DEF 14A 1 c22039ddef14a.htm DEFINITIVE PROXY STATEMENT def14a
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(RULE 14A-101)

Information Required in Proxy Statement
Schedule 14A Information

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

  Filed by the Registrant   x
  Filed by a Party other than the Registrant   o
 
  Check the appropriate box:

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

PEABODY ENERGY CORPORATION


(Name of Registrant as Specified In Its Charter)


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

      Payment of Filing Fee (Check the appropriate box):

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

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


        2) Aggregate number of securities to which transaction applies:


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


        4) Proposed maximum aggregate value of transaction:


        5) Total fee paid:


        o   Fee paid previously with preliminary materials.


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

        1) Amount Previously Paid:


        2) Form, Schedule or Registration Statement No.:


        3) Filing Party:


        4) Date Filed:


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


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(PEABODY LOGO)
 
 
March 27, 2008
 
 
Dear Shareholder:
 
You are cordially invited to attend the 2008 Annual Meeting of Shareholders of Peabody Energy Corporation (the “Company”), which will be held on Thursday, May 8, 2008, at 10:00 A.M., Central Time, at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri 63105.
 
During this meeting, shareholders will vote on the following items:
 
  1.  Election of one Class I Director for a three-year term;
 
  2.  Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008;
 
  3.  A proposal to declassify the Company’s Board of Directors;
 
  4.  The Company’s 2008 Management Annual Incentive Compensation Plan.
 
  5.  Consideration of such other matters as may properly come before the meeting.
 
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement contain complete details on these items and other matters. We also will be reporting on the Company’s operations and responding to shareholder questions. If you have questions that you would like to raise at the meeting, we encourage you to submit written questions in advance (by mail or e-mail) to the Corporate Secretary. This will help us respond to your questions during the meeting. If you would like to e-mail your questions, please send them to stockholder.questions@peabodyenergy.com.
 
Your understanding of and participation in the Annual Meeting is important, regardless of the number of shares you hold. To ensure your representation, we encourage you to vote over the telephone or Internet or to complete and return a proxy card as soon as possible. If you attend the Annual Meeting, you may then revoke your proxy and vote in person if you so desire.
 
Thank you for your continued support of Peabody Energy. We look forward to seeing you on May 8.
 
Very truly yours,
 
-s- Gregory H. Boyce
 
Gregory H. Boyce
Chairman and Chief Executive Officer


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PEABODY ENERGY CORPORATION
701 Market Street
St. Louis, Missouri 63101-1826
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
Peabody Energy Corporation (the “Company”) will hold its Annual Meeting of Shareholders at the Ritz-Carlton Hotel, 100 Carondelet Plaza, Clayton, Missouri, 63105 on Thursday, May 8, 2008, at 10:00 A.M., Central Time, to:
 
  •  Elect one Class I Director for a three-year term;
 
  •  Ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008;
 
  •  Approve a proposal to declassify the Company’s Board of Directors;
 
  •  Approve the Company’s 2008 Management Annual Incentive Compensation Plan; and
 
  •  Consider any other business that may properly come before the Annual Meeting.
 
The Board of Directors has fixed March 14, 2008 as the record date for determining shareholders who will be entitled to receive notice of and vote at the Annual Meeting or any adjournment. Each share of Common Stock is entitled to one vote. As of the record date, there were 271,167,596 shares of Common Stock outstanding.
 
If you own shares of the Company’s Common Stock as of March 14, 2008, you can vote those shares via the Internet, by telephone or by attending the Annual Meeting and voting in person. If you received your proxy materials by mail, you may also vote your shares by completing and mailing your proxy/voting instruction card.
 
An admittance card or other proof of ownership is required to attend the Annual Meeting. If you are a shareholder of record, please retain the admission card printed on your notice of internet availability of proxy materials or your proxy card for this purpose. Also, please indicate your intention to attend the Annual Meeting by checking the appropriate box on the proxy card, or, if voting by the Internet or by telephone, when prompted. If your shares are held by a bank or broker, you will need to ask them for an admission card in the form of a confirmation of beneficial ownership. If you do not receive a confirmation of beneficial ownership or other admittance card from your bank or broker, you must bring proof of share ownership (such as a copy of your brokerage statement) to the Annual Meeting.
 
Your vote is important. Whether or not you plan to attend the Annual Meeting, please cast your vote by telephone or the Internet, or complete, date and sign a proxy card and return it in the envelope provided. If you attend the meeting, you may withdraw your proxy and vote in person, if you so choose.
 
-s- Jeffery L. Klinger
Jeffery L. Klinger
Vice President, General Counsel
and Corporate Secretary
 
March 27, 2008


 

 
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PEABODY ENERGY CORPORATION
PROXY STATEMENT
FOR THE
2008 ANNUAL MEETING OF SHAREHOLDERS
 
 
Q: Why did I receive a notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
 
A: In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we may now furnish proxy materials, including this Proxy Statement and the Peabody Energy Corporation (“Peabody” or the “Company”) 2007 Annual Report to Shareholders, by providing access to such documents on the Internet. We believe this will allow us to provide our shareholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.
 
Most shareholders will not receive printed copies of the proxy materials unless they request them. Instead, a notice (the “Notice”) was mailed that will tell you how to access and review all of the proxy materials on the Internet. The Notice also tells you how to submit your proxy on the Internet or by telephone. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.
 
Q: Why am I receiving these materials?
 
A: We are providing these proxy materials to you on the Internet or delivering printed versions of these materials to you by mail in connection with our Annual Meeting of Shareholders, which will take place on May 8, 2008. These materials were first made available on the Internet or mailed to shareholders on or about March 27, 2008. You are invited to attend the Annual Meeting and requested to vote on the proposals described in this Proxy Statement.
 
Q: What is included in these materials?
 
A: These materials include:
 
• Our Proxy Statement for the Annual Meeting; and
 
• Our 2007 Annual Report to Shareholders, which includes our audited consolidated financial statements.
 
If you requested printed versions of these materials by mail, these materials also include the proxy/voting instruction card for the Annual Meeting.
 
Q: What am I being asked to vote on?
 
A: You are being asked to vote on the following items:
 
• Election of Sandra Van Trease as a Class I Director of the Company for a term of three years;
 
• Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008;
 
• Approval of a proposal to declassify our Board of Directors;
 
• Approval of our 2008 Management Annual Incentive Compensation Plan; and
 
• Any other matter properly introduced at the meeting.


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Q: What are the voting recommendations of the Board of Directors?
 
A: The Board recommends the following votes:
 
• FOR the election of Sandra Van Trease as a Class I Director (Item 1);
 
• FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008 (Item 2);
 
• FOR approval of the proposal to declassify our Board of Directors (Item 3); and
 
• FOR approval of our 2008 Management Annual Incentive Compensation Plan (Item 4).
 
Q: Will any other matters be voted on?
 
A: We are not aware of any other matters that will be brought before the shareholders for a vote at the Annual Meeting. If any other matter is properly brought before the meeting, your proxy will authorize each of Blanche M. Touhill, Alexander C. Schoch and Jeffery L. Klinger to vote on such matters in their discretion.
 
Q: How do I vote?
 
A: If you are a shareholder of record or hold stock through the Peabody Investments Corp. Employee Retirement Account (or any of the other 401(k) plans sponsored by our subsidiaries), you may vote using any of the following methods:
 
• Via the Internet, by visiting the website www.proxyvote.com and following the instructions for Internet voting on your Notice or proxy/voting instruction card;
 
• From the United States, Canada or Puerto Rico, by dialing 1-800-690-6903 and following the instructions for telephone voting on your Notice or proxy/voting instruction card;
 
• If you received your proxy materials by mail, by completing and mailing your proxy/voting instruction card; or
 
• By casting your vote in person at the Annual Meeting.
 
If you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. The telephone and Internet voting facilities for the shareholders of record of all shares, other than those held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), will close at 10:59 P.M. Central Time on May 7, 2008. The Internet and telephone voting procedures are designed to authenticate shareholders by use of a control number and to allow you to confirm your instructions have been properly recorded.
 
If you participate in the Company Stock Fund under the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), and had shares of the Company’s common stock credited in your account on the record date of March 14, 2008, you will receive a single Notice or proxy/voting instruction card with respect to all shares registered in your name, whether inside or outside of the plan. If your accounts inside and outside of the plan are not registered in the same name, you will receive a separate Notice or proxy/voting instruction card with respect to the shares credited in your plan account. Voting instructions regarding plan shares must be received by 3:00 P.M. Central Time on May 5, 2008, and all telephone and Internet voting facilities with respect to plan shares will close at that time.
 
Shares of common stock in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries) will be voted by Vanguard Fiduciary Trust Company (“Vanguard”), as trustee of the plan. Plan participants should indicate their voting instructions to


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Vanguard for each action to be taken under proxy by Internet or telephone or by completing and returning a proxy/voting instruction card. All voting instructions from plan participants will be kept confidential. If a plan participant fails to sign or to timely return the proxy/voting instruction card or otherwise timely indicate his or her instructions by telephone or over the Internet, the shares allocated to such participant, together with unallocated shares, will be voted in the same proportion as plan shares for which the trustee receives voting instructions.
 
If you vote by Internet or telephone or return your signed proxy/voting instruction card, your shares will be voted as you indicate. If you do not indicate how your shares are to be voted on a matter, your shares will be voted “For” the election of Sandra Van Trease as a Class I Director, “For” ratification of the appointment of Ernst & Young LLP, “For” approval of the proposal to declassify our Board of Directors and “For” approval of our 2008 Management Annual Incentive Compensation Plan.
 
If your shares are held in a brokerage account in your broker’s name (also known as “street name”), you should follow the instructions for voting provided by your broker or nominee. You may submit voting instructions by Internet or telephone or, if you received your proxy materials by mail, you may complete and mail a voting instruction card to your broker or nominee. If you provide specific voting instructions by telephone, Internet or mail, your broker or nominee will vote your shares as you have directed. Please note that shares in the Peabody Energy Corporation Employee Stock Purchase Plan are held in street name by A. G. Edwards & Sons, Inc., the plan administrator.
 
Ballots will be provided during the Annual Meeting to anyone who wants to vote in person at the meeting. If you hold shares in street name, you must request a confirmation of beneficial ownership from your broker to vote in person at the meeting.
 
Q: Can I change my vote?
 
A: Yes. If you are a shareholder of record, you can change your vote or revoke your proxy before the Annual Meeting by:
 
• Submitting a valid, later-dated proxy/voting instruction card;
 
• Submitting a valid, subsequent vote by telephone or the Internet at any time prior to 10:59 P.M. Central Time on May 7, 2008;
 
• Notifying the Company’s Corporate Secretary in writing that you have revoked your proxy; or
 
• Completing a written ballot at the Annual Meeting.
 
You can revoke your voting instructions with respect to shares held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries) at any time prior to 3:00 P.M. Central Time on May 5, 2008 by timely delivery of an Internet or telephone vote, or a properly executed, later-dated voting instruction card, or by delivering a written revocation of your voting instructions to Vanguard.
 
Q: Is my vote confidential?
 
A: Yes. All proxies, ballots and vote tabulations that identify how individual shareholders voted will be kept confidential and not be disclosed to our directors, officers or employees, except in limited circumstances, including:
 
• When disclosure is required by law;
 
• During any contested solicitation of proxies; or
 
• When written comments by a shareholder appear on a proxy card or other voting material.


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Q: What will happen if I do not instruct my broker how to vote?
 
A: If your shares are held in street name and you do not instruct your broker how to vote, your broker may vote your shares at its discretion on routine matters such as the election of directors (Item 1), ratification of the independent registered public accounting firm (Item 2), approval of the proposal to declassify our Board of Directors (Item 3) or approval of our 2008 Management Annual Incentive Compensation Plan (Item 4). On non-routine matters, brokers and other nominees cannot vote without instructions from the beneficial owner, resulting in so-called “broker non-votes.”
 
Q: How will my Company stock in the Peabody Investments Corp. Employee Retirement Account or other 401(k) plans sponsored by the Company’s subsidiaries be voted?
 
A: Vanguard, as the plan trustee, will vote your shares in accordance with your instructions if you vote by Internet or the telephone or send in a completed proxy/voting instruction card before 3:00 P.M. Central Time on May 5, 2008. All telephone and Internet voting facilities with respect to plan shares will close at that time. Vanguard will vote allocated shares of Company Common Stock for which it has not received direction, as well as shares not allocated to individual participant accounts, in the same proportion as plan shares for which the trustee receives voting instructions.
 
Q: How many shares must be present to hold the Annual Meeting?
 
A: Holders of a majority of the shares of outstanding Common Stock as of the record date must be represented in person or by proxy at the Annual Meeting in order to conduct business. This is called a quorum. If you vote, your shares will be part of the quorum. Abstentions, “Withheld” votes and broker non-votes also will be counted in determining whether a quorum exists.
 
Q: What vote is required to approve the proposals?
 
A: In the election of directors, the number of shares voted “For” the nominee must exceed 50% of the number of votes cast with respect to her election in order for her to be elected. Votes cast includes votes to withhold authority or votes against in each case as applicable and excludes abstentions with respect to the nominee’s election. If the number of shares voted “For” the nominee do not exceed 50% of the number of votes cast with respect to her election, our Corporate Governance Guidelines require that she promptly tender her resignation to the Chairman of the Board following certification of the shareholder vote. The procedures to be followed by the Board with respect to such resignation are described on page 15.
 
The proposal to ratify the appointment of Ernst & Young LLP (Item 2) will require approval by the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Abstentions and broker non-votes will have no effect on this proposal.
 
The proposal to declassify our Board of Directors (Item 3) will require approval by the holders of seventy-five percent (75%) of our outstanding shares entitled to vote. Abstentions and broker non-votes will have the effect of an “Against” vote on this proposal.
 
The proposal to approve our 2008 Management Annual Incentive Compensation Plan (Item 4) will require approval by the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Abstentions and broker non-votes will have no effect on this proposal.
 
Q: What does it mean if I receive more than one notice or proxy card or voting instruction form?
 
A: It means your shares are registered differently or are held in more than one account at the transfer agent and/or with banks or brokers. Please vote all of your shares.


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Q: Who can attend the Annual Meeting?
 
A: All Peabody Energy Corporation shareholders as of March 14, 2008 may attend the Annual Meeting.
 
Q: What do I need to do to attend the Annual Meeting?
 
A: If you are a shareholder of record or a participant in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), your admission card is printed on the Notice or attached to your proxy card or voting instruction form. You will need to bring this admission card with you to the Annual Meeting.
 
If you own shares in street name, you will need to ask your bank or broker for an admission card in the form of a confirmation of beneficial ownership. You will need to bring a confirmation of beneficial ownership with you to vote at the Annual Meeting. If you do not receive your confirmation of beneficial ownership in time, bring your most recent brokerage statement with you to the Annual Meeting. We can use that to verify your ownership of Common Stock and admit you to the meeting; however, you will not be able to vote your shares at the meeting without a confirmation of beneficial ownership.
 
Q: Where can I find the voting results of the Annual Meeting?
 
A: We plan to announce preliminary voting results at the Annual Meeting and to publish final results in our Quarterly Report on SEC Form 10-Q for the Quarterly Period Ended June 30, 2008.


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ELECTION OF DIRECTORS (ITEM 1)
 
In accordance with the terms of our certificate of incorporation, the Board of Directors is divided into three classes, with each class serving a staggered three-year term. At this year’s Annual Meeting, the terms of current Class I Directors will expire. The terms of Class II Directors and Class III Directors will expire at the Annual Meetings to be held in 2009 and 2010, respectively.
 
The Board of Directors has nominated Sandra Van Trease for election as a Class I Director with a term expiring in 2011. Ms. Van Trease currently is serving as a Class I Director and has consented to serve for the new term. Should Ms. Van Trease become unavailable for election, your proxy authorizes us to vote for such other person, if any, as the Board of Directors may recommend.
 
The other current Class I Directors, Dr. Henry Givens, Jr. and Dr. James R. Schlesinger, will retire at the Annual Meeting pursuant to our mandatory retirement policy for directors.
 
The Board of Directors recommends that you vote “For” the Class I Director nominee named below.
 
Class I Director Nominee — Term Expiring in 2011
 
SANDRA VAN TREASE, age 47, has been a director of the Company since January 2003. Ms. Van Trease is Group President, BJC HealthCare, a position she has held since September 2004. BJC HealthCare is one of the nation’s largest nonprofit healthcare organizations, delivering services to residents in the greater St. Louis, southern Illinois and mid-Missouri regions. Prior to joining BJC HealthCare, Ms. Van Trease served as President and Chief Executive Officer of UNICARE, an operating affiliate of WellPoint Health Networks Inc., from 2002 to September 2004. Ms. Van Trease also served as President, Chief Financial Officer and Chief Operating Officer of RightCHOICE Managed Care, Inc. from 2000 to 2002, and as Executive Vice President, Chief Financial Officer and Chief Operating Officer from 1997 to 2000. Prior to joining RightCHOICE in 1994, she was a Senior Audit Manager with Price Waterhouse LLP. She is a Certified Public Accountant and Certified Management Accountant. Ms. Van Trease is also a director of Enterprise Financial Services Corporation.
 
Class II Directors — Terms Expiring in 2009
 
GREGORY H. BOYCE, age 53, has been a director of the Company since March 2005. Mr. Boyce was named Chief Executive Officer Elect of the Company in March 2005, assumed the position of Chief Executive Officer in January 2006 and was elected Chairman by the Board of Directors in October 2007. He was President of the Company from October 2003 to December 2007 and was Chief Operating Officer of the Company from October 2003 to December 2005. He previously served as Chief Executive — Energy of Rio Tinto plc (an international natural resource company) from 2000 to 2003. Other prior positions include President and Chief Executive Officer of Kennecott Energy Company from 1994 to 1999 and President of Kennecott Minerals Company from 1993 to 1994. He has extensive engineering and operating experience with Kennecott and also served as Executive Assistant to the Vice Chairman of Standard Oil of Ohio from 1983 to 1984. Mr. Boyce is Co-Chairman of the Coal Based Generation Stakeholders Group, and a member of the Coal Industry Advisory Board of the International Energy Agency, the Advisory Council of the University of Arizona’s Department of Mining and Geological Engineering and the National Council of the School of Engineering and Applied Science at Washington University in St. Louis. He is a board member of the Center for Energy and Economic Development, the National Mining Association, the National Coal Council, Civic Progress and St. Louis Children’s Hospital Mr. Boyce has been elected to the Board of Directors of Marathon Oil Corporation effective April 1, 2008.


