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 [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARCH COAL, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
[ ] Fee paid previously with preliminary materials.
[ ] 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:
[LOGO] ACI
ARCH COAL, INC.
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(314) 994-2700
March 21, 2002
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Arch Coal, Inc. which will be held at our headquarters at CityPlace One, One
CityPlace Drive, St. Louis, Missouri, in the lower level auditorium, on
Thursday, April 25, 2002, at 10:00 a.m., local time. The formal Notice of the
Annual Meeting, the Proxy Statement and a proxy card accompany this letter.
We hope that you will be present at the meeting. Whether or not you plan
to attend, please cast your vote by telephone or on the Internet, or complete,
sign and return the enclosed proxy card in the postage-prepaid envelope, also
enclosed. The prompt execution of your proxy will be greatly appreciated.
Arch Coal's Annual Report for 2001 is also enclosed.
Sincerely yours,
/s/ James R. Boyd
James R. Boyd
Chairman of the Board
/s/ Steven F. Leer
Steven F. Leer
President and Chief Executive Officer
[LOGO] ACI
ARCH COAL, INC.
-------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-------------------------------
DATE: Thursday, April 25, 2002
TIME: 10:00 a.m., local time
PLACE: CityPlace One
Lower Level Auditorium
One CityPlace Drive
St. Louis, Missouri 63141
Matters to be Voted on:
o Election of three directors
o Approval of an amendment to increase the number of shares under the Arch
Coal, Inc. 1997 Stock Incentive Plan
o Section 162(m) approval for the 1997 Stock Incentive Plan
o Ratification of the appointment of Ernst & Young LLP as principal
independent auditors for the year 2002
o Any other matters if properly raised
Only stockholders of record at the close of business on March 11, 2002 may
vote at the meeting. Your vote is important. Whether you plan to attend the
annual meeting or not, please cast your vote by phone or on the Internet, or
complete, date and sign your proxy card and return it in the envelope provided.
If you attend the meeting and prefer to vote in person, you may do so even if
you have previously voted by proxy. Directions to the annual meeting are
printed on the back cover of this proxy statement.
/s/ Robert G. Jones
Robert G. Jones
Vice President -- Law, General Counsel and
Secretary
March 21, 2002
Table Of Contents
Page
No.
-----
Information About the Annual Meeting .................................................. 1
Election of Directors (Proxy Item No. 1) .............................................. 5
Structure of the Board. .............................................................. 5
Nominees For a Three-Year Term That Will Expire in 2005 .............................. 5
Directors Whose Terms Will Expire in 2003 ............................................ 5
Directors Whose Terms Will Expire in 2004 ............................................ 6
Board Meetings and Committees ........................................................ 6
Audit Committee Report ............................................................... 7
Compensation of Directors ............................................................ 8
Ownership of Arch Coal Common Stock ................................................... 8
Ownership by Directors and Executive Officers ........................................ 8
Ownership by Others .................................................................. 10
Compensation of Executive Officers and Other Information .............................. 11
Report of the Personnel and Compensation Committee ................................... 11
Summary Compensation Table ........................................................... 15
Stock Option Grants .................................................................. 15
Stock Option Exercises ............................................................... 16
Pension Plans ........................................................................ 16
Employment Agreements ................................................................ 17
Beneficial Ownership Reporting Compliance ............................................ 17
Stock Price Performance Graph ........................................................ 18
Approval of Amendment to Increase Shares under the Arch Coal, Inc. 1997 Stock Incentive
Plan (Proxy Item No. 2) .............................................................. 19
Section 162(m) Approval for the 1997 Stock Incentive Plan (Proxy Item No. 3) .......... 23
Ratification of Independent Auditors (Proxy Item No. 4) ............................... 23
Additional Information ................................................................ 25
Information About Stockholder Proposals .............................................. 25
Multiple Copies of Annual Report to Stockholders ..................................... 25
-----------------
PROXY STATEMENT
-----------------
FOR THE
ARCH COAL, INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING
Why Am I Receiving These Proxy Materials?
Arch Coal's Board of Directors is soliciting proxies to be voted at the
2002 Annual Meeting of Stockholders. This proxy statement includes information
about the issues to be voted upon at the meeting.
On March 25, 2002, we began mailing these proxy materials to all
stockholders of record at the close of business on March 11, 2002. On March 1,
2002, there were 52,354,501 shares of Arch Coal common stock outstanding. As
required by Delaware law, a list of stockholders entitled to vote at the annual
meeting will be available at the annual meeting and for 10 days prior to the
meeting, during normal business hours, at Arch Coal's offices, One CityPlace
Drive, Suite 300, St. Louis, Missouri 63141.
What Am I Voting On?
We are aware of four items to be voted on by stockholders at the annual
meeting:
o Election of three directors: James R. Boyd, Douglas H. Hunt and
A. Michael Perry;
o Approval of an amendment to increase the number of shares under the Arch
Coal, Inc. 1997 Stock Incentive Plan;
o Section 162(m) approval of the 1997 Stock Incentive Plan; and
o Ratification of Ernst & Young LLP as the Company's independent auditors
for 2002.
How Many Votes Do I Have?
You have one vote for each share of Arch Coal common stock that you owned
at the close of business on March 11, 2002, the record date. These shares
include:
o Shares held directly in your name as the "stockholder of record";
o Shares held for you as the beneficial owner through a broker, bank, or
other nominee in "street name"; and
o Shares credited to your account in the Arch Coal, Inc. Employee Thrift
Plan or the Mingo Logan Savings Plan.
If I Am A Stockholder Of Record, How Can I Vote My Shares?
You can vote by proxy or in person.
How Do I Vote By Proxy?
If you are a stockholder of record, you may vote your proxy by telephone,
Internet, or mail. Our telephone and Internet voting procedures are designed to
authenticate stockholders by using individual control numbers. Voting by
telephone or Internet will help Arch Coal reduce costs.
o Voting Your Proxy by Telephone
In the U.S. and Canada, you can vote your shares by telephone by calling
the toll-free telephone number on your proxy card. Telephone voting is
available 24 hours a day, 7 days a week, up through the day before the meeting.
Easy-to-follow voice prompts allow you to vote your shares and confirm that
your instructions have been properly recorded. If you vote by telephone, you do
not need to return your proxy card.
o Voting Your Proxy By Internet
You can also choose to vote via the Internet. The web site for Internet
voting is on your proxy card. Internet voting is also available 24 hours a day,
7 days a week, up through the day before the meeting. If you vote via the
Internet, you do not need to return your proxy card.
o Voting Your Proxy By Mail
If you choose to vote by mail, simply mark your proxy card, date and sign
it, and return it in the postage-paid envelope provided.
If you vote by proxy using any of these three methods, the persons named
on the card (your "proxies") will vote your shares in the manner you indicate.
You may specify whether your shares should be voted for all, some, or none of
the nominees for director and whether your shares should be voted for or
against the other proposals. If you vote by telephone or Internet and choose to
vote with the recommendation of Arch Coal's Board of Directors, or if you vote
by mail, sign your proxy card, and do not indicate specific choices, your
shares will be voted:
o "FOR" the election of all three nominees for director;
o "FOR" approval of amendment to increase shares under the Arch Coal, Inc.
1997 Stock Incentive Plan;
o "FOR" Section 162(m) approval of the 1997 Stock Incentive Plan; and
o "FOR" ratification of the appointment of the principal independent
auditors for 2002.
If any other matter is presented, your proxies will vote in accordance
with their best judgment. At the time this proxy statement went to press, we
knew of no matters that needed to be acted on at the annual meeting other than
those discussed in this proxy statement.
If you wish to give a proxy to someone other than the persons named on the
enclosed proxy card, you may strike out the names appearing on the card and
write in the name of any other person, sign the proxy, and deliver it to the
person whose name has been substituted.
May I Revoke My Proxy?
If you give a proxy, you may revoke it in any one of three ways:
o Submit a valid, later-dated proxy;
o Notify Arch Coal's Secretary in writing before the annual meeting that
you have revoked your proxy; or
o Vote in person at the annual meeting.
How Do I Vote In Person?
If you are a stockholder of record, you may cast your vote in person at
the annual meeting.
If I Hold Shares In Street Name, How Can I Vote My Shares?
You can submit voting instructions to your broker or nominee. In most
instances, you will be able to do this over the Internet, by telephone, or by
mail. Please refer to the voting instruction card included in these materials
by your broker or nominee.
How Do I Vote My Shares Held In Arch Coal's Automatic Dividend Reinvestment And
Stock Purchase Plan?
If you are a participant in the Automatic Dividend Reinvestment and Stock
Purchase Plan for stockholders of Arch Coal, your proxy will also serve as an
instruction to vote the whole shares you hold under this plan in the manner
indicated on the proxy. If your proxy is not received, your shares held in the
plan will not be voted.
2
How Do I Vote My Arch Coal Common Stock Held In The Employee Thrift Plan Or The
Mingo Logan Savings Plan?
If you are both a registered stockholder of Arch Coal and a participant in
its Employee Thrift Plan or the Mingo Logan Savings Plan, you will receive a
single proxy card that covers shares of Arch Coal common stock credited to your
plan account as well as shares of record registered in exactly the same name.
Accordingly, your proxy card also serves as a voting instruction for the
trustee of the plan. If your plan account is not carried in exactly the same
name as your shares of record, you will receive separate proxy cards for
individual and plan holdings. If you own shares through one of these plans and
you do not return your proxy by Friday, April 19, 2002, the trustee will vote
your shares in the same proportion as the shares that are voted by the other
participants in the plan. The trustee will also vote unallocated shares of Arch
Coal common stock held in the plan in direct proportion to the voting of
allocated shares in the plan for which voting instructions have been received
unless doing so would be inconsistent with the trustee's duties.
Is My Vote Confidential?
Yes. Voting tabulations are confidential.
What Vote Is Required To Approve Each Proposal?
Election of three directors The nominees who receive the most votes for the available positions will
(Proxy Item No. 1) be elected. If you do not vote for a particular nominee, or you indicate
"withhold authority to vote" for a particular nominee on your proxy
card, your vote will not count either "for" or "against" the nominee.
Approval of an amendment to The affirmative vote of a majority of the shares present in person or by
increase the number of shares proxy at the annual meeting is required for approval of an amendment
under the Arch Coal, Inc. to increase shares under the 1997 Stock Incentive Plan. If you "abstain"
1997 Stock Incentive Plan from voting, it will have the same effect as if you voted "against" this
(Proxy Item No. 2) proposal.
Section 162(m) approval of The affirmative vote of a majority of the shares present in person or by
the 1997 Stock Incentive Plan proxy at the annual meeting is required for Section 162(m) approval of
(Proxy Item No. 3) the Arch Coal, Inc.'s 1997 Stock Incentive Plan. If you "abstain" from
voting, it will have the same effect as if you voted "against" this
proposal.
Ratification of appointment of The affirmative vote of a majority of the shares present in person or by
independent auditors proxy at the annual meeting is required to ratify the appointment of the
(Proxy Item No. 4) principal independent auditors for 2002. If you "abstain" from voting, it
will have the same effect as if you voted "against" this proposal.
In order to have a valid stockholder vote, a stockholder quorum must exist
at the annual meeting. A quorum will exist when stockholders holding a majority
of the outstanding shares of Arch Coal stock are present at the meeting, either
in person or by proxy.
If a broker indicates on its proxy that it does not have authority to vote
certain shares held in "street name" on particular proposals, the shares not
voted ("broker non-votes") will have no effect on these proposals. Broker
non-votes occur when brokers do not have discretionary voting authority on
certain proposals under the rules of the New York Stock Exchange and the
beneficial owner has not instructed the broker how to vote on these proposals.
