting standard.~~
• The Board believes this proposal was submitted as part of a “corporate campaign” aimed at pressuring the Company into adopting policies being promoted by union officials that would be detrimental to the Company and its shareholders and employees.~~SeeShareholder Proposals and Company’s Statements in Opposition — Introduction.~~
• The Board believes that adopting the proposal would make it easier for special interest groups to pressure the Board, to cause disruption and to push their own agendas to the detriment of the Company and its shareholders as a whole.

In 2005, the Board of Directors specifically reviewed and addressed the issue of whether the Company should retain its plurality voting standard in director elections as provided under Delaware law or adopt a majority-voting standard. As part of its review, the Board considered recent governance trends and input from independent governance experts. After carefully considering these and other factors, the Board determined that retaining the plurality standard in director elections remains in the best interests of the Company and its shareholders. At the same time, the Board recognized that in situations where a director nominee receives more “withheld” votes than “for” votes, it warrants the Board’s careful attention. To address this situation, the Board established a new director election process, which was implemented through the Board’s adoption of the Corporate Governance Principle on Majority Voting appearing as~~Annex A~~ ~~to this Proxy Statement.~~

In adopting the new director election process, the Board recognized that a number of special interest groups are promoting the majority-voting standard as a means to wage corporate campaigns or other detrimental activities that are not in the best interest of all shareholders. The Board believes that if it were to adopt majority voting for directors, it would likely increase the ability of shareholder activists to disrupt elections, destabilize the board and push their special interest agendas. The Board also believes that a majority-voting standard could have the effect of deterring competent people from accepting nomination to the Board.

Under the new election process, the Company’s directors will continue to be elected by a plurality vote — the same voting standard used in director elections at most public companies in the United States. However, in uncontested elections, if a director nominee receives more “withheld” than “for” votes, the director nominee will be required to promptly tender his or her resignation. The Board will then determine whether to accept or reject the resignation based on all factors affecting the nominee’s qualifications and contributions to the Company.

In most cases, the outcomes under the new election process and the proposal would be the same. For example, under a majority-voting standard, if a non-incumbent director nominee receives a majority of “withheld” votes, the nominee would not be elected to the board and there would likely be a board vacancy. As provided in the Company’s organizational documents, the Board would then have discretion to fill the vacancy, either with the nominee or someone else. Ultimately, under both the new election process and a majority-voting standard, the Board would determine whether the nominee would serve on the board.

In other situations, the Board believes the plurality standard, as supplemented by the corporate governance principle, yields a superior outcome and avoids certain legal flaws inherent in applying a majority-voting standard. For example, where an incumbent director nominee receives a majority of “withheld” votes, the new election process is more effective than the proposal at removing a director opposed by shareholders because it requires the nominee to tender his or her resignation. Under the proposal, the nominee would continue to serve on the board even though he or she did not receive a

majority of votes. This is because Delaware’s so-called “hold-over” rule allows an incumbent director to hold office until his or her successor has been elected and qualified, unless he or she voluntarily retires or resigns.

In summary, the Board heard concerns at last year’s Annual Meeting, and responded by establishing a new director election process. The Board believes this new process strengthens the Company’s governance and will allow the Board to be more responsive to shareholders, while at the same time not allowing special interest groups to influence Board decisions to the detriment of shareholders as a whole.

~~The Board recommends that you vote “AGAINST” the proposal submitted by the Sheet Metal Workers.~~


~~ITEM 6 —~~	*~~BOARD DECLASSIFICATION~~*

This proposal was submitted by the AFL-CIO Reserve Fund (the “AFL-CIO”), 815 Sixteenth Street, N.W., Washington D.C. 20006. The AFL-CIO has represented that it is the beneficial owner of 400 shares of Common Stock, and has advised the Company that it intends to submit the following proposal at the Company’s ~~2006~~2007 Annual Meeting of Shareholders.~~All references to~~The words “we” and “our” in the Supporting Statement mean the AFL-CIO, not the Company:

~~“RESOLVED:~~

Proposal Submitted by AFL-CIO

“Resolved: The ~~shareholders~~stockholders of Peabody Energy Corporation ~~(the~~(“Peabody” or “Company”) urge the Board of Directors to take the necessary steps, in compliance with state law, to declassify the Board for the purpose of director elections. The Board’s declassification shall be completed in a manner that does not affect the unexpired terms of directors previously elected.”

~~SUPPORTING STATEMENT~~

Supporting Statement Submitted by AFL-CIO

“Supporting Statement: Our Company’s Board of Directors is divided into three classes, with approximately one-third of all directors elected annually to three-year terms. In our opinion, this director classification system, which results in only a portion of the Board being elected annually, is not in the best interests of our Company and its ~~shareholders.~~stockholders. We believe shareholders should have the opportunity to vote on the performance of the entire Board each year.

“Shareholders overwhelmingly supported this proposal last year, with more than 70% voting in favor of declassifying our Company’s board.

“In our view, the election of directors is the primary avenue for shareholders to influence corporate governance policies and to hold management accountable for implementing those policies. Eliminating this classification system would require each director to stand for election annually and would give ~~shareholders~~stockholders an opportunity to register their views on the performance of the board collectively and each director individually.

“We believe that electing directors annually is one of the best methods available to shareholders to ensure that our Company is managed in the appropriate interests of its investors. Several in-depth studies of the past five years have found significant positive links between governance practices favoring

shareholders (like declassifying the board) and firm value. One of the most recent studies, “The Costs of Entrenched Boards,” by Harvard Law School’s Lucian Bebchuk and Alma Cohen, found that staggered boards were associated with an economically meaningful reduction in firm value (as measured by Tobin’s Q). The authors also found “evidence that staggered boards bring about, and not merely reflect, an economically significant reduction in firm value” (Journal of Financial Economics, 2005).

“We believe investors increasingly favor requiring annual elections for all directors. The Council of Institutional Investors, the California Public Employees’ Retirement System, and Institutional Shareholder Services (“ISS”) have supported this reform. ISS’ 2006Board Practices/Board Paystudy found the number of companies with staggered boards continued to decline in 2005. At the current rate of decline, the majority of S&P 500 directors will be subject to annual election by the end of 2006, the study noted. According to ISS, forty-two proposals to repeal classified boards averaged support of 66.8 percent during the ~~Investor Responsibility Research Center, a majority~~first six months of ~~shareholders at 74 companies voted in favor of annual director elections~~2006, compared with 60.5 percent average support for 46 proposals during the same period in 2005, ~~and~~ a ~~record 44 companies proposed to repeal their classified board structure last year.~~6.3 percentage point increase (2006 Postseason Report, 2006).

“In our opinion, electing all directors annually is one of the best methods available to ~~shareholders~~stockholders to ensure that the Company will be managed in a manner that is in the best interest of ~~shareholders.~~stockholders. We therefore urge our fellow ~~shareholders~~stockholders to support this reform.”

The Board recommends that you vote AGAINST the AFL-CIO’s proposal ~~submitted by the AFL-CIO~~ for the following reasons:


	•	~~A majority of shareholders voted in favor of a similar proposal submitted by the AFL-CIO at last year’s Annual Meeting.~~ The Board ~~however, believes shareholders voting in favor of~~continues to believe the ~~proposal may not have realized~~classified structure improves its ability to protect shareholder interests and the ~~proposal was intended to pressure the Company into adopting policies being promoted by union officials that would be detrimental to the Company and its shareholders and employees.~~~~See~~ ~~Shareholder Proposals and~~ Company’s ~~Statements in Opposition — Introduction.~~long-term value.

