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.
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.
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OWNERSHIP OF COMPANY SECURITIES
The following table sets forth information as of March 1, 20062007 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 |
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| | |
| | stock that remain unvested as of March 1, 20062007 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. |
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| |
(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
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 annualprogram is to attract, retain and motivate key executives to enhance long-term compensation paidprofitability and create shareholder value. Compensation programs are designed to the Chief Executive Officer and the four other most highly compensated executive officersalign 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 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 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 $1,001,020 paid on August 31, 2005 under the terms of an employment agreement between the Company and Mr. Whiting. |
| |
(10) | Mr. Engelhardt served as Chief Executive Officer until December 31, 2005. |
| |
| Estimated Fair Value of 2005 Total Annual Compensation |
Because elements of the Summary Compensation Table do not lend themselves to being totaled due to different presentation requirements and to provide additional transparency on the total compensation for our named executive officers, we are providing the following “supplemental” Estimated Fair Value of 2005 Total Annual Compensation table. The components of executive compensation included in this table are as follows:
| | |
| • | Cash compensation, consisting of salaryExecuting the basics: best in class safety, operations and annual incentive compensation (bonus);marketing; |
|
| • | Estimated fair value of long-term incentive compensation grantedCapitalizing on organic growth opportunities; |
|
| • | Expanding in 2005, consisting of stock options and performance unit awards;high-growth global markets; and |
|
| • | Other compensation, including group term life insurance, savings plan matching paymentsParticipating in new generation and performance contributions, and restricted stock dividends. |
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Estimated Fair Value of 2005 Total Annual Compensation
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Long-Term Incentive | | | | | |
| | | | | | Compensation | | | | | |
| | | | | | | | | |
| | Cash Compensation | | | Stock | | | | | | | |
| | | | | Option | | | Performance | | | All Other | | | |
| | Salary | | | Bonus | | | Awards | | | Unit Awards | | | Compensation | | | |
Name | | ($) | | | ($) | | | ($)(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 usingBlack-Scholesmethodology, 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. |
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(2) | Performance units with stock market performance conditions have been valued utilizingBlack-Scholesmethodology (as applied with guidance from the Compensation Committee’s independent compensation consultants) within aMonte Carlosimulation 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 CashBtu Conversion projects. |
To provide additional transparency about the total cash
The Company’s compensation earned by our named executive officers for 2005, we are providingprogram 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 pursuantPrograms 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; |
19
| | |
| • | 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 paymentsIncorporate 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
20
24
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 reportedCompensation 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 Summarynon-deductibility of certain compensation.
Role of the Compensation TableConsultant
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 variousoutside 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 TotalReview of External Data
Each year, the Compensation ReceivedCommittee 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 Casha 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.
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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 reportedincrease (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 Othergoals 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
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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 AnnualChief Executive Officer has discretion for his direct reports up to the maximum allowable award, provided such award is approved by the Compensation tableCommittee; 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 Other2006 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
23
25
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 eachSpecial 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 oncompensation 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 duringBoard of Directors meet in December of each year to evaluate, review and approve the fiscal year ended December 31, 2005. Eachannual stock option award design and level of award for each named executive officer receivedand 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 supplementalannual stock option awards are approved in connection withDecember for granting on the implementationfirst 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 fairclosing market valueprice of the Company’s Common Stock on the date of grant. The number and exerciseAccordingly, those stock options will have intrinsic value to employees only if the market price of allthe Common Stock increases after that date. Stock options have been adjusted to reflect the2-for-1 stock splits effected bygenerally 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 Committeevalue 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 |
24
| | |
| | Group, the 35th percentile of the S&P MidCap 400 Index and a threshold goal for three-year Adjusted EBITDA Return on page 34Invested 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 reflecta maximum goal for the2-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. |
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• | |
(4) | Represents grant date value determined usingBlack-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) | AmountsPayouts are ratably adjusted to reflect the2-for-1 stock splits effected by the Company in March 2005for 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 2005target, and February 2006.between target and maximum levels. |
|
(2) | Values are calculated based on• | No payouts will be made if TSR over the closing priceperformance period is negative and performance is below the 50th percentile of Peabody Energy Corporation Common Stock on the last trading dayIndustry 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. |
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When
Performance units are issued at a price that equals the Company was acquired by its prior owners in 1998, it had an estimatedaverage closing market capitalizationprice per share of $480 million. Today, less than 8 years later, the market capitalization is approximately $12 billion, a compound annual growth rateCompany’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 a10-year term fromtrading immediately following the date of grant). This growth in market capitalization has also enabled executives to obtain ownershipgrant.