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WILLIAM E. JAMES, age 62, has been a director of the Company since 2001. Since July 2000, Mr. James has been Founding Partner of RockPort Capital Partners LLC, a venture fund specializing in energy and environmental technology and advanced materials. Prior to joining RockPort, Mr. James co-founded and served as Chairman and Chief Executive Officer of Citizens Power LLC, a leading power marketer. He also co-founded the non-profit Citizens Energy Corporation and served as the Chairman and Chief Executive Officer of Citizens Corporation, its for-profit subsidiary, from 1987 to 1996. Mr. James periodically provides consulting services to Lehman Brothers Inc., an investment banking firm (“Lehman Brothers”), on matters unrelated to the Company.
 
ROBERT B. KARN III, age 66, has been a director of the Company since January 2003. Mr. Karn is a financial consultant and former managing partner in financial and economic consulting with Arthur Andersen LLP in St. Louis. Before retiring from Arthur Andersen in 1998, Mr. Karn served in a variety of accounting, audit and financial roles over a 33-year career, including Managing Partner in charge of the global coal mining practice from 1981 through 1998. He is a Certified Public Accountant and has served as a Panel Arbitrator with the American Arbitration Association. Mr. Karn is also a director of Natural Resource Partners L.P., a coal-oriented master limited partnership that is listed on the New York Stock Exchange, the Fiduciary/Claymore MLP Opportunity Fund, the Fiduciary/Claymore Dynamic Equity Fund and Kennedy Capital Management, Inc.
 
HENRY E. LENTZ, age 63, has been a director of the Company since 1998. Mr. Lentz is currently employed as an Advisory Director by Lehman Brothers. He joined Lehman Brothers in 1971 and became a Managing Director in 1976. He left the firm in 1988 to become Vice Chairman of Wasserstein Perella Group, Inc., an investment banking firm. In 1993, he returned to Lehman Brothers as a Managing Director and served as head of the firm’s worldwide energy practice. In 1996, he joined Lehman Brothers’ Merchant Banking Group as a Principal and in January 2003 became a consultant to the Merchant Banking Group. He assumed his current role with Lehman Brothers effective January 2004. Mr. Lentz is also a director of Rowan Companies, Inc. and CARBO Ceramics, Inc.
 
BLANCHE M. TOUHILL, PhD, age 76, has been a director of the Company since 2001. Dr. Touhill is Chancellor Emeritus and Professor Emeritus at the University of Missouri — St. Louis. She previously served as Chancellor and Professor of History and Education at the University of Missouri — St. Louis from 1991 through 2002. Prior to her appointment as Chancellor, Dr. Touhill held the positions of Vice Chancellor for Academic Affairs and Interim Chancellor at the University of Missouri — St. Louis. Dr. Touhill also has served on the Boards of Directors of Trans World Airlines and Delta Dental. She holds bachelor’s and doctoral degrees in history and a master’s degree in geography from St. Louis University.
 
Class III Directors — Terms Expiring in 2010
 
WILLIAM A. COLEY, age 64, has been a director of the Company since March 2004. Since March 2005, Mr. Coley has served as Chief Executive Officer and Director of British Energy Group plc, the U.K.’s largest electricity producer. He was previously a non-executive director of British Energy. Mr. Coley served as President of Duke Power, the U.S.-based global energy company, from 1997 until his retirement in February 2003. During his 37-year career at Duke Power, Mr. Coley held various officer level positions in the engineering, operations and senior management areas, including Vice President, Operations (1984-1986), Vice President, Central Division (1986-1988), Senior Vice President, Power Delivery (1988-1990), Senior Vice President, Customer Operations (1990-1991), Executive Vice President, Customer Group (1991-1994) and President, Associated Enterprises Group (1994-1997). Mr. Coley was elected to the board of Duke Power in 1990 and was named President following Duke Power’s acquisition of PanEnergy in 1997. Mr. Coley earned his B.S. in electrical engineering from Georgia Institute of Technology and is a registered professional engineer. He is also a director of E. R. Jahna Enterprises.


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WILLIAM C. RUSNACK, age 63, has been a director of the Company since January 2002. Mr. Rusnack is the former President and Chief Executive Officer of Premcor Inc., one of the largest independent oil refiners in the United States prior to its acquisition by Valero Energy Corporation in 2005. He served as President, Chief Executive Officer and Director of Premcor from 1998 to February 2002. Prior to joining Premcor, Mr. Rusnack was President of ARCO Products Company, the refining and marketing division of Atlantic Richfield Company. During a 31-year career at ARCO, he was also President of ARCO Transportation Company and Vice President of Corporate Planning. He is also a director of Sempra Energy and Flowserve Corporation.
 
JOHN F. TURNER, age 66, has been a director of the Company since July 2005. Mr. Turner served as Assistant Secretary of State for the Bureau of Oceans and International Environmental and Scientific Affairs from November 2001 to July 2005. Mr. Turner was previously President and Chief Executive Officer of The Conservation Fund, a national nonprofit organization dedicated to public-private partnerships to protect land and water resources. He was director of the U.S. Fish and Wildlife Service from 1989 to 1993. Mr. Turner also served in the Wyoming state legislature for 19 years and is a past president of the Wyoming State Senate. He serves as a consultant to The Conservation Fund. Mr. Turner also serves as Chairman of the University of Wyoming, Ruckelshaus Institute of Environment and Natural Resources and as a Visiting Professor of Environment and Natural Resources at the University. He is also a director of International Paper Company and Ashland, Inc.
 
ALAN H. WASHKOWITZ, age 67, has been a director of the Company since 1998. Until July 2005, Mr. Washkowitz was a Managing Director of Lehman Brothers and part of the firm’s Merchant Banking Group, responsible for oversight of Lehman Brothers Merchant Banking Partners. He joined Kuhn Loeb & Co. in 1968 and became a general partner of Lehman Brothers in 1978 when it acquired Kuhn Loeb & Co. Prior to joining the Merchant Banking Group, he headed Lehman Brothers’ Financial Restructuring Group. Mr. Washkowitz is also a director of L-3 Communications Corporation.
 
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES
 
 
As required by the rules of the New York Stock Exchange (“NYSE”), the Board of Directors evaluates the independence of its members at least annually, and at other appropriate times when a change in circumstances could potentially impact the independence or effectiveness of one or more directors (e.g., in connection with a change in employment status or other significant status changes). This process is administered by the Nominating & Corporate Governance Committee of the Board of Directors, which consists entirely of directors who are independent under applicable NYSE rules. After carefully considering all relevant relationships with the Company, the Nominating & Corporate Governance Committee submits its recommendations regarding independence to the full Board, which then makes an affirmative determination with respect to each director.
 
In making independence determinations, the Nominating & Corporate Governance Committee and the Board consider all relevant facts and circumstances, including (1) the nature of any relationships with the Company, (2) the significance of the relationship to the Company, the other organization and the individual director, (3) whether or not the relationship is solely a business relationship in the ordinary course of the Company’s and the other organization’s businesses and does not afford the director any special benefits, and (4) any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. For purposes of this determination, the Board deems any relationships that have expired for more than three years to be immaterial.
 
After considering the standards for independence adopted by the NYSE and various other factors as described herein, the Board has determined that all directors other than Mr. Boyce are independent. None


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of the directors other than Mr. Boyce receives any compensation from us other than customary director and committee fees.
 
The Board has determined that directors Coley, Karn, Touhill and Turner are independent, based upon the fact that they have no relationships with the Company (other than serving as directors). The Board has also determined that directors Givens, James, Lentz, Rusnack, Schlesinger, Van Trease and Washkowitz are independent after evaluating their relationships with the Company and concluding that such relationships are immaterial. All such relationships are outlined below.
 
Dr. Givens serves on the board of directors of the United Way of Greater St. Louis, a non-profit organization which received a contribution of $220,000 from us in 2007. Dr. Givens also serves on the board of directors of the St. Louis Regional Chamber and Growth Association, which received a contribution of $100,000 from us in 2007 and to which we have pledged to contribute an additional $200,000 over the next two years. The Board has concluded that these relationships are not material, since our annual contributions represent less than 1% of each institution’s total annual contributions.
 
Dr. Givens and Mr. Rusnack serve on the board of trustees of the St. Louis Zoo, a non-profit organization which received a contribution of $20,000 from us in 2007. Dr. Givens and Ms. Van Trease serve on the board of directors of Forest Park Forever, Inc., a non-profit organization which received a contribution of $10,000 from us in 2007 and to which we have pledged to contribute an additional $100,000 over the next five years. The Board has concluded that these relationships are not material given the size of our annual contributions.
 
Dr. Givens serves on the regional advisory board of U.S. Bank, N.A. (St. Louis), which is a participating lender under our senior credit facility and provides various other commercial banking services to us. These banking services are offered to us on the same general terms and conditions as other large commercial customers. Our directors did not solicit these commercial relationships and were not involved in any related discussions or deliberations.
 
Messrs. James, Lentz, Schlesinger and Washkowitz have been employed by or served as consultants to Lehman Brothers within the past three years. The Board has determined that these employment and consulting relationships involve matters unrelated to the Company, and that these relationships are not material to the Company. Dr. Schlesinger currently serves as senior advisor to Lehman Brothers. The specific relationships of Messrs. James, Lentz and Washkowitz with Lehman Brothers are described in more detail in the biographies set forth on pages 7 and 8 of this Proxy Statement. When evaluating the materiality of these relationships to the Company, the Board considered the fact that Lehman Brothers Merchant Banking Partners II L.P. and other affiliates of Lehman Brothers (collectively, the “Merchant Banking Fund”) owned a significant percentage of the Company’s stock prior to completely selling its holdings in March 2004.1 Lehman Brothers is a participating lender under our senior credit facility and from time to time provides investment banking and other ordinary course financial services to us. These services are provided to us on the same general terms and conditions as provided to other large commercial customers. The fees related to these services have not been significant to us or Lehman Brothers, and since March 2004 all such fees have been reviewed and approved in advance by our independent Audit Committee. Directors who are affiliated with Lehman Brothers do not participate in any decisions or discussions related to these services, and they do not receive any benefit from related fees. After careful consideration, the Board has determined that these relationships do not impair, or appear to impair, the directors’ independent judgment.
 
 
1  Prior to May 2001, the Merchant Banking Fund owned in excess of 90% of the Company’s outstanding Common Stock. Over the ensuing three-year period, the Merchant Banking Fund sold all of its Company holdings through a series of registered public offerings, falling below a 50% controlling interest level in April 2002 and completing its exit in March 2004.


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Board Attendance and Executive Sessions
 
The Board of Directors met 11 times in 2007. During that period, each incumbent director attended 75% or more of the aggregate number of meetings of the Board and the committees on which he or she served, and average attendance was 94%. Pursuant to our Corporate Governance Guidelines, the non-management directors meet in executive session at least quarterly. The chair of each executive session rotates among the chairs of the Audit Committee, Compensation Committee and Nominating & Corporate Governance Committee. During 2007, our non-management directors met in executive session eight times.
 
Committees of the Board of Directors
 
The Board of Directors has appointed four standing committees from among its members to assist it in carrying out its obligations. These committees are the Audit Committee, Compensation Committee, Executive Committee and Nominating & Corporate Governance Committee. Each standing committee has adopted a formal charter that describes in more detail its purpose, organizational structure and responsibilities. A copy of each committee charter can be found on our website (www.peabodyenergy.com) by clicking on “Investors,” and then “Corporate Governance” and is available in print to any shareholder who requests it. Information on our website is not considered part of this Proxy Statement. A description of each committee and its current membership follows:
 
Compensation Committee
 
The members of the Compensation Committee are Robert B. Karn III (Chair), William A. Coley, Henry E. Lentz and John F. Turner. The Board of Directors has affirmatively determined that, in its judgment, all members of the Compensation Committee are independent under rules established by the New York Stock Exchange.
 
The Compensation Committee met 10 times during 2007. Some of the primary responsibilities of the Compensation Committee include the following:
 
  •  To annually review and approve corporate goals and objectives relevant to our CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and together with the other independent members of the Board, determine and approve the CEO’s compensation levels based on this evaluation;
 
  •  To annually review with the CEO, the performance of our executive officers and make recommendations to the Board with respect to the compensation plans for such officers;
 
  •  To annually review and approve the CEO’s and the executive officers’ base salary, annual incentive opportunity and long-term incentive opportunity and as appropriate, employment agreements, severance agreements, retirement and other post-employment benefits, change in control provisions and any special supplemental benefits;
 
  •  To approve annual bonus awards for executive officers other than the CEO;
 
  •  To oversee our annual and long-term incentive programs;
 
  •  To periodically assess our director compensation program and, when appropriate, recommend modifications for Board consideration;
 
  •  To review and make recommendations to the Board in conjunction with the CEO, as appropriate, with respect to succession planning and management development; and
 
  •  To make regular reports on its activities to the Board.


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Executive Committee
 
The members of the Executive Committee are Gregory H. Boyce (Chair), William A. Coley, Henry E. Lentz and William C. Rusnack. The Executive Committee met once during 2007.
 
When the Board of Directors is not in session, the Executive Committee has all of the power and authority as delegated by the Board, except with respect to:
 
  •  Amending our certificate of incorporation and bylaws;
 
  •  Adopting an agreement of merger or consolidation;
 
  •  Recommending to shareholders the sale, lease or exchange of all or substantially all of our property and assets;
 
  •  Recommending to shareholders dissolution of the Company or revocation of any dissolution;
 
  •  Declaring a dividend;
 
  •  Issuing stock;
 
  •  Appointing members of Board committees; and
 
  •  Changing major lines of business.
 
Nominating & Corporate Governance Committee
 
The members of the Nominating & Corporate Governance Committee are Blanche M. Touhill (Chair), Henry Givens, Jr., William E. James, James R. Schlesinger, John F. Turner and Alan H. Washkowitz. The Board of Directors has affirmatively determined that, in its judgment, all members of the Nominating & Corporate Governance Committee are independent under New York Stock Exchange rules.
 
The Nominating & Corporate Governance Committee met six times during 2007. Some of the primary responsibilities of the Nominating & Corporate Governance Committee include the following:
 
  •  To identify, evaluate and recommend qualified candidates for election to the Board;
 
  •  To advise the Board on matters related to corporate governance;
 
  •  To assist the Board in conducting its annual assessment of Board performance;
 
  •  To recommend the structure, composition and responsibilities of other Board committees;
 
  •  To advise the Board on matters related to corporate social responsibility;
 
  •  To ensure we maintain an effective orientation program for new directors and a continuing education and development program to supplement the skills and needs of the Board;
 
  •  To provide review and oversight of potential conflicts of interest situations, including transactions in which any related person had or will have a direct or indirect material interest;
 
  •  To review our policies and procedures with respect to related person transactions at least annually and recommend any changes for Board approval;
 
  •  To monitor compliance with, and advise the Board regarding any significant issues arising under, our corporate compliance program and Code of Business Conduct and Ethics; and
 
  •  To make regular reports on its activities to the Board.


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Audit Committee
 
The members of the Audit Committee are William C. Rusnack (Chair), Robert B. Karn III, Sandra Van Trease and Alan H. Washkowitz. The Board of Directors has affirmatively determined that, in its judgment, all members of the Audit Committee are independent under New York Stock Exchange and SEC rules. The Board also has determined that each of Messrs. Rusnack, Karn and Washkowitz and Ms. Van Trease is an “audit committee financial expert” under SEC rules.
 
The Audit Committee met eight times during 2007. The Audit Committee’s primary purpose is to provide assistance to the Board in fulfilling its oversight responsibility with respect to:
 
  •  The quality and integrity of our financial statements and financial reporting processes;
 
  •  Our systems of internal accounting and financial controls and disclosure controls;
 
  •  The independent registered public accounting firm’s qualifications and independence;
 
  •  The performance of our internal audit function and independent registered public accounting firm; and
 
  •  Compliance with legal and regulatory requirements, and codes of conduct and ethics programs established by management and the Board.
 
Some of the primary responsibilities of the Audit Committee include the following:
 
  •  To appoint our independent registered public accounting firm, which reports directly to the Audit Committee;
 
  •  To approve all audit engagement fees and terms and all permissible non-audit engagements with our independent registered public accounting firm;
 
  •  To ensure that we maintain an internal audit function and to review the appointment of the senior internal audit team and/or provider;
 
  •  To approve the terms of engagement for the internal audit provider;
 
  •  To meet on a regular basis with our financial management, internal audit management and independent registered public accounting firm to review matters relating to our internal accounting controls, internal audit program, accounting practices and procedures, the scope and procedures of the outside audit, the independence of the independent registered public accounting firm and other matters relating to our financial condition;
 
  •  To oversee our financial reporting process and to review in advance of filing or issuance our quarterly reports on Form 10-Q, annual reports on Form 10-K, annual reports to shareholders, proxy materials and earnings press releases;
 
  •  To review our guidelines and policies with respect to risk assessment and risk management, and to monitor our major financial risk exposures and steps management has taken to control such exposures; and
 
  •  To make regular reports to the Board regarding the activities and recommendations of the Audit Committee.


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REPORT OF THE AUDIT COMMITTEE
 
The Audit Committee has reviewed and discussed the Company’s audited financial statements and management’s report on internal control over financial reporting as of and for the fiscal year ended December 31, 2007 with management and Ernst & Young LLP, the Company’s independent registered public accounting firm. Management is responsible for the Company’s financial statements and internal control over financial reporting, while Ernst & Young is responsible for conducting its audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and expressing opinions on the Company’s financial statements in accordance with U.S. generally accepted accounting principles and the Company’s internal control over financial reporting.
 
The Audit Committee reviewed with Ernst & Young the overall scope and plans for their audit of the Company’s financial statements and internal control over financial reporting. The Audit Committee also discussed with Ernst & Young matters relating to the quality and acceptability of the Company’s accounting principles, as applied in its financial reporting processes, as required by Statement of Auditing Standards No. 61 as amended and adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit Committee reviewed and discussed with Ernst & Young the auditor’s independence from management and the Company, as well as the matters included in written disclosures received from Ernst & Young as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as adopted by the Public Company Accounting Oversight Board in Rule 3600T. As part of its review, the Audit Committee reviewed fees paid to Ernst & Young and considered whether Ernst & Young’s performance of non-audit services for the Company was compatible with the auditor’s independence.
 