	•	A classified board structure is an important protection for shareholders in a hostile takeover situation because it allows the Company time to negotiate with a potential acquirer, to consider alternative proposals and to maximize shareholder value.

	•	The Board ~~continues~~believes this proposal was submitted as part of a “corporate campaign” aimed at pressuring the Company into adopting policies being promoted by union officials that would be detrimental to ~~believe~~ the ~~classified structure improves~~Company, its ~~ability to protect shareholder interests~~shareholders and ~~the Company’s long-term value.~~employees.

~~Our current~~

Since becoming a public company in 2001, we have used the same system of electing directors by ~~classes has been in effect since we became a public company in 2001.~~classes. Under this system, the shareholders elect approximately one-third of our directors each year. Electing directors for staggered three-year terms ensures that a majority of directors will always be familiar with the Company’s complex, global operations. Staggered elections also enable new directors to gain access over time to the knowledge and experience of continuing directors, thereby enhancing their familiarity with the Company’s businesses and strategies. This, in turn, promotes the continuity and stability of Board-formulated policies and the Company’s ability to execute its long-term strategies. In view of these and other important shareholder benefits, ~~nearly 60%~~55% of ~~all public~~S&P Composite 1500 companies (comprised of companies in the ~~United States,~~S&P 500, the S&P MidCap 400 and the S&P Small Cap 600), including ~~53%~~45% of S&P 500 companies and ~~65%~~63% of S&P MidCap 400 companies, continue to have classified board structures.

The AFL-CIO’s supporting statement implies ~~that~~ the Company’s ~~performance is~~classified board structure adversely impacted by its ~~classified board structure.~~performance. This, however, does not accord with the facts. Since the Company’s initial public offering in 2001, our shareholder value has increased by more than 500%, and our market capitalization has increased by more than ~~$10~~$9 billion. In 2005, ~~alone, our shareholders received a 105% total return and~~ Peabody Energy was ranked among the 10 best performing “large-cap” stocks in the world. The Company has created superior value for its shareholders since its initial public offering, significantly outperforming both its peer group and the broader market indices.~~SeeStock Performance Graph on page 41 of this Proxy Statement.~~ Furthermore, as a testament to our shareholder focus and strong governance practices, ~~the Company was recently recognized by~~Institutional Investormagazine named Peabody Energy as ~~a finalist among~~one of “America’s Most Shareholder-Friendly ~~Companies.”~~Companies” for 2006.

The Board of Directors continues to believe ~~that~~ the classified structure improves its ability to protect the interests of the shareholders and the long-term value of the Company. Importantly, the classified structure allows directors to make sound long-term strategic decisions, rather than

focusing on the short-term. Staggered terms also encourage those who might seek to take control of the Company to negotiate with the Board, which enables the Board to better protect shareholder interests. Because a takeover attempt involving the replacement of directors requires ~~the~~a span of at least two annual meetings, the Board would have more time and leverage to review a takeover proposal, consider alternative proposals and make recommendations to the shareholders. Although the classified structure enhances a board’s ability to negotiate favorable terms in connection with unfriendly or unsolicited proposals, it does not preclude takeover offers.

The Board also believes that directors elected to classified three-year terms are no less accountable to shareholders than they would be if elected annually. The same standards of performance and responsibility apply regardless of length ~~of term~~ of service. Shareholders also have the opportunity to express their views regarding board performance and composition by replacing directors and electing alternate nominees for the class of directors to be elected each year. For the foregoing reasons, the Board of Directors believes ~~that~~ the benefits of ~~the~~a classified board do not come at the cost of director accountability.

The existence of a classified board also enhances the independence of non-executive directors. By providing directors with longer assured terms, directors have the latitude to make decisions which may initially be unpopular but which are, in fact, in the best interests of the Company and the shareholders.

The Board believes it is important for the shareholders to have a clear understanding of who is responsible for this proposal and the context in which it is being made.

Over the past several years, unions have increasingly waged “corporate campaigns” against companies such as Peabody, aimed at pressuring them to adopt policies which may not be in the best interests of the companies or their shareholders. The Board believes AFL-CIO officials filed this shareholder proposal as part of their campaign to cause Peabody to abandon National Labor Relations Act election processes, which have been used successfully for decades to determine whether employees wish to be represented by a union. The Board believes these processes are critical to preserving the Company’s right to express its views about union organizing activities and our employees’ right to choose whether to join or not join a union, without fear of intimidation or reprisal. Under the circumstances, this proposal does not appear to be motivated by a desire to advance the best interests of the Company or its shareholders.

The Board of Directors takes the views of its shareholders seriously and recognizes that a significant number of shares ~~that~~ were voted ~~supported~~in favor of a similar proposal ~~presented~~ at ~~the~~our last two annual meeting in 2005. As a result, in connection with the Board’s consideration of this year’s proposal, the Board consulted with outside corporate governance experts, reviewed trends in shareholder voting, considered institutional investor concerns and factored in other shareholder considerations.meetings. After a thorough review, however, the Board ~~concluded~~continues to conclude that retaining the classified board ~~continues to be~~is in the best interests of the Company and our shareholders.

The Board recommends that you vote “AGAINST” the ~~proposal submitted by the AFL-CIO.~~AFL-CIO’s proposal.

ADDITIONAL INFORMATION


~~ITEM 7 —~~	*~~WATER USE~~*

This proposal was submitted by the Sierra Club, 85 Second Street, Second Floor, San Francisco, California 94105. The Sierra Club has represented that it is the beneficial owner of 76 shares of Common Stock and has advised the Company that it intends to submit the following proposal at the Company’s 2006 Annual Meeting of Shareholders:

“Whereas, when the United States Congress passed the Clean Water Act in 1972 it did so with the expectation that toxic releases to waters would be eliminated. The law also created a system to move towards achieving health and water quality-based standards that would create waters that would be safe enough for activities such as fishing and swimming. The Act also prohibits potentially harmful spills of oil and certain hazardous substances; and

Whereas the United Nations General Assembly has proclaimed 2005 to 2015 as the International “Water for Life’ Decade and has declared that water is essential to life and crucial for sustainable development and the preservation of our natural environment; and

~~Whereas people and wildlife have the right to ample supplies of clean water for drinking, livelihood, recreation and habitat; and~~

~~Whereas Peabody is under investigation by the Illinois Attorney General over alleged water pollution on the Coal Eagle no 2 mine site in Gallatin County, Illinois where coal mine refuse, and~~

other related wastes at Eagle No. 2 contain such inorganic chemicals, including, but not limited to: chlorides, manganese, total dissolved solids, sulfates, and iron, which are believed to have leached into the groundwater and off-site; and

Whereas Peabody proposes drawing up to 30 million gallons of water from Illinois’ Kaskaskia River for cooling purposes at its proposed Prairie State Generating Station in Washington County, an amount which could adversely impact water quality and river flow; and

~~Whereas downstream Illinois communities rely on the Kaskaskia River for drinking water, transportation and recreation; and~~

Whereas there are cost-effective and commercially available alternate cooling technologies for coal-fired power plants already in use in other states and other countries, such as dry cooling systems, that would eliminate the need to remove millions of gallons of Kaskaskia River water every day; and

Whereas, Peabody Western Coal Company (PWCC) has been pumping an average of 1.3 billion gallons of precious groundwater per year from the Black Mesa’s Navajo Aquifer for coal mining and pipe line operations in Arizona; and

Whereas according Natural Resources Defense Council, water levels have decreased in some wells by more than 100 feet and discharge has dropped by more than 50% in the majority of monitored Navajo Aquifer springs; and

~~Whereas PWCC should consider alternative methods to transport coal rather than relying upon ground water;~~

Therefore the shareholders resolve that Peabody prepare a report detailing how the company is responding to rising regulatory, competitive, public pressure to significantly reduce surface and groundwater withdrawals and water pollution from the company’s current and proposed power plant operations, coal mining sources, and coal combustion waste facilities.