Who Is Paying The Costs Of Soliciting These Proxies?
Arch Coal is paying the cost of preparing, printing, and mailing these
proxy materials. We will reimburse banks, brokerage firms, and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. A few officers and employees of Arch Coal may
also participate in the solicitation, without additional compensation.
3
Where Can I Find The Voting Results Of The Meeting?
We intend to announce preliminary voting results at the meeting. We will
publish the final results in our Quarterly Report on Form 10-Q for the first
quarter of 2002. You can obtain a copy of the Form 10-Q by logging on to our
website at www.archcoal.com, by calling the Securities and Exchange Commission
at (800) SEC-0330 for the location of the nearest public reference room, or
through the EDGAR system at www.sec.gov.
Can I Receive Future Stockholder Communications Over the Internet?
Yes. You may consent to access future stockholder communications (e.g.,
annual reports, proxy statements, and interim communications) from us or on our
behalf over the Internet instead of receiving those documents in the mail.
Providing such communications over the Internet will reduce our printing and
postage costs and the number of paper documents you would otherwise receive. If
you give your consent, in the future, when, and if, material is available over
the Internet, you will receive notification which will contain the Internet
location of the material. There is no cost to you for this service other than
charges you may incur from your Internet provider, telephone and/or cable
company. Once you give your consent, it will remain in effect until you inform
us otherwise. To give your consent, if your shares are registered in your name,
follow the prompts when you vote by telephone or over the Internet. If you vote
by mail, check the appropriate box located at the bottom of the proxy card. If
your shares are registered in the name of a nominee, follow the directions
provided by such nominee if this option is available.
4
ELECTION OF DIRECTORS
(PROXY ITEM NO. 1)
Mr. Robert Hintz, an Arch Coal Board Member, passed away on December 26,
2001 after an extended illness. Mr. Hintz had been a director since 1997 and,
since 1989, had been Chairman of the Board of R.L. Hintz & Associates, a
management consulting firm. He was also a director of Ashland Coal, Inc., from
1993 to its merger with Arch Coal in 1997. Mr. Hintz served on the Audit
Committee (as Audit Committee Chairman from 1997-2001) and the Directors
Committee. Mr. Hintz provided strong leadership and tremendous insight into
many of the complexities and challenges that Arch Coal faced over the years and
he will be greatly missed.
Structure Of The Board
Our Restated Certificate of Incorporation and by-laws provide for a Board
of Directors that is divided into three classes as equal in size as possible.
The classes have three-year terms, and the term of one class expires each year
in rotation at that year's annual meeting. The size of the Board can be changed
by a two-thirds vote of the entire Board and is currently set at nine members.
Vacancies on the Board may be filled by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy, or a
new directorship created by an increase in the size of the Board, serves for
the remainder of the full term of the class of directors in which the vacancy
or newly created directorship occurred. As a matter of policy, the Board will
submit the nomination of a director elected to fill a vacancy to the vote of
the Company's stockholders at the next annual meeting.
Arch Coal's Board of Directors has nominated three individuals for
election as directors for a three-year term that will expire in 2005: James R.
Boyd, Douglas H. Hunt, and A. Michael Perry. All nominees are currently serving
as directors of the Company.
The Board is not aware that any nominee named in this proxy statement will
be unwilling or unable to serve as a director. If, however, a nominee is
unavailable for election, your proxy authorizes us to vote for a replacement
nominee if the Board names one. As an alternative, the Board may reduce the
number of directors to be elected at the meeting.
Nominees For a Three-Year Term That Will Expire in 2005:
JAMES R. BOYD, 55, Chairman of the Board, has been a director of Arch Coal
since 1990. He served as Senior Vice President and Group Operating Officer of
Ashland Inc., a multi-industry company with operations in chemicals, motor oil,
car care products and highway construction, from 1989 until his retirement in
January 2002.
DOUGLAS H. HUNT, 49, has been a director of Arch Coal since 1995 and,
since May 1995, has served as director of Acquisitions of Petro-Hunt, LLC, a
private oil and gas exploration and production company.
A. MICHAEL PERRY, 65, has been a director of Arch Coal since 1998. He
served as Chairman of Bank One, West Virginia, N.A. from 1993 and as its Chief
Executive Officer from 1983 to his retirement in June 2001. Mr. Perry is also a
director of Champion Industries, Inc.
Your Board of Directors recommends a vote "For" these nominees
Directors Whose Terms Will Expire in 2003:
FRANK M. BURKE, 62, has been a director of Arch Coal since September 2000.
He has served as Chairman, Chief Executive Officer and Managing General Partner
of Burke, Mayborn Company, Ltd., a private investment and consulting company,
since 1984. Mr. Burke is also a director of Kaneb Services LLC, Xanser
Corporation, Kaneb Pipe Line Company (general partner of Kaneb Pipe Line
Partners, LP) and AVIDYN, Inc. (formerly Medical Control, Inc.) and a member of
the National Petroleum Council.
5
IGNACIO DOMINGUEZ URQUIJO, 57, has been a director of Arch Coal since 1998
and, since June 1998, has been Chief Executive Officer and Administrator of
Carboex, S.A., a fuel trading firm belonging to Endesa Group, the leading
Spanish utility company, and Senior Vice President of Endesa Group. Mr.
Dominguez was the General Manager of SE.PI, a Spanish government holding group,
from July 1996 to June 1998 and served as Director and General Manager for
Processing Industries of TENEO, a Spanish government holding group, and its
predecessor, I.N.I., from 1992 to July 1996.
JAMES L. PARKER, 64, has been a director of Arch Coal since 1995. He was
President of Hunt Petroleum Corporation, a private oil and gas exploration and
production company, from 1990 until his retirement in February 2001 and since
1994 has been President and a director of Hunt Coal Corporation, a subsidiary
of Hunt Petroleum.
Directors Whose Terms Will Expire In 2004:
STEVEN F. LEER, 49, has been President and Chief Executive Officer and a
director of Arch Coal since 1992. He is also a director of the Norfolk Southern
Corporation and Chairman of the Center for Energy and Economic Development and
the National Coal Council.
ROBERT G. POTTER, 63, has been a director of Arch Coal since April 2001.
Mr. Potter was Chairman and Chief Executive Officer of Solutia Inc., a producer
and marketer of a variety of high performance chemical-based materials, from
1997 to his retirement in 1999. Mr. Potter served for 32 years with Monsanto
Company (now Pharmacia Corporation) prior to its spin-off of Solutia in 1997,
most recently as the Chief Executive of its chemical businesses. Mr. Potter is
a Director of Stepan Company and of some private companies of which he is also
an investor.
THEODORE D. SANDS, 56, has been a director of Arch Coal since 1999 and,
since February 1999, has served as President of HAAS Capital, LLC, a private
consulting and investment company. Mr. Sands is also a director of Mosiac
Group, Inc., Protein Sciences Corporation and Terra Nitrogen Corporation.
Mr. Sands served as Managing Director, Investment Banking for the Global
Metals/Mining Group of Merrill Lynch & Co. from 1982 until February 1999.
Board Meetings and Committees
The Board of Directors met eight times in 2001. In addition to meetings of
the full Board, directors attended meetings of Board committees. Each director
attended at least 75% of the aggregate Board meetings and meetings of
committees of which he is a member. A description of each committee and its
current membership follows.
Committee on Directors
Members: Mr. Parker (Chairman), Mr. Boyd and Mr. Perry
The Committee on Directors met two times during 2001. Its functions
include the recruitment and recommendation to the Board of Directors of
nominees for directors, the oversight of the annual evaluation of directors and
the review and recommendation of the directors' compensation program.
Finance Committee
Members: Mr. Sands (Chairman), Mr. Dominguez, Mr. Leer, Mr. Parker and
Mr. Perry
The Finance Committee met eight times in 2001. This Committee reviews and
approves fiscal policies relating to Arch Coal's financial structure, including
its debt, cash and risk management. It also reviews and recommends to the Board
appropriate action with respect to significant financial matters, major capital
expenditures and acquisitions, and funding policies of Arch Coal's employee
benefit plans.
6
Personnel and Compensation ("P&C") Committee
Members: Mr. Hunt (Chairman), Mr. Boyd, Mr. Burke, Mr. Potter and
Mr. Sands
The P&C Committee met three times during 2001. The duties of this
Committee include the approval of the compensation of executive officers of
Arch Coal and its subsidiaries above specified dollar levels and the selection
of participants and awards under Arch Coal's incentive plans. The P&C Committee
also establishes policies regarding compensation, position evaluations,
transfers and terminations. In addition, it provides oversight of Arch Coal's
retirement, savings and other benefit plans.
Audit Committee
Members: Mr. Burke (Chairman), Mr. Dominguez, Mr. Hunt and Mr. Potter
The Audit Committee met five times during 2001. Its primary responsibility
is to oversee the Company's financial reporting process on behalf of the Board
including evaluating, recommending and, if necessary, replacing Arch Coal's
independent auditors, reviewing year-end and interim financial statements and
the adequacy and effectiveness of internal accounting and financial controls.
The Audit Committee is composed solely of independent directors and operates
under a written charter adopted by the entire Board.
Audit Committee Report
Management is responsible for Arch Coal's internal controls and the
financial reporting process while the independent auditors are responsible for
expressing an opinion on the conformity of the Company's audited financial
statements with accounting principles generally accepted in the United States.
In this context, the Audit Committee has met with and held discussions with
management and with Arch Coal's internal and independent auditors.
The Audit Committee reviewed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee also met with the auditors, with and without management present, to
discuss the results of their examinations and their evaluations of Arch Coal's
internal controls. The Committee also reviewed with the independent auditors
their judgment as to the quality, and not just the acceptability, of the
Company's accounting principles and financial controls and such other matters
as are required to be discussed with the Audit Committee under auditing
standards generally accepted in the United States. In addition, the Audit
Committee discussed with the independent auditors the auditors' independence
from management and Arch Coal including the matters in the written disclosures
required by the Independence Standards Board and whether the provision of
non-audit services to the Company by the firm is compatible with maintaining
auditor independence. Pursuant to a policy adopted by the Board of Directors,
Arch Coal's independent auditors may only perform services on behalf of the
Company which are related to the audit or consist of tax compliance and tax
consulting services. Finally, the Committee received management representation
that the Company's consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
During 2001, Ernst & Young charged fees for services rendered to the
Company as follows:
Service Fee
-------------------------------------------------------------- -----------
Audit ................................................. $527,200
Information systems design and implementation ......... -0-
All other services (including tax services) ........... 372,346
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2001 for filing with the Securities and
Exchange Commission. The Audit Committee and the Board of Directors have also
recommended, subject to stockholder ratification, the selection of Ernst &
Young as Arch Coal's independent auditors for 2002.
7
A copy of the Audit Committee Charter is attached to this proxy statement
as Exhibit A.
AUDIT COMMITTEE
Frank M. Burke, Chairman
Ignacio Dominguez
Douglas H. Hunt
Robert G. Potter
Compensation of Directors
Directors who are Arch Coal employees do not receive payment for their
services as directors. The following table displays all components of
compensation for non-employee directors:
Amount of
Form of Compensation Compensation
------------------------------------------------------------------------ -------------
Annual Board Retainer* .......................................... $ 55,000
Additional Annual Retainer for Chairman of the Board ............ $100,000
Additional Annual Retainer for Audit Committee Chairman ......... $ 10,000
Additional Annual Retainer for other Committee Chairmen ......... $ 4,000
Board Attendance Fee (each meeting) ............................. $ 1,250
Committee Attendance Fee (each meeting) ......................... $ 1,250
New Director Fee** .............................................. $ 30,000
----------
* At least $30,000 of the annual retainer is subject to mandatory deferral
under Arch Coal's Outside Director's Deferred Compensation Plan into a
hypothetical investment in Arch Coal stock and is payable in cash upon
the director's termination of service.