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 concerninga recapitalization event or the grantholder’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 eachoutstanding as of the Company’sdate 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 listedparticipate in these plans on the Summary Compensation Table above duringsame terms as other eligible employees, subject to any legal limits on the fiscal year ended December 31, 2005. Except as otherwise shown inamount 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-1Pension Plan stock splits effected by the Company in March 2005 and February 2006. |
|
(3) | Performance units with stock market performance conditions have been valued utilizingBlack-Scholesmethodology (as applied with guidance from the Compensation Committee’s independent compensation consultants) within aMonte Carlosimulation 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. |
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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 salariedAn 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
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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 willcontinue 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 beare capped at December 31, 2000 levels.
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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 hasmaintains one supplementalexcess defined benefit retirement plan and one excess defined contribution plan that providesprovide retirement benefits to executives whose pay exceeds legislative limits for qualified defined benefit plans.plans, which include the named executive officers.
Employment AgreementsOther 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”
26
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; |
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| • | 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.
27
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
| | | Ownership
| |
| | Share
| | | Share
| | | Guidelines,
| | | Relative to
| |
| | Ownership
| | | Ownership
| | | Relative to
| | | Actual Base
| |
Name | | (#)(1) | | | ($)(2) | | | Base Salary | | | Salary | |
|
Gregory H. Boyce(3) | | | 183,690 | | | | 7,422,913 | | | | 5 | x | | | 7.8x | |
Richard A. Navarre | | | 102,813 | | | | 4,154,673 | | | | 3 | x | | | 6.6x | |
Richard M. Whiting | | | 101,892 | | | | 4,117,456 | | | | 3 | x | | | 7.5x | |
Sharon D. Fiehler | | | 106,443 | | | | 4,301,362 | | | | 3 | x | | | 10.3x | |
Roger B. Walcott, Jr. | | | 42,504 | | | | 1,717,587 | | | | 3 | x | | | 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, $40.41. |
|
(3) | | Share ownership includes 80,000 phantom shares granted to Mr. Boyce on October 1, 2003 under the terms of his employment agreement. |
Also under the Company’s share ownership guidelines for directors, directors are encouraged to acquire and retain Company Common Stock having a value equal to at least three times their annual retainer. Directors are encouraged to meet these ownership levels by the later of December 31, 2007 or three years after joining the Board.
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The following table summarizes the Director ownership of Company Common Stock as of December 31, 2006.
Director Stock Ownership
| | | | | | | | | | | | | | | | |
| | | | | | | | Ownership
| | | | |
| | | | | | | | Guidelines,
| | | Ownership
| |
| | Share Ownership
| | | Share Ownership
| | | Relative to Base
| | | Relative to Base
| |
Name(1) | | (#)(2) | | | ($)(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. |
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(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 extendsday-today-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 paymentthe following benefits, payable in substantiallyeither (a) equal installments equal toover 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 terminationincentive or (2)(B) the average of the actual annual bonusesincentive paid in the three prior years. HeIn addition, he would also be entitled to a one-time prorated bonusannual 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
29
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
30
equivalent of the fair market value of 80,000 shares of Company common stockCommon 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 extendday-today-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 onetwo 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 bonusincentive or (B) the average of the actual annual bonusesincentive paid in the three prior years. In addition, the other executives are entitled to (1) a one-time prorated bonusannual 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.
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31
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. Boycethat 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
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SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation paid to succeed Irl F. Engelhardt asthe Chief Executive Officer, effective January 1, 2006. The Compensation Committeethe 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 ofthree 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.