~~The report should be provided by September 1, 2006, at a reasonable cost and omit proprietary information.”~~

~~The Board recommends that you vote AGAINST the Sierra Club’s proposal for the following reasons:~~


	•	~~The Company is committed to the principles of environmental stewardship and complies with all laws and regulations governing its water use.~~

	•	The requested report is unnecessary as reports are already prepared annually for water use at Black Mesa, and will be required to be prepared annually for water use at Prairie State after operations begin. The Company also plans to publish a corporate and social responsibility report later this year outlining the Company’s views on a variety of social and environmental issues, including water use.

	•	The Board believes the proposal contains erroneous and incomplete information about the Company’s operations, and that preparing a report in response to such a proposal would not be in the best interests of the Company or its shareholders.

Being a good steward of the environment is a central tenet of the Company’s mission statement. The Company applies the principles of sustainable development to its operations, integrating community and environmental stewardship in all aspects of planning, mining and reclamation. The Company’s approach to stewardship and conservation is recognized throughout the industry with

more than 20 major awards in the past two years. In 2005, the U.S. Department of the Interior honored the Company’s operations with five of 12 major awards for stewardship including three prestigious Good Neighbor Awards in three of our four U.S. operating regions.

~~In support of its proposal, the Sierra Club provides erroneous and incomplete information about the Company’s operations. To set the record straight, the Company offers the following:~~


	*~~Eagle 2~~*

The Company operated the former Eagle 2 Mine near Shawneetown, Illinois from 1969 to 1993. Years ago, a difference of opinion arose with the local water conservancy district over the amount of sulfate present in the water. Although the measured levels for sulfate were consistent with those found in public water sources elsewhere across the state, the Company agreed to fund relocation of a well and implement a groundwater monitoring system. This resolved the matter to the satisfaction of the water district. The Company continues to monitor water quality in the area, and water quality remains good.


	*~~Prairie State~~*

The Company’s Prairie State Energy Campus near Lively Grove, Illinois, is a planned 1,500 megawatt coal-fueled electricity generating station that will provide low-cost energy for more than 1.5 million families. Prairie State will use 21st Century technologies to protect the environment and be among the cleanest coal-fueled plants in America. Despite these benefits, the Sierra Club has actively opposed the project for years, relying on questionable studies and distorted facts.

~~In reality:~~


	•	~~The Company met all regulatory requirements in obtaining a permit to use water from the Kaskaskia River;~~

	•	~~The Sierra Club expressed its views to the Illinois EPA about Prairie State’s proposed water use during the permitting process; and~~

	•	~~By issuing the permit, the Illinois EPA rejected the Sierra Club’s concerns and agreed that Prairie State’s water use will not significantly impact other water users.~~

The Board believes this Proxy Statement is an inappropriate forum for the Sierra Club to reiterate its views about proposed water use at Prairie State, as the Sierra Club fully aired those views to the Illinois EPA during the permitting process and it has chosen to appeal the granting of the permit.

It should be noted that Prairie State would use less than one percent of the Kaskaskia River’s average daily flow primarily for the plant’s cooling process, using technology that will minimize water use and recycle water multiple times. While a dry cooling system was evaluated during the permitting process, the Illinois EPA determined that the technology was not suitable for use at Prairie State.


	*~~Black Mesa~~*

The Company has operated for decades in a responsible manner at Black Mesa. Indeed, in 2005 the U.S. Department of the Interior recognized the environmental and community practices at the Company’s Arizona mines, including Black Mesa, as among the most progressive in the nation, garnering awards for good neighbor initiatives that preserve cultural ways in addition to excellence in

~~reclamation. Contrary to the Sierra Club’s contentions, the Company’s water use has not harmed the Navajo Aquifer.~~

Since operations first began at Black Mesa, eleven major independent studies have been performed to analyze the health of the Navajo Aquifer, a huge water resource spanning an area the size of Delaware. Time and again these studies find the aquifer is healthy and robust and that the Company’s water use over the life of operations will be less than one-tenth of one percent of the water stored. In addition, each year the U.S. Department of the Interior issues a report on the aquifer’s health based on data gathered by the U.S. Geological Survey. These reports consistently show the aquifer is healthy, that water quality is excellent and that the Company’s water usage has had minimal impact on springs and streams.

In support of its proposal, the Sierra Club relies on allegations about the aquifer made by the Natural Resources Defense Council (NRDC). These allegations, however, have been summarily rejected by the U.S. Department of the Interior in consecutive annual reports on the health of the Navajo Aquifer.

It should be noted that the Black Mesa mine temporarily suspended operations on December 31, 2005, and, consequently, the Company’s water use is currently significantly less than indicated by the Sierra Club.

~~The Board recommends that you vote “AGAINST” the Sierra Club’s proposal.~~

~~ADDITIONAL INFORMATION~~

Information About Shareholder Proposals

If you wish to submit a proposal for inclusion in next year’s Proxy Statement and proxy, we must receive the proposal on or before ~~December 2, 2006,~~November 27, 2007, which is 120 calendar days prior to the anniversary of this year’s mailing date. Upon timely receipt of any such proposal, the Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable regulations governing the solicitation of proxies. Any proposals should be submitted in writing to: Corporate Secretary, Peabody Energy Corporation, 701 Market Street, St. Louis, Missouri 63101.

Under the Company’s by-laws, if you wish to nominate a director or bring other business before the shareholders at the ~~2007~~2008 Annual Meeting without having your proposal included in next year’s proxy statement:


	•	You must notify the Corporate Secretary in writing at the Company’s principal executive offices between January ~~5, 2007~~2, 2008 and February ~~4, 2007;~~1, 2008; however, if the Company advances the date of the meeting by more than 20 days or delays the date by more than 70 days, from May ~~5, 2007,~~1, 2008, then such notice must be received not earlier than 120 days before the date of the annual meeting and not later than the close of business on the 90th day before such date or the 10th day after public disclosure of the meeting is made; and

	•	Your notice must contain the specific information required by the Company’s by-laws regarding the proposal or nominee, including, but not limited to, name, address, shares held, a description of the proposal or information regarding the nominee and other specified matters.

You can obtain a copy of the Company’s by-laws without charge by writing to the Corporate Secretary at the address shown above or by accessing the Company’s website

(www.peabodyenergy.com) and clicking on “Investors,” and then “Corporate Governance”. Information on our website is not considered part of this Proxy Statement. These requirements are separate from and in addition to the requirements a shareholder must meet to have a proposal included in the Company’s proxy statement. The foregoing time limits also apply in determining whether notice is timely for purposes of rules adopted by the SEC relating to the exercise of discretionary voting authority.

Householding of Proxies

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for annual reports and proxy statements with respect to two or more shareholders sharing the same address by delivering a single annual reportand/or proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies. The Company and some brokers household annual reports and proxy materials, delivering a single annual reportand/or proxy statement to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders.