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.
 
MEMBERS OF THE AUDIT COMMITTEE:
 
WILLIAM C. RUSNACK, CHAIR
ROBERT B. KARN III
SANDRA VAN TREASE
ALAN H. WASHKOWITZ


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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Ernst & Young LLP served as our independent registered public accounting firm for the fiscal years ended December 31, 2007 and 2006.
 
The following fees were paid to Ernst & Young for services rendered during our last two fiscal years:
 
  •  Audit Fees:  $3,705,000 (for the fiscal year ended December 31, 2007) and $3,317,000 (for the fiscal year ended December 31, 2006) for fees associated with the annual audit of our consolidated financial statements, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form 10-Q, services provided in connection with statutory and regulatory filings, assistance with and review of documents filed with the SEC, and accounting and financial reporting consultations.
 
  •  Audit-Related Fees:  $669,000 (for the fiscal year ended December 31, 2007) and $405,000 (for the fiscal year ended December 31, 2006) for assurance-related services for audits of employee benefit plans, internal control reviews, due diligence services associated with acquisitions or divestitures, and other attest services not required by statute.
 
  •  Tax Fees:  $1,150,000 (for the fiscal year ended December 31, 2007) and $958,000 (for the fiscal year ended December 31, 2006) for tax compliance, tax advice and tax planning services.
 
  •  All Other Fees:  $6,000 (for the fiscal year ended December 31, 2007) and $6,000 (for the fiscal year ended December 31, 2006) for fees related to an on-line research tool.
 
Under procedures established by the Board of Directors, the Audit Committee is required to pre-approve all audit and non-audit services performed by our independent registered public accounting firm to ensure that the provisions of such services do not impair such firm’s independence. The Audit Committee may delegate its pre-approval authority to one or more of its members, but not to management. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
 
Each fiscal year, the Audit Committee reviews with management and the independent registered public accounting firm the types of services that are likely to be required throughout the year. Those services are comprised of four categories, including audit services, audit-related services, tax services and all other permissible services. At that time, the Audit Committee pre-approves a list of specific services that may be provided within each of these categories, and sets fee limits for each specific service or project. Management is then authorized to engage the independent registered public accounting firm to perform the pre-approved services as needed throughout the year, subject to providing the Audit Committee with regular updates. The Audit Committee reviews the amount of all billings submitted by the independent registered public accounting firm on a regular basis to ensure that their services do not exceed pre-defined limits. The Audit Committee must review and approve in advance, on a case-by-case basis, all other projects, services and fees to be performed by or paid to the independent registered public accounting firm. The Audit Committee also must approve in advance any fees for pre-approved services that exceed the pre-established limits, as described above.
 
Under Company policy and/or applicable rules and regulations, our independent registered public accounting firm is prohibited from providing the following types of services to us: (1) bookkeeping or other services related to our accounting records or financial statements, (2) financial information systems design and implementation, (3) appraisal or valuation services, fairness opinions or contribution-in-kind reports, (4) actuarial services, (5) internal audit outsourcing services, (6) management functions, (7) human resources, (8) broker-dealer, investment advisor or investment banking services, (9) legal services, (10) expert services unrelated to audit, (11) any services entailing a contingent fee or commission, and (12) tax services to an officer of the Company whose role is in a financial oversight capacity.


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During the fiscal year ended December 31, 2007, all of the services described under the headings “Audit-Related Fees,” “Tax Fees” and “All Other Fees” were approved by the Audit Committee pursuant to the procedures described above.
 
CORPORATE GOVERNANCE MATTERS
 
Good corporate governance has been a priority at Peabody Energy for many years. Our key governance practices are outlined in our Corporate Governance Guidelines, committee charters, and Code of Business Conduct and Ethics. These documents can be found on our Corporate Governance webpage (www.peabodyenergy.com) by clicking on “Investors” and then “Corporate Governance,” and are available in print to any shareholder upon request. Information on our website is not considered part of this Proxy Statement. The Code of Business Conduct and Ethics applies to our directors, Chief Executive Officer, Chief Financial Officer, Controller and other Company personnel.
 
The Nominating & Corporate Governance Committee of the Board of Directors is responsible for reviewing the Corporate Governance Guidelines from time to time and reporting and making recommendations to the Board concerning corporate governance matters. Each year, the Nominating & Corporate Governance Committee, with the assistance of outside experts, reviews the Company’s corporate governance practices, not only to ensure that they comply with applicable laws and NYSE listing requirements, but also to ensure that they continue to reflect what the Committee believes are best practices and promote the best interests of the Company and its shareholders.
 
Majority Voting Bylaw
 
In July 2007, our Board of Directors amended our Bylaws to provide for majority voting in the election of directors. In the case of uncontested elections, in order to be elected the number of shares voted in favor of a nominee must exceed 50% of the number of votes cast with respect to that nominee’s election at any meeting of shareholders for the election of directors at which a quorum is present. Votes cast includes votes to withhold authority or votes cast against in each case as applicable and excludes abstentions with respect to that nominee’s election.
 
If a nominee is an incumbent director and receives a greater number of votes withheld from his or her election than votes in favor of his or her election, our Corporate Governance Guidelines require that such director promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote. The Nominating 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 Committee will consider all factors deemed relevant by its members. The Board will act on the Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting where the election occurred. In considering the Committee’s recommendation, the Board will consider the factors considered by the Committee and such additional information and factors the Board deems to be relevant. Any director who tenders his or her resignation pursuant to our Corporate Governance Guidelines will not participate in the Committee recommendation or Board consideration regarding whether or not to accept the tendered resignation.
 
In the case of contested elections, directors will be elected by a plurality of the votes of the shares present in person or by proxy and voting for nominees in the election of directors at any meeting of shareholders for the election of directors at which a quorum is present. For these purposes, a contested election is any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected.


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Shareholder Communications with the Board of Directors
 
The Board of Directors has adopted the following procedures for shareholders and other interested persons to send communications to the Board, individual directors and/or Committee Chairs (collectively, “Shareholder Communications”):
 
Shareholders and other interested persons seeking to communicate with the Board should submit their written comments to the Chairman, Peabody Energy Corporation, 701 Market Street, St. Louis, Missouri 63101. The Chairman will forward such Shareholder Communications to each Board member (excluding routine advertisements and business solicitations, as instructed by the Board), and provide a report on the disposition of matters stated in such communications at the next regular meeting of the Board. If a Shareholder Communication (excluding routine advertisements and business solicitations) is addressed to a specific individual director or Committee Chair, the Chairman will forward that communication to the named director, and will discuss with that director whether the full Board and/or one of its committees should address the subject matter.
 
If a Shareholder Communication raises concerns about the ethical conduct of management or the Company, it should be sent directly to our Chief Legal Officer at 701 Market Street, St. Louis, Missouri 63101. The Chief Legal Officer will promptly forward a copy of such Shareholder Communication to the Chairman of the Audit Committee and, if appropriate, the Chairman of the Board, and take such actions as they authorize to ensure that the subject matter is addressed by the appropriate Board committee, management and/or the full Board.
 
If a shareholder or other interested person seeks to communicate exclusively with the Company’s non-management directors, such Shareholder Communication should be sent directly to the Corporate Secretary who will forward any such communication directly to the Chair of the Nominating & Corporate Governance Committee. The Corporate Secretary will first consult with and receive the approval of the Chair of the Nominating & 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, we reserve the right to screen all materials sent to our directors for potential security risks and/or harassment purposes.
 
Shareholders also have an opportunity to communicate with the Board at our 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 our directors attended the last Annual Meeting of Shareholders in May 2007.
 
Overview of Director Nominating Process
 
The Board of Directors believes that one of its primary goals is to advise management on strategy and to monitor the Company’s performance. The Board also believes that the best way to accomplish this goal is by choosing directors who possess a diversity of experience, knowledge and skills that are particularly relevant and helpful to the Company. As such, current Board members possess a wide array of skills and experience in the coal industry, related energy industries and other important areas, including finance and accounting, operations, environmental management, education, governmental affairs and administration, and healthcare. When evaluating potential members, the Board seeks to enlist the services of candidates who possess high ethical standards and a combination of skills and experience which the Board determines are the most appropriate to meet its objectives. The Board believes all candidates should be committed to creating value over the long term and to serving the best interests of the Company and all of its shareholders.


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The Nominating & Corporate Governance Committee (“Committee”) is responsible for identifying, evaluating and recommending qualified candidates for election to the Board. The Committee will consider director candidates submitted by shareholders. Any shareholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, Peabody Energy Corporation, 701 Market Street, St. Louis, Missouri 63101:
 
  •  Shareholder’s name, number of shares owned, length of period held, and proof of ownership;
 
  •  Name, age and address of candidate;
 
  •  A detailed resume describing among other things the candidate’s educational background, occupation, employment history, and material outside commitments (e.g., memberships on other boards and committees, charitable foundations, etc.);
 
  •  A supporting statement which describes the candidate’s reasons for seeking election to the Board, and documents his/her ability to satisfy the director qualifications described below;
 
  •  A description of any arrangements or understandings between the shareholder and the candidate; and
 
  •  A signed statement from the candidate, confirming his/her willingness to serve on the Board.
 
The Corporate Secretary will promptly forward such materials to the Committee Chair and the Chairman of the Board. The Corporate Secretary also will maintain copies of such materials for future reference by the Committee when filling Board positions.
 
Shareholders may submit potential director candidates at any time pursuant to these procedures. The Committee will consider such candidates if a vacancy arises or if the Board decides to expand its membership, and at such other times as the Committee deems necessary or appropriate. Separate procedures apply if a shareholder wishes to nominate a director candidate at the 2009 Annual Meeting. Those procedures are described on page 67 of this Proxy Statement under the heading “Information About Shareholder Proposals.”
 
Pursuant to its charter, the Committee must review with the Board, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. When assessing potential new directors, the Committee considers individuals from various and diverse backgrounds. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Committee believes that candidates should generally meet the following criteria:
 
  •  Candidates should possess broad training, experience and a successful track record at senior policy-making levels in business, government, education, technology, accounting, law, consulting and/or administration;
 
  •  Candidates should possess the highest personal and professional ethics, integrity and values. Candidates also should be committed to representing the long-term interests of the Company and all of its shareholders;
 
  •  Candidates should have an inquisitive and objective perspective, strength of character and the mature judgment essential to effective decision-making;
 
  •  Candidates need to possess expertise that is useful to the Company and complementary to the background and experience of other Board members; and
 
  •  Candidates need to be willing to devote sufficient time to Board and Committee activities and to enhance their knowledge of the Company’s business, operations and industry.


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The Committee will consider candidates submitted by a variety of sources (including, without limit, incumbent directors, shareholders, Company management and third-party search firms) when filling vacancies and/or expanding the Board. If a vacancy arises or the Board decides to expand its membership, the Committee generally asks each director to submit a list of potential candidates for consideration. The Committee then evaluates each potential candidate’s educational background, employment history, outside commitments and other relevant factors to determine whether he/she is potentially qualified to serve on the Board. At that time, the Committee also will consider potential nominees submitted by shareholders in accordance with the procedures described above. The Committee seeks to identify and recruit the best available candidates, and it intends to evaluate qualified shareholder nominees on the same basis as those submitted by Board members or other sources.
 
After completing this process, the Committee will determine whether one or more candidates are sufficiently qualified to warrant further investigation. If the process yields one or more desirable candidates, the Committee will rank them by order of preference, depending on their respective qualifications and the Company’s needs. The Committee Chair, or another director designated by the Committee Chair, will then contact the preferred candidate(s) to evaluate their potential interest and to set up interviews with members of the Committee. All such interviews are held in person, and include only the candidate and the independent Committee members. Based upon interview results and appropriate background checks, the Committee then decides whether it will recommend the candidate’s nomination to the full Board.
 
The Committee believes this process has consistently produced highly qualified, independent Board members to date. However, the Committee may choose, from time to time, to use additional resources (including independent third-party search firms) after determining that such resources could enhance a particular director search. The Committee has not used third-party firms for prior searches.
 
OWNERSHIP OF COMPANY SECURITIES
 
The following table sets forth information as of March 1, 2008 with respect to persons or entities who are known to beneficially own more than 5% of our outstanding Common Stock, each director, each


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current and former executive officer named in the Summary Compensation Table, below, and all directors and executive officers as a group (which includes the former executive officers included in this table).
 
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)   Class(3)
 
FMR LLC 
    38,751,923       14.3 %
82 Devonshire Street
               
Boston, MA 02109
               
UBS AG
    17,180,815       6.3 %
Bahnhofstrasse 45
PO Box CH-8021
Zurich, Switzerland
               
Gregory H. Boyce
    822,990       *  
William A. Coley
    20,788       *  
Sharon D. Fiehler
    119,737       *  
Eric Ford
    73,977       *  
Henry Givens, Jr. 
    20,759       *  
William E. James
    74,123       *  
Robert B. Karn III
    39,872       *  
Henry E. Lentz
    20,467       *  
Richard A. Navarre
    188,160       *  
Jiri Nemec
    29,721       *  
William C. Rusnack
    39,235       *  
James R. Schlesinger
    39,251       *  
Blanche M. Touhill
    39,251       *  
John F. Turner
    10,495       *  
Sandra Van Trease
    39,142       *  
Roger B. Walcott, Jr. 
    160,221       *  
Alan H. Washkowitz
    20,467       *  
Richard M. Whiting
    130,722       *  
All directors and executive officers as a group (21 people)
    1,950,668       *  
 
(1) Amounts shown are based on the latest available filings on Schedule 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, 2008, as follows: Mr. Boyce, 718,661; Mr. Coley, 12,939; Ms. Fiehler, 33,328; Mr. Ford, 19,220; Dr. Givens, 12,939; Mr. James, 63,307; Mr. Karn, 20,534; Mr. Lentz, 12,939; Mr. Navarre, 79,797; Mr. Rusnack, 28,307; Dr. Schlesinger, 28,307; Mr. Touhill, 28,307; Mr. Turner, 4,011; Ms. Van Trease, 20,534; Mr. Walcott, 117,015; Mr. Washkowitz, 12,939; and all directors and executive officers as a group, 1,245,594. Also includes shares of restricted stock that remain unvested as of March 1, 2008 as follows: Mr. Boyce, 100,000; Mr. Coley, 1,861; Mr. Ford, 36,132; Dr. Givens, 1,861; Mr. James, 1,861; Mr. Karn, 1,861; Mr. Lentz, 1,861; Mr. Rusnack, 1,861; Dr. Schlesinger, 1,861; Dr. Touhill, 1,861; Mr. Turner, 3,455; Ms. Van Trease, 1,861; Mr. Washkowitz, 1,861; and all directors and executive officers as a group 168,597.
 
(3) An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares.


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Section 16(a) Beneficial Ownership Reporting Compliance
 
Our executive officers and directors and persons beneficially holding more than ten percent of our Common Stock are required under the Securities Exchange Act of 1934 to file reports of ownership and changes in ownership of our Common Stock with the Securities and Exchange Commission and the New York Stock Exchange. We file these reports of ownership and changes in ownership on behalf of our executive officers and directors. To the best of our knowledge, based solely on our review of the copies of such reports furnished to us during the fiscal year ended December 31, 2007, 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 objective of our executive compensation program is to attract, retain and motivate key executives to enhance long-term profitability and create shareholder value. Our compensation program is designed to align incentives for executives with achievement of our business strategies:
 
  •  Executing the basics: best in class safety, operations and marketing;
 
  •  Capitalizing on organic growth opportunities;
 
  •  Expanding in high-growth global markets; and
 
  •  Participating in new generation and Btu Conversion projects.
 
Our compensation program is based on the following policies and objectives:
 
  •  Program has a clear link to shareholder value;
 
  •  Program is designed to support achievement of our 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, level of experience and retention value;
 
  •  Performance-based pay constitutes the majority 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
 
  –  Incorporate internal and external performance measures.
 
  •  Program is 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 program 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.


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Role of the Compensation Committee
 
The Compensation Committee is comprised entirely of independent directors and has overall responsibility for evaluating and approving our executive compensation plans, policies and programs, and for monitoring the performance of our executives and the compensation awarded to our executives excluding compensation for the Chairman and Chief Executive Officer. The Committee also reviews and approves executive participation in any company-wide benefit plans. In addition, the Committee oversees our annual and long-term incentive plans and programs and periodically assesses our director compensation program.
 
For 2007, a Special Committee, comprised of the independent members of the Board of Directors, after considering the recommendations of the Compensation Committee and its independent compensation consultant, determined the type (e.g., base salary, annual incentive and long-term incentive) and level of compensation awarded to our Chief Executive Officer. Effective October 10, 2007 our Chief Executive Officer assumed the additional responsibilities of the Chairman role. The Special Committee designed the type and level of compensation to be consistent with our compensation philosophy and to ensure that the Chairman and Chief Executive Officer’s total compensation was competitive with the compensation of chief executive officers at publicly-traded companies of similar size and complexity. As described below, in assessing the competitiveness of the Chairman and Chief Executive Officer’s compensation package, the Special Committee received advice from its independent compensation consultant and reviewed appropriate salary surveys, industry benchmarking data and proxy information.
 
Deductibility of Compensation Expenses
 
Pursuant to Section 162(m) of the Internal Revenue Code, some compensation paid to executive officers in excess of $1 million is not tax deductible, except to the extent it constitutes performance-based compensation. The Compensation Committee has and will continue to consider the impact of Section 162(m) when establishing incentive compensation plans. As a result, a significant portion of our 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 our best interests and those of our shareholders. In certain cases, it may determine that the amount of tax deductions lost is not significant when compared to the potential opportunity a compensation program provides for creating shareholder value. The Committee therefore retains the ability to evaluate the performance of our executive officers and to pay appropriate compensation, even if some of it may be non-deductible.
 
Role of the Compensation Consultant
 
The Compensation group in our 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 it. Pursuant to this authority, the Committee engaged Mercer Human Resource Consulting for independent guidance on executive compensation issues in 2006 and early 2007. In April 2007, the Mercer partner with whom the Committee had been working became employed by Frederic W. Cook and Co, Inc. (“F.W. Cook”). After a thorough review, the Committee elected in June 2007 to continue working with this individual and change its independent compensation consultant to F.W. Cook.
 