** New directors receive an additional $30,000 during their first full year
of service on the Board. This additional amount is subject to mandatory
deferral under the Deferred Compensation Plan.
Mr. Dominguez serves as a director of the Company pursuant to an agreement
among the Company, Ashland and his employer, Carboex, S.A. At Mr. Dominguez's
request, all directors fees earned by him are paid directly to Carboex.
Arch Coal also pays for each director's costs of attending Board meetings
and, under the Arch Coal, Inc. Director Matching Gift Program, the Company
donates $2.00 for each dollar contributed by directors to accredited
institutions of higher education up to a maximum of $6,000 each year.
Non-employee directors do not have a retirement plan nor do they participate in
the Company's benefit plans.
Ownership of Arch Coal Common Stock
Ownership By Directors and Executive Officers
The following table shows Arch Coal common stock owned beneficially by the
Company's directors and executive officers as of March 1, 2002. In general,
"beneficial ownership" includes those shares a person has the power to vote, or
the power to transfer, and stock options that are exercisable currently or
become exercisable within 60 days. Except as otherwise noted, each person has
sole voting and investment power over his shares.
8
Shares
Underlying
Options Percentage
Exercisable of
Shares of Within 60 Outstanding
Beneficial Owner Common Stock Days Total Shares
------------------------------------------------- -------------- ------------- ------------ ------------
James R. Boyd, Chairman of the Board
and Director (1) (2) ........................... 36,528 -0- 36,528 *
Frank M. Burke, Director (2) .................... 58,120 -0- 58,120 *
Ignacio Dominguez Urquijo, Director (3) ......... 1,640,000 -0- 1,640,000 3.1%
Douglas H. Hunt, Director (2) (4) ............... 21,146 -0- 21,146 *
Steven F. Leer, President, CEO and
Director (1) (5) ............................... 24,579 133,897 158,476 *
James L. Parker, Director (2) (6) ............... 2,205,316 -0- 2,205,316 4.2%
A. Michael Perry, Director (2) .................. 11,036 -0- 11,036 *
Robert G. Potter, Director (2) .................. 3,530 -0- 3,530
Theodore D. Sands, Director (2) ................. 36,497 -0- 36,497 *
Kenneth G. Woodring, Executive Vice
President--Operations (5) ...................... 13,420 94,598 108,018 *
John W. Eaves, Senior Vice President--
Marketing (5) .................................. 1,409 51,616 53,025 *
Robert E. Messey, Senior Vice President
and Chief Financial Officer .................... -0- 13,034 13,034 *
Robert W. Shanks, Vice President--
Operations (5) ................................. 1,334 51,182 52,516 *
All directors and executive officers of
Arch Coal as a group (17 persons) (7) .......... 4,066,325 508,258 4,574,583 8.7%
----------
* Less than one percent of the outstanding shares.
(1) Includes shares held jointly with such person's spouse in the following
amounts: Mr. Boyd--1,045 and Mr. Leer--1,010.
(2) Includes shares held under the Director Deferred Compensation Plan in the
following amounts: Mr. Boyd--2,600; Mr. Burke--8,120; Mr. Hunt--10,146;
Mr. Parker--4,757; Mr. Perry--4,757; Mr. Potter--3,530; and
Mr. Sands--11,497.
(3) Consists of shares held by Carboex as of March 1, 2002. Mr. Dominguez is
an executive officer of Carboex, and to the extent he may be deemed to be
a control person of Carboex, he may be deemed to be a beneficial owner of
shares owned by Carboex. Mr. Dominguez disclaims beneficial ownership of
such shares.
(4) Mr. Hunt also has a beneficial interest in a trust known as the Lyda
Hunt-Herbert Trusts--Douglas Herbert Hunt, which owns 209,477 shares.
Mr. Hunt does not control the Trust.
(5) Includes shares held under Arch Coal's Employee Thrift Plan in the
following amounts: Mr. Leer-- 23,569; Mr. Eaves--1,409;
Mr. Shanks--1,084; and Mr. Woodring--2,313.
(6) Includes 2,199,659 shares owned by Hunt Coal Corporation. Mr. Parker is a
director and executive officer of Hunt Coal Corporation, and he may be
deemed to share voting and dispositive power with respect to the shares
of common stock owned by Hunt Coal. Mr. Parker disclaims beneficial
ownership of such shares.
(7) Includes 37,074 shares held by executive officers under Arch Coal's
Employee Thrift Plan and 3,483 shares held by executive officers under
Arch Coal's Deferred Compensation Plan.
9
Ownership By Others
The following table shows all persons or entities that Arch Coal knows
were "beneficial owners" of more than five percent of Arch Coal common stock on
March 1, 2002 and is based on filings made by such owners with the Securities
and Exchange Commission.
Shares of Percent of
Beneficial Owner Common Stock Class*
---------------------------------------------- -------------- -----------
Mellon Financial Corporation**
One Mellon Center
Pittsburgh, Pennsylvania 15258 ......... 7,043,981 13.45%
----------
* Percentage of the Company's outstanding shares of common stock on March
1, 2002.
** This entity has disclaimed beneficial ownership of the shares attributed
to it pursuant to the U.S. securities laws.
10
COMPENSATION OF EXECUTIVE OFFICERS
Report of the Personnel and Compensation Committee
The P&C Committee
The P&C Committee is comprised entirely of non-employee directors and has
the responsibility for reviewing and approving changes to Arch Coal's executive
compensation policies and programs. The Committee also approves all
compensation payments to the Chief Executive Officer and other executive
officers, except for grants of stock-based compensation, which are approved by
the Board of Directors as a whole.
The members of the Committee are free from interlocking or other
relationships that could create a conflict of interest.
Compensation Principles
Arch Coal's compensation program for executives consists of three key
elements:
o A base salary;
o A performance-based annual bonus; and
o A long-term incentive program consisting of periodic grants of both
stock options and performance shares or units.
The fundamental objective of Arch Coal's executive compensation program is
to attract, retain and motivate key executives to enhance long-term
profitability and stockholder value. Arch Coal's compensation program meets
this objective by:
o Providing for a level of base compensation that is competitive with
other similarly sized publicly-traded companies, with particular
emphasis on those in mining and extractive industries;
o Providing total compensation opportunities which are comparable to the
opportunities provided by a group of peer companies of similar size and
diversity to Arch Coal in analogous or related businesses (the
"compensation peer group"), as well as general industry indices. The
compensation peer group companies utilized for analyzing compensation
comparisons are currently the same companies as utilized in the
performance graph shown on page 18;
o Linking the compensation of Arch Coal executives to the operating and
financial performance of the Company by making significant elements of
each executive's compensation sensitive to the Company's overall
performance;
o Emphasizing variable pay and long-term incentives at more senior levels
of the company; and
o Rewarding executives for both the short and long-term enhancement of
stockholder value.
Annual Base Salary
Base compensation is determined in accordance with the executive
compensation principles established by the Committee. The Committee considers
overall company performance, individual performance, competitive compensation
and target pay levels when determining compensation.
Annual Incentive Bonus
Incentive Compensation Plan
The Company's incentive compensation plan provides opportunities for key
executives of Arch Coal to earn annual incentive compensation based upon the
successful achievement of individual and Company financial and operating
performance objectives. Approximately 220 employees were eligible to
participate in the plan in 2001.
11
A participant's maximum annual incentive opportunity is based upon his or
her level of participation in the bonus plan. The incentive opportunity
increases based upon an executive's potential to affect operations or
profitability. The maximum incentive opportunity in 2001 for the Chief
Executive Officer was 125% of base salary while the maximum incentive
opportunity for the other executives, including the other executive officers
named in this proxy statement, was 80% to 100% of base salary.
Awards for corporate employees, including the CEO, are based on overall
corporate and individual performance. Awards to operating subsidiary employees
are based on a combination of corporate, subsidiary and individual performance.
Company performance is determined by comparing the Company's actual performance
against objective performance measures, which are established by the Board at
the beginning of each calendar year. For 2001, these performance measures,
which are weighed equally, are:
o earnings per share (EPS);
o adjusted earnings before interest, taxes, depreciation, and amortization
(adjusted EBITDA);
o cost reduction; and
o debt reduction.
Company performance is weighted more at senior levels in the organization;
however, all participants in the program have an individual performance factor
which is based upon an evaluation of the extent to which an individual has
successfully discharged his duties during the year. All award payments are
subject to the review and approval of the Committee.
2001 Incentive Bonuses
The table below shows key measures of Arch Coal's financial performance
for 2001 compared to 2000:
(in millions except per share data) 2001 2000
------------------------------------------- ----------- -------------
Net income (loss) .................. $ 7.2 $ (12.7)
Income from operations ............. 62.5 74.0
Debt ............................... 773.9 1,150.8
Adjusted EBITDA (1) ................ 282.3 315.2
Earnings (loss) per share .......... $ 0.15 $ (0.33)
----------
(1) Income from operations before the effect of changes in accounting
principles and extraordinary items, asset impairment and restructuring
charges, net interest expense, income taxes, depreciation, depletion and
amortization for Arch Coal, its subsidiaries and its ownership percentage
in its equity investments.
The Company's performance in 2001 resulted in a partial bonus pay-out
based on the corporate performance measures referenced above. The Chief
Executive Officer and other executives earned a bonus for corporate performance
under the plan equal to 29.6% of their maximum incentive opportunity. In
addition, the Chief Executive Officer and other executives were eligible to
receive an award of up to 10% of their maximum incentive opportunity based on
individual performance.
Long-Term Incentives
The Committee has determined that a long-term incentive opportunity for
each of Arch Coal's executive officers should be delivered through awards of
stock options and phantom performance shares. The Committee intends that these
long-term incentive opportunities be competitive and based on actual Company
performance.
Stock Options
Arch Coal's employee stock option program is a long-term plan designed to
link executive compensation with increased stockholder value. A target value
has been established for each executive
12
officer and other key employees of Arch Coal. This target helps to establish
the range of stock options to be granted periodically to key employees. At the
discretion of the Board of Directors, awards can be made that deviate from
these general guidelines. In 2001, the Company granted stock options to
purchase 584,400 shares to nine executive officers, including 177,400 to the
Chief Executive Officer.
All stock options are granted with an exercise price equal to the closing
price of common stock on the date of grant. Vesting of stock options generally
occurs over a period of three to four years, as determined by the Committee;
however, options will generally immediately vest upon a change in control of
Arch Coal or upon an employee's death, retirement or disability.
Deductibility of Compensation
Under Section 162(m) of the Internal Revenue Code, Arch Coal is subject to
the loss of the deduction for compensation in excess of $1 million paid to one
or more of the executive officers named in this proxy statement. This deduction
can be preserved if Arch Coal complies with certain conditions in the design
and administration of its compensation programs.
The P&C Committee will make reasonable efforts, consistent with sound
executive compensation principles and the needs of Arch Coal, to ensure that
all future amounts paid to its executive officers will be fully deductible by
the Company.
Other Plans
Arch Coal maintains a Deferred Compensation Plan pursuant to which certain
executives can defer base and annual incentive compensation. Arch Coal also
maintains an Employee Thrift Plan, a Cash Balance Pension Plan, insurance and
other benefit plans for its employees. Executives participate in these plans on
the same terms as other eligible employees, subject to any legal limits on the
amounts that may be contributed by or paid to executives under the plans.