Once you have received notice from your broker or the Company that your broker or the Company will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate annual reportand/or proxy statement in the future, please notify your broker if your shares are held in a brokerage account or the Company if you hold registered shares. If, at any time, you and another shareholder sharing the same address wish to participate in householding and prefer to receive a single copy of the Company’s annual reportand/or proxy statement, please notify your broker if your shares are held in a brokerage account or the Company if you hold registered shares.

You may request to receive at any time a separate copy of our annual report or proxy statement, or notify the Company that you do or do not wish to participate in householding by sending a written request to the Corporate Secretary at 701 Market Street, St. Louis, Missouri 63101 or by telephoning(314) 342-3400.

53

Additional Filings

The Company’sForms ~~10-K, 10-Q, 8-K~~10-K,10-Q,8-K and all amendments to those reports are available without charge through the Company’s website on the Internet as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. They may be accessed at the Company’s website (www.peabodyenergy.com) by clicking on “Investors,” and then “SEC Filings.” Information on our website is not considered part of this Proxy Statement.
In accordance with SEC rules, the information contained in the Report of the Audit Committee on page 13, and (ii) the Report of the Compensation Committee on page 31 shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation 14A, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Costs of Solicitation

The Company is paying the cost of preparing, printing and mailing these proxy materials. The Company has engaged Georgeson Shareholder Communications Inc. to assist in distributing proxy materials, soliciting proxies and in performing other proxy solicitation services for a fee of ~~$9,500~~$10,500 plus their~~out-of~~out-of-pocket~~-pocket~~ expenses. Proxies may be solicited personally or by telephone by regular employees of the Company without additional compensation as well as by employees of Georgeson. The Company will reimburse banks, brokerage firms and others for their reasonable expenses in forwarding proxy materials to beneficial owners and obtaining their voting instructions.
56
OTHER BUSINESS

The Board of Directors is not aware of any matters requiring shareholder action to be presented at the Annual Meeting other than those stated in the Notice of Annual Meeting. Should other matters be properly introduced at the Annual Meeting, those persons named in the enclosed proxy will have discretionary authority to act on such matters and will vote the proxy in accordance with their best judgment.

The Company will provide to any shareholder, without charge and upon written request, a copy (without exhibits unless otherwise requested) of the Company’s Annual Report onForm 10-K for the Fiscal Year Ended December 31, ~~2005~~2006 as filed with the Securities and Exchange Commission. Any such request should be directed to Peabody Energy Corporation, Investor Relations, 701 Market Street, St. Louis, Missouri63101-1826; telephone(314) 342-3400.
By Order of ~~the Board of Directors,~~
~~Jeffery L. Klinger~~
~~Vice President, General Counsel~~
~~and Corporate Secretary~~
57
~~Annex A~~
~~Corporate Governance Principle on Majority Voting~~
      The Board of Directors desires to clarify its position regarding the actions to be taken when a director receives more “withheld” than “for” votes in an election. Such a vote sends a message that clearly warrants the Board’s careful attention. At the same time, the Board of Directors, recognizes that a number of special interest groups are promoting the majority-voting standard as a means to wage corporate campaigns or other detrimental activities that are not in the best interest of all shareholders. Certain corporations in heavy industry, including the Company, receive heightened attention from these special interest groups, and the Board of Directors believes that special measures are warranted to protect against their coercive activities.
In an uncontested election of Directors (i.e., an election where the only nominees are those recommended by the Board of Directors), any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election (a “Withhold Vote”) will promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote.
~~The Nominating~~
Jeffery L. Klinger
Vice President, General Counsel
and Corporate Governance Committee will promptly consider the resignation submitted by such Director, and will recommend to the Board whether to accept or reject the tendered resignation. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee will consider all factors deemed relevant by its members including, without limitation, the stated reasons why shareholders “withheld” votes for election from such Director, the length of service and qualifications of the Director whose resignation has been tendered, the Director’s contributions to the Company, the Company’s Corporate Governance Guidelines, and whether any special interest groups conducted a campaign involving the election of directors to further the interests of such group, as opposed to the best interests of all shareholders.Secretary
      The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting where the election occurred. In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors considered by the Nominating and Corporate Governance Committee and such additional information and factors the Board believes to be relevant.

54
      To the extent that one or more Directors’ resignations are accepted by the Board, the Nominating and Corporate Governance Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board.
      Any Director who tenders his or her resignation pursuant to this provision will not participate in the Nominating and Corporate Governance Committee recommendation or Board consideration regarding whether or not to accept the tendered resignation. If a majority of the members of the Nominating and Corporate Governance Committee receive Withhold Votes at the same election, then the independent Directors who are on the Board who did not receive Withhold Votes in such election (or who were not standing for election) will appoint a Board committee amongst themselves solely for the purpose of considering the tendered resignations and will recommend to the Board whether to accept them or reject them. This Board committee may, but need not, consist of all of the independent Directors who did not receive Withhold Votes in that election.
      ~~This corporate governance guideline will be summarized or included in each proxy statement relating to an election of directors of the Company.~~
~~A-1~~
ANNUAL MEETING OF SHAREHOLDERS OF
PEABODY ENERGY CORPORATION
May ~~5, 2006~~
1, 2007
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
ê Please detach along perforated line and mail in the envelope provided. ê

~~PROXY~~THE BOARD OF DIRECTORS RECOMMENDS VOTING ~~INSTRUCTIONS~~“FOR” ITEMS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS VOTING “AGAINST” ITEM 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
~~MAIL~~ ~~— Date, sign and mail your proxy card in the~~
~~envelope provided as soon as possible.~~
~~- OR -~~
~~TELEPHONE~~ ~~— Call toll-free~~~~1-800-PROXIES~~
~~(1-800-776-9437) from any touch-tone telephone~~
~~and follow the instructions. Have your proxy card~~
~~available when you call.~~
~~- OR -~~
~~INTERNET~~ ~~— Access “~~~~www.voteproxy.com~~~~” and~~
~~follow the on-screen instructions. Have your proxy~~
~~card available when you access the web page.~~

~~COMPANY NUMBER~~
~~ACCOUNT NUMBER~~

~~You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up until 11:59 PM~~
~~Eastern Time the day before the cut-off or meeting date.~~
â ~~Please detach along perforated line and mail in the envelope provided~~ IF ~~you are not voting via telephone or the Internet.~~â
     n
~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS 1 THROUGH 3.~~
~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” ITEMS 4 THROUGH 7.~~
~~PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE~~x
1. Election of Directors: The undersigned hereby GRANTS authority to
elect the following nominees: (see Board recommendation below):
NOMINEES:
o FOR ALL NOMINEES ¡ William A. Coley
¡ Irl F. Engelhardt
o WITHHOLD AUTHORITY ¡ William C. Rusnack
FOR ALL NOMINEES ¡ John F. Turner
¡ Alan H. Washkowitz
o FOR ALL EXCEPT
(See instruction below)
~~NOMINEES:~~
o ~~FOR ALL NOMINEES~~ m ~~Gregory H. Boyce~~
m ~~William E. James~~
o ~~WITHHOLD AUTHORITY~~
~~FOR ALL NOMINEES~~ m ~~Robert B. Karn III~~
m ~~Henry E. Lentz~~
m ~~Blanche M. Touhill~~

o ~~FOR ALL EXCEPT~~
~~(See instructions below)~~
RECOMMENDATION: The Board recommends ~~a vote~~voting“For”all Nominees.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here:˜=