In connection with its engagement, Mercer provided the Compensation Committee with independent advice concerning the types and levels of compensation to be paid to the Chairman and Chief Executive Officer and the other senior executives for 2007. Mercer assisted the Committee by providing market compensation data (e.g., industry compensation surveys and benchmarking data) on base pay, as


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well as annual and long-term incentives. In addition, Mercer advised the Committee on plan design for each element of executive compensation, including helping to identify:
 
  •  the appropriate mix of base salary and annual and long-term incentive compensation;
 
  •  the appropriate financial measures and weightings for annual incentive and performance unit awards (e.g. EBITDA, Earnings per Share and Leverage Ratio);
 
  •  the appropriate mix of long-term compensation to be paid as stock options versus performance units; and
 
  •  the relevant industry comparator groups and the relative weightings of total shareholder return for measuring the value of performance units.
 
The Compensation Committee did not engage F.W. Cook until after executive compensation opportunities for 2007 had been approved. The Compensation Committee and the Special Committee sought and used F.W. Cook’s advice in determining annual incentive compensation with respect to performance in 2007. In addition, the Committee considered F.W. Cook’s advice in establishing the types and levels of compensation to be paid to the executives for 2008 and the Committee and the Special Committee considered F.W. Cook’s advice in establishing the types and levels of compensation to be paid to the Chairman and Chief Executive Officer for 2008. F.W. Cook’s role and duties in determining compensation opportunities for 2008 were similar to Mercer’s role and duties in determining compensation opportunities for 2007.
 
Review of External Data
 
Each year, the Compensation Committee commissions a compensation analysis conducted by its independent compensation consultant to determine whether our executive compensation program is consistent with those of other publicly-held companies of similar size and industry.
 
For mid-level management positions that require technical coal industry knowledge and experience, we use a mining comparator group for benchmarking purposes. These positions are generally operational in nature. None of the named executive officers held these positions during 2007. The mining comparator group comprises publicly-held coal companies from which we believe we are likely to recruit for these types of positions and is composed of Alpha Natural Resources, Inc., Arch Coal, Inc., CONSOL Energy, Inc., Foundation Coal Holdings, Inc., International Coal Group, Inc., James River Coal Company, Massey Energy Company, and Westmoreland Coal Company. This is the same comparator group as the Industry Peer Group used in connection with our performance unit program.
 
Talent for other senior-level management positions and key roles in the organization can be acquired across a broader spectrum of companies. As such, we use 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 Air Products & Chemicals, Inc., Barrick Gold Corporation, Eastman Chemical Company, Ecolab, Inc., Freeport-McMoRan Copper & Gold, Goodrich Corporation, ITT Corporation, Lubrizol Corporation, Monsanto Company, National Oilwell Varco, Inc., Newmont Mining Corporation, Praxair, Inc., Rockwell Automation, Rohm and Haas Company, Smith International, Inc., Southern Copper Corporation, SPX Corporation, Inc., Teck Cominco Ltd., and Timken Company. In addition, for international positions, we review international companies such as Anglo American, plc, Rio Tinto, plc, and BHP Billiton Limited when relevant compensation data is available.
 
Overall, the independent compensation consultants confirmed that our executive compensation program, as structured, is 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 its independent compensation consultants determined that the value and design of our executive compensation program is appropriate.


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2007 Executive Compensation Components
 
For the year ended December 31, 2007, the principal components of compensation for the named executive officers were:
 
  •  Annual Base Salary;
 
  •  Annual Incentive Compensation;
 
  •  Long-term Incentives; and
 
  •  Retirement and Other Benefits.
 
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, our overall budget for merit increases and the competitive environment. In 2007, we provided a base pay increase to our employees but, in accordance with our philosophy of providing a strong link between pay and performance, the exact amount of the increase (if any) varied among employees based on their performance levels.
 
The Compensation Committee reviewed the 2007 base salaries of the Chairman and Chief Executive Officer and his direct reports to ensure competitiveness in the marketplace. Consistent with our philosophy, the Committee (and, in the case of the Chairman and Chief Executive Officer, the Special Committee), approved base salary adjustments based on market information and individual performance. The Committee will continue to review the base salaries of our 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
 
Our annual incentive compensation plan provides opportunities for key executives, including the named executive officers, to earn annual cash incentive payments tied to the successful achievement of pre-established objectives that support our business strategy.
 
Under the plan, participants are assigned threshold, target and maximum performance goal levels. If actual performance does not meet the threshold level, no incentive is earned under the plan. At threshold performance levels, the incentive that can be earned generally equals 50% of the target incentive. 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 achieve their performance objectives.
 
Target incentive payouts generally are received for achieving budgeted financial and safety goals and meeting individual performance goals. Our philosophy is to set these budgeted goals at levels that represent high levels of performance. Maximum incentive payments generally are awarded when budgeted 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 and competitive market practices.
 
Awards for the named executive officers are based on achievement of corporate and individual goals. Achievement of corporate goals is determined by comparing our 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 us, and goals for the named executive officers, excluding the Chairman and Chief Executive Officer, are reviewed and approved by the Compensation Committee for each calendar year. The Special Committee of the Board of Directors reviews and approves the goals and payouts for each calendar year for the Chairman and Chief Executive Officer for each calendar year.


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In determining final annual incentive awards, the Chairman and Chief Executive Officer has discretion for each of his direct reports up to the maximum allowable award, provided that such award is approved by the Compensation Committee; and the Special Committee of the Board has discretion for the Chairman and Chief Executive Officer up to the maximum allowable award.
 
The Compensation Committee reviews and approves annual incentive payouts to the named executive officers, excluding the Chairman and Chief Executive Officer. The Special Committee of the Board of Directors reviews and approves annual incentive payouts to the Chairman and Chief Executive Officer.
 
2007 Annual Incentive Measures
 
Based on input from management and information and advice from its independent compensation consultant, the Special Committee and the Compensation Committee established certain performance measures and weightings for determining the Chairman and Chief Executive Officer’s and each of the other named executive officer’s 2007 annual incentive opportunity, respectively.
 
For 2007, the performance measures for the named executive officers included goals for EBITDA, Earnings per Share, Leverage Ratio, Safety and Individual Goals.
 
EBITDA
 
The EBITDA performance measure used to determine the annual incentive is also one of the key metrics we use to measure our operating performance, as well as an indicator of our ability to meet debt service and capital expenditure requirements. EBITDA is defined as income from continuing operations before deducting early debt extinguishment costs, net interest expense, income taxes, minority interests, asset retirement obligation expense and depreciation, depletion and amortization.
 
Earnings per Share (EPS)
 
We use EPS in our annual incentive plan because it is a key metric used by outside investors to assess our profitability. EPS is calculated by dividing income from continuing operations by the number of total shares outstanding on a fully diluted basis.
 
Leverage Ratio
 
We use Leverage Ratio in our annual incentive plan to ensure our capital structure is not too heavily weighted toward debt. Leverage ratio is calculated by dividing total debt by the sum of total debt, total equity and minority interest.
 
Safety
 
Safety is a core value that is integrated into all areas of our business. In line with that philosophy, the named executive officers’ annual incentive opportunity depends not only on their contribution to promoting a culture of continuous improvement in safety (as referenced by the Safety Discretionary goal in the table below), but also our achievement of quantitative safety goals. For 2007, our quantitative safety goal was set at a 15% improvement over 2005’s actual record results.
 
Individual Goals
 
The Individual Goals established for the named executive officers were designed to further our business strategies and increase shareholder value. The individual goals for each of the named executive officers were reviewed and approved in advance by the Compensation Committee, and the individual goals for the Chairman and Chief Executive Officer were then reviewed and approved in advance by the Special Committee. These goals and objectives centered on:
 
  •  Continuous improvement in safety


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  •  Growth in revenue and earnings
 
  •  Succession planning and building of talent pool
 
  •  Mergers & acquisitions
 
  •  Operational improvement
 
  •  Industry and government relations
 
  •  Long-term strategic direction
 
2007 Annual Incentive Payouts
 
The table below summarizes the actual results for these performance goals for 2007. Actual results for EBITDA and EPS for 2007 include the ten months of Patriot prior to the spin-off and therefore are not comparable to similarly named measures included in our consolidated financial statements. In 2007, we had EBITDA of $1,026.1 million and a Leverage Ratio of 56.53%, both of which were in excess of the threshold performance level but below the target for those goals. In 2007, we had EPS of $1.52, which was at the threshold performance level for this goal. However, the safety incidence rate of 3.04 was below the threshold performance level for this goal.
 
                         
    Percentage of Total
             
Measure
  Award     Actual Results     Achievement  
 
EBITDA
    40.0 %     $1,026.1 million       Above Threshold  
EPS
    10.0 %     $1.52       At Threshold  
Leverage Ratio
    10.0 %     56.5 %     Above Threshold  
Safety Incidence Rate
    5.0 %     3.04       Below Threshold  
Safety Discretionary
    5.0 %     By Individual          
Individual Goals
    30.0 %     By Individual          
 
For their 2007 performance, the Chairman and Chief Executive Officer, the Chief Financial Officer and the other named executive officers earned payouts under our annual incentive plan, as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Tables on pages 36 and 38 of this Proxy Statement. Other eligible executives received payouts under the same annual incentive plan. Annual incentive payouts for 2007 were based on our achievement of quantitative goals and individual goals shown in the table above.
 
The Special Committee evaluated the Chairman and Chief Executive Officer’s performance in relation to these goals, and approved the level of his 2007 payout under our annual incentive plan accordingly. The Compensation Committee, with the Chairman and Chief Executive Officer, evaluated the performance of each of the other named executive officers in relation to these goals, and approved the level of their 2007 payouts under our annual incentive plan accordingly.
 
In 2007, additional special annual incentive awards were earned by the Chairman and Chief Executive Officer, the Chief Financial Officer, two of the three named executive officers who continue to serve as executive officers, and several other non-executive employees for significant accomplishments during 2007 that were not factored into the performance measures at the beginning of the year, but which will help us execute our strategic plan. These accomplishments included, but were not limited to, the successful spin-off of Patriot Coal Corporation, the implementation in the U.S. of a new integrated information technology system provided by SAP AG, and completion of the financial closing with our equity partners for the Prairie State Energy Campus. These special award amounts are reflected in the “Bonus” column of the Summary Compensation Table on page 36 of this Proxy Statement.
 
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 who continues to serve as an executive officer, his or her actual award under our annual incentive plan, any special annual incentive


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award received for 2007, and the combined actual and special incentive awards as a percentage of salary earned in 2007. The target payout and payout range for each executive is based upon his or her level of participation in the plan and competitive market practices.
 
2007 Annual Incentives — Current Executive Officers
 
                                         
    Target Payout
    Payout Range
                Actual + Special
 
    as a % of
    as a % of
    Actual Award
    Special Award
    Award as a % of
 
Name
  Salary     Salary     ($)     ($)     Salary Earned  
 
Current Officers
                                       
Gregory H. Boyce
    100 %     0-200 %     1,000,671       500,000       153 %
Richard A. Navarre
    80 %     0-150 %     517,784       331,000       130 %
Eric Ford
    80 %     0-150 %     532,105       52,000       108 %
Sharon D. Fiehler
    80 %     0-150 %     338,701       117,000       106 %
Roger B. Walcott, Jr. 
    80 %     0-150 %     360,000             76 %
 
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 who no longer serves as an executive officer, his actual award under our annual incentive plan, and the actual award as a percentage of salary earned in 2007. The actual awards earned for these former executives were prorated for the portion of 2007 during which they were employed by us. The target payout and payout range for each executive is based upon his level of participation in the plan and competitive market practices.
 
2007 Annual Incentives — Former Executive Officers
 
                                 
    Target Payout
    Payout Range
          Actual Award
 
    as a % of
    as a % of
    Actual Award
    as a % of Salary
 
Name
  Salary     Salary     ($)     Earned  
 
Former Officers
                               
Richard M. Whiting
    80 %     0-150 %     422,193       89 %
Jiri Nemec
    80 %     0-150 %     168,494       58 %
 
Long-Term Incentive Compensation
 
Our long-term incentive compensation plan provides opportunities for key executives to earn equity interests if certain pre-established long-term (greater than one year) objectives are successfully achieved.
 
The Chairman and Chief Executive Officer and other named executive officers receive long-term incentive compensation through annual awards of stock options and performance units. The targeted value of these awards is split evenly between stock options and performance units.
 
For 2007, the Special Committee awarded stock options and performance units to the Chairman and Chief Executive Officer with a total grant date fair value of 350% of his base salary. In approving this award, the Special Committee considered the advice of its independent compensation consultant, as well as available benchmarking data and the perceived retention value of the award.
 
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, shown in the tables below, is split evenly between stock options and performance units. The Committee intends that these long-term incentive opportunities be competitive and based on our actual performance. When evaluating awards to be granted, the Compensation Committee and the Special Committee considered competitive market data and the perceived retention value of the award.


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2007 Long-Term Incentive Awards — Current Executive Officers
 
         
    Target Award as a %
 
Name
  of Salary  
 
Current Officers
       
Gregory H. Boyce
    350 %
Richard A. Navarre
    250 %
Eric Ford
    250 %
Sharon D. Fiehler
    200 %
Roger B. Walcott, Jr. 
    200 %
 
2007 Long-Term Incentive Awards — Former Executive Officers
 
         
    Target Award as a %
 
Name
  of Salary  
 
Former Officers
       
Richard M. Whiting
    245 %
Jiri Nemec
    200 %
 
Stock Options
 
Our stock option program is a long-term plan designed to create a direct link between executive compensation and increased shareholder value, provide an opportunity for increased equity ownership by executives, and maintain competitive levels of total compensation opportunity.
 
The Compensation Committee and Special Committee meet in December of each year to evaluate, review and approve the annual stock option award design and level of award for each named executive officer and the Chairman and Chief Executive Officer. The Committees approve stock option awards prospectively. For example, the annual stock option awards are approved in early December for granting on the first business day in January at our closing market price per share on the grant date. The Compensation Committee and/or the Special Committee may occasionally approve stock option awards that are granted other than on the first business day of the year, due to promotions or new hires. In these cases the Compensation Committee or the Special Committee approves the award in advance of the grant date, and the stock option grant is awarded on the determined date with an exercise price equal to our closing market price per share on such date. We use a Black-Scholes valuation model to establish the grant-date fair value of all stock option grants.
 
All stock options are granted at an exercise price equal to the closing market price of our Common Stock on the date of grant. Accordingly, those stock options will have intrinsic value to employees only if the market price of our Common Stock increases after that date. Stock options generally vest in one-third increments over a period of three years or cliff vest after three years; however, options will immediately vest upon a change of control or a recapitalization event or upon the holder’s death or disability. If the holder terminates employment without good reason (as defined in his or her employment agreement), all unvested stock options are forfeited. Stock options expire ten years from the date of grant.
 
Performance Units
 
Similar to the stock option program, our 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. In addition, our performance unit program is designed in part to reward executives for the achievement of strong financial returns on investment. Certain key executives are eligible to receive long-term incentive awards in the form of performance units.
 
Performance units granted in 2007 will be payable, if earned, in shares of our Common Stock. The percentage of the performance units earned is based on our total shareholder return (“TSR”) over a period


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beginning January 3, 2007 and ending December 31, 2009 relative to an industry comparator group (the Industry Peer Group) and the S&P 500 Index (together weighted as 50% of the total award) and EBITDA Return on Invested Capital (weighted as 50% of the total award) over the same performance period.
 
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 and for purposes of the 2007 award consisted of Alpha Natural Resources, Inc., Arch Coal, Inc., CONSOL Energy Inc., Foundation Coal Holdings, Inc., International Coal Group, Inc., James River Coal Company, Massey Energy Company and Westmoreland Coal Company. At the time of the 2007 award, we were included in the S&P 500 Index. The Industry Peer Group is weighted at 30% of the total award, while the S&P 500 Index is weighted at 20% of the total award.
 
For purposes of the performance units granted in 2007, EBITDA Return on Invested Capital is defined as:
 
  •  EBITDA, where EBITDA is based on income from continuing operations before deducting early debt extinguishment costs, net interest expense, income taxes, minority interests, asset retirement obligation expense and depreciation, depletion and amortization, divided by
 
  •  Average Total Capital, where Average Total Capital is determined based on average annual debt, plus average annual equity, plus average annual accounts receivable securitization less average annual cash.
 
Performance unit payout formulas are as follows:
 
  •  Threshold payouts (equal to 50% of the number of target performance units granted) begin for TSR performance at the 40th percentile of the Industry Peer Group, the 35th percentile of the S&P 500 Index and a threshold goal for three-year EBITDA Return on Invested Capital.
 
  •  Target payouts (equal to 100% of the number of target performance units granted) are earned for performance at the 55th percentile of the Industry Peer Group, 50th percentile of the S&P 500 Index and a target goal for three-year EBITDA Return on Invested Capital.
 
  •  Maximum payouts (equal to 200% of the number of target performance units granted) are earned for performance at the 80th percentile of the Industry Peer Group, the 75th percentile of the S&P 500 Index and a maximum goal for three-year EBITDA Return on Invested Capital.
 
  •  Payouts are ratably adjusted for performance between threshold and target, and between target and maximum levels.
 
  •  No payouts will be made if TSR over the performance period is negative and performance is below the 50th percentile of the Industry Peer Group. Also, the maximum payout cannot exceed 150% of the number of target performance units granted if TSR over the performance period is negative and performance is at or above the 50th percentile of the Industry Peer Group.
 
The number of target performance units granted is determined using a price that equals the average closing market price per share of our Common Stock during the four weeks of trading immediately following the date of grant.
 
Our TSR over the performance period is based on the average closing price during the first four weeks compared to the average closing price during the last four weeks of trading in the performance cycle. Units vest monthly over, and are payable subject to the achievement of performance goals at the conclusion of, the measurement period. Upon a change of control, a recapitalization event or the holder’s retirement or termination without cause, the holder would receive payment from us 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 payment from us for 100% of performance units


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outstanding as of the date the event occurs. If the holder terminates employment without good reason (as defined in his or her employment agreement), all performance units are forfeited.
 
Retirement Benefits
 
Defined Contribution Plan
 
We maintain a defined contribution retirement plan and other health and welfare benefit plans for our employees. Named executive officers 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.
 
Pension Plan
 
Our 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.
 