Compensation of the Chief Executive Officer
Mr. Leer's base compensation was increased to $575,000 in 2001 based on
the base compensation principles outlined above.
For 2001, Mr. Leer's maximum incentive opportunity under Arch Coal's
annual incentive compensation plan was 125% of his base salary, or $718,750,
which could be earned 90% based on company performance and 10% on individual
performance. As described above, the corporation's performance in 2001 resulted
in a bonus pay out based on corporate performance to the Chief Executive
Officer of 29.6% of his maximum corporate performance incentive opportunity. In
addition, based on the Committee's evaluation of the CEO's performance, the
Committee awarded the CEO an additional pay out of 86% of his maximum
individual performance incentive opportunity.
General
This report is submitted by the P&C Committee with respect to all matters
set forth in the report, except for those matters related to stock options and
by the entire Board of Directors, but only with respect to stock options. Mr.
Leer excused himself from Board meetings and abstained from voting with respect
to all matters relating to stock-based compensation.
13
In summary, the Committee and the Board believe that the total
compensation opportunities provided to Arch Coal's executive officers create a
strong linkage and alignment with the long-term best interest of Arch Coal and
its stockholders.
Personnel and Arch Coal, Inc.
Compensation Committee Board of Directors
--------------------------------- --------------------------
Douglas H. Hunt, Chairman James R. Boyd, Chairman
James R. Boyd Frank M. Burke
Frank M. Burke Ignacio Dominguez Urquijo
Robert G. Potter Douglas H. Hunt
Theodore D. Sands Steven F. Leer
James L. Parker
A. Michael Perry
Robert G. Potter
Theodore D. Sands
14
SUMMARY COMPENSATION TABLE
The following table is a summary of compensation information for each of
the last three years for the Chief Executive Officer and each of the other four
most highly compensated executive officers, based upon annual salary for the
year 2001:
Long-Term
Annual Compensation Compensation
-------------------------------------------------------- -------------
Securities
Underlying All Other
Salary Bonus Other Annual Option Compensation (2)
Name and Principal Position Year ($) ($) Compensation ($) (1) Awards(#) ($)
-------------------------------- ------------- --------- --------- ---------------------- ------------- -----------------
Steven F. Leer ................. 2001 575,000 274,500 3,909 177,400 29,008
President & Chief Executive 2000 500,000 457,344 3,639 -0- 26,277
Officer 1999 400,000 178,000 1,297 70,000 24,000
Kenneth G. Woodring ............ 2001 365,000 134,300 3,909 78,500 16,666
Executive Vice President-- 2000 350,000 251,213 4,139 -0- 9,669
Operations 1999 300,000 106,800 10,567 30,000 18,000
John W. Eaves .................. 2001 295,000 116,800 3,806 62,200 16,461
Senior Vice President-- 2000 275,000 201,231 171 -0- 13,393
Marketing 1999 190,000 70,300 -- 26,500 11,400
Robert J. Messey ............... 2001 275,000 105,100 7,615 31,400 10,200
Senior Vice President and Chief 2000(3) 20,096 17,022 -- 30,000 -0-
Financial Officer 1999(3) -- -- -- -- --
Robert W. Shanks ............... 2001 260,000 117,700 3,909 55,000 10,195
Vice President--Operations 2000 250,000 153,750 4,326 -0- 10,200
1999 225,000 80,100 9,334 26,500 13,500
----------
(1) Represents tax reimbursement payments.
(2) This amount represents: contributions made to the applicable Employee
Thrift Plan for 1999, 2000 and 2001, and credits made under Arch Coal's
Deferred Compensation Plan for 2000 and 2001. All contributions to the
Employee Thrift Plan were made during the listed year. All credits
pursuant to the Deferred Compensation Plan were made in the following
year.
(3) Mr. Messey's employment with Arch Coal began in December 2000.
Stock Option Grants
The following table shows information with respect to the options granted
to the named executive officers during 2001:
Potential Realizable
Value
At Assumed Annual
Number of % of Total Rates of Stock Price
Shares Options Appreciation
Underlying Granted to Exercise For Option Term
Options Employees Price Expiration --------------------
Name and Principal Position Granted in 2001 Per Share Date 5% ($) 10% ($)
----------------------------- ------------ ------------ ----------- ----------- --------- ----------
Steven F. Leer .............. 31,700 1.6% 21.95 2011 437,594 1,108,950
145,700 7.2% 22.90 2006 923,530 2,041,196
Kenneth G. Woodring ......... 9,300 0.5% 21.95 2011 128,379 325,338
69,200 3.4% 22.90 2006 438,629 969,463
John W. Eaves ............... 9,100 0.5% 21.95 2011 125,619 318,342
53,100 2.6% 22.90 2006 336,578 743,909
Robert J. Messey ............ 9,100 0.5% 21.95 2011 125,619 318,342
22,300 1.1% 22.90 2006 141,350 312,414
Robert W. Shanks ............ 7,800 0.4% 21.95 2011 107,673 272,865
47,200 2.3% 22.90 2006 299,181 661,252
15
Stock Option Exercises and Year--End Values
The table below sets forth option exercises during 2001 by the named
executive officers and the following information with respect to the status of
their options as of December 31, 2001:
o The total number of exercisable and unexercisable stock options held at
December 31, 2001; and
o The aggregate dollar value of in-the-money unexercised options at
December 31, 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)*
Shares Acquired --------------------------- --------------------------
Name on Exercise (#) Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- ----------------- ------------------- --------------------------- --------------------------
Steven F. Leer .......... -0- -0- 99,999/212,401 420,425/444,224
Kenneth G. Woodring ..... 10,000 8,500 86,499/93,501 186,925/187,175
John W. Eaves ........... -0- -0- 39,749/75,451 159,154/166,003
Robert J. Messey ........ -0- -0- 10,000/51,400 123,875/254,575
Robert W. Shanks ........ -0- -0- 39,749/68,251 159,154/165,028
----------
* Calculated based on the closing stock price of the Company's common stock
on the last trading day of 2001 of $22.70.
Pension Plans
On January 1, 1998, Arch Coal combined and replaced both Arch Coal's and
Ashland Coal's pension plans with a new Cash Balance Pension Plan. The benefits
of a participating individual under one of the former plans were vested as of
that date and his or her cash balance account was credited with the present
value of his or her earned pension benefit, payable at age 65. Salaried
employees hired after January 1, 1998 become vested after three years of
employment. On an annual basis (or a shorter period if a participant's
employment is terminated), each participant's account is credited with the
following:
o contribution credits equal to a percent of total pay;
o transition credits for a period equal to a participant's credited
service under the prior pension plan as of December 31, 1997 (to a
maximum of 15 years from December 31, 1997); and
o interest credits based on one-year treasury yields plus 1%.
The percentage amounts of the contribution and transition credits, which
are shown in the following chart, are based on the participant's age at year
end:
Contribution Credits Transition Credits
Age at Year End as % of Total Pay* as % of Total Pay**
--------------------- ---------------------- --------------------
Under 30 ............ 3.0% 1.0%
30 to 34 ............ 4.0% 1.0%
35 to 39 ............ 4.0% 2.0%
40 to 44 ............ 5.0% 3.0%
45 to 49 ............ 6.0% 4.0%
50 to 54 ............ 7.0% 4.0%
55 and over ......... 8.0% 4.0%
----------
* Plus an additional 3% of pay above the Social Security wage base.
** Total pay means regular salary plus annual incentive bonus payments.
16
As of December 31, 2001, the estimated annual annuities (based on one-year
treasury yields) payable at age 65 to executive officers named in this proxy
statement are as follows:
Estimated Annual
Name Payments*
--------------------------------------- -----------------
Steven F. Leer ...................... $345,125
Kenneth G. Woodring ................. $201,511
John W. Eaves ....................... $178,600
Robert J. Messey .................... $ 45,547
Robert W. Shanks .................... $184,200
----------
* Assumes the executive officer works until age 65, annual base
compensation remains unchanged from 2001, and that future incentive
compensation is equal to the average of that awarded over the last four
years. The interest rate used for determining the annuity was 5.32%. The
interest credits for 2002 and future years was 4.25%.
Employment Agreements
Each executive officer has an employment agreement with Arch Coal that
requires the Company to continue the executive's salary and benefits for one
year if he is terminated by the Company without cause. If, however, he resigns
for good reason or is terminated without cause within two years after a change
in control of the Company, then, depending upon his position, he would receive
a payment equal to up to three-times the highest annual compensation (including
incentive compensation) he received during the prior three years. In addition,
certain benefits would continue for up to three years depending upon the
benefit and position held by the executive.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws, Arch Coal's directors, executive officers and
any persons beneficially holding more than ten percent of the Company's common
stock are required to report their ownership of the common stock and any
changes in that ownership to the SEC and the New York Stock Exchange. Specific
due dates for these reports have been established and Arch Coal is required to
report in this proxy statement any failure to file by these dates. All of these
filing requirements were satisfied in 2001. In making these statements, Arch
Coal has relied on copies of the reports that its executive officers and
directors have filed with the SEC.
17
Stock Price Performance Graph
The graph below compares the cumulative total return to stockholders
(stock price appreciation plus reinvested dividends) on the Company's common
stock with the cumulative total return on two indices: a peer group and the
Standard & Poor's (S&P) 400 Index. The graph assumes that:
o You invested $100 in the Company's common stock and in each indicia at
the closing price on December 31, 1996;
o all dividends were reinvested; and
o you continued to hold your investment through December 31, 2001.
[GRAPHIC OMITTED]
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
---------- ---------- ---------- ---------- ---------- ---------
Arch Coal* ............. 100 100 64 44 56 92
S&P 400 Index .......... 100 132 158 181 212 211
Peer Group** ........... 100 70 48 67 55 64
----------
* Performance shown in the graph and chart for Arch Coal prior to the
Company's merger with Ashland Coal, Inc. on July 1, 1997 is attributable
to Ashland Coal.
** Peer companies include: Consol Energy, Inc., Freeport-McMoran Copper &
Gold Inc., Massey Energy Company, Newmont Mining Corporation, Peabody
Energy Corporation, The Pittston Company and Southern Peru Copper
Corporation.
18
APPROVAL OF AMENDMENT TO INCREASE SHARES
UNDER THE 1997 STOCK INCENTIVE PLAN
(PROXY ITEM NO. 2)
On February 28, 2002, the Company's Board of Directors approved, subject
to shareholder approval, an amendment to the Arch Coal, Inc. 1997 Stock
Incentive Plan. The amendment increases the number of shares of common stock
available under the Plan to 9,000,000 shares, an increase of 3,000,000 shares.
A copy of the Plan, as it will be in effect after the amendment, is attached to
this Proxy as Exhibit B.
What is the purpose of the Stock Incentive Plan? The Stock Incentive Plan
is designed to:
o reward superior performance with a variable component of pay;
o assist the Company in attracting and retaining able management
employees;
o encourage ownership of the Company's common stock by its management;
o balance the short-term emphasis of the annual incentive plan with a
longer-term perspective; and
o align the goals of the recipients with those of shareholders by linking
executive compensation with increased shareholder value.
Why does the Company need more shares? Currently, 6,000,000 shares of
common stock have been reserved for issuance pursuant to the Stock Incentive
Plan. As of March 1, 2002, the Company had granted 6,439,623 options, including
the contingent options described below. The additional shares are needed to
grant the contingent options and to ensure that the Company has sufficient
shares available for grants in the future.