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o

~~The Board~~
~~Recommends “For"~~

The Board
Recommends “For”
ê
FOR AGAINST ABSTAIN
2. Ratification of Appointment of Independent Registered Public Accounting Firm. o o o
The Board
3. ~~Approval of Increase in Authorized Shares of Common Stock.~~ o o o
~~The Board~~
~~Recommends “Against”~~
Recommends “Against”
ê
FOR AGAINST ABSTAIN
4. ~~Shareholder Proposal regarding Formation of Special Committee.~~ o o o
5. ~~Shareholder Proposal regarding Majority Voting.~~ o o o
6.3. Shareholder Proposal regarding Board Declassification. o o o
7. ~~Shareholder Proposal regarding Water Use.~~ o o o

If you vote over the Internet or by telephone, please do not mail your ~~card~~card. ��
MARK HERE IF YOU PLAN TO ATTEND THE MEETING.o

~~MARK HERE IF YOU PLAN TO ATTEND THE MEETING.~~o-->
Signature of Stockholder Date: Signature of Stockholder Date:

Signature of Shareholder Date: Signature of Shareholder Date:

Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
n n
~~PEABODY ENERGY CORPORATION~~     n
~~Annual Meeting of Shareholders~~
~~Friday, May 5, 2006, 10:00 A.M.~~
~~Ritz-Carlton Hotel~~
~~100 Carondelet Plaza~~
~~Clayton, Missouri 63105~~
~~If you plan to attend the 2006 Annual Meeting of Shareholders of Peabody Energy Corporation, please detach this Admission Card and bring it with you to the meeting.~~This card will provide evidence of your ownership and enable you to attend the meeting. Attendance will be limited to those persons who owned Peabody Energy Corporation Common Stock as of March 15, 2006, the record date for the Annual Meeting.
~~When you arrive at the Annual Meeting site, please fill in your complete name in the space provided below and submit this card to one of the attendants at the registration desk.~~
If you do not bring this Admission Card and your shares are registered in your own name, you will need to present a photo I.D. at the registration desk. If your shares are registered in the name of your bank or broker, you will be required to submit other satisfactory evidence of ownership (such as a recent account statement or a confirmation of beneficial ownership from your broker) and a photo I.D. before being admitted to the meeting.
~~Shareholder Name:____________________________~~
PROXY
PEABODY ENERGY CORPORATION
Proxy/Voting Instruction Card for Annual Meeting of Shareholders to be held on May ~~5, 2006~~1, 2007
This proxy is solicited on behalf of the Board of Directors
     The undersigned hereby constitutes and appoints ~~Gregory H. Boyce,~~Blanche M. Touhill, Alexander C. Schoch and Jeffery L. Klinger, ~~and Richard A. Navarre,~~ or any of them, with power of substitution to each, proxies to represent the undersigned and to vote, as designated on the reverse side of this form, all shares of Common Stock which the undersigned would be entitled to vote at the Annual Meeting of Shareholders of Peabody Energy Corporation (Peabody) to be held on May ~~5, 2006~~1, 2007 at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri 63105 at 10:00 A.M., and at any adjournments or postponements thereof.
     If the undersigned is a participant in the Peabody Investments Corp. Employee Retirement Account or other 401(k) plans sponsored by Peabody or its subsidiaries, this proxy/voting instruction card also provides voting instructions to the trustee of such plans to vote at the Annual Meeting, and any adjournments thereof, as specified on the reverse side hereof. If the undersigned is a participant in one of these plans and fails to provide voting instructions, the trustee will vote the undersigned’s plan account shares (and any shares not allocated to individual participant accounts) in proportion to the votes cast by other participants in that plan.
The shares represented by this proxy/voting instruction card will be voted in the manner indicated by the shareholder. In the absence of such indication, such shares will be voted FOR the election of all the director nominees listed in Item 1, or any other person selected by the Board if any nominee is unable to serve, FOR ratification of Ernst & Young LLP as Peabody’s independent registered public accounting firm for ~~2006~~2007 (Item 2)~~, FOR approval of an increase in the number of shares of Common Stock authorized for issuance by the Company from 400,000,000 to 800,000,000 shares (Item 3)~~, and AGAINST the shareholder ~~proposals~~proposal included as ~~Items 4 through 7.~~Item 3. The shares represented by this proxy will be voted in the discretion of said proxies with respect to such other business as may properly come before the meeting and any adjournments or postponements thereof.
IMPORTANT —– This proxy/voting instruction card must be signed and dated on the reverse side.
n 14475 n
ANNUAL MEETING OF SHAREHOLDERS OF
PEABODY ENERGY CORPORATION
May ~~5, 2006~~1, 2007
PROXY VOTING INSTRUCTIONS
~~Please date,~~MAIL- Date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
- or -
TELEPHONE- Call toll-free1-800-PROXIES
(1-800-776-9437) from anytouch-tonetelephone and follow the instructions. Have your proxy card available when you call.
- or -
INTERNET- Access “www.voteproxy.com” and follow theon-screeninstructions. Have your proxy card available when you access the web page.

COMPANY NUMBER

ACCOUNT NUMBER

You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting date.
âê Please detach along perforated line and mail in the envelope ~~provided.~~providedIF you are not voting via telephone or the Internet. âê
    n
THE BOARD OF DIRECTORS RECOMMENDS VOTING “FOR” ITEMS 1 AND 2.
THE BOARD OF DIRECTORS RECOMMENDS VOTING “AGAINST” ITEM 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS 1 THROUGH 3.~~
~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” ITEMS 4 THROUGH 7.~~
~~PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE~~x
1. Election of Directors: The undersigned hereby GRANTS authority to
elect the following nominees: (see Board recommendation below):
NOMINEES:
o FOR ALL NOMINEES ¡ William A. Coley
¡ Irl F. Engelhardt
¡ William C. Rusnack
¡ John F. Turner
¡ Alan H. Washkowitz
o WITHHOLD AUTHORITY
FOR ALL NOMINEES

~~NOMINEES:~~
o ~~FOR ALL NOMINEES~~ ¡ ~~Gregory H. Boyce~~
¡ ~~William E. James~~
o ~~WITHHOLD AUTHORITY~~
~~FOR ALL NOMINEES~~ ¡ ~~Robert B. Karn III~~
¡ ~~Henry E. Lentz~~
¡ ~~Blanche M. Touhill~~

o FOR ALL EXCEPT
(See ~~instructions~~instruction below)
RECOMMENDATION: The Board recommends ~~a vote~~voting“For”all Nominees.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here:l=

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o
~~The Board~~
~~Recommends “For"~~

The Board
Recommends “For”
ê
FOR AGAINST ABSTAIN
2. Ratification of Appointment of Independent Registered Public Accounting Firm. o o o
The Board
3. ~~Approval of Increase in Authorized Shares of Common Stock.~~ o o o
~~The Board~~
~~Recommends “Against”~~
Recommends “Against”
ê
FOR AGAINST ABSTAIN
4. ~~Shareholder Proposal regarding Formation of Special Committee.~~ o o o
5. ~~Shareholder Proposal regarding Majority Voting.~~ o o o
6.3. Shareholder Proposal regarding Board Declassification. o o o
7. ~~Shareholder Proposal regarding Water Use.~~ o o
If you vote over the Internet or by telephone, please do not mail your card.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING.o

~~MARK HERE IF YOU PLAN TO ATTEND THE MEETING.~~o-->
Signature of Stockholder Date: Signature of Stockholder Date:

Signature of Shareholder Date: Signature of Shareholder Date:

Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
n n
PEABODY ENERGY CORPORATION
Annual Meeting of Shareholders
Tuesday, May 1, 2007, 10:00 A.M.
Ritz-Carlton Hotel
100 Carondelet Plaza
Clayton, Missouri 63105
If you plan to attend the 2007 Annual Meeting of Shareholders of Peabody Energy Corporation, please detach this Admission Card and bring it with you to the meeting.This card will provide evidence of your ownership and enable you to attend the meeting. Attendance will be limited to those persons who owned Peabody Energy Corporation Common Stock as of March 9, 2007, the record date for the Annual Meeting.
When you arrive at the Annual Meeting site, please fill in your complete name in the space provided below and submit this card to one of the attendants at the registration desk.
If you do not bring this Admission Card and your shares are registered in your own name, you will need to present a photo I.D. at the registration desk. If your shares are registered in the name of your bank or broker, you will be required to submit other satisfactory evidence of ownership (such as a recent account statement or a confirmation of beneficial ownership from your broker) and a photo I.D. before being admitted to the meeting.
Shareholder Name:
n
PROXY
PEABODY ENERGY CORPORATION
Proxy/Voting Instruction Card for Annual Meeting of Shareholders to be held on May ~~5, 2006~~
1, 2007
This proxy is solicited on behalf of the Board of Directors
     The undersigned hereby constitutes and appoints ~~Gregory H. Boyce,~~Blanche M. Touhill, Alexander C. Schoch and Jeffery L. Klinger, ~~and Richard A. Navarre,~~ or any of them, with power of substitution to each, proxies to represent the undersigned and to vote, as designated on the reverse side of this form, all shares of Common Stock which the undersigned would be entitled to vote at the Annual Meeting of Shareholders of Peabody Energy Corporation (Peabody) to be held on May ~~5, 2006~~1, 2007 at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri 63105 at 10:00 A.M., and at any adjournments or postponements thereof.
     If the undersigned is a participant in the Peabody Investments Corp. Employee Retirement Account or other 401(k) plans sponsored by Peabody or its subsidiaries, this proxy/voting instruction card also provides voting instructions to the trustee of such plans to vote at the Annual Meeting, and any adjournments thereof, as specified on the reverse side hereof. If the undersigned is a participant in one of these plans and fails to provide voting instructions, the trustee will vote the undersigned’s plan account shares (and any shares not allocated to individual participant accounts) in proportion to the votes cast by other participants in that plan.
     The shares represented by this proxy/voting instruction card will be voted in the manner indicated by the shareholder. In the absence of such indication, such shares will be voted FOR the election of all the director nominees listed in Item 1, or any other person selected by the Board if any nominee is unable to serve, FOR ratification of Ernst & Young LLP as Peabody’s independent registered public accounting firm for ~~2006~~2007 (Item 2)~~, FOR approval of an increase in the number of shares of Common Stock authorized for issuance by the Company from 400,000,000 to 800,000,000 shares (Item 3)~~, and AGAINST the shareholder ~~proposals~~proposal included as ~~Items 4 through 7.~~Item 3. The shares represented by this proxy will be voted in the discretion of said proxies with respect to such other business as may properly come before the meeting and any adjournments or postponements thereof.
IMPORTANT —– This proxy/voting instruction card must be signed and dated on the reverse side.
n 14475  n


		OMB APPROVAL

		OMB Number:		3235-0059
		Expires:		February 28, 2006
		Estimated average burden hours per response		12.75


	1) Title of each class of securities to which transaction applies:


	2) Aggregate number of securities to which transaction applies:


SEC 1913 (02-02)	Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.


		Page No.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING			1
ELECTION OF DIRECTORS (ITEM 1)			5
	Class IIIII Director Nominees — Terms Expiring in ~~2009~~2010			5
	~~Class III Directors — Terms Expiring in 2007~~			6
	Class I Directors — Terms Expiring in 2008			6
Class II Directors — Terms Expiring in 2009			7
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES			8
	Director Independence			8
	~~Director Compensation~~			10
	~~Director Compensation Table~~			11
	Board Attendance and Executive Sessions			1210
	Committees of the Board of Directors			1210
	~~Compensation Committee~~			12
	~~Executive Committee~~			13
	~~Nominating and Corporate Governance Committee~~			14
	~~Audit Committee~~			14
REPORT OF THE AUDIT COMMITTEE			1513
~~APPOINTMENT OF~~FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ~~AND FEES~~			1613
CORPORATE GOVERNANCE MATTERS			1714
	Shareholder Communications with the Board of Directors			1815
	Overview of Director Nominating Process			1916
OWNERSHIP OF COMPANY SECURITIES			2118
	Beneficial Owners of More Than Five Percent, Directors and Management			2118
	Section 16(a) Beneficial Ownership Reporting Compliance			2219
EXECUTIVE COMPENSATION			2219
	~~Summary Compensation Table~~COMPENSATION DISCUSSION AND ANALYSIS			2219
	~~Estimated Fair Value of 2005 Total Annual Compensation~~REPORT OF THE COMPENSATION COMMITTEE			2331
	~~2005 Total Compensation Received in Cash~~SUMMARY COMPENSATION TABLE			2432
	~~All Other Compensation Table~~GRANTS OF PLAN-BASED AWARDS IN 2006			2534
	~~Option Grants in Last Fiscal Year~~OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR END			2635
	~~Aggregated Option Exercises in Last Fiscal Year~~OPTION EXERCISES AND STOCK VESTED IN 2006			2738
	~~Fiscal Year-End Option Values~~PENSION BENEFITS IN 2006			2739
	~~Long-Term Incentive Plans — Awards in Last Fiscal Year~~POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL			2841
	~~Equity Compensation Plan Information~~DIRECTOR COMPENSATION IN 2006			2943
	~~Pension Benefits~~COMPENSATION OF THE CHAIRMAN IN 2006			2945
	~~Retirement Plan Potential Annual Payments and Benefits Table~~			30
	~~Employment Agreements~~			30
	~~Report of the Compensation Committee~~			32
	Compensation Committee Interlocks and Insider Participation			4049
Policy for Approval of Related Person Transactions			49
	Certain Transactions and Relationships			40
~~STOCK PERFORMANCE GRAPH~~				41


		~~Page No.~~
		49
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2)		4249
~~APPROVAL OF INCREASE~~SHAREHOLDER PROPOSAL AND COMPANY’S STATEMENT IN ~~AUTHORIZED SHARES~~OPPOSITION		50
Shareholder Proposal Regarding Board Declassification (ITEM 3)		4250
~~SHAREHOLDER PROPOSALS AND COMPANY’S STATEMENTS IN OPPOSITION~~		44
	~~Introduction~~		44
	~~Shareholder Proposal regarding Formation of Special Committee (ITEM 4)~~		45
	~~Shareholder Proposal regarding Majority Voting (ITEM 5)~~		47
	~~Shareholder Proposal regarding Board Declassification (ITEM 6)~~		50
	~~Shareholder Proposal regarding Water Use (ITEM 7)~~		52
ADDITIONAL INFORMATION			5552
	Information About Shareholder Proposals		5552
	Householding of Proxies		5653
	Additional Filings		5654
	Costs of Solicitation		5654
OTHER BUSINESS		5754
~~ANNEX A — Corporate Governance Principle on Majority Voting~~			~~A-1~~


		~~11:~~ 4:00 P.M. Central Time on ~~May 2, 2006.~~April 26, 2007. All telephone and Internet voting facilities with respect to plan shares will close at that time. Vanguard will vote allocated shares of Company Common Stock for which it has not received direction, as well as shares not allocated to individual participant accounts, in the same proportion as plan shares for which the trustee receives voting instructions.