We 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.
 
Excess Defined Benefit and Excess Defined Contribution Retirement Plan
 
We maintain one excess defined benefit retirement plan and one excess defined contribution plan that provide retirement benefits to executives, which include the named executive officers, whose pay exceeds legislative limits for qualified defined contribution and pension plans.
 
Other Benefits Provided by the Company
 
The following benefits are provided by us 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 and out-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 their salary into the plan, up to limits determined by the Internal Revenue Service using before-tax money, after-tax money, or both. We match 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 our


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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 our Common 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 our Common 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. Employees are required to hold any shares acquired under the ESPP for a minimum of 18 months after the purchase date.
 
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 $20,000 and/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 us, the plan pays all or part of a “principal sum” depending on the loss. This principal sum is equal to five times base annual salary, with a $500,000 maximum and $150,000 minimum.
 
Accidental Death and Dismemberment (AD&D).  We provide 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, we provide 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 or vision plan, including some over-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 of the named executive officers who currently serves as an executive officer is eligible for 25 days of vacation each year.
 
Holidays.  We provide 12 paid holidays each year.
 
Perquisites
 
We provided certain perquisites to senior management in 2007.


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Company Aircraft.  Our aircraft may be used in the following situations:
 
  •  Senior management may use the aircraft for company business purposes;
 
  •  Spouses/partners may accompany senior management members on the corporate aircraft for company business purposes;
 
  •  On rare occasions, non-employee directors, when traveling on company business, may be accompanied by a spouse/partner.
 
Relocation.  We generally provide relocation benefits to newly-hired officers or officers that have been asked by us to relocate to a new location. These benefits typically include payment for the costs of relocation, temporary housing, additional personal leave and associated tax gross-ups.
 
Other Perquisites.  We do not provide or reimburse the cost of country club memberships or the purchase or lease of a vehicle for any officer.
 
Share Ownership Guidelines
 
Both management and the Board of Directors believe our executives and directors should acquire and retain a significant amount of our Common Stock in order to further align their interests with those of shareholders.
 
Under our share ownership guidelines, the Chairman and Chief Executive Officer is encouraged to acquire and retain Common Stock having a value equal to at least five times his base salary. Other named executive officers are encouraged to acquire and retain 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 ownership of Company Common Stock as of December 31, 2007 by the named executive officers who currently serve as executive officers.
 
                                 
                Ownership
    Actual
 
                Guidelines,
    Ownership
 
    Share Ownership
    Share Ownership
    Relative to Base
    Relative to Base
 
Name
  (#)(1)     ($)(2)     Salary     Salary  
 
Gregory H. Boyce(3)
    190,931       11,768,987       5x       11.9x  
Richard A. Navarre
    81,313       5,012,133       3x       7.5x  
Eric Ford(4)
    13,177       812,230       3x       1.2x  
Sharon D. Fiehler
    76,453       4,712,563       3x       10.8x  
Roger B. Walcott, Jr. 
    43,186       2,661,985       3x       5.5x  
 
(1) Includes shares acquired through the 401(k) plan and the Employee Stock Purchase Plan, but excludes shares issuable upon the exercise of stock options.
 
(2) Calculated based on our closing market price per share on the last trading day of 2007, $61.64.
 
(3) Share ownership includes 86,602 phantom shares granted to Mr. Boyce on October 1, 2003 under the terms of his employment agreement, which have been adjusted to reflect the spin-off of Patriot Coal Corporation on October 31, 2007.
 
(4) Mr. Ford joined us on March 6, 2007.
 
Also under our share ownership guidelines for directors, directors are encouraged to acquire and retain Common Stock having a value equal to at least three times their base 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 ownership of our Common Stock as of December 31, 2007 by each of our current non-employee directors.
 
                                 
                Ownership
    Ownership
 
                Guidelines, Relative
    Relative to
 
    Share Ownership
    Share Ownership
    to Annual
    Annual
 
Name(1)
  (#)     ($)(2)     Retainer(3)     Retainer(3)  
 
Non-Employee Directors
                               
William A. Coley
    6,385       393,571       3 x     5.3 x
Henry Givens, Jr. 
    6,385       393,571       3 x     5.3 x
William E. James
    9,381       578,245       3 x     7.7 x
Robert B. Karn III
    17,603       1,085,049       3 x     14.5 x
Henry E. Lentz
    6,093       375,573       3 x     5.0 x
William C. Rusnack
    9,493       585,149       3 x     7.8 x
James R. Schlesinger
    9,509       586,135       3 x     7.8 x
Blanche M. Touhill
    9,509       586,135       3 x     7.8 x
John F. Turner(4)
    3,455       212,966       3 x     2.8 x
Sandra Van Trease
    17,173       1,058,544       3 x     14.1 x
Alan H. Washkowitz
    6,093       375,573       3 x     5.0 x
 
(1) Mr. Boyce’s stock ownership is shown in the table for named executive officers who currently serve as executive officers.
 
(2) Value is calculated based on the closing market price per share of our Common Stock on the last trading day of 2007, $61.64.
 
(3) The base annual retainer for the non-employee directors in 2007 was $75,000.
 
(4) Mr. Turner joined the Board of Directors in July 2005.
 
Employment Agreements
 
The Compensation Committee, in consultation with a prior independent compensation consultant, approved the terms of all senior executive employment agreements, including the agreement for the Chairman and Chief Executive Officer. The terms of those agreements, including the provision of post-termination benefits, were structured to attract and retain persons believed to be key to our success, as well as to be competitive with compensation practices for executives in similar positions at companies of similar size and complexity. In assessing whether the terms of the employment agreements were competitive, the Committee received advice from its independent compensation consultant(s) and reviewed appropriate salary surveys and industry benchmarking data. During 2008, all senior executive employment agreements will be reviewed and amended as necessary to comply with Internal Revenue Code Section 409A.
 
The Chairman and Chief Executive Officer’s employment agreement has a structure similar to the employment agreements of the other named executive officers. However, some amounts payable to him under his agreement were intended to compensate him for amounts he forfeited in leaving his former employer. Our Executive Vice President and Chief Operating Officer’s employment agreement also includes amounts payable that were intended to compensate him for amounts he forfeited in leaving his former employer. These additional amounts payable to these two executives are not applicable to the other named executive officers.
 
The Chairman and Chief Executive Officer’s employment agreement provides for a three-year term that extends day-to-day so that there is at all times remaining a term of three years. Following a termination other than for cause or resignation for good reason, the Chairman and Chief Executive Officer would be entitled to the following benefits, payable in either (a) equal installments over three years or (b) a lump sum, as determined by the Board of Directors: (1) three times base salary and (2) three


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times the higher of (A) the target annual incentive or (B) the average of the actual annual incentive paid in the three prior years. In addition, he would be entitled to a one-time prorated annual incentive for the year of termination (based on our 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 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, following a termination other than for cause or resignation for good reason (as defined in the employment agreement), he would be paid a lump sum of $800,000. If the Chairman and Chief Executive Officer were to terminate his employment for any reason on or after age 55 or die or became disabled, the lump sum of $800,000 would also be paid. Upon termination other than for 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 (1) the cash equivalent of the fair market value of 86,602 shares of Common Stock on October 1, 2003 plus interest or (2) an amount equal to the fair market value of 86,602 shares of Common Stock on the date of termination; (b) on or after age 55 but prior to age 62, the greater of (1) the amount referenced in (a) on the date of termination, (2) $1.6 million, reduced by 0.333% for each month that termination occurs before reaching age 62, or (3) the fair market value of 86,602 shares of Common Stock 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.
 
Other named executive officers’ employment agreements have two-year terms which extend day-to-day so that there is at all times a remaining term of two years. Following termination other than for cause or resignation for good reason (as defined in the employment agreements), the other current named executive officers would be entitled to the following benefits, payable in either (a) equal installments over two years or (b) a lump sum, as determined by the Chairman and Chief Executive Officer and the Board of Directors: (1) two times base salary and (2) two times the higher of (A) the target annual incentive or (B) the average of the actual annual incentive paid in the three prior years. In addition, the other current named executive officers would be entitled to (1) a one-time prorated annual incentive for the year of termination (based on our 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 annual incentives, if any, are paid to our other executives, and (2) qualified and nonqualified retirement, pension (if applicable), life insurance, medical and other benefits for the two-year period following termination.
 
In addition, if our Executive Vice President and Chief Operating Officer’s employment with us were to terminate for any reason on or after age 55 or if he should die or became disabled, a lump sum of $800,000 would be paid to him. If his employment were to terminate for any reason other than death or disability prior to reaching age 55, the lump sum payment of $800,000 would be forfeited.
 
Under all executives’ employment agreements, we are 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, we will pay additional amounts so that the executives would be in the same financial position as if the excise taxes were not incurred.


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Named Former Executive Officers
 
On October 31, 2007, we completed the spin-off of our wholly owned subsidiary, Patriot Coal Corporation (“Patriot”), which was accomplished through a special dividend of all outstanding shares of Patriot to our shareholders. On that same date, Richard M. Whiting elected to resign from his position as our Executive Vice President and Chief Marketing Officer so that he could become Patriot’s President and Chief Executive Officer, and Jiri Nemec elected to resign from his position as our Group Vice President Eastern Operations so that he could become Patriot’s Senior Vice President and Chief Operating Officer.
 
Even though Messrs. Whiting and Nemec terminated their employment with us in October 2007, their compensation information is included in this Proxy Statement as required by SEC rules. To avoid confusion on the part of investors, we have included separate executive compensation tables for these former executive officers, which in each case immediately follow the executive compensation tables for the named executive officers who currently serve as executive officers. This is consistent with our treatment of the Patriot business as a discontinued operation for financial reporting purposes wherein Patriot’s operating results and financial condition are clearly segmented in our financial statements.
 
Pursuant to their termination arrangements with us, Messrs. Whiting and Nemec received special grants of restricted stock and Common Stock to compensate them for unvested stock options that were forfeited upon leaving us to join Patriot. Our 2007 compensation expense related to these awards is included in the “Stock Awards” column of the Summary Compensation Table on page 38. Messrs. Whiting and Nemec also received pro-rata annual incentive plan awards for 2007, which are included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table on page 38. Additional information regarding these termination agreements can be found under the caption “Termination Arrangements with Former Executive Officers” beginning on page 57 of this Proxy Statement.


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REPORT OF THE COMPENSATION COMMITTEE
 
The Compensation Committee has reviewed and discussed with management the Company’s disclosures under “Compensation Discussion and Analysis” beginning on page 20 of this Proxy Statement.
 
Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.
 
MEMBERS OF THE COMPENSATION COMMITTEE:
 
ROBERT B. KARN III, CHAIR
WILLIAM A. COLEY
HENRY E. LENTZ
JOHN F. TURNER


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SUMMARY COMPENSATION TABLES
 
The following table summarizes the total compensation paid to the Chairman and Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers currently employed by us for their service to us during the fiscal years ended December 31, 2007 and 2006. Long-term incentive awards to these officers include both performance units (reflected in the “Stock Award” column below) and stock options (reflected in the “Option Awards” column below). The value reflected in each of these columns is the compensation expense associated with equity awards for each executive, recognized for financial statement reporting purposes in accordance with FAS 123R.
 
                                                                         
                            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)   ($)(2)   ($)(2)(3)   ($)(4)   ($)(5)   ($)(6)   ($)
 
Current Officers
                                                                       
Gregory H. Boyce
    2007       980,000       500,000       4,721,158 (7)     1,271,485       1,000,671             119,572       8,592,886  
Chairman and Chief Executive Officer
    2006       887,500             3,301,325 (8)     914,761       1,329,620             118,977       6,552,183  
Richard A. Navarre(9)
    2007       655,000       331,000       947,303       970,685       517,784             76,069       3,497,841  
President and Chief Commercial Officer
    2006       612,500             1,782,473       775,273       850,000       12,326       85,782       4,118,354  
Eric Ford
    2007       541,667       52,000       1,744,886 (10)     234,752       532,105             981,693       4,087,103  
Executive Vice President and Chief Operating Officer
                                                                       
Sharon D. Fiehler(11)
    2007       430,250       117,000       410,506       559,794       338,701             53,228       1,909,479  
Executive Vice President and Chief Administrative Officer
    2006       408,000             877,306       453,722       500,000       27,160       59,171       2,325,359  
Roger B. Walcott, Jr. 
    2007       475,000             439,642       389,732       360,000             55,138       1,719,512  
Executive Vice President
    2006       452,500             844,467       291,382       500,000       10,830       58,046       2,157,225  
 
(1) Amounts included in this column for 2007 represent additional special annual incentive awards earned for significant accomplishments completed by us in 2007 that were not factored into the performance measures at the beginning of the year, but which will help us execute our strategic plan. These accomplishments included but were not limited to the successful spin-off of Patriot Coal Corporation, the implementation in the U.S. of a new integrated information technology system provided by SAP AG, and completion of the financial closing with the equity partners for the Prairie State Energy Campus. The material terms of these awards are described under the caption “Annual Incentive Compensation” in the Compensation Discussion and Analysis beginning on page 23 of this Proxy Statement.
 
(2) Amounts in the Stock Awards and Option Awards columns represent the respective amounts of expense recognized for financial statement reporting purposes in 2006 and 2007 in accordance with FAS 123R. A discussion of the relevant fair value assumptions is set forth in note 18 to our consolidated financial statements included in our 2007 Annual Report. We caution that the amount ultimately realized from the stock and option awards will likely vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.
 
(3) The Option Awards values reported for 2006 have been restated to reflect the 2006 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R.


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(4) Amounts in this column represent awards under our annual incentive plan. The material terms of the 2007 awards are described under the caption “Annual Incentive Compensation” in the Compensation Discussion and Analysis section beginning on page 23 of this Proxy Statement.
 
(5) The actual change in pension values for 2007, which resulted from an increase in the discount rate from 6.0% to 6.75%, is as follows: Mr. Navarre, ($19,313); Ms. Fiehler, ($31,790); and Mr. Walcott, ($11,830). See page 51 of this Proxy Statement for further discussion about the Pension Plan.
 
(6) Amounts included in this column for 2007 are described in the All Other Compensation table on page 39 of this Proxy Statement.
 
(7) The 2007 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R for outstanding phantom stock and restricted stock awards to Mr. Boyce was $2,999,242, and is included in the amount reported.
 
(8) The Stock Awards value reported for 2006 for Mr. Boyce inadvertently excluded the portion of compensation expense related to phantom stock and restricted stock awarded to him in 2003. The 2006 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R for all outstanding phantom stock and restricted stock awarded to Mr. Boyce was $975,503, and is included in the amount reported for 2006.
 
(9) During 2007, Mr. Navarre served as our Chief Financial Officer and Executive Vice President Corporate Development. Effective January 1, 2008, Mr. Navarre’s principal position became President and Chief Commercial Officer. He will continue to serve as Chief Financial Officer until his successor is elected.
 
(10) Mr. Ford received a restricted stock award of 54,198 shares on March 6, 2007 pursuant to the terms of his employment agreement dated December 23, 2006. The 2007 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R was $1,425,191, and is included in the amount reported for 2007. The grant date fair value of this award determined under FAS 123R for financial reporting purposes is included in the Grants of Plan-Based Awards in 2007 table on page 41 of this Proxy Statement.
 
(11) During 2007, Ms. Fiehler served as our Executive Vice President Human Resources and Administration. Effective January 1, 2008, Ms. Fiehler’s principal position became Executive Vice President and Chief Administrative Officer.
 
The following table summarizes the total compensation paid by us to two former executive officers who were no longer serving as executive officers at the end of 2007 as a result of the spin-off of our wholly-owned subsidiary Patriot Coal Corporation (“Patriot”) on October 31, 2007, which was accomplished through a special dividend of all outstanding shares of Patriot to our shareholders. On that same date, Richard M. Whiting elected to resign from his position as our Executive Vice President and Chief Marketing Officer so that he could become Patriot’s President and Chief Executive Officer, and Jiri Nemec elected to resign from his position as our Group Vice President — Eastern Operations so that he


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could become Patriot’s Senior Vice President and Chief Operating Officer. Their compensation information for their service to us is included in this Proxy Statement as required by SEC rules.
 
                                                                         
                            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)   ($)(5)   ($)
 
Former Officers
                                                                       
Richard M. Whiting
    2007       473,875             3,918,212 (6)     1,561,226       422,193             90,875       6,466,381  
Former Executive Vice President and Chief Marketing Officer
    2006       540,750             1,334,488       629,443       700,000       137,567       67,879       3,410,127  
Jiri Nemec
    2007       291,500             1,930,347 (7)     3,165,856       168,494             51,423       5,607,620  
Former Group Vice President Eastern Operations
                                                                       
 
(1) Amounts in the Stock Awards and Option Awards columns represent the respective amounts of expense recognized for financial statement reporting purposes in 2006 and 2007 in accordance with FAS 123R. A discussion of the relevant fair value assumptions is set forth in note 18 to our consolidated financial statements included in our 2007 Annual Report. We caution that the amount ultimately realized from the stock and option awards will likely vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.
 
(2) The Option Awards values reported for 2006 have been restated to reflect the 2006 compensation expense recognized for financial statement reporting purposes in accordance with FAS 123R.
 
(3) Amounts in this column represent awards under our annual incentive plan. The material terms of the 2007 awards are described under the caption “Annual Incentive Compensation” in the Compensation Discussion and Analysis section beginning on page 23 of this Proxy Statement.
 
(4) The actual change in pension values for 2007, which resulted from an increase in the discount rate from 6.0% to 6.75%, is as follows: Mr. Whiting, ($79,352); and Mr. Nemec, ($16,939). 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 continued to accrue credited service under the plan at the rate of 50% for each year of actual service; his service accrual under the plan ended October 31, 2007. See page 51 of this Proxy Statement for further discussion about the Pension Plan.
 
(5) Amounts included in this column for 2007 are described in the All Other Compensation table on page 40 of this Proxy Statement.
 