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) | • | ProgramsLong-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 havelikely 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. |
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(2) | • | Programs will be designed to support achievementThe 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. |
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(3) | • | Total compensation opportunities will be establishedThe 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 andthe rate of 50% for each year of actual service. None of the other pertinent criteria, taking into account such factors asnamed executive performance, levelofficers 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. |
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(4) | • | Variable incentive pay will constitute a significant portion of each executive’s compensation. |
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| • | Incentive pay will be designed to:Amounts included in this column are described in the All Other Compensation Table below. |
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| | |
| • | Reflect company-wide, business unit and individual performance, based on each individual’s position and level; and |
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| • | Incorporate “absolute” (internal) and “relative” (external) performance measures. |
(5) | | |
| • | Programs will be communicated so that participants understand how their decisionsMr. 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.
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| |
| 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” (seepage 41 of this Proxy Statement) and several other public companiesamounts 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.
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.
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.
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
33
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.
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.
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.
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 aBlack-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 | |
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
34
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 measuredDividends are paid at the endsame 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 (equalRepresents 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% ofwhen a spouse accompanied the value of the performance units, as measured at the end of the performance period) are basednamed 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 measurecorporate aircraft for three-year Adjusted EBITDA Return on Invested Capital.Company business purposes. |
|
(3) | • | Maximum payouts (equalRepresents the aggregate incremental cost to 200%the Company of use of corporate aircraft as determined on a per flight basis, including the valuecost of fuel, landing fees, the performance units, as measured atcost of in-flight meals, sales tax, crew expenses, the endhourly 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 measureaircraft maintenance for the three-year Adjusted EBITDA Returnapplicable 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 thresholdFor Mr. Boyce, Mr. Navarre and targetMs. Fiehler, the “Perquisites” column also includes the cost of home security system upgrades. |
33
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
| | | All
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Incentive
| | | Other
| | | Other
| | | All Other
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Plan
| | | Stock
| | | Stock
| | | Option
| | | | | | Option
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | Awards:
| | | Awards:
| | | Awards:
| | | 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 | | | 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 negativeThe 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 percentilegrant 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 valueAnnual 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 atCompany’s Common Stock on the enddate 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. |
34
| | |
(6) | | The options vest in three equal annual installments beginning on the first anniversary of the performance period) if TSR is negativedate of grant. Other material terms of these awards are described under the caption “Stock Options” in the Compensation Discussion and performance is aboveAnalysis on page 24 of this Proxy Statement. |
|
(7) | | The options cliff vest on the 50th percentilethird 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 equalsdescribed under the average closing pricecaption “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 duringactual operating performance, stock price fluctuations and the four weekstiming of trading immediately followingexercises and sales. In the datecase of grant. TSRequity 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 atnamed executive officers, other than Mr. Boyce, is attributable to stock options granted to them prior to the endCompany’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 weekspre-IPO stock options or “LBO grants” were determined according to standard practices at that time for private companies. The LBO grants, many of tradingwhich 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. Unitsand 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 paidholder if the holder terminates employment without good reason (as defined in proportion to the holder’s employment agreement).
35
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
36
| | |
(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. |
37
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 theOther Plans2-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.
35
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 reportpayouts 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 20032004 (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 returnTSR over the three-year performance period beginning January 2, 20032004 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 createdCompany’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 IndustrialMidCap 400 Index. It was also the highest three-year total shareholder return since the Company’s initial public offering. Messrs. Boyce and EngelhardtThe named executive officers were instrumental in leading the Company through this unprecedented period of growth and improvementsimprovement in safety that resulted in a 70.9%86.7% increase in revenues, a
36
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 paymentspayouts earned by each of the named executive officers in 2005.2006. The paymentspayouts relate to performance units granted in 20032004 and
38
reflect the Company’s performance and stock price appreciation during the ensuing three-year performance period.
The table compares the Company’s total shareholder returnTSR for the three-year period ended December 31, 20052006 to the performance of a peer group comprising sevenof 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 EndingEnded 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 sharesunits 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, 20052006 ($41.37, which has been adjusted44.04) 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.