Q:		How many shares must be present to hold the Annual Meeting?

A:		Holders of a majority of the shares of outstanding Common Stock as of the record date must be represented in person or by proxy at the Annual Meeting in order to conduct business. This is called a quorum. If you vote, your shares will be part of the quorum. Abstentions, ~~“withhold”~~“Withheld” votes and broker non-votes also will be counted in determining whether a quorum exists.


			Fees Earned						Non-Stock
			or Paid		Stock		Option		Incentive Plan		All Other
	Total		in Cash		Awards		Awards		Compensation		Compensation
Name	($)		($)		($)⁽¹⁾⁽²⁾		($)⁽³⁾		($)		($)

B. R. Brown		91,157		65,250		907		25,000		—		—
William A. Coley		86,519		60,750		769		25,000		—		—
Henry Givens, Jr.		86,519		60,750		769		25,000		—		—
William E. James		90,250		65,250		—		25,000		—		—
Robert B. Karn III		108,368		82,125		1,243		25,000		—		—
Henry E. Lentz		89,469		63,750		719		25,000		—		—
William C. Rusnack		102,250		77,250		—		25,000		—		—
James R. Schlesinger		82,750		57,750		—		25,000		—		—
Blanche M. Touhill		89,875		64,875		—		25,000		—		—
John F. Turner⁽⁴⁾		99,863		25,500		50,151		24,212		—		—
Sandra Van Trease		90,743		64,500		1,243		25,000		—		—
Alan H. Washkowitz		87,969		62,250		719		25,000		—		—


		Amount and Nature
		of Beneficial		Percent of
Name and Address of Beneficial Owner		Ownership^(1)(2)(3)		Class⁽⁴⁾

FMR Corp.			35,215,620		13.3	%
	82 Devonshire Street Boston, MA 02109
Gregory H. Boyce			852,546		*
B. R. Brown			10,267		*
William A. Coley			9,466		*
Irl F. Engelhardt			1,302,479		*
Henry Givens, Jr.			9,455		*
William E. James			53,241		*
Robert B. Karn III			25,575		*
Henry E. Lentz			9,163		*
Richard A. Navarre			159,535		*
William C. Rusnack			25,753		*
James R. Schlesinger			25,769		*
Blanche M. Touhill			25,769		*
John F. Turner			2,464		*
Sandra Van Trease			26,253		*
Roger B. Walcott, Jr.			109,899		*
Alan H. Washkowitz			9,163		*
Richard M. Whiting			114,535		*
All directors and executive officers as a group (21 people)			3,015,257		1.1	%


									Long-Term Compensation

														LTIP
				Annual Compensation					Restricted			Securities		Payments
									Stock			Underlying		From Prior-			All Other
				Salary		Bonus			Awards			Options		Year Grants			Compensation
Name and Principal Position		Year		($)		($)			(#)⁽¹⁾			(#)⁽¹⁾⁽²⁾		($)⁽³⁾			($)⁽⁴⁾

Gregory H. Boyce⁽⁵⁾			2005		790,750		1,272,370			—			77,364		1,473,103	⁽⁷⁾		100,984
	Chief Executive Officer,		2004		659,750		838,403			—			92,968		—			189,730
	President and Director		2003		162,500		415,000			40,000	⁽⁶⁾		1,322,564		—			216,276

Richard A. Navarre			2005		568,750		1,410,000	⁽⁸⁾		—			49,606		2,568,581			66,248
	Executive Vice President and		2004		469,938		670,030			—			62,400		880,087			48,700
	Chief Financial Officer		2003		432,438		420,000			—			58,240		164,004			44,000

Richard M. Whiting			2005		521,250		1,697,440	⁽⁹⁾		—			26,516		2,659,264			59,576
	Executive Vice President —		2004		506,250		666,156			—			47,676		1,246,909			52,134
	Sales, Marketing & Trading		2003		462,200		410,136			—			60,296		232,331			48,467


					Long-Term Incentive
					Compensation

	Cash Compensation				Stock
					Option		Performance		All Other
	Salary		Bonus		Awards		Unit Awards		Compensation
Name	($)		($)		($)⁽¹⁾		($)⁽²⁾		($)⁽³⁾		Total ($)

Gregory H. Boyce		790,750		1,272,370		626,793		990,356		100,984		3,781,253
Richard A. Navarre		568,750		1,410,000		392,915		553,651		66,248		2,991,564
Richard M. Whiting		521,250		1,697,440		200,761		281,991		59,576		2,761,018
Roger B. Walcott, Jr.		440,500		490,390		170,809		239,884		49,033		1,390,616
Irl F. Engelhardt		1,000,000		1,654,935		881,417		1,237,966		120,102		4,894,420


	1) Amount Previously Paid:


	2) Form, Schedule or Registration Statement No.:


	3) Filing Party:


	4) Date Filed:


					LTIP Payments
					from Prior-Year			All Other
	Salary		Bonus		Grants			Compensation		Total
Name	($)		($)		($)⁽¹⁾			($)⁽²⁾		($)

Gregory H. Boyce		790,750		1,272,370		1,473,103	⁽³⁾		100,984		3,637,207
Richard A. Navarre		568,750		1,410,000		2,568,581			66,248		4,613,579
Richard M. Whiting		521,250		1,697,440		2,659,264			59,576		4,937,530
Roger B. Walcott, Jr.		440,500		490,390		2,508,346			49,033		3,488,269
Irl F. Engelhardt		1,000,000		1,654,935		14,505,315			120,102		17,280,352


					Annual 401(k)
			Group		Matching and				Dividends on
			Term Life		Performance				Restricted
			Insurance		Contributions		Relocation		Stock		Perquisites
Name	Year		($)		($)		($)		($)⁽¹⁾		($)		Total

Gregory H. Boyce		2005		2,039		92,145		—		6,800		—		100,984
		2004		1,683		66,365		116,432		5,250		—		189,730
		2003		—		16,520		198,506		1,250		—		216,276

Richard A. Navarre		2005		923		65,325		—		—		—		66,248
		2004		504		48,196		—		—		—		48,700
		2003		459		43,541		—		—		—		44,000

Richard M. Whiting		2005		1,301		58,275		—		—		—		59,576
		2004		1,259		50,875		—		—		—		52,134
		2003		735		47,732		—		—		—		48,467


	Individual Grants

	Number of
	Securities		Percent of
	Underlying		Options
	Options		Granted to			Exercise or								Grant Date
	Granted		Employees in			Base Price		Expiration		Vesting				Fair Value
Name	(#)⁽¹⁾⁽²⁾		Fiscal Year			($/share)⁽²⁾		Date		Dates⁽³⁾		Grant Date		($)⁽⁴⁾

Gregory H. Boyce		51,960		12.41	%		19.33		01/03/2015		01/03/06		01/03/05		393,337
		25,404		6.07	%		23.45		03/01/2015		03/01/06		03/01/05		233,456

		77,364													626,793

Richard A. Navarre		38,804		9.27	%		19.33		01/03/2015		01/03/06		01/03/05		293,746
		10,802		2.58	%		23.73		04/01/2015		04/01/06		04/01/05		99,169