(6) Mr. Whiting received restricted stock awards of 38,583 shares on October 12, 2007 and 9,449 shares on October 30, 2007 pursuant to the terms of his transition letter agreement dated May 4, 2007, in recognition of the conversion of stock option awards granted to him in 2006 and 2007 to equivalent restricted shares, that vested upon the completion of the spin-off of Patriot on October 31, 2007. Mr. Whiting also received an unrestricted stock award of 44,155 shares on November 1, 2007 pursuant to the terms of his transition letter agreement dated May 4, 2007, in recognition of stock option awards granted prior to 2006 and scheduled to vest after January 3, 2008, that were accelerated upon the completion of the spin-off of Patriot on October 31, 2007. These awards were made in order to compensate Mr. Whiting for the value of unvested stock options that were forfeited upon termination of his employment with us. Our 2007 compensation expense recognized for financial statement reporting purposes for these awards in accordance with FAS 123R was $2,524,092, and is included in the amount reported. The stock award value also includes an additional compensation


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expense recognized for financial statement reporting purposes for 2007 in accordance with FAS 123R, due to the accelerated vesting of performance unit awards granted to Mr. Whiting in 2006 and 2007, pursuant to the terms of his transition letter agreement dated May 4, 2007.
 
(7) Mr. Nemec received restricted stock awards of 17,864 shares on October 12, 2007 and 4,462 shares on October 30, 2007 pursuant to the terms of his transition letter agreement dated May 4, 2007, in recognition of the conversion of stock option awards granted to him in 2006 and 2007 to equivalent restricted shares, that vested upon the completion of the spin-off of Patriot on October 31, 2007. Mr. Nemec also received an unrestricted stock award of 69,042 shares on November 1, 2007 pursuant to the terms of his transition letter agreement dated May 4, 2007, in recognition of stock option awards granted prior to 2006 and scheduled to vest after January 3, 2008, that were accelerated upon the completion of the spin-off of Patriot on October 31, 2007. These awards were made in order to compensate Mr. Nemec for the value of unvested stock options that were forfeited upon termination of his employment with us. Our 2007 compensation expense recognized for financial statement reporting purposes for these awards in accordance with FAS 123R was $1,228,185, and is included in the amount reported. The stock award value also includes an additional compensation expense recognized for financial statement reporting purposes for 2007 in accordance with FAS 123R, due to the accelerated vesting of performance unit awards granted to Mr. Nemec in 2006 and 2007, pursuant to the terms of his transition letter agreement dated May 4, 2007.
 
All Other Compensation
 
The following table sets forth detail of the amounts reported in the All Other Compensation column of the Summary Compensation Table for named executive officers who currently serve as executive officers.
 
                                                                         
            Annual 401(k)
  Employment
                   
            Matching and
  Agreement
                   
        Group Term
  Performance
  Lump Sum
                   
        Life Insurance
  Contributions
  Opportunity
      Perquisites
  Total
       
Name
  Year   ($)   ($)   ($)(1)   Tax Gross-Ups(2)   ($)(3)   ($)        
 
Current Officers
                                                                       
Gregory H. Boyce
    2007       1,656       106,300               5,047       6,569       119,572                  
      2006       1,656       100,750               2,019       14,552       118,977 (4)                
Richard A. Navarre
    2007       810       70,550               2,046       2,663       76,069                  
      2006       810       68,000               3,435       13,537       85,782                  
Eric Ford(5)
    2007       1,035       30,875       800,000       40,182       109,601       981,693                  
Sharon D. Fiehler
    2007       1,050       46,967               2,264       2,947       53,228                  
      2006       988       45,280               1,967       10,936       59,171                  
Roger B. Walcott, Jr. 
    2007       1,173       51,500               1,071       1,394       55,138                  
      2006       1,111       50,150               3,181       3,604       58,046                  
 
(1) The amount reported for Mr. Ford is discussed under the caption “Employment Agreements” in the Compensation Discussion and Analysis on pages 32 and 33 of this Proxy Statement. This lump sum opportunity was intended to compensate him for amounts he forfeited in leaving his former employer. If Mr. Ford were to terminate his employment with us for any reason on or after age 55 or if he should die or become disabled, the lump sum opportunity reported would be paid to him. If his employment with us were to terminate for any other reason other than death or disability prior to reaching age 55, the lump sum opportunity would be forfeited.
 
(2) Represents, for all named executive officers except Mr. Ford, the taxes due for use of corporate aircraft (as defined and calculated in accordance with Internal Revenue Service guidelines), and reimbursed by us when a spouse/guest accompanied the officer on corporate aircraft for Company


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business purposes. The tax gross-up amount shown for Mr. Ford reflects the tax-gross up for relocation expenses incurred in 2007.
 
(3) Represents, for all named executive officers except Mr. Ford, the aggregate incremental cost to us 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/guest accompanied the officer on corporate aircraft for select Company business purposes. We do not permit our corporate aircraft to be used for personal purposes.
 
(4) Total 2006 All Other Compensation for Mr. Boyce previously included dividends paid on restricted stock; however those dividends were previously factored into the original grant date fair value of the award and have subsequently been removed from the 2006 All Other Compensation total.
 
(5) For Mr. Ford total perquisites includes the cost of relocation, $82,341; temporary housing, $14,760; and additional personal leave, $12,500, pursuant to the terms of his offer of employment with us. Mr. Ford did not have a spouse/guest accompany him on our corporate aircraft during 2007.
 
The following table sets forth detail of the amounts reported in the All Other Compensation column of the Summary Compensation Table for named executive officers who no longer serve as executive officers.
 
                                                         
            Annual 401(k)
      Dividends Not
       
            Matching and
      Factored in
       
        Group Term
  Performance
      Grant Date Fair
       
        Life Insurance
  Contributions
      Value of Equity
  Perquisites
  Total
Name
  Year   ($)   ($)   Tax Gross-Ups(1)   Awards(2)   ($)(3)   ($)
 
Former Officers
                                                       
Richard M. Whiting
    2007       1,035       56,008       536       32,599       697       90,875  
      2006       1,242       60,045       2,728             3,864       67,879  
Jiri Nemec
    2007       690       34,489       369       15,394       481       51,423  
 
(1) Represents the taxes due for use of corporate aircraft (as defined and calculated in accordance with Internal Revenue Service guidelines), and reimbursed by us when a spouse/guest accompanied the officer on corporate aircraft for Company business purposes.
 
(2) Represents cash payments made to each of Mr. Whiting and Mr. Nemec having a value equal to the special dividend of Patriot shares that would have been paid on each of their restricted stock awards dated October 30, 2007 had such awards been outstanding on the record date for the special dividend.
 
(3) Represents the aggregate incremental cost to us 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/guest accompanied the officer on corporate aircraft for select Company business purposes. We do not permit our corporate aircraft to be used for personal purposes.


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GRANTS OF PLAN-BASED AWARDS IN 2007
 
The following table sets forth information concerning grants of plan-based awards during the year ended December 31, 2007 to named executive officers who currently serve as executive officers.
 
                                                                                                 
                                    All Other
  All Other
       
                                    Stock
  Option
       
                                    Awards:
  Awards:
       
            Estimated Possible Payouts
  Estimated Future Payouts
  Number of
  Number of
  Exercise of
  Total Grant
            Under Non-Equity Incentive
  Under Equity Incentive Plan
  Shares of
  Securities
  Base Price
  Date Fair
            Plan Awards   Awards (1)(2)   Stock or
  Underlying
  or Option
  Value: All
        Approval
  Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  Units
  Options
  Awards
  Awards
Name
  Grant Date   Date   ($)   ($)   ($)   (#)   (#)   (#)   (#)   (#)(2)(3)   ($/Sh)(2)   ($)(4)
 
Current Officers
                                                                                               
Gregory H. Boyce
                    495,000       990,000       1,980,000                                                          
      1/3/2007       12/5/2006                               25,087       50,174       100,348                               2,123,865  
      1/3/2007       12/5/2006                                                               120,314       34.96       1,768,836  
Richard A. Navarre
                    266,000       532,000       997,500                                                          
      1/3/2007       12/4/2006                               11,790       23,579       47,158                               998,099  
      1/3/2007       12/4/2006                                                               56,540       34.96       831,230  
Eric Ford
                    260,000       520,000       975,000                                                          
      1/3/2007       12/4/2006                               12,261       24,522       49,044                               1,038,016  
      03/06/07       12/19/2006                                                       54,198(5 )                     2,091,501  
      03/06/07       12/19/2006                                                               57,658       35.65       858,690  
Sharon D. Fiehler
                    174,000       348,000       652,500                                                          
      1/3/2007       12/4/2006                               6,278       12,556       25,112                               531,495  
      1/3/2007       12/4/2006                                                               30,107       34.96       442,615  
Roger B. Walcott, Jr. 
                    192,000       384,000       720,000                                                          
      1/3/2007       12/4/2006                               6,942       13,883       27,766                               587,667  
      1/3/2007       12/4/2006                                                               33,290       34.96       489,421  
 
(1) Performance unit awards are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column above. Performance unit awards granted in 2007 will be earned based on achievement of performance objectives for the period January 3, 2007 to December 31, 2009. The material terms of these awards, including payout formulas, are described under the caption “Performance Units” in the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement.
 
(2) The numbers of shares/units and exercise prices have been adjusted to reflect the spin-off of Patriot on October 31, 2007. The exercise price for all options is equal to the closing market price per share of our Common Stock on the date of grant, and is adjusted for the spin-off of Patriot on October 31, 2007.
 
(3) Stock option awards granted in 2007 are included in the “All Other Option Awards” column above. The options vest in three equal annual installments beginning on the first anniversary of the date of grant. The material terms of these awards, including payout formulas, are described under the caption “Stock Options” in the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement.
 
(4) The value of stock awards, option awards and performance unit awards is the grant date fair value determined under FAS 123R. A discussion of the relevant fair value assumptions is set forth in note 18 to our consolidated financial statements included in our 2007 Annual Report. We caution that the amount ultimately realized from the stock and option awards will likely vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.
 
(5) The restricted stock award was granted to Mr. Ford on March 6, 2007 pursuant to the terms of his offer of employment with us.


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The following table sets forth information concerning grants of plan-based awards during the year ended December 31, 2007 to named executive officers who no longer serve as executive officers.
 
                                                                                                 
                                    All
           
                                    Other
  All Other
      Total
                                    Stock
  Option
      Grant
                                    Awards:
  Awards:
  Exercise
  Date
                        Estimated Future Payouts
  Number of
  Number of
  of Base
  Fair
            Estimated Possible Payouts
  Under Equity Incentive Plan
  Shares of
  Securities
  Price or
  Value:
            Under Non-Equity Incentive Plan Awards   Awards(1)(2)   Stock or
  Underlying
  Option
  All
    Grant
  Approval
  Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  Units
  Options
  Awards
  Awards
Name
  Date   Date   ($)   ($)   ($)   (#)   (#)   (#)   (#)   (#)(3)   ($/Sh)(4)   ($)(5)
 
Former Officers
                                                                                               
                                                                                                 
Richard M. Whiting
                                                                                               
                      191,232       382,464       717,120                                                          
     
    Grants Made in Connection with Annual Long-Term Incentive Plan
                                                                                                 
      1/3/2007       12/4/2006                               10,204       20,408       40,816                               863,871  
      1/3/2007       12/4/2006                                                               45,206       37.84       719,458  
     
    Grants Made in Connection with Patriot Spin-Off
                                                                                                 
      10/12/2007 (6)     10/9/2007                                                       38,583                       1,976,221  
      10/30/2007 (6)     10/9/2007                                                       9,449                       526,687  
      11/1/2007 (7)     3/13/2007                                                       44,155                       2,273,983  
                                                                                                 
Jiri Nemec
                    117,528       235,056       440,730                                                          
     
    Grants Made in Connection with Annual Long-Term Incentive Plan
                                                                                                 
      1/3/2007       12/4/2006                               5,131       10,262       20,524                               434,390  
      1/3/2007       12/4/2006                                                               22,730       37.84       361,750  
     
    Grants Made in Connection with Patriot Spin-Off
                                                                                                 
      10/12/2007 (6)     10/9/2007                                                       17,864                       914,994  
      10/30/2007 (6)     10/9/2007                                                       4,462                       248,712  
      11/1/2007 (7)     3/13/2007                                                       69,042                       3,555,663  
 
(1) Performance unit awards are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column above. Vesting of performance unit awards granted to Messrs. Whiting and Nemec in 2007 accelerated on December 31, 2007 and the units were earned based on achievement of performance objectives for the period January 3, 2007 to December 31, 2007, pursuant to the terms of their transition letter agreements dated May 4, 2007. The material terms of these awards, including payout formulas, are described under the caption “Performance Units” in the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement.
 
(2) The numbers of shares/units have been adjusted to reflect the spin-off of Patriot on October 31, 2007.
 
(3) Stock option awards granted in 2007 are included in the “All Other Option Awards” column above. The material terms of these awards, including payout formulas, are described under the caption “Stock Options” in the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement. The options were scheduled to vest in three equal annual installments beginning on the first anniversary of the date of grant; however, pursuant to the terms of their transition letter agreements dated May 4, 2007 the options granted in 2007 to Messrs. Whiting and Nemec were cancelled and converted to equivalent restricted shares, which were granted to them on October 12, 2007 and October 30, 2007. The restricted stock grants and the lifting of the restrictions on the grants were contingent upon the successful completion of the spin-off of Patriot.
 
(4) The exercise price for all options is equal to the closing market price per share of our Common Stock on the date of grant. The exercise price has not been adjusted for the spin-off of Patriot on October 31, 2007, as options granted in 2007 to Messrs. Whiting and Nemec were no longer outstanding at the time of spin-off.
 
(5) The value of stock awards, option awards and performance unit awards is the grant date fair value determined under FAS 123R. A discussion of the relevant fair value assumptions is set forth in note 18 to our consolidated financial statements included in our 2007 Annual Report. We caution that the amount ultimately realized from the stock and option awards will likely vary based on a number of


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factors, including our actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.
 
(6) The restricted stock awards were granted to Messrs. Whiting and Nemec on October 12, 2007 and October 30, 2007 pursuant to the terms of their transition letter agreements dated May 4, 2007, in recognition of the conversion of stock option awards granted in 2006 and 2007 to equivalent restricted shares that vested upon the completion of the spin-off of Patriot on October 31, 2007.
 
(7) The unrestricted stock awards were granted to Messrs. Whiting and Nemec on November 1, 2007 pursuant to the terms of their transition letter agreements dated May 4, 2007, in recognition of stock option awards granted prior to 2006 that were scheduled to vest after January 3, 2008. These previously granted stock options were accelerated upon the completion of the spin-off of Patriot on October 31, 2007 and paid out in the form of unrestricted Common Stock.
 
OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR END
 
The following tables set forth detail about the outstanding equity awards for each of the named executive officers as of December 31, 2007. We caution that the amount ultimately realized from the outstanding equity awards will likely vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises and sales. In the case of equity incentive awards, the amount ultimately realized will also likely vary with our stock performance relative to an Industry Peer Group, the S&P MidCap 400 Index, and the S&P 500 Index, and the Company’s EBITDA Return on Invested Capital.
 
A portion of the outstanding equity awards for Messrs. Navarre and Walcott and Ms. Fiehler is attributable to stock options granted to them prior to our May 2001 initial public offering (“IPO”). These options were granted 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, a portion 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 our owners. A portion of the LBO grants vested in November 2007 and will expire in May 2008. The remaining outstanding LBO grants vest in July 2010 and expire in January 2011.
 
All unexercisable options and unvested shares or units of stock reflected in the table below are subject to forfeiture if the holder terminates employment without good reason (as defined in the holder’s employment agreement).


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Outstanding Equity Awards of Named Current Executive Officers at 2007 Fiscal Year End
 
                                                                 
    Option Awards   Stock Awards
                                Equity
                                Incentive
                            Equity
  Plan
                            Incentive
  Awards:
                            Plan
  Market or
                            Awards:
  Payout
                            Number of
  Value of
                            Unearned
  Unearned
                            Shares,
  Shares,
    Number of
  Number of
                  Units or
  Units or
    Securities
  Securities
              Market Value
  Other
  Other
    Underlying
  Underlying
          Number of
  of Shares or
  Rights
  Rights
    Unexercised
  Unexercised
  Option
      Shares or Units
  Units of Stock
  That
  That
    Options
  Options
  Exercise
  Option
  of Stock That
  That Have Not
  Have Not
  Have Not
    (#)(1)
  (#)(1)
  Price
  Expiration
  Have Not Vested
  Vested
  Vested
  Vested
Name
  Exercisable   Unexercisable   ($)(1)   Date   (#)(1)   ($)(2)   (#)(1)(3)   ($)(4)
 
Current Officers
                                                               
Gregory H. Boyce
                                                    38,426       2,368,579  
                                                      50,174       3,092,725  
                                      86,602 (5)     5,338,147                  
                                      40,000 (6)     2,465,600                  
                                      60,000 (6)     3,698,400                  
    Post-IPO Grants                                
      433,010 (7)             9.0067       10/1/2013                                  
      100,641 (8)             9.6880       1/2/2014                                  
      37,499 (9)     18,749 (9)     17.8541       1/3/2015                                  
      18,334 (10)     9,167 (10)     21.6646       3/1/2015                                  
      30,578 (11)     61,156 (11)     39.8143       1/3/2016                                  
              120,314 (12)     34.9553       1/3/2017                                  
Total
    620,062       209,386                       186,602       11,502,147       88,600       5,461,304  
Richard A. Navarre
                                                    39,924       2,460,915  
                                                      23,579       1,453,410  
    LBO Grants                                
              102,394 (13)     3.3001       1/1/2011                                  
    Post-IPO Grants                                
      7,382 (14)             11.2907       6/15/2014                                  
              14,003 (9)     17.8541       1/3/2015                                  
      3,898 (15)     3,898 (15)     21.9163       4/1/2015                                  
              49,141 (16)     39.8143       1/3/2016                                  
      15,885 (11)     31,768 (11)     39.8143       1/3/2016                                  
              56,540 (12)     34.9553       1/3/2017                                  
Total
    27,165       257,744                                       63,503       3,914,325  
Eric Ford
                                                    24,522       1,511,536  
                                      30,132 (17)     1,857,336                  
                                      6,000 (18)     369,840                  
    Post-IPO Grants                                
              57,658 (19)     35.6481       3/6/2017                                  
Total
            57,658                       36,132       2,227,176       24,522       1,511,536  
Sharon D. Fiehler
                                                    26,615       1,640,549  
                                                      12,556       773,952  
    LBO Grants                                
              90,595 (13)     3.3001       1/1/2011                                  
    Post-IPO Grants                                
              6,348 (9)     17.8541       1/3/2015                                  
              39,313 (16)     39.8143       1/3/2016                                  
      8,472 (11)     16,944 (11)     39.8143       1/3/2016                                  
              30,107 (12)     34.9553       1/3/2017                                  
Total
    8,472       183,307                                       39,171       2,414,501  


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    Option Awards   Stock Awards
                                Equity
                                Incentive
                            Equity
  Plan
                            Incentive
  Awards:
                            Plan
  Market or
                            Awards:
  Payout
                            Number of
  Value of
                            Unearned
  Unearne d
                            Shares,
  Shares,
    Number of
  Number of
                  Units or
  Units or
    Securities
  Securities
              Market Value
  Other
  Other
    Underlying
  Underlying
          Number of
  of Shares or
  Rights
  Rights
    Unexercised
  Unexercised
  Option
      Shares or Units
  Units of Stock
  That
  That
    Options
  Options
  Exercise
  Option
  of Stock That
  That Have Not
  Have Not
  Have Not
    (#)(1)
  (#)(1)
  Price
  Expiration
  Have Not Vested
  Vested
  Vested
  Vested
Name
  Exercisable   Unexercisable   ($)(1)   Date   (#)(1)   ($)(2)   (#)(1)(3)   ($)(4)
 
Roger B. Walcott, Jr. 
                                                    9,315       574,177  
                                                      13,883       855,748  
    LBO Grants                                
      180,379 (20)             3.3001       5/19/2008                                  
              47,178 (13)     3.3001       1/1/2011                                  
    Post-IPO Grants                                
              8,141 (9)     17.8541       1/3/2015                                  
      7,413 (11)     14,825 (11)     39.8143       1/3/2016                                  
              33,290 (12)     34.9553       1/3/2017                                  
Total
    187,792       103,434                                       23,198       1,429,925  
 
(1) The numbers of options/shares/units and exercise price of all options have been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006 and the spin-off of Patriot on October 31, 2007.
 