How many shares have been granted under the plan? The table below shows
all option grants made under the Stock Incentive Plan to the listed individuals
and the number of such options which were granted by the board on February 28,
2002 to occur if this proposal gains shareholder approval:
Number of Units Granted
----------------------------------------------------------
Name Since Inception 2002 Contingent Grant (1) Total
-------------------------------------- ----------------- --------------------------- ------------
Steven F. Leer ....................... 421,839 109,439 531,278
Kenneth G. Woodring .................. 242,653 42,653 285,306
John W. Eaves ........................ 151,119 35,919 187,038
Robert J. Messey ..................... 95,635 34,235 129,870
Robert W. Shanks ..................... 138,868 30,868 169,736
Executive Officer Group .............. 476,334 106,634 582,968
Non-Executive Employee Group ......... 3,741,006 812,421 4,553,427
--------- ------- ---------
Total ............................. 5,267,454 1,172,169 6,439,623
========= ========= =========
----------
(1) 2002 Contingent options vest ratably over a four year period at an
exercise price equal to the closing price of the Company's stock on the
annual meeting date.
Who is eligible to participate in the Plan? All officers and salaried
management-level employees of the Company, currently numbering approximately
200 individuals, are eligible to participate in the plan.
What are the terms of the Plan? The Stock Incentive Plan has the
flexibility to grant stock options, stock appreciation rights, restricted
stock, restricted stock units, performance stock, performance units, merit
awards, phantom stock awards and rights to acquire stock through purchase under
a stock purchase program. To date, the Company has granted stock options and
performance units under the Plan. The following summary of certain terms of the
Stock Incentive Plan is qualified in its entirety by reference to the entire
text of the plan which is attached as Exhibit B.
Administration. The Stock Incentive Plan is administered by the Personnel
and Compensation Committee of the Company's Board of Directors. Subject to the
express provisions of the Stock Incentive
19
Plan, the committee has the authority, in its discretion, to interpret the
Stock Incentive Plan, establish rules and regulations for its operation, select
employees of the Company and its subsidiaries to receive awards and determine
the form and amount and other terms and conditions of such awards.
Eligibility. Salaried officers and other employees of the Company and its
subsidiaries are eligible to be selected to participate in the Stock Incentive
Plan. The selection of participants from among the employees is within the
discretion of the committee.
Amendment Of the Plan. The Company's Board of Directors may suspend,
terminate, modify or amend the Stock Incentive Plan at any time, with or
without prior notice; provided, however, that it may not, without stockholder
approval, adopt any amendment which would (a) increase the aggregate number of
shares of common stock which may be issued under the Stock Incentive Plan, (b)
materially increase the benefits accruing to participants in the Stock
Incentive Plan or (c) materially modify the eligibility requirements for
participation in the Stock Incentive Plan, except for adjustments to reflect
stock splits or combinations, reorganizations or other capital adjustments. No
suspension, termination, modification or amendment may terminate an outstanding
award or materially adversely affect a participant's rights under an
outstanding award without the participant's consent.
Stock Options. The committee may grant awards in the form of incentive and
non-qualified stock options to purchase shares of common stock. The committee
determines the number of shares subject to each option, the manner and time of
the option's exercise and the exercise price per share of stock subject to the
option. Generally, the term of an option may not exceed ten years and its
exercise price of a stock option may not be less than the fair market value of
the common stock on the date of the grant.
Stock Appreciation Rights. The Stock Incentive Plan authorizes the
committee to grant Stock Appreciation Rights (SARs) either in tandem with a
stock option or independent of a stock option. A SAR is a right to receive a
payment equal to the appreciation in market value of a stated number of shares
of Company common stock from the SAR's exercise price to the market value on
the date of its exercise. The committee will determine the number of shares
subject to the award, the manner and time of a SAR exercise and the exercise
price, which shall not be less than the fair market value of a share of common
stock.
Stock Awards. The Stock Incentive Plan authorizes the committee to grant
awards in the form of shares of restricted stock or restricted stock units.
Such awards will be subject to such terms, conditions, restrictions or
limitations, if any, as the committee deems appropriate including, but not by
way of limitation, restrictions on transferability and continued employment.
The Stock Incentive Plan gives the committee the discretion to accelerate the
delivery of a stock award.
Performance Shares. The Stock Incentive Plan allows for the grant of
"Performance Shares." Under the Stock Incentive Plan, Performance Shares are
restricted shares of common stock which are awarded subject to attainment of
certain performance goals over a period to be determined by the committee.
Performance Units. Awards may also be granted in the form of "Performance
Units" which are units valued by reference to shares of common stock.
Performance Units are similar to Performance Shares in that they are awarded
contingent upon the attainment of certain performance goals over a fixed
period. The length of the period, the performance objectives to be achieved
during the period, and the measure of whether and to what degree the objectives
have been achieved, are determined by the committee.
Change In Control. In the event of a "change in control" of the Company
(as defined in the Stock Incentive Plan), (i) all of the terms, conditions,
restrictions and limitations in effect on any of an employee's outstanding
awards would immediately lapse and (ii) all of the employee's outstanding
awards would automatically become 100% vested.
Termination of Employment. The Stock Incentive Plan provides that if
employment is terminated for cause or by the employee without the written
consent and approval of the Company, all unvested Awards shall be forfeited and
exercisable options shall be forfeited after 90 days from the date of
termination if not exercised.
20
If employment is terminated by reason of death, disability or retirement,
all options and stock appreciation rights outstanding immediately prior to the
date of termination shall immediately become exercisable and shall be
exercisable until one year and thereafter shall be forfeited if not exercised,
and all restrictions on any Awards outstanding immediately prior to the date of
termination shall immediately lapse.
If employment is terminated for any reason other than cause, or by the
employee with the written consent and approval of the Company, the Restricted
Period shall lapse on a proportion of any Awards outstanding immediately prior
to such termination (except that, to the extent that an Award of restricted
stock, restricted stock units, performance units, performance stock and phantom
stock is subject to a performance period), such proportion of the Award shall
remain subject to the same terms and conditions for vesting as were in effect
prior to the date of termination and shall be determined at the end of the
performance period. The proportion of an Award upon which the restricted period
shall lapse shall be a fraction, the denominator of which is the total number
of months of any restricted period applicable to an Award and the numerator of
which is the number of months of such restricted period which elapsed prior to
the date of termination.
Options and stock appreciation rights which are or become exercisable by
reason of employment being terminated by the Company for reasons other than
cause or by the employee with the consent and approval of the Company, shall be
exercisable until 120 days from the termination date and shall thereafter be
forfeited if not exercised.
Federal Income Tax Consequences. The following is a summary of the federal
income tax consequences of Awards granted under the Stock Incentive Plan, based
on current income tax laws, regulations and rulings.
Incentive Stock Options. Subject to the effect of the Alternative Minimum
Tax, discussed below, an optionee does not recognize income on the grant of an
Incentive Stock Option. If an optionee exercises an Incentive Stock Option in
accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income by
reason of the exercise, and the Company will be allowed no deduction by reason
of the grant or exercise. The optionee's basis in the shares acquired upon
exercise will be the amount paid upon exercise. (See the discussion below for
the tax consequences of the exercise of an option with stock already owned by
the optionee.) Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, the gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of the optionee's gain or loss will be the difference between the amount
realized on the disposition of the shares and the basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise ("Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term or short-term capital gain, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at the time
of Early Disposition. If an optionee disposes of such shares for less than his
basis in the shares, the difference between the amount realized and his basis
will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of disposition.
The excess of the fair market value of the shares at the time the
Incentive Stock Option is exercised over the exercise price for the shares is
an item of adjustment for purposes of the alternative minimum tax ("Stock
Option Preference").
Non-Qualified Stock Options. Non-Qualified Stock Options do not qualify
for the special tax treatment accorded to Incentive Stock Options under the
Code. Although an optionee does not recognize
21
income at the time of the grant of the option, the optionee recognizes ordinary
income upon the exercise of a Non-Qualified Stock Option in an amount equal to
the difference between the fair market value of the stock on the date of
exercise of the option and the amount of cash paid for the stock.
As a result of the optionee's exercise of a Non-Qualified Stock Option,
the Company will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Company's deduction will be
taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise
of a Non-Qualified Stock Option over the exercise price is not a Stock Option
Preference.
Stock Appreciation Rights. Recipients of SARs do not recognize income upon
the grant of such rights. When a Participant elects to receive payment of a
SAR, the Participant recognizes ordinary income in an amount equal to the cash
and fair market value of shares of Company Common Stock received, and the
Company is entitled to a deduction equal to such amount.
Payment in Shares. If the optionee exercises an option and surrenders
stock already owned by the optionee ("Old Shares"), the following rules apply:
o To the extent the number of shares acquired ("New Shares") exceeds the
number of Old Shares exchanged, the optionee will recognize ordinary
income on the receipt of such additional shares (provided the option is
not an Incentive Stock Option) in an amount equal to the fair market
value of such additional shares less any cash paid for them and the
Company will be entitled to a deduction in an amount equal to such
income. The basis of such additional shares will be equal to the fair
market value of such shares (or, in the case of an Incentive Stock
Option, the cash, if any, paid for the additional shares) on the date of
exercise and the holding period for such additional shares will commence
on the date the option is exercised.
o Except as provided below, to the extent the number of New Shares
acquired does not exceed the number of Old Shares exchanged, no gain or
loss will be recognized on such exchange, the basis of the New Shares
received will be equal to the basis of the Old Shares surrendered, and
the holding period of the New Shares received will include the holding
period of the Old Shares surrendered. However, under proposed
regulations promulgated by the U.S. Department of Treasury, if the
optionee exercises an Incentive Stock Option by surrendering Old Shares,
the holding period for the New Shares will begin on the date the New
Shares are transferred to the optionee for purposes of determining
whether there is an Early Disposition of the New Shares and, if the
optionee makes an Early Disposition of the New Shares, the optionee will
be deemed to have disposed of the New Shares with the lowest basis
first. If the optionee exercises an Incentive Stock Option by
surrendering Old Shares which were acquired through the exercise of an
Incentive Stock Option or an option granted under an employee stock
purchase plan, and if the surrender occurs prior to the expiration of
the holding period applicable to the type of option under which the Old
Shares were acquired, the surrender will be deemed to be an Early
Disposition of the Old Shares. The federal income tax consequences of an
Early Disposition are discussed above.
o If the Old Shares surrendered were acquired by the optionee by exercise
of an Incentive Stock Option, or an option granted under an employee
stock purchase plan, then, except as provided in 2 above, the exchange
will not constitute an Early Disposition of the Old Shares.
o Based upon prior rulings of the Internal Revenue Service in analogous
areas, it is believed that if an optionee exercises an Incentive Stock
Option and surrenders Old Shares and disposes of the New Shares received
upon exercise within two years from the date of the grant of the option
or within one year from the date of exercise, the following tax
consequences would result:
o To the extent the number of New Shares received upon exercise do not
exceed the number of Old Shares surrendered, the disposition of the
New Shares will not constitute an Early Disposition (unless the
disposition is a surrender of the New Shares in the exercise of an
Incentive Stock Option).
22
o The disposition of the New Shares will constitute an Early
Disposition to the extent the number of New Shares received upon
exercise and disposed of exceeds the number of Old Shares
surrendered.
Restricted Stock. Grantees of Restricted Stock do not recognize income at
the time of the grant of such stock. However, when shares of Restricted Stock
become free from any restrictions, grantees recognize ordinary income in an
amount equal to the fair market value of the stock on the date all restrictions
are satisfied, less, in the case of Restricted Stock, the amount paid for the
stock. Alternatively, the grantee of Restricted Stock may elect to recognize
income upon the grant of the stock and not at the time the restrictions lapse,
in which case the amount of income recognized will be the fair market value of
the stock on the date of grant. The Company will be entitled to deduct as
compensation the amount includible in the grantee's income in its taxable year
in which the grantee recognizes the income.