		49,606													392,915

Richard M. Whiting		26,516		6.33	%		19.33		01/03/2015		01/03/06		01/03/05		200,761
Roger B. Walcott, Jr.		22,560		5.39	%		19.33		01/03/2015		01/03/06		01/03/05		170,809
Irl F. Engelhardt		111,044		26.53	%		20.26		01/25/2015		01/25/06		01/25/05		881,417


	Shares Acquired on Exercise (#)(1)

			Post IPO				Value
Name	LBO Grants		Grants		Total		Realized ($)

Gregory H. Boyce		—		160,000		160,000		4,139,780
Richard A. Navarre		—		62,568		62,568		1,344,840
Richard M. Whiting		22,612		157,388		180,000		4,158,707
Roger B. Walcott, Jr.		—		52,400		52,400		804,158
Irl F. Engelhardt		1,047,860		—		1,047,860	$	28,817,885


	Number of Securities Underlying Unexercised												Value of Unexercised In-the-Money
	Options at Fiscal Year-End(1)												Options at Fiscal Year-End(2)

	Exercisable (#)						Unexercisable (#)

	LBO		Post IPO						Post IPO
Name	Grants		Grants		Total		LBO Grants		Grants		Total		Exercisable ($)		Unexercisable ($)

Gregory H. Boyce		—		752,700		752,700		—		180,196		180,196		24,073,756		4,850,845
Richard A. Navarre		—		6,820		6,820		388,372		110,618		498,990		197,695		17,568,066
Richard M. Whiting		—		22,710		22,710		435,208		78,398		513,606		719,457		18,618,435
Roger B. Walcott, Jr.		—		—		—		435,208		68,688		503,896		—		18,351,447
Irl F. Engelhardt		245,132		494,874		740,006		1,246,272		301,734		1,548,006		25,932,397		55,265,987


					Estimated					Estimated
					Normal					Early
	Number of		Normal		Retirement		Early			Retirement
	Years Credited		Retirement		Annual		Retirement			Annual Benefit
Name	Service (#)⁽²⁾		Age (#)		Benefit($)		Age (#)			($)⁽³⁾

Gregory H. Boyce		—		—		—		—			—
Richard A. Navarre		7.75		62		37,993		55			27,355
Richard M. Whiting		26.50		62		264,786		55			169,685
Roger B. Walcott, Jr.		2.58		62		24,663		55			17,757
Irl F. Engelhardt		26.75		62		490,008		59	⁽⁴⁾		398,268


			Peabody					Peabody
			Percentile					Percentile
			Ranking					Ranking
			Among Peer					Compared			Peabody
			Companies-			Peabody		to Industrial			Ranking
			Total			Ranking		Index-Total			Among		Payout as			Target		Actual Award		Actual Award
	Performance		Shareholder			Among 7 Peer		Shareholder			Industrial		a % of			Award Units		Units		Value
Name	Period		Return			Companies		Return			Companies		Target			(#)⁽²⁾		(#)⁽²⁾		($)⁽³⁾

Gregory H. Boyce		2003-2005		100	%		1		99.1	%		3 of 375		200	%		17,804		35,608	$	1,473,103	⁽⁴⁾
Richard A. Navarre		2003-2005		100	%		1		99.1	%		3 of 375		200	%		31,044		62,088	$	2,568,581
Richard M. Whiting		2003-2005		100	%		1		99.1	%		3 of 375		200	%		32,140		64,280	$	2,659,264
Roger B. Walcott, Jr.		2003-2005		100	%		1		99.1	%		3 of 375		200	%		30,316		60,632	$	2,508,346
Irl F. Engelhardt		2003-2005		100	%		1		99.1	%		3 of 375		200	%		175,312		350,624	$	14,505,315



	May-01		Dec-01		Dec-02		Dec-03		Dec-04		Dec-05

Peabody Energy Corporation	$	100	$	101	$	107	$	155	$	304	$	622

S&P^© MidCap 400 Index	$	100	$	94	$	80	$	108	$	126	$	142

Custom Composite Index (4 Stocks)	$	100	$	65	$	46	$	76	$	114	$	182


		~~be detrimental to the Company and its shareholders and employees.~~~~See~~~~Shareholder Proposals and Company’s Statements in Opposition — Introduction.~~

	•	The Board believes this vaguely worded proposal would give activists an open forum to advance their special purpose agendas at the expense of our shareholders. Once established, such a committee could continue indefinitely as the Board would have no power to end its existence without adopting a proposal that may not serve the best interests of shareholders as a whole.


		~~proposal and established a new director election process which it believes is a better alternative to a majority-voting standard.~~

	•	The Board believes this proposal was submitted as part of a “corporate campaign” aimed at pressuring the Company into adopting policies being promoted by union officials that would be detrimental to the Company and its shareholders and employees.~~SeeShareholder Proposals and Company’s Statements in Opposition — Introduction.~~

	•	The Board believes that adopting the proposal would make it easier for special interest groups to pressure the Board, to cause disruption and to push their own agendas to the detriment of the Company and its shareholders as a whole.


	By Order of ~~the Board of Directors,~~



	~~Jeffery L. Klinger~~
	~~Vice President, General Counsel~~
	~~and Corporate Secretary~~


		~~PROXY~~THE BOARD OF DIRECTORS RECOMMENDS VOTING ~~INSTRUCTIONS~~“FOR” ITEMS 1 AND 2. THE BOARD OF DIRECTORS RECOMMENDS VOTING “AGAINST” ITEM 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE	x

1.		Election of Directors: The undersigned hereby GRANTS authority to
		elect the following nominees: (see Board recommendation below):

			NOMINEES:
o	FOR ALL NOMINEES		¡ William A. Coley
			¡ Irl F. Engelhardt
o	WITHHOLD AUTHORITY		¡ William C. Rusnack
o	FOR ALL NOMINEES		¡ John F. Turner
			¡ Alan H. Washkowitz
o	FOR ALL EXCEPT
o	(See instruction below)
		~~NOMINEES:~~
o	~~FOR ALL NOMINEES~~	m ~~Gregory H. Boyce~~ m ~~William E. James~~
o	~~WITHHOLD AUTHORITY~~ ~~FOR ALL NOMINEES~~	m ~~Robert B. Karn III~~ m ~~Henry E. Lentz~~ m ~~Blanche M. Touhill~~

o	~~FOR ALL EXCEPT~~ ~~(See instructions below)~~


RECOMMENDATION:										The Board recommends ~~a vote~~voting“For”all Nominees.


INSTRUCTION:				To withhold authority to vote for any individual nominee(s), mark“FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here:˜=












To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.								o


		The Board
		Recommends “For”
		ê
		FOR	AGAINST	ABSTAIN
2.	Ratification of Appointment of Independent Registered Public Accounting Firm.	o	o	o
					The Board
3.	~~Approval of Increase in Authorized Shares of Common Stock.~~	o	o	o

						Recommends “Against”
			ê
		FOR	AGAINST		ABSTAIN
4.	~~Shareholder Proposal regarding Formation of Special Committee.~~	o	o		o
5.	~~Shareholder Proposal regarding Majority Voting.~~	o	o		o
6.3.	Shareholder Proposal regarding Board Declassification.	o	o		o
7.	~~Shareholder Proposal regarding Water Use.~~	o	o		o

If you vote over the Internet or by telephone, please do not mail your ~~card~~card.				��

MARK HERE IF YOU PLAN TO ATTEND THE MEETING.o


	Note:	Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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