(2) The market value was calculated based on the closing market price per share of our Common Stock on the last trading day of 2007, $61.64 per share.
 
(3) The number of performance units disclosed is based on the assumption that target performance goals will be achieved.
 
(4) The payout value is calculated based on the closing market price per share of our Common Stock on the last trading day of 2007, $61.64 per share, and the assumption that target performance goals will be achieved.
 
(5) The phantom units were granted pursuant to Mr. Boyce’s employment agreement, and vest on October 14, 2009.
 
(6) The restricted shares were granted pursuant to Mr. Boyce’s employment agreement, and vest on January 1, 2011.
 
(7) The options were granted on October 1, 2003 and were fully vested on the date of grant.
 
(8) The options were granted on January 2, 2004 and vested in three equal annual installments beginning January 2, 2005.
 
(9) The options were granted on January 3, 2005 and vested 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 January 3, 2007 and vest in three equal annual installments beginning January 3, 2008.
 
(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 vested in three equal annual installments beginning June 15, 2005.

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(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.
 
(17) The restricted shares were granted pursuant to Mr. Ford’s employment agreement, and vest in three equal installments on October 1, 2007, April 1, 2008 and April 1, 2009.
 
(18) The restricted shares were granted pursuant to Mr. Ford’s employment agreement, and vest in three equal installments on March 6, 2007, March 6, 2010 and March 6, 2013.
 
(19) The options were granted on March 6, 2007 and vest in three equal annual installments beginning March 6, 2008.
 
(20) The options were granted on May 19, 1998 and vested on November 19, 2007.
 
Outstanding Equity Awards of Named Former Executive Officers at 2007 Fiscal Year End
 
                                                                 
    Option Awards     Stock Awards  
                                              Equity
 
                                              Incentive
 
                                        Equity
    Plan
 
                                        Incentive
    Awards:
 
                                        Plan
    Market
 
                                        Awards:
    or Payout
 
                                        Number of
    Value of
 
                                  Market
    Unearned
    Unearned
 
                            Number of
    Value of
    Shares,
    Shares,
 
                            Shares
    Shares or
    Units or
    Units or
 
    Number of
    Number of
                or Units
    Units of
    Other
    Other
 
    Securities
    Securities
                of Stock
    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     ($)(1)     Date     (#)     ($)     (#)     ($)  
 
Former Officers
                                                               
Richard M. Whiting
          LBO Grants                        
      50 (2)             3.3001       5/19/2008                                  
    Post-IPO Grants                                
              9,569 (3)     17.8541       7/3/2008                                  
Total
    50       9,569                                                  
                                     
Jiri Nemec
          Post-IPO Grants                        
              3,326 (3)     17.8541       7/3/2008                                  
      1,221 (4)             28.1795       7/3/2008                                  
Total
    1,221       3,326                                                  
 
(1) The number and exercise price of all options have been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006 and the spin-off of Patriot on October 31, 2007.
 
(2) The options were granted on May 19, 1998 and vested on November 19, 2007.
 
(3) The options were granted on January 3, 2005 and vested in three equal annual installments beginning January 3, 2006.
 
(4) The options were granted on July 20, 2005 and vest in three equal annual installments beginning July 20, 2006.


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OPTIONS EXERCISED AND STOCK VESTED IN 2007
 
The following table sets forth detail about stock option exercises during 2007 and stock awards that vested during 2007 for each of the named executive officers who currently serve as executive officers. The options in this table were granted in 1998 and between October 2003 and July 2005. The stock awards are comprised of performance unit awards granted in 2005 and restricted stock awards granted in 2007.
 
                                         
    Option Awards     Stock Awards  
                Number of
    Number of
       
    Number of
          Shares Acquired
    Shares Acquired
       
    Shares
          on Vesting of
    on Vesting of
       
    Acquired on
    Value Realized
    Performance
    Restricted
    Value Realized
 
    Exercise
    on Exercise
    Units
    Shares
    on Vesting
 
Name
  (#)(1)     ($)(2)     (#)(1)(3)     (#)(4)     ($)(3)(5)  
 
Current Officers
                                       
Gregory H. Boyce
    343,456       15,649,174       78,593             4,339,932  
Richard A. Navarre
    351,762       17,091,128       43,938             2,426,264  
Eric Ford
                      18,066       846,170  
Sharon D. Fiehler
    227,027       11,569,183       14,849             819,943  
Roger B. Walcott, Jr. 
    264,675       12,441,014       19,038             1,051,287  
 
(1) Numbers have been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006. Any options exercised after the spin-off of Patriot on October 31, 2007 have also been adjusted for the spin-off.
 
(2) The value realized was calculated based on the difference between the closing market price per share of our Common Stock on the date of exercise and the applicable exercise price.
 
(3) Represents the number of shares of Common Stock delivered in February 2008 in connection with the payout of the performance unit awards granted in 2005.
 
(4) Represents the number of shares of Common Stock delivered in connection with restrictions lifting from restricted stock grants that vested during 2007.
 
(5) A detailed explanation of the value realized due to the payout of performance unit awards granted in 2005 is included in the Peabody Relative Performance for Performance Period Ending December 31, 2007 and Resulting Performance Unit Awards to Named Current Executive Officers table beginning on page 49 of this Proxy Statement.


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The following table sets forth detail about stock option exercises during 2007 and stock awards that vested during 2007 for each of the named executive officers who no longer serves as an executive officer. The options in this table were granted in 1998 and between January 2004 and July 2005. The stock awards are comprised of performance unit awards granted in 2005, 2006 and 2007, and restricted and unrestricted stock awards granted in 2007.
 
                                         
    Option Awards     Stock Awards  
                Number of
    Number of
       
                Shares
    Shares
       
    Number of
          Acquired on
    Acquired on
       
    Shares
          Vesting of
    Vesting of
       
    Acquired on
    Value Realized
    Performance
    Restricted
    Value Realized
 
    Exercise
    on Exercise
    Units
    Shares
    on Vesting
 
Name
  (#)(1)     ($)(2)     (#)(1)(3)     (#)(4)     ($)(5)  
 
Former Officers
                                       
Richard M. Whiting
  Pre-Termination Option Exercises & Stock Vested
      24,730       950,219       22,380       48,032       3,696,000  
    Post-Termination Option Exercises & Stock Vested
      423,897       21,044,249       74,383       44,155       6,381,409  
Jiri Nemec
  Pre-Termination Option Exercises & Stock Vested
      10,315       374,884       13,102       22,326       1,867,006  
    Post-Termination Option Exercises & Stock Vested
      61,808       2,959,892       35,154       69,042       5,496,839  
 
(1) Numbers have been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006. Any options exercised after the spin-off of Patriot on October 31, 2007 have also been adjusted for the spin-off.
 
(2) The value realized was calculated based on the difference between the closing market price per share of our Common Stock on the date of exercise and the applicable exercise price.
 
(3) The pre-termination value represents the number of shares of Common Stock delivered in February 2008 in connection with the payout of the performance unit awards granted in 2005; and the post-termination value represents the number of shares of Common Stock delivered in February 2008 in connection with the payout of the performance unit awards granted to Messrs. Whiting and Nemec in 2006 and 2007 for which vesting accelerated on December 31, 2007 in connection with the completion of the spin-off of Patriot on October 31, 2007.
 
(4) The pre-termination value represents the number of shares of Common Stock delivered in connection with restrictions lifting from restricted stock grants made to Messrs. Whiting and Nemec on October 12, 2007 and October 30, 2007, in connection with the completion of the spin-off of Patriot on October 31, 2007. The post-termination value represents the number of shares of Common Stock delivered in the form of unrestricted stock grants made to Messrs. Whiting and Nemec on November 1, 2007, in connection with the completion of the spin-off of Patriot on October 31, 2007.
 
(5) A detailed explanation of the value realized due to the payout of performance unit awards granted in 2005, 2006 and 2007 is included in the Peabody Relative Performance for Performance Period Ending December 31, 2007 and Resulting Performance Unit Awards to Named Former Executive Officers table on page 50 of this Proxy Statement.
 
Performance Unit Program
 
In February 2008, the named executive officers received payouts under the terms of performance unit awards granted in 2005 that vested on December 31, 2007 (described under “Performance Units” in the Compensation Discussion and Analysis beginning on page 27 of this Proxy Statement). The value realized is shown in the “Stock Awards” column in the above tables. These payouts were consistent with


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our stated executive compensation philosophy to create a clear link to shareholder value and to base compensation, in part, on relative external performance. Specifically, the percentage of these performance units earned was based on our TSR over the three-year performance period beginning January 3, 2005 and ending December 31, 2007, relative to the TSR of an industry comparator group and the S&P MidCap 400 Index, and our EBITDA Return on Invested Capital over the same period.
 
Over the three-year performance period, our market capitalization tripled to $16.6 billion. Our TSR of 227% was the second highest in the industry comparator group and at the 96th percentile of the S&P MidCap 400 Index. The named executive officers were instrumental in leading us through this period of growth and safety improvement that resulted in a 63% increase in revenues, a 225% increase in stock price and the three safest years in our history.
 
Also in February 2008, Messrs. Whiting and Nemec received payouts under the terms of performance units awards granted in 2006 and 2007 for which vesting accelerated on December 31, 2007 pursuant to the terms of their transition letter agreements dated May 4, 2007. The value realized is shown in the post-termination section of the “Stock Awards” column in the above table. These payouts were consistent with our stated executive compensation philosophy to create a clear link to shareholder value and to base compensation, in part, on relative external performance. Specifically, the percentage of these performance units earned was based on our TSR and our EBITDA Return on Invested Capital over the two-year and one-year performance periods beginning January 3, 2006 and January 3, 2007, respectively, and both ending December 31, 2007. Our TSR over the two-year period was measured relative to the TSR of an industry comparator group and the S&P MidCap 400 Index, and our TSR over the one-year period was measured relative to the TSR of an industry comparator group and the S&P 500 Index
 
The following tables set forth additional details regarding performance unit payouts earned by each of the named executive officers in 2007. The payouts to the named executive officers who currently serve as executive officers relate to performance units granted in 2005 and reflect our performance and stock price appreciation during the ensuing three-year performance period. The payouts to Messrs. Whiting and Nemec relate to performance units granted in 2005, 2006, and 2007 and reflect our performance and stock price appreciation during the ensuing three-year, two-year and one-year performance periods, respectively.
 
Peabody Relative Performance for Performance Period Ending December 31, 2007 and
Resulting Performance Unit Award Payouts to Named Current Executive Officers
 
The following table compares our TSR for the three-year period ended December 31, 2007 to the performance of a peer group of four publicly-traded mining companies and to the performance of the S&P MidCap 400 Index Based on our relative performance, the named executive officers who currently serve as executive officers earned the following awards under the program:
 
                                                                                 
                      Peabody
                                     
          Peabody
          Percentile
                                     
          Percentile
          Ranking
                                     
          Ranking
          Among
          Percent of
                         
          Among Peer
    Peabody
    Index
    Peabody
    Award
                         
          Companies -
    Ranking
    Companies -
    Ranking
    Earned for
    Total
    Target
    Actual
    Actual
 
          Total
    Among
    Total
    Among
    EBITDA
    Payout
    Award
    Award
    Award
 
    Performance
    Shareholder
    Peer
    Shareholder
    Index
    ROIC
    as a % of
    Units
    Value
    Shares
 
Name
  Period     Return     Companies     Return(1)     Companies(1)     Targets     Target     (#)(2)     ($)(3)     (#)(4)  
 
Current Officers
                                                                               
Gregory H. Boyce
    2005 - 2007       93.5 %     2       96.2 %     16 of 392       96.3 %     148 %     49,394       4,339,932       78,593  
Richard A. Navarre
    2005 - 2007       93.5 %     2       96.2 %     16 of 392       96.3 %     148 %     27,614       2,426,264       43,938  
Eric Ford
    2005 - 2007       93.5 %     2       96.2 %     16 of 392       96.3 %     148 %                  
Sharon D. Fiehler
    2005 - 2007       93.5 %     2       96.2 %     16 of 392       96.3 %     148 %     9,332       819,943       14,849  
Roger B. Walcott, Jr. 
    2005 - 2007       93.5 %     2       96.2 %     16 of 392       96.3 %     148 %     11,965       1,051,287       19,038  


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(1) The index is designed to track the performance of companies included in the S&P MidCap 400.
 
(2) Number of shares has been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006, and to reflect the spin-off of Patriot on October 31, 2007.
 
(3) The value of the awards was calculated based on the average closing price per share of our Common Stock for the four-week period ended December 31, 2007 ($59.31).
 
(4) The actual shares awarded were calculated based on the closing price per share of our Common Stock on the settlement date, February 4, 2008 ($55.22).
 
Peabody Relative Performance for Performance Period Ending December 31, 2007 and
Resulting Performance Unit Award Payouts to Named Former Executive Officers
 
The following table compares our TSR for the three-year period ended December 31, 2007 to the performance of a peer group of four publicly-traded mining companies and to the performance of the S&P MidCap 400 Index; for the two-year period ended December 31, 2007 to the performance of a peer group of eight publicly-traded mining companies and to the performance of the S&P MidCap 400 Index; and for the one-year period ended December 31, 2007 to the performance of a peer group of eight publicly-traded mining companies and to the performance of the S&P 500 Index. Based on our relative performance, the named executive officers who no longer serve as executive officers earned the following awards under the program:
                                                                                 
          Peabody
          Peabody
                                     
          Percentile
          Percentile
                                     
          Ranking
          Ranking
          Percent of
                         
          Among Peer
          Among Index
    Peabody
    Award
                         
          Companies -
    Peabody
    Companies -
    Ranking
    Earned for
    Total
    Target
    Actual
    Actual
 
          Total
    Ranking
    Total
    Among
    EBITDA
    Payout
    Award
    Award
    Award
 
    Performance
    Shareholder
    Among Peer
    Shareholder
    Index
    ROIC
    as a % of
    Units
    Value
    Shares
 
Name
  Period     Return     Companies     Return     Companies     Targets     Target     (#)(1)     ($)(2)     (#)(1)(3)  
 
Former Officers
                                                                               
Richard M. Whiting
    2005-2007       93.5 %     2       96.2 %(4)     16 of 392(4 )     96.3 %     148 %     14,065       1,235,801       22,380  
      2006-2008       83.9 %     3       77.8 %(4)     86 of 383(4 )     0.0 %     100 %     34,598       2,051,935       37,159  
      2007-2009       71.9 %     3       93.6 %(5)     33 of 496(5 )     159.1 %     170 %     20,408       2,055,492       37,224  
Jiri Nemec
    2005-2007       93.5 %     2       96.2 %(4)     16 of 392(4 )     96.3 %     148 %     8,234       723,468       13,102  
      2006-2008       83.9 %     3       77.8 %(4)     86 of 383(4 )     0.0 %     100 %     15,303       907,589       16,436  
      2007-2009       71.9 %     3       93.6 %(5)     33 of 496(5 )     159.1 %     170 %     10,262       1,033,588       18,718  
 
(1) Number of shares has been adjusted to reflect our 2-for-1 stock splits in March 2005 and February 2006, and to reflect the spin-off of Patriot on October 31, 2007.
 
(2) The value of the awards was calculated based on the average closing price per share of our Common Stock for the four-week period ended December 31, 2007 ($59.31).
 
(3) The actual shares awarded were calculated based on the closing price per share of our Common Stock on the settlement date, February 4, 2008 ($55.22).
 
(4) The index is designed to track the performance of companies included in the S&P MidCap 400.
 
(5) The index is designed to track the performance of companies included in the S&P 500.


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PENSION BENEFITS IN 2007
 
Our 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.
 
We announced in February 1999 that the pension plan would be phased out beginning January 1, 2001. Certain transition benefits were introduced based on the age and service of the employee at December 31, 2000: (1) employees age 50 or older continue to accrue service at 100%; (2) employees between the ages of 45 and 49 or under age 45 with 20 years or more of service continue to accrue service at the rate of 50% for each year of service worked after December 31, 2000; and (3) employees under age 45 with less than 20 years of service have had their pension benefits frozen. In all cases, final average earnings for retirement purposes are capped at December 31, 2000 levels.
 
Listed below is the estimated present value of the current accumulated pension benefit as of December 31, 2007 for the named executive officers who currently serve as executive officers. The estimated present value was determined assuming the officer retires at age 62, the normal retirement age under the plan, using a discount rate of 6.75% and the RP 2000 White Collar Mortality with Mortality Improvements Projected to 2007 with Scale AA Table. Other material assumptions used in making the calculations are discussed in note 15 to our consolidated financial statements included in our 2007 Annual Report. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that will be paid to the officers, which will be known only at the time they become eligible for payment.
 