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. Under the plan, “earnings” include compensation earned as base salary and up to five annual incentive awards.
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.
39
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 proratedBoyce is not eligible to receive benefits under the Company’s pension plan because his employment with the Company began after the commencementphase-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. |
40
37
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following graphs illustratetables below reflect the Company’s strong performance overamount of compensation that would have been payable to each of the past three yearsnamed 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 relativelong-term incentive agreements. The amount of compensation payable to its peer group.
Share priceseach 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 forpaid to the2-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.
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![(PERFORMANCE GRAPH)](https://capedge.com/proxy/DEF 14A/0000950137-06-004018/c03033c0303304.gif)
Estimated Incremental Value Upon TerminationSource: 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. |
41
| 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 $800,000, g) deferred compensation equal to the fair market value of 80,000 shares of Common Stock on Deductibilitythe date of Compensation Expensestermination, and h) the fair market value on the date of termination of 160,000 restricted shares of Common Stock, which would accelerate vest. |
|
(6) | | Reflects total estimate of compensation payable as a result of both a Change in Control and a termination of employment, as detailed in the Estimated Current Value of Change in Control Benefits Table below. With the exception of Mr. Boyce, this includes the value of stock options granted prior to the Company’s May 2001 IPO, which vest in November 2007 and July 2010, and expire in May 2008 and January 2011, respectively. |
Pursuant
The named executive officers would be entitled to receive certain benefits upon a change in control of the Company under the terms of their individual employment agreements and long-term incentive agreements. The actual value of these benefits would be known only if and when they become eligible for payment. The following table provides an estimate of the value that would have been payable to each named executive officer assuming a change in control of the Company had occurred on December 31, 2006, including agross-up for certain taxes in the event that any payment made in connection with the change in control was subject to the excise tax imposed by Section 162(m) under4999 of the Internal Revenue Code,Code.
Estimated Current Value of Change in Control Benefits
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accelerated Vesting of Unvested
| | | | |
| | | | | | | | Stock Option Awards
| | | | |
| | Severance
| | | Estimated Tax
| | | ($)(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 |
42
| | |
| | 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 $75,000 in 2006, awarded one-half in restricted shares (based on the fair market value of the Common Stock on the date of grant) and one-half in stock options (based onBlack-Scholesmethodology). The restricted stock awards will vest on the third anniversary of the date of grant or such other period designated by the Board of Directors pursuant to the Company’s Long-Term Equity Incentive Plan. The stock option awards were granted at an exercise price equal to the fair market value of the Common Stock on the date of grant, will vest in equal annual installments over three years, and will expire ten years after grant. In the event of a change in control of the Company (as defined in the Company’s Long-Term Equity Incentive Plan), all restrictions related to the restricted stock awards will lapse and any previously unvested options will vest. The
43
restricted stock awards and options also provide for vesting in the event of death or disability or termination of service without cause with Board consent.
Director Compensation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Change in
| | | | | | | |
| | | | | | | | | | | | | | Pension Value
| | | | | | | |
| | | | | | | | | | | | | | and Non-
| | | | | | | |
| | | | | | | | | | | | | | Qualified
| | | | | | | |
| | Fees Earned
| | | | | | | | | Non-Equity
| | | Deferred
| | | | | | | |
| | or Paid in
| | | | | | Option
| | | Incentive Plan
| | | Compensation
| | | All Other
| | | | |
| | Cash
| | | Stock Awards
| | | Awards
| | | Compensation
| | | Earnings
| | | Compensation
| | | Total
| |
Name | | ($) | | | ($)(1)(2) | | | ($)(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. |
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| | |
(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.