Taxation of Preference Items. Section 55 of the Code imposes an
Alternative Minimum Tax equal to the excess, if any, of (i) 26% of the
optionee's "alternative minimum taxable income" up to $175,000 ($87,500 in the
case of married taxpayers filing separately) and 28% of "alternative minimum
taxable" income in excess of $175,000 ($87,500 in the case of married taxpayers
filing separately) over (ii) his or her "regular" federal income tax.
Alternative minimum taxable income is determined by adding the optionee's Stock
Option Preference and any other items of tax preference to the optionee's
adjusted gross income and then subtracting certain allowable deductions and an
exemption amount. The exemption amount is $33,750 for single taxpayers, $45,000
for married taxpayers filing jointly and $22,500 for married taxpayers filing
separately. However, these exemption amounts are phased out beginning at
certain levels of alternative minimum taxable income.
Your Board of Directors recommends that you vote "FOR" the amendment
to increase shares under the Arch Coal, Inc. 1997 Stock Incentive Plan
SECTION 162(m) APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
(PROXY ITEM NO. 3)
The Stock Incentive Plan is also being submitted for approval in order to
qualify it under Section 162(m) of the Internal Revenue Code. Section 162(m) of
the Code precludes a public corporation from deducting compensation in excess
of $1.0 million per year for its Chief Executive Officer and any of its four
other highest paid executive officers. However, if the Company's stockholders
have approved the plan, certain performance-based compensation is exempt from
this deduction limit.
The significant terms of the plan are described on pages 19 to 23 of this
proxy statement. If the plan is approved, it will meet the stockholder approval
requirements of Section 162(m) until 2007 unless the plan terms are materially
amended in which case we would again ask for stockholder approval.
Your Board of Directors recommends that you vote
"FOR" Section 162(m) approval of the 1997 Stock Incentive Plan
RATIFICATION OF INDEPENDENT AUDITORS
(PROXY ITEM NO. 4)
We are asking you to ratify the Board's appointment of Ernst & Young LLP
as principal independent auditors to examine the consolidated financial
statements of the Company and its subsidiaries for the year 2002. The Audit
Committee has recommended the selection of Ernst & Young to the Board. Ernst &
Young has acted as Arch Coal's independent auditors since 1997, is
knowledgeable about the Company's operations and accounting practices and is
well qualified to act as auditor.
Although we are not required to seek your approval of this appointment,
the Board believes it to be sound corporate practice to do so. If you do not
ratify the appointment of independent auditors, the Audit Committee will
investigate the reasons for your rejection and the Board will reconsider the
appointment.
23
Representatives of Ernst & Young do not plan to make a formal statement at
the annual meeting. However, they will attend the meeting and be available to
respond to appropriate questions.
Your Board of Directors recommends that you vote "FOR" the ratification
of the appointment of Ernst & Young LLP as independent auditors for 2002
24
ADDITIONAL INFORMATION
Information About Stockholder Proposals
If you wish to submit proposals for possible inclusion in our 2003 proxy
materials, we must receive them on or before November 25, 2002. Proposals
should be mailed to:
Arch Coal, Inc.
One CityPlace Drive
Suite 300
St. Louis, Missouri 63141
Attention: Robert G. Jones, Vice President--Law, General Counsel and
Secretary
If you wish to nominate directors and/or propose proper business from the
floor for consideration at the 2002 Annual Meeting of Stockholders, our by-laws
provide that:
o You must notify Arch Coal's Secretary in writing;
o Your notice must have been received at Arch Coal's headquarters not
earlier than January 25, 2002 and not later than February 14, 2002; and
o Your notice must contain the specific information required in our
by-laws.
We will send copies of these requirements to any stockholder who writes to
us requesting this information. Please note that these three requirements apply
only to matters that you wish to bring before your fellow stockholders at the
2002 Annual Meeting without submitting them for possible inclusion in our 2002
proxy materials.
Multiple Copies of Annual Report to Stockholders
If more than one copy of Arch Coal's Annual Report is currently being sent
to your address, we will discontinue the mailing of reports on the accounts you
select if you mark the designated box on the appropriate proxy card, or follow
the prompts when you vote if you are a stockholder of record voting by
telephone or Internet.
At least one account must continue to receive the Annual Report either by
mail or through the Internet. Mailing of dividends, dividend reinvestment
account statements, and any special notices will not be affected by your
election to discontinue future duplicate mailings of the Annual Report. To
discontinue or resume the mailing of an Annual Report to an account, you may
call EquiServe at 1-888-987-6588.
If you own common stock through a bank, broker or other nominee and
receive more than one Arch Coal Annual Report, please contact the holder of
record to eliminate duplicate mailings.
ROBERT G. JONES
Vice President--Law, General
Counsel and Secretary
March 21, 2002
25
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
EXHIBIT A
AUDIT COMMITTEE CHARTER
Organization:
This charter governs the operations of the Audit Committee (the "Committee") of
the Board of Directors (the "Board") of Arch Coal, Inc. (the "Company"). The
Committee shall review and reassess the charter at least annually. The Charter,
and any revisions shall be subject to the approval of the Board. The Committee
shall be appointed by the Board and shall be comprised of at least three
directors, each of whom are independent of management and the Company. Members
of the Committee shall be considered independent if they have no relationship
to the Company that may interfere with the exercise of their independence from
management and the Company. All Committee members shall be financially literate
and at least one member of the Committee shall have accounting or related
financial management expertise, as the Board interprets such qualifications in
its business judgment.
The Committee will have at least three scheduled meetings each year, plus
additional meetings as circumstances require. A majority of the members of the
Committee will constitute a quorum for the transaction of business. The
Committee will keep minutes of its meetings, and will regularly report to the
board on its activities, making recommendations as appropriate.
Role of the Committee:
The Committee shall provide assistance to the Board in fulfilling its oversight
responsibilities to the shareholders, potential shareholders, the investment
community, other constituencies and the Securities and Exchange Commission and
the New York Stock Exchange. The Committee will take appropriate actions to set
the overall corporate tone for quality financial reporting, sound internal
controls and compliance with the law. The Committee will maintain free and open
communications between the independent auditors, internal auditors, and
management of the Company. The Committee shall have the authority to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and shall be empowered to
retain independent counsel, accountants or others to assist in any such
investigation.
Responsibilities:
The primary responsibility of the audit committee is to review the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements and the independent auditors are responsible for
auditing the Company's financial statements. As set forth in the Internal Audit
Charter, the Company's Internal Auditor is responsible for providing the Audit
Committee and management with an independent evaluation of the efficiency and
effectiveness the Company's internal controls.
Additionally, the Committee recognizes that financial management [including the
internal audit staff], as well as the outside auditors, have more time,
knowledge and more detailed information on the Company than do Committee
members; consequently, in carrying out its oversight responsibilities, the
Committee is not providing any expert or special assurances as to the Company's
financial statements or any professional certification as to the outside
auditor's work.
The Committee's primary responsibilities shall consist of the following:
o The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Committee, as representatives of the
shareholders. The Committee shall have the ultimate authority and
responsibility to evaluate and, if appropriate, replace the independent
auditors. The Committee shall discuss with the auditors their
independence from management and the Company and the matters included in
the written disclosures required by the Independence Standards Board.
Annually, the Committee shall review and recommend to the Board the
selection of the Company's independent auditors, subject to
shareholders' approval.
A-1
o The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits. Also, the Committee shall discuss with management, the internal
auditors, and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. The Committee shall meet separately with the internal auditors
and independent auditors, with and without management present, to
discuss the results of their examinations.
o The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
o The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-K (or the annual report to shareholders if distributed prior
to the filing of Form 10-K), including their judgment about the quality,
not just the acceptability, of accounting principles, the reasonableness
of significant judgments, and the clarity of the disclosures in the
financial statements. Additionally, the Committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the Committee by the independent auditors under
generally accepted auditing standards.
Approved and Adopted by the Board of Directors
July 25, 2001
A-2
EXHIBIT B
ARCH COAL, INC.
1997 STOCK INCENTIVE PLAN
(As Amended and Restated on February 28, 2002)
SECTION 1
Statement of Purpose
1.1. The Arch Coal, Inc. 1997 Stock Incentive Plan (the "Plan") has been
established by Arch Mineral Corporation, which pursuant to the Agreement and
Plan of Merger by and between the Company and Ashland Coal, Inc., et. al, will
change its name to Arch Coal, Inc., to become effective at the Effective Time
as defined herein in order to:
(a) attract and retain executive, managerial and other salaried employees;
(b) motivate participating employees, by means of appropriate incentives,
to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other major corporations; and
(d) further identify a Participant's interests with those of the Company's
other stockholders through compensation based on the Company's common stock;
thereby promoting the long-term financial interest of the Company and its
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
SECTION 2
Definitions
2.1. Unless the context indicates otherwise, the following terms shall have the
meaning set forth below:
(a) Acquiring Corporation. The term "Acquiring Corporation" shall mean the
surviving, continuing successor or purchasing corporation in an acquisition or
merger with the Company in which the Company is not the surviving corporation.
(b) Award. The term "Award" shall mean any award or benefit granted to
any Participant under the Plan, including, without limitation, the grant of
Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Stock, Performance Units, Merit Awards, Phantom Stock Awards and
Stock acquired through purchase under Section 12.
(c) Board. The term "Board" shall mean the Board of Directors of the
Company acting as such but shall not include the Committee or other committees
of the Board acting on behalf of the Board.
(d) Cause. The term "Cause" shall mean (a) the continued failure by the
Participant to substantially perform his or her duties with the Company (other
than any such failure resulting from his or her incapacity due to physical or
mental illness), or (b) the engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise.
(e) Change in Control. A "Change in Control" shall mean a change in
control of the Company of a nature that would be required to be reported
(assuming such event has not been "previously reported") in response to Item
1(a) of a Current Report on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act as in effect on the date this Plan is approved by the shareholders
of the Company; provided that, without limitation, such a Change in Control
shall be deemed to have occurred (1) upon the approval of the Board (or if
approval of the Board is not required as a matter of law, the shareholders of
the Company) of (A) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of Stock would be converted into cash, securities or other property,
other than a merger in which the holders of the Stock immediately prior to the
merger will have more than 50% of the ownership of common stock of the
surviving corporation
B-1
immediately after the merger, (B) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company, or (C) adoption of any plan or
proposal for the liquidation or dissolution of the Company, or (2) when any
"person" (as defined in Section 13(d) of the Exchange Act), other than a
Significant Stockholder, or any subsidiary of the Company or employee benefit
plan or trust maintained by the Company or any of its subsidiaries, shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of more than 20% of the Stock outstanding at the
time, without the prior approval of the Board.
(f) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to
any successor provision of the Code.
(g) Committee. The term "Committee" means the committee of the Board
selected in accordance with the provisions of Subsection 4.2.
(h) Company. The term "Company" means Arch Coal, Inc., a Delaware
corporation, which prior to the Effective Date was known as Arch Mineral
Corporation.
(i) Date of Termination. A Participant's "Date of Termination" shall be
the date on which his or her employment with all Employers and Related
Companies terminates for any reason; provided that for purposes of this Plan
only, a Participant's employment shall not be deemed to be terminated by reason
of a transfer of the Participant between the Company and a Related Company
(including Employers) or between two Related Companies (including Employers);
and further provided that a Participant's employment shall not be considered
terminated by reason of the Participant's leave of absence from an Employer or
a Related Company that is approved in advance by the Participant's Employer.