                             
              Present Value of
       
        Number of Years
    Accumulated
    Payments in
 
        Credited Service
    Benefit
    2007
 
Name
 
Plan Name
  (#)(1)     ($)     ($)  
 
Current Officers
                           
Gregory H. Boyce(2)
  Salaried Employees                  
    Retirement Plan                        
Richard A. Navarre(3)
  Salaried Employees     8.8       167,247        
    Retirement Plan                        
Eric Ford(2)
  Salaried Employees                  
    Retirement Plan                        
Sharon D. Fiehler(3)
  Salaried Employees     20.8       394,284        
    Retirement Plan                        
Roger B. Walcott, Jr.(3)
  Salaried Employees     3.6       143,306        
    Retirement Plan                        
 
(1) Due to the phase-out of our pension plan as described above, years of credited service may be less than years of actual service. Actual years of service for the officers eligible to participate in the pension plan are as follows: Mr. Navarre: 14.76; Ms. Fiehler: 26.79; and Mr. Walcott: 9.59.


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(2) Mr. Boyce and Mr. Ford are not eligible to receive benefits under our pension plan because their employment with us began after the phase-out of the 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.
 
Listed below is the estimated present value of the current accumulated pension benefit as of December 31, 2007 for the named executive officers who no longer serve as executive officers. The estimated present value was determined assuming the officer retires at age 62, the normal retirement age under the plan, using a discount rate of 6.75% and the RP 2000 White Collar Mortality with Mortality Improvements Projected to 2007 with Scale AA Table. Other material assumptions used in making the calculations are discussed in note 15 to our consolidated financial statements included in our 2007 Annual Report. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that will be paid to the officers, which will be known only at the time they become eligible for payment.
 
                             
            Present Value of
   
        Number of Years
  Accumulated
  Payments in
        Credited Service
  Benefit
  2007
Name
 
Plan Name
  (#)(1)   ($)   ($)
 
Former Officers
                           
Richard M. Whiting(2)
  Salaried Employees     27.4       1,475,893        
    Retirement Plan                        
Jiri Nemec(3)
  Salaried Employees     14.7       204,260        
    Retirement Plan                        
 
(1) Due to the phase-out of our pension plan as described above, years of credited service may be less than years of actual service. Actual years of service are as follows: Mr. Whiting: 31.4; and Mr. Nemec 21.5.
 
(2) 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.
 
(3) Under the terms of the phase-out Mr. Nemec’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.


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NONQUALIFIED DEFERRED COMPENSATION IN 2007
 
The following table sets forth detail about the nonqualified deferred compensation accounts for 2007 of the named executive officers who currently serve as executive officers.
 
                                             
                                Aggregate
 
        Executive
    Company
    Aggregate
    Aggregate
    Balance as of
 
        Contributions in
    Contributions in
    Earnings in
    Withdrawals/
    December 31,
 
        2007
    2007
    2007
    Distributions
    2007
 
Name
 
Plan Name
  ($)     ($)(1)     ($)     ($)     ($)  
 
    Excess Defined Contribution                                        
Gregory H. Boyce
  Retirement Plan     53,101       45,301       17,557             478,740  
                                             
    Excess Defined Contribution                                        
    Retirement Plan — Performance           36,500                      
    Contribution                                        
                                             
    Employment                                        
    Agreement(2)                             800,000  
                                             
Richard A. Navarre
  Excess Defined Contribution
Retirement Plan
    30,100       25,800       24,272             404,958  
                                             
    Excess Defined Contribution                                        
    Retirement Plan — Performance           20,250                      
    Contribution                                        
                                             
    Excess Defined Contribution                                        
Eric Ford
  Retirement Plan     19,562       19,000       144             38,705  
                                             
    Excess Defined Contribution                                        
    Retirement Plan — Performance                                
    Contribution                                        
                                             
    Employment                                        
    Agreement(2)           800,000                   800,000  
                                             
Sharon D. Fiehler
  Excess Defined Contribution
Retirement Plan
    20,466       12,315       8,873             213,312  
                                             
    Excess Defined Contribution                                        
    Retirement Plan — Performance           9,800                      
    Contribution                                        
                                             
Roger B. Walcott, Jr. 
  Excess Defined Contribution
Retirement Plan
    15,100       15,000       35,842             446,811  
                                             
    Excess Defined Contribution                                        
    Retirement Plan — Performance           12,000                      
    Contribution                                        
 
(1) The amount reported for the Performance Contribution to the Excess Defined Contribution Retirement Plan is also included in the “Annual 401(k) Matching and Performance Contributions” column of the All Other Compensation table on page 39 of this Proxy Statement.
 
(2) The amounts reported for Messrs. Boyce and Ford are discussed under the caption “Employment Agreements” in the Compensation Discussion and Analysis on pages 32 and 33 of this Proxy Statement. The amount reported for Mr. Ford is also included in the All Other Compensation table on page 39 of this Proxy Statement.


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The following table sets forth detail about the nonqualified deferred compensation accounts for 2007 of the named executive officers who no longer serve as executive officers.
 
                                             
                        Aggregate
        Executive
  Company
  Aggregate
  Aggregate
  Balance as of
        Contributions in
  Contributions in
  Earnings in
  Withdrawals /
  December 31,
        2007
  2007
  2007
  Distributions
  2007
Name
 
Plan Name
  ($)   ($)(1)   ($)   ($)   ($)
 
    Excess Defined Contribution                                        
Richard M. Whiting
  Retirement Plan     17,510       14,933       44,314             602,542  
    Excess Defined Contribution                                        
    Retirement Plan — Performance           16,575                      
    Contribution                                        
    Excess Defined Contribution                                        
Jiri Nemec
  Retirement Plan     13,353       5,007       20,719             253,349  
    Excess Defined Contribution                                        
    Retirement Plan — Performance           6,000                      
    Contribution                                        
    Deferred Compensation Plan(2)                 (9,144 )     820,971        
 
(1) The amount reported for the Performance Contribution to the Excess Defined Contribution Retirement Plan is also included in the “Annual 401(k) Matching and Performance Contributions” column of the All Other Compensation table on page 40 of this Proxy Statement.
 
(2) Our Deferred Compensation Plan was amended effective January 1, 2005 such that no new participants and no additional deferrals were permitted following that date. Mr. Nemec received payout for his Deferred Compensation Plan balance in March of 2007 pursuant to the terms of his previous deferral elections.
 
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
 
The table below reflects the amount of compensation that would have been payable to the named executive officers who currently serve as executive officers in the event of termination of such executives’ employment, including certain benefits upon a change in control of the Company, pursuant to the terms of their employment agreements and long-term incentive agreements. The amounts shown assume a termination effective as of December 31, 2007, including a gross-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. The actual amounts that would be payable can be determined only at the time of the executives’ termination. The amount of compensation payable to each executive upon retirement is not included in the table, as none of the executives were eligible for retirement (age 55, with 10 years of service) as of December 31, 2007. Mr. Whiting and Mr. Nemec were no longer employed by us as of December 31, 2007 and are therefore excluded from this table.


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Potential Payments Upon Termination and Change in Control
 
                                                 
                      Accelerated
             
                Other
    Vesting/Earnout
             
    Cash
    Cont’d Benefits
    Cash
    of Unvested Equity
    Excise Tax
       
    Severance     & Perquisites     Payment     Compensation(1)     Gross-Up(2)     Total  
 
Gregory H. Boyce
                                               
“For Cause” Termination
  $ 0     $ 0     $ 0     $ 0       n/a     $ 0  
Voluntary Termination(3)
    0       0       0       1,356,080       n/a       1,356,080  
Death or Disability(4)
    0       0       2,300,671       24,854,885       n/a       27,155,556  
Involuntary Termination “Without Cause” or “For Good Reason”(5)
    6,410,393       363,538       2,300,671       18,530,082       n/a       27,604,684  
Involuntary Termination Related to a Change in Control(6)
    6,410,393       363,538       2,300,671       24,262,794       6,111,816       39,449,212  
Richard A. Navarre
                                               
“For Cause” Termination or Voluntary Termination(3)
  $ 0     $ 0     $ 76,923     $ 0       n/a     $ 76,923  
Death or Disability(4)
    0       0       925,707       8,971,430       n/a       9,897,137  
Involuntary Termination “Without Cause” or “For Good Reason”(5)
    2,883,353       174,232       925,707       2,463,240       n/a       6,446,532  
Involuntary Termination Related to a Change in Control(6)
    2,883,353       174,232       925,707       12,479,521       0       16,462,813  
Eric Ford
                                               
“For Cause” Termination or Voluntary Termination(3)
  $ 0     $ 0     $ 0     $ 0       n/a     $ 0  
Death or Disability(4)
    0       0       1,384,105       6,292,406       n/a       7,676,510  
Involuntary Termination “Without Cause” or “For Good Reason”(5)
    2,340,000       171,186       1,384,105       3,082,706       n/a       6,977,996  
Involuntary Termination Related to a Change in Control(6)
    2,340,000       171,186       1,384,105       4,581,347       0       8,476,637  
Sharon D. Fiehler
                                               
“For Cause” Termination or Voluntary Termination(3)
  $ 0     $ 0     $ 62,769     $ 0       n/a     $ 62,769  
Death or Disability(4)
    0       0       518,470       5,263,916       n/a       5,782,386  
Involuntary Termination “Without Cause” or “For Good Reason”(5)
    1,825,560       115,887       518,470       1,531,756       n/a       3,991,673  
Involuntary Termination Related to a Change in Control(6)
    1,825,560       115,887       518,470       9,126,257       0       11,586,174  
Roger B. Walcott, Jr.
                                               
“For Cause” Termination or Voluntary Termination(3)
  $ 0     $ 0     $ 33,538     $ 0       n/a     $ 33,538  
Death or Disability(4)
    0       0       393,538       3,595,598       n/a       3,989,136  
Involuntary Termination “Without Cause” or “For Good Reason”(5)
    1,896,107       136,377       393,538       867,138       n/a       3,293,159  
Involuntary Termination Related to a Change in Control(6)
    1,896,107       136,377       393,538       5,187,858       n/a       7,613,880  
 
(1) Reflects the value the named executive officer could realize as a result of the accelerated vesting of any unvested stock option awards, based on the stock price on the last business day of 2007, $61.64. The value realized is not and would not be our liability.


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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.
 
(3) For all named executive officers except Mr. Boyce the compensation payable would include accrued but unused vacation. Mr. Boyce’s compensation payable in the event of voluntary termination would include a) accrued but unused vacation ($0 as of December 31, 2007), and b) the prorated value of outstanding restricted shares as determined by his October 1, 2003 restricted stock grant agreement. “For Cause” means (1) any material and uncorrected breach by the executive of the terms of his or her employment agreement, including but not limited to engaging in disclosure of secret or confidential information, (2) any willful fraud or dishonesty of the executive involving our the property or business, (3) a deliberate or willful refusal or failure to comply with any major corporate policies which are communicated in writing or (4) the executive’s conviction of, or plea of no contest to any felony if such conviction shall result in imprisonment.
 
(4) For all named executive officers except Mr. Boyce, compensation payable upon Death or Disability would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of outstanding performance units based on actual performance to the date of termination, and d) the value an executive could realize 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 upon Death or Disability would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of outstanding performance units based on actual performance to the date of termination, d) the value Mr. Boyce would realize 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 86,602 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 for which vesting would accelerate. For 2007, the prorated annual incentive was equal to 100% of the sum of the non-equity incentive plan and bonus compensation, as shown in the Summary Compensation Table on page 36 of this Proxy Statement, and payout of performance units reflects the values for the 2006 and 2007 performance units as shown in the Outstanding Equity Awards at 2007 Fiscal Year End table beginning on page 43 of this Proxy Statement. Amounts do not include life insurance payments in the case of death.
 
(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 based on performance to the date of termination. 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 based on performance to the date of termination, f) a lump sum of $800,000, g) deferred compensation equal to the fair market value of 86,602 shares of Common Stock on the date of termination, and h) the fair market value on the date of termination of 160,000 restricted shares of Common Stock, which would accelerate vest.
 
(6) A portion of the value payable upon a change in control to the named executive officers, other than Messrs. Boyce and Ford, is attributable to stock options granted to them prior to our May 2001 initial public offering (“IPO”). These options were granted 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


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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. A portion of the LBO grants vested in November 2007 and will expire in May 2008, and a portion vest in July 2010, and expire January 2011. Additional detail about the LBO grants is set forth in the Outstanding Equity Awards at 2007 Fiscal Year End table beginning on page 43 of this Proxy Statement.
 
Termination Arrangements with Former Executive Officers
 
On October 31, 2007, we completed the spin-off of Patriot, which was accomplished through a special dividend of all outstanding shares of Patriot to our shareholders. On that same date, Richard M. Whiting elected to resign from his position as our Executive Vice President and Chief Marketing Officer so that he could become Patriot’s President and Chief Executive Officer, and Jiri Nemec elected to resign from his position as our Group Vice President — Eastern Operations so that he could become Patriot’s Senior Vice President and Chief Operating Officer.
 
On May 4, 2007, we entered into a Letter Agreement with each of Messrs. Whiting and Nemec regarding the transition of their employment with us to their employment with Patriot. The Letter Agreements provided for, among other things:
 
  •  Mr. Whiting and Mr. Nemec’s employment with us would continue until the date of the spin-off (October 31, 2007), which is referred to as the effective date;
 
  •  Mr. Whiting and Mr. Nemec’s employment with Patriot would commence on the effective date pursuant to new employment agreements with Patriot; and
 
  •  The handling of Mr. Whiting and Mr. Nemec’s current equity awards and benefit plans in connection with the spin-off, as described below.
 
Under their respective Letter Agreements, each of Messrs. Whiting and Nemec agreed that the transfer of employment from us to Patriot in connection with the spin-off would not constitute a termination of his employment with us, give rise to a good reason for termination or a constructive discharge or other circumstance that would entitle either executive to any severance or other payments described in Section 6 of their respective employment agreements with us. Under the Letter Agreements, each of Messrs. Whiting and Nemec is entitled to a credit for prior service with us and our affiliates for purposes of vesting, eligibility for benefits and certain other purposes under Patriot’s benefit plans and arrangements, provided that the comparable Company plan recognizes such service and such crediting does not result in duplicate benefits.
 
In addition, any equity awards issued by us that were held by Messrs. Whiting and Nemec at the time of spin-off were handled as follows:
 
  •  stock options that were granted before 2006 and were scheduled to vest by January 3, 2008 were adjusted as of the effective date to take the spin-off into account; continue to vest as long as each remains employed with Patriot; to the extent they are vested, will expire and no longer be exercisable on July 3, 2008 and otherwise will remain subject to the terms and conditions of the applicable award agreement as in effect immediately prior to the effective date;
 
  •  stock options that were granted before 2006 and were scheduled to vest after January 3, 2008 were adjusted as of the effective date to take the spin-off into account and were converted to a dollar value, based on the intrinsic value of the option at the opening price of our Common Stock on November 1, 2007, and were distributed to him in the form of registered shares of our Common Stock;


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  •  stock options that were granted in 2006 and 2007, whether vested or unvested, that were unexercised on the effective date were converted into a number of equivalent restricted shares based on the targeted compensation value used at the time of grant, and were distributed to each of Messrs. Whiting and Nemec as restricted registered shares of our Common Stock on October 12, 2007 and October 30, 2007. The restrictions on these shares lapsed upon the effective date, and the original stock options granted in 2006 and 2007 were canceled;
 
  •  performance units that were scheduled to vest by January 3, 2008 and that remained outstanding immediately prior to the effective date were adjusted to take the spin-off into account, continue to vest as long as each remains employed with Patriot and otherwise will remain subject to the terms and conditions of the applicable award agreement as in effect immediately prior to the effective date; and
 
  •  performance units that were scheduled to vest after January 3, 2008 and that remained outstanding immediately prior to the effective date were adjusted to take the spin-off into account, and became payable in the form of registered shares of our Common Stock as soon as practicable on or after December 31, 2007, but no later than March 15, 2008, at their full value, without proration, based on our actual performance results as of December 31, 2007.
 
For 2007, each of Messrs. Whiting and Nemec was entitled to receive his annual bonus for the full year, the portion of which paid by us was based on the period of 2007 that each of Messrs. Whiting and Nemec were employed by us, with 60% of such annual bonus being nondiscretionary based on our performance in accordance with the terms of our annual incentive plan and the remaining 40% of such annual bonus being discretionary based on Patriot’s performance in accordance with standards established by Patriot.
 
Each of Messrs. Whiting and Nemec is entitled to his benefits under our qualified and non-qualified defined benefit plans, to be paid in accordance with the terms of such plans, treating the spin-off as a termination of his employment. Each of their account balances under our qualified defined contribution plan was transferred into a mirror plan of Patriot. In addition, each of their benefits under our non-qualified defined contribution plan remains our obligation and will be paid in accordance with the terms and conditions of such plan following termination of employment with Patriot.
 
Each of Messrs. Whiting and Nemec was entitled to a continuity of medical benefits, with us being responsible for covered medical costs incurred up to October 31, 2007, to the extent that each participated in our plans, and Patriot being responsible for covered medical costs incurred thereafter, to the extent that he participates in Patriot’s plans.
 
Each of the Letter Agreements also included nonsolicitation and no-shop provisions which terminated on October 31, 2007.
 
2007 ANNUAL COMPENSATION OF DIRECTORS
 
Annual compensation of non-employee directors for 2007 was comprised of cash compensation, consisting of annual retainer and committee fees, and equity compensation, consisting of stock option awards and restricted stock awards. Each of these components is described in more detail below.
 
Directors who are also our employees receive no additional compensation for serving as a director.
 
Annual Board/Committee Fees
 
In 2007, 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.


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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.
 
We pay 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 2007, awarded one-half in restricted shares (based on the fair market value of our Common Stock on the date of grant) and one-half in stock options (based on the Black-Scholes methodology). 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 our Long-Term Equity Incentive Plan. The stock option awards were granted at an exercise price equal to the fair market value of our 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 our Long-Term Equity Incentive Plan), all restrictions related to the restricted stock awards will lapse and any previously unvested options will vest. The restricted stock awards and options also provide for vesting in the event of death or disability or termination of service without cause with Board consent.