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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 | | | | 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. |
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| | |
(2) | | Includes excise tax, plus the effect of 35% federal income taxes, 6% state income taxes and 1.45% FICA-HI taxes on the excise tax. Excise tax is equal to 20% times the excess parachute payment subject to excise tax. An excess parachute payment is triggered when the change 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 excessMr. 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 millionuse 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, exceptattributable to the extent such excess constitutes performance-based compensation. Priorstock options granted to May 2005, the limit on deductibility did not apply to plans in existencehim prior to the Company’s initial public offeringMay 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 hassize 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 portionterms of the Company’s executive compensation satisfiespre-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 requirementsindustry marketplace for deductibility under Section 162(m). Attop executives, to compensate the same time,management group on a basis commensurate with the Committee considers its primary goalrisks associated with a highly leveraged transaction, to design compensation strategies that further the bestreward 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 officersowners. The LBO grants vest in November 2007 and to pay appropriate compensation, even if it may resultJuly 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.
47
As of certain compensation.December 31, 2006, Mr. Engelhardt’s outstanding equity awards were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | | Stock Awards | |
| | | | | | | | | | | | | | | | | | | | | | | | | Equity
| |
| | | | | | | | | | | | | | | | | | | | | | Equity
| | | Incentive
| |
| | | | | | | | | | | | | | | | | | | | | | Incentive
| | | Plan
| |
| | | | | | | | | | | | | | | | | | | | | | Plan
| | | Awards: Market
| |
| | | | | | | | | | | | | | | | | | | | | | Awards:
| | | or Payout
| |
| | | | | | | | | | | | | | | | | | | | | | Number of
| | | Value
| |
| | | | | | | | | | | | | | | | | | | Market
| | | Unearned
| | | of Unearned
| |
| | | | | | | | | | | | | | | | Number of
| | | Value
| | | Shares,
| | | Shares,
| |
| | | | | | | | | | | | | | | | Shares or
| | | of Shares
| | | Units or
| | | Units or
| |
| | | Number of
| | | Number of
| | | | | | | | | | Units of
| | | or Units
| | | Other
| | | Other
| |
| | | Securities
| | | Securities
| | | | | | | | | | Stock
| | | of Stock
| | | Rights
| | | Rights
| |
| | | Underlying
| | | Underlying
| | | | | | | | | | That
| | | That
| | | That
| | | That
| |
| | | Unexercised
| | | Unexercised
| | | Option
| | | | | | | Have
| | | Have
| | | Have
| | | Have
| |
| | | Options
| | | Options
| | | Exercise
| | | Option
| | | | Not
| | | Not
| | | Not
| | | Not
| |
| | | (#)(1)
| | | (#)(1)
| | | Price
| | | Expiration
| | | | Vested
| | | Vested
| | | Vested
| | | 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 | | | | | | | | | | | | | | | | | | |
| | | | 50 | (8) | | | 74,029 | (8) | | | 20.2625 | | | | 1/25/2015 | | | | | | | | | | | | | | | | | | |
Total | | | | 50 | | | | 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
39
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.
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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.
40
STOCK PERFORMANCE GRAPH
The following performance graph comparesIn the cumulative total returnthird 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 Stocksale. 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 valuebest interests of the investment in Company Common Stock and each index was $100 at May 21, 2001,its stockholders. Upon the dateNominating & Corporate Governance Committee’s recommendation, the independent members of the Company’s initial public offering. The graph also assumes that all dividends were reinvestedBoard 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.
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/DEF 14A/0000950137-06-004018/c03033c0303315.gif)
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Copyright© 2006, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
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
41
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
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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 16page 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 INCREASESHAREHOLDER 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.
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The proposed amendment provides for Section (1) of the Article numbered “Fourth” to be amended to read as follows:
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| 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 the2-for-1Declassification (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
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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 byInstitutional Investormagazine as a finalist among “America’s Most Shareholder-Friendly Companies.” Peabody was also named toFortune magazine’sMost Admired Companieslist 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.
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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.
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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
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“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:
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| (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; |
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| (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 |
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| (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:
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| • | 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. |
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| • | The proposed committee is unnecessary as there are other avenues available for shareholders to communicate with the Board. |
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| • | 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 |
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| | be detrimental to the Company and its shareholders and employees.SeeShareholder Proposals and Company’s Statements in Opposition — Introduction. |
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| • | 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.SeeShareholder 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.