(j) Disability. Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he or she is unable, by reason of a medically determined physical or
mental impairment, to carry out his or her duties with an Employer, which
condition, in the discretion of the Committee, shall generally be an event
which qualifies as a "long term disability" under applicable long term
disability benefit programs of the Company.
(k) Effective Date. The term "Effective Date" shall mean the "Effective
Time" of the "Merger" under the Agreement and Plan of Merger dated as of April
4, 1997, among the Company, Ashland Coal, Inc., and AMC Merger Corporation.
(l) Employee. The term "Employee" shall mean a person with an employment
relationship with an Employer.
(m) Employer. The Company and each Subsidiary which, with the consent of
the Company, participates in the Plan for the benefit of its eligible Employees
are referred to collectively as the "Employers" and individually as an
"Employer".
(n) Exchange Act. The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(o) Exercise Price. The term "Exercise Price" means, with respect to each
share of Stock subject to an Option, the price fixed by the Committee at which
such share may be purchased from the Company pursuant to the exercise of such
Option, which price at no time may be less than 100% of the Fair Market Value
of the Stock on the date the Option is granted, except as permitted and
contemplated by Section 21 of the Plan.
(p) Fair Market Value. The "Fair Market Value" of the Stock on any given
date shall be the last sale price, regular way, or, in case no such sale takes
place on such date, the average of the closing bid and asked prices, regular
way, of the Stock, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Stock is not listed or admitted to trading on
the NYSE, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Stock is listed or admitted to trading or, if the Stock
is not listed or admitted to trading on any national securities exchange, the
last quoted sale price on such date or, if not so quoted, the average of the
high
B-2
bid and low asked prices in the over-the-counter market on such date, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use, or, if on any such date the
Stock is not quoted by any such organization, the average of the closing bid
and asked prices on such date as furnished by a professional market maker
making a market in the Stock. If the Stock is not publicly held or so listed or
publicly traded, "Fair Market Value" per share of Stock shall mean the Fair
Market Value per share as reasonably determined by the Committee.
(q) Immediate Family. With respect to a particular Participant, the term
"Immediate Family" shall mean, whether through consanguinity or adoptive
relationships, the Participant's spouse, children, stepchildren, siblings and
grandchildren.
(r) Incentive Stock Option. The term "Incentive Stock Option" shall mean
any Incentive Stock Option granted under the Plan.
(s) Merit Award. The term "Merit Award" shall mean any Merit Award granted
under the Plan.
(t) Non-Employee Director. The term "Non-Employee Director" shall mean a
person who qualifies as such under Rule 16b-3(b)(3) under the Exchange Act or
any successor provision, and who also qualifies as an "outside director" under
Section 162(m) of the Code.
(u) Non-Qualified Stock Option. The term "Non-qualified Stock Option"
shall mean any Non-Qualified Stock Option granted under the Plan.
(v) NYSE. The term "NYSE" refers to the New York Stock Exchange, Inc.
(w) Option. The term "Option" shall mean any Incentive Stock Option or
Non-Qualified Stock Option granted under the Plan.
(x) Participant. The term "Participant" means an Employee who has been
granted an award under the Plan.
(y) Performance-Based Compensation. The term "Performance-Based
Compensation" shall have the meaning ascribed to it in Section 162(m)(4)(C) of
the Code.
(z) Performance Goals. The term "Performance Goals" means the goals
established by the Committee under an Award which, if met, will entitle the
Participant to payment under such Award and will qualify such payment as
"Performance-Based Compensation" as that term is used in Code Section
162(m)(4)(C). Such goals will be based upon one or more of the following
business criteria: net income; earnings per share; earnings before interest and
taxes ("EBIT"); earnings before interest, taxes, depreciation, and amortization
("EBITDA"); debt reduction; safety; return on investment; operating income;
operating ratio; cash flow; return on assets; stockholders' return; revenue;
return on equity; economic value added (EVA (Registered Trademark) ); operating
costs; sales; or compliance with Company policies.
(aa) Performance Period. The term "Performance Period" shall mean the
period over which applicable performance is to be measured.
(bb) Performance Stock. The term "Performance Stock" shall have the
meaning ascribed to it in Section 10 of the Plan.
(cc) Performance Units. The term "Performance Units" shall have the
meaning ascribed to it in Section 11 of the Plan.
(dd) Phantom Stock Award. The term "Phantom Stock Award" shall mean any
Phantom Stock Award granted under the Plan.
(ee) Plan. The term "Plan" shall mean this Arch Coal, Inc. 1997 Stock
Incentive Plan as the same may be from time to time amended or revised.
(ff) Qualified Retirement Plan. The term "Qualified Retirement Plan" means
any plan of an Employer or a Related Company that is intended to be qualified
under Section 401(a) of the Code.
(gg) Related Companies. The term "Related Companies' means any Significant
Stockholder and their subsidiaries; and any other company during any period in
which it is a Subsidiary or a division of the Company, including any entity
acquired by, or merged with or into, the Company or a Subsidiary.
B-3
(hh) Restricted Period. The term "Restricted Period" shall mean the period
of time for which shares of Restricted Stock or Restricted Stock Units are
subject to forfeiture pursuant to the Plan or during which Options and Stock
Appreciation Rights are not exercisable.
(ii) Restricted Stock. The term "Restricted Stock" shall have the meaning
ascribed to it in Section 8 of the Plan.
(jj) Restricted Stock Units. The term "Restricted Stock Units" shall have
the meaning ascribed to it in Section 9 of the Plan.
(kk) Retirement. "Retirement" of a Participant shall mean the occurrence
of a Participant's Date of Termination under circumstances that constitute such
Participant's retirement at normal or early retirement age under the terms of
the Qualified Retirement Plan of Participant's Employer that is extended to the
Participant immediately prior to the Participant's Date of Termination or, if
no such plan is extended to the Participant on his or her Date of Termination,
under the terms of any applicable retirement policy of the Participant's
Employer.
(ll) SEC. "SEC" means the Securities and Exchange Commission.
(mm) Significant Stockholder. The term "Significant Stockholder" shall
mean any shareholder of the Company who, immediately prior to the Effective
Date, owned more than 5% of the common stock of the Company.
(nn) Stock. The term "Stock" shall mean shares of common stock, $.01 par
value per share, of the Company.
(oo) Stock Appreciation Rights. The term "Stock Appreciation Rights" shall
mean any Stock Appreciation Right granted under the Plan.
(pp) Subsidiary. The term "Subsidiary" shall mean any present or future
subsidiary corporation of the Company within the meaning of Code Section
424((f).
(qq) Tax Date. The term "Tax Date" shall mean the date a withholding tax
obligation arises with respect to an Award.
SECTION 3
Eligibility
3.1. Subject to the discretion of the Committee and the terms and conditions of
the Plan, the Committee shall determine and designate from time to time, the
Employees or other persons as contemplated by Section 21 of the Plan who will
be granted one or more Awards under the Plan.
SECTION 4
Operation and Administration
4.1. The Plan has been adopted by the Board on April 1, 1997, effective as of
the Effective Date, subject to the further approval of the shareholders of the
Company. In addition, if the Plan is approved by the shareholders, to the
extent required pursuant to Section 162(m) of the Code, it or any part thereof
shall be resubmitted to shareholders for reapproval at the first shareholders'
meeting that occurs during the fifth year following the year of the initial
approval and thereafter at five year intervals, in each case, as may be
required to qualify any Award hereunder as Performance-Based Compensation. The
Plan shall be unlimited in duration and remain in effect until termination by
the Board; provided however, that no Incentive Stock Option may be granted
under the Plan after April 1, 2007.
4.2. The Plan shall be administered by the Committee which shall consist of two
or more members of the Board who are Non-Employee Directors. Plenary authority
to manage and control the operation and administration of the Plan shall be
vested in the Committee, which authority shall include, but shall not be
limited to:
B-4
(a) Subject to the provisions of the Plan, the authority and discretion to
select Employees to receive Awards, to determine the time or times of receipt,
to determine the types of Awards and the number of shares covered by the
Awards, to establish the terms, conditions, performance criteria, restrictions,
and other provisions of such Awards. In making such Award determinations, the
Committee may take into account the nature of services rendered by the
respective Employee, his or her present and potential contribution to the
Company's success and such other factors as the Committee deems relevant.
(b) Subject to the provisions of the Plan, the authority and discretion to
determine the extent to which Awards under the Plan will be structured to
conform to the requirements applicable to Performance-Based Compensation as
described in Code Section 162(m), and to take such action, establish such
procedures, and impose such restrictions at the time such awards are granted as
the Committee determines to be necessary or appropriate to conform to such
requirements.
(c) The authority and discretion to interpret the Plan and the Awards
granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan, to make all other determinations that it
deems necessary or advisable for the administration of the Plan and to correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Award, in each case, in the manner and to the extent the Committee deems
necessary or advisable to carry it into effect.
4.3. Any interpretation of the Plan by the Committee and any decision made by
it under the Plan shall be final and binding on all persons. The express grant
in the Plan of any specific power to the Committee shall not be construed as
limiting any power or authority of the Committee. Provided, however, that
except as otherwise permitted under Treasury Regulation 1.162-27(e)(2)(iii)(C),
the Committee may not increase any Award once made if payment under such Award
is intended to constitute Performance-Based Compensation.
4.4. The Committee may only act at a meeting by unanimous consent if comprised
of two members, and otherwise by a majority of its members. Any determination
of the Committee may be made without a meeting by the unanimous written consent
of its members. In addition, the Committee may authorize one or more of its
members or any officer of an Employer to execute and deliver documents and
perform other administrative acts pursuant to the Plan.
4.5. No member or authorized delegate of the Committee shall be liable to any
person for any action taken or omitted in connection with the administration of
the Plan unless attributable to his or her own fraud or gross misconduct. The
Committee, the individual members thereof, and persons acting as the authorized
delegates of the Committee under the Plan, shall be indemnified by the
Employers against any and all liabilities, losses, costs and expenses
(including legal fees and expenses) of whatsoever kind and nature which may be
imposed on, incurred by, or asserted against, the Committee or its members or
authorized delegates by reason of the performance of any action pursuant to the
Plan if the Committee or its members or authorized delegates did not act in
willful violation of the law or regulation under which such liability, loss,
cost or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance policy,
contract with the indemnitee or the Company's By-laws.
4.6. Notwithstanding any other provision of the Plan to the contrary, but
without giving effect to Awards made pursuant to Section 21, the maximum number
of shares of Stock with respect to which any Participant may receive any Award
of an Option or a Stock Appreciation Right under the Plan during any calendar
year is 300,000; the maximum number of shares with respect to which any
Participant may receive Awards of Restricted Stock during any calendar year is
100,000; the maximum number of shares with respect to which any Participant may
receive Merit Awards during any calendar year is 100,000; and the maximum
number of shares with respect to which any Participant may receive other Awards
during any calendar year is 100,000.
4.7. To the extent that the Committee determines that it is necessary or
desirable to conform any Awards under the Plan with the requirements applicable
to "Performance-Based Compensation", as that term is
B-5
used in Code Section 162(m)(4)(C), it may, at or prior to the time an Award is
granted, establish Performance Goals for a particular Performance Period. If
the Committee establishes Performance Goals for a Performance Period, it may
approve a payment from that particular Performance Period upon attainment of
the Performance Goal.