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
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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:
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| • | 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 |
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| | proposal and established a new director election process which it believes is a better alternative to a majority-voting standard. |
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| • | 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. |
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| • | 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 asAnnex 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
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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.
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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 20062007 Annual Meeting of Shareholders.All references toThe words “we” and “our” in the Supporting Statement mean the AFL-CIO, not the Company:
“RESOLVED:
Proposal Submitted by AFL-CIO
“Resolved: The shareholdersstockholders 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 shareholdersstockholders 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
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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).
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“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 majorityfirst six months of shareholders at 74 companies voted in favor of annual director elections2006, 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 shareholdersstockholders 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 shareholdersstockholders 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:
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| • | 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 ofcontinues to believe the proposal may not have realizedclassified 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. |
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| • | 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. |
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| • | The Board continuesbelieves 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 improvesCompany, its ability to protect shareholder interestsshareholders 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 publicS&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 isclassified 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 byInstitutional Investormagazine named Peabody Energy as a finalist amongone of “America’s Most Shareholder-Friendly Companies.”Companies” for 2006.
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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
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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 thea 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 thea 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 supportedin favor of a similar proposal presented at theour 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 concludedcontinues to conclude that retaining the classified board continues to beis 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
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
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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:
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| • | The Company is committed to the principles of environmental stewardship and complies with all laws and regulations governing its water use. |
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| • | 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. |
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| • | 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
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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:
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.
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:
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| • | The Company met all regulatory requirements in obtaining a permit to use water from the Kaskaskia River; |
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| • | The Sierra Club expressed its views to the Illinois EPA about Prairie State’s proposed water use during the permitting process; and |
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| • | 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.
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
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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.
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Under the Company’s by-laws, if you wish to nominate a director or bring other business before the shareholders at the 20072008 Annual Meeting without having your proposal included in next year’s proxy statement:
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| • | You must notify the Corporate Secretary in writing at the Company’s principal executive offices between January 5, 20072, 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 |
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| • | 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
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(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.
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Additional Filings
The Company’sForms 10-K, 10-Q, 8-K10-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 theirout-ofout-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.
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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, 20052006 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.
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| By Order of the Board of Directors, |
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| ![-s- Jeffery L. Klinger](https://capedge.com/proxy/DEF 14A/0000950137-06-004018/c03033jklinger.gif) |
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| Jeffery L. Klinger |
| Vice President, General Counsel |
| and Corporate Secretary |
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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.
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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 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
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| | PROXYTHE 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
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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 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.
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| COMPANY NUMBER
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| ACCOUNT NUMBER
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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
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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 HEREx
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 |
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o | | FOR ALL EXCEPT
(See instructions below) | | |
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RECOMMENDATION: | | The Board recommends a votevoting“For”all Nominees. | |
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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:˜= | |
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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 | |
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The Board
Recommends “For"
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| | | | The Board | |
| | | | Recommends “For” | |
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| | | | 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” | |
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| | | | 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 |
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If you vote over the Internet or by telephone, please do not mail your cardcard. | �� | |
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MARK HERE IF YOU PLAN TO ATTEND THE MEETING.o
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MARK HERE IF YOU PLAN TO ATTEND THE MEETING.o | | | | | | | | | | | | | | |
Signature of Stockholder | | Date: | | Signature of Stockholder | | Date: | |
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Signature of Shareholder | | | | Date: | | | | Signature of Shareholder | | | | Date: | | |
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| | 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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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, 20061, 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, 20061, 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 20062007 (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 proposalsproposal 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.
ANNUAL MEETING OF SHAREHOLDERS OF
PEABODY ENERGY CORPORATION
May 5, 20061, 2007
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| | 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.
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| COMPANY NUMBER
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| ACCOUNT NUMBER
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|
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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
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| | 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 HEREx
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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 instructionsinstruction below) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RECOMMENDATION: | | The Board recommends a votevoting“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
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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: | | |
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| | 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. 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, 20061, 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 20062007 (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 proposalsproposal 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. |