SECTION 5
Shares Available Under the Plan
5.1. The shares of Stock with respect to which Awards may be made under the
Plan shall be shares of currently authorized but unissued or treasury shares
acquired by the Company, including shares purchased in the open market or in
private transactions. Subject to the provisions of Section 16, the total number
of shares of Stock available for grant of Awards shall not exceed nine million
(9,000,000) shares of Stock. Except as otherwise provided herein, if any Award
shall expire or terminate for any reason without having been exercised in full,
the unissued shares of Stock subject thereto (whether or not cash or other
consideration is paid in respect of such Award) shall again be available for
the purposes of the Plan. Any shares of Stock which are used as full or partial
payment to the Company upon exercise of an Award shall be available for
purposes of the Plan.
SECTION 6
Options
6.1. The grant of an "Option" under this Section 6 entitles the Participant to
purchase shares of Stock at a price fixed at the time the Option is granted, or
at a price determined under a method established at the time the Option is
granted, subject to the terms of this Section 6. Options granted under this
Section 6 may be either Incentive Stock Options or Non-Qualified Stock Options,
and subject to Subsection 6.6 and Sections 15 and 20, shall not be exercisable
for at least six months from the date of grant, as determined in the discretion
of the Committee. An "Incentive Stock Option" is an Option that is intended to
satisfy the requirements applicable to an "incentive stock option" described in
Section 422(b) of the Code. A "Non-Qualified Option" is an Option that is not
intended to be an "incentive stock option" as that term is described in Section
422(b) of the Code.
6.2. The Committee shall designate the Employees to whom Options are to be
granted under this Section 6 and shall determine the number of shares of Stock
to be subject to each such Option. To the extent that the aggregate Fair Market
Value of Stock with respect to which Incentive Stock Options are exercisable
for the first time by any individual during any calendar year (under all plans
of the Company and all Related Companies) exceeds $100,000, such Options shall
be treated as Non-Qualified Stock Options, but only to the extent required by
Section 422 of the Code.
6.3. The determination and payment of the purchase price of a share of Stock
under each Option granted under this Section shall be subject to the following
terms of this Subsection 6.3:
(a) The purchase price shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option is
granted; provided, however, that in no event shall the price per share be less
than the Fair Market Value per share on the date of the grant except as
otherwise permitted by Section 21 of the Plan;
(b) The full purchase price of each share of Stock purchased upon the
exercise of any Option shall be paid at the time of such exercise and, as soon
as practicable thereafter, a certificate representing the shares so purchased
shall be delivered to the person entitled thereto; and
(c) The purchase price shall be paid either in cash, in shares of Stock
(valued at Fair Market Value as of the day of exercise), through a combination
of cash and Stock (so valued) or through such cashless exercise arrangement as
may be approved by the Committee and established by the Company, provided that
any shares of Stock used for payment shall have been owned by the Participant
for at least six (6) months.
6.4. Except as otherwise expressly provided in the Plan, an Option granted
under this Section 6 shall be exercisable in accordance with the following
terms of this Subsection 6.4.
B-6
(a) The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation, conditions
relating to completion of a specified period of service, achievement of
performance standards prior to exercise of the Option, or achievement of Stock
ownership objectives by the Participant. No Option may be exercised by a
Participant after the expiration date applicable to that Option.
(b) The exercise of an Option will result in the surrender of the
corresponding rights under a tandem Stock Appreciation Right, if any.
6.5. The exercise period of any Option shall be determined by the Committee but
the term of any Option shall not extend more than ten years after the date of
grant.
SECTION 7
Stock Appreciation Rights
7.1. Subject to the terms of this Section 7, a Stock Appreciation Right granted
under the Plan entitles the Participant to receive, in cash or Stock (as
determined in accordance with Subsection 7.4), value equal to all or a portion
of the excess of: (a) the Fair Market Value of a specified number of shares of
Stock at the time of exercise; over (b) a specified price which shall not be
less than 100% of the Fair Market Value of the Stock at the time the Stock
Appreciation Right is granted, or, if granted in tandem with an Option, the
exercise price with respect to shares under the tandem Option.
7.2. Subject to the provisions of the Plan, the Committee shall designate the
Employees to whom Stock Appreciation Rights are to be granted under the Plan,
shall determine the exercise price or a method by which the price shall be
established with respect to each such Stock Appreciation Right, and shall
determine the number of shares of Stock on which each Stock Appreciation Right
is based. A Stock Appreciation Right may be granted in connection with all or
any portion of a previously or contemporaneously granted Option or not in
connection with an Option. If a Stock Appreciation Right is granted in
connection with an Option then, in the discretion of the Committee, the Stock
Appreciation Right may, but need not, be granted in tandem with the Option.
7.3. The exercise of Stock Appreciation Rights shall be subject to the
following:
(a) If a Stock Appreciation Right is not in tandem with an Option, then
the Stock Appreciation Right shall be exercisable in accordance with the terms
established by the Committee in connection with such rights but, subject to
Sections 15 and 20, shall not be exercisable for six months from the date of
grant and the term of any Stock Appreciation Right shall not extend more than
ten years from the date of grant; and may include, without limitation,
conditions relating to completion of a specified period of service, achievement
of performance standards prior to exercise of the Stock Appreciation Rights, or
achievement of objectives relating to Stock ownership by the Participant; and
(b) If a Stock Appreciation Right is in tandem with an Option, then the
Stock Appreciation Right shall be exercisable only at the time the tandem
Option is exercisable and the exercise of the Stock Appreciation Right will
result in the surrender of the corresponding rights under the tandem Option.
7.4. Upon the exercise of a Stock Appreciation Right, the value to be
distributed to the Participant, in accordance with Subsection 7.1, shall be
distributed in shares of Stock (valued at their Fair Market Value at the time
of exercise), in cash, or in a combination of Stock or cash, in the discretion
of the Committee.
SECTION 8
Restricted Stock
8.1. Subject to the terms of this Section 8, Restricted Stock Awards under the
Plan are grants of Stock to Participants, the vesting of which is subject to
certain conditions established by the Committee, with some or all of those
conditions relating to events (such as continued employment or satisfaction of
performance criteria) occurring after the date of the grant of the Award,
provided, however, that to the extent that vesting of a Restricted Stock Award
is contingent on continued employment, the required
B-7
employment period shall generally (unless otherwise determined by the
Committee) not be less than one year following the grant of the Award unless
such grant is in substitution for an Award under this Plan or a predecessor
plan of the Company or a Related Company. To the extent, if any, required by
the General Corporation Law of the State of Delaware, a Participant's receipt
of an Award of newly issued shares of Restricted Stock shall be made subject to
payment by the Participant of an amount equal to the aggregate par value of
such newly issued shares of Stock.
8.2. The Committee shall designate the Employees to whom Restricted Stock is to
be granted, and the number of shares of Stock that are subject to each such
Award. The Award of shares under this Section 8 may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company, and may, but need not, be in lieu of cash otherwise awardable under
such program.
8.3. Shares of Restricted Stock granted to Participants under the Plan shall be
subject to the following terms and conditions:
(a) Restricted Stock granted to Participants may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Restricted Period;
(b) The Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to vote such shares and,
except as otherwise provided by the Committee or as otherwise provided by the
Plan, the right to receive all dividends and other distributions paid on such
shares;
(c) Each certificate issued in respect of shares of Restricted Stock
granted under the Plan shall be registered in the name of the Participant but,
at the discretion of the Committee, each such certificate may be deposited with
the Company with a stock power endorsed in blank or in a bank designated by the
Committee;
(d) The Committee may award Restricted Stock as Performance-Based
Compensation, which shall be Restricted Stock that will be earned (or for which
earning is accelerated) upon the achievement of Performance Goals established
by the Committee and the Committee may specify the number of shares that will
be earned upon achievement of different levels of performance; except as
otherwise provided by the Committee, achievement of maximum targets during the
Performance Period shall result in the Participant's earning of the full amount
of Restricted Stock comprising such Performance-Based Compensation and, in the
discretion of the Committee, achievement of the minimum target but less than
the maximum target, the Committee may result in the Participant's earning of a
portion of the Award; and
(e) Except as otherwise provided by the Committee, any Restricted Stock
which is not earned by the end of a Restricted Period or Performance Period, as
the case may be, shall be forfeited. If a Participant's Date of Termination
occurs prior to the end of a Restricted Period or Performance Period, as the
case may be, the Committee may determine, in its sole discretion, that the
Participant will be entitled to settlement of all or any portion of the
Restricted Stock as to which he or she would otherwise be eligible, and may
accelerate the determination of the value and settlement of such Restricted
Stock or make such other adjustments as the Committee, in its sole discretion,
deems desirable. Subject to the limitations of the Plan and the Award of
Restricted Stock, upon the vesting of Restricted Stock, such Restricted Stock
will be transferred free of all restrictions to the Participant (or his or her
legal representative, beneficiary or heir).
SECTION 9
Restricted Stock Units
9.1. Subject to the terms of this Section 9, a Restricted Stock Unit entitles a
Participant to receive shares for the units at the end of a Restricted Period
to the extent provided by the Award with the vesting of such units to be
contingent upon such conditions as may be established by the Committee (such as
continued employment or satisfaction of performance criteria) occurring after
the date of grant of the Award, provided, however, that to the extent that the
vesting of a Restricted Stock Unit is contingent on continued employment, the
required employment period shall generally not be less than one year
B-8
following the date of grant of the Award unless such grant is in substitution
for an Award under this Plan or a predecessor plan of the Company or a Related
Company. The Award of Restricted Stock Units under this Section 9 may, but need
not, be made in conjunction with a cash-based incentive compensation program
maintained by the Company, and may, but need not, be in lieu of cash otherwise
awardable under such program.
9.2. The Committee shall designate the Employees to whom Restricted Stock Units
shall be granted and the number of units that are subject to each such Award.
During any period in which Restricted Stock Units are outstanding and have not
been settled in Stock, the Participant shall not have the rights of a
stockholder, but, in the discretion of the Committee, may be granted the right
to receive a payment from the Company in lieu of a dividend in an amount equal
to any cash dividends that might be paid during the Restricted Period.
9.3 Except as otherwise provided by the Committee, any Restricted Stock Unit
which is not earned by the end of a Restricted Period shall be forfeited. If a
Participant's Date of Termination occurs prior to the end of a Restricted
Period, the Committee, in its sole discretion, may determine that the
Participant will be entitled to settlement of all, any portion, or none of the
Restricted Stock Units as to which he or she would otherwise be eligible, and
may accelerate the determination of the value and settlement of such Restricted
Stock Units or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION 10
Performance Stock
10.1. Subject to the terms of this Section 10, an Award of Performance Stock
provides for the distribution of Stock to a Participant upon the achievement of
performance objectives, which may include Performance Goals, established by the
Committee.
10.2. The Committee shall designate the Employees to whom Awards of Performance
Stock are to be granted, and the number of shares of Stock that are subject to
each such Award. The Award of shares of Performance Stock under this Section 10
may, but need not, be made in conjunction with a cash-based incentive
compensation program maintained by the Company, and may, but need not, be in
lieu of cash otherwise awardable under such program.
10.3. Except as otherwise provided by the Committee, any Award of Performance
Stock which is not earned by the end of the Performance Period shall be
forfeited. If a Participant's Date of Termination occurs prior to the end of a
Performance Period, the Committee, in its sole discretion, may determine that
the Participant will be entitled to settlement of all, any portion, or none of
the Performance Stock as to which he or she would otherwise be eligible, and
may accelerate the determination of the value and settlement of such
Performance Stock or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION 11
Performance Units
11.1. Subject to the terms of this Section 11, the Award of Performance Units
under the Plan entitles the Participant to receive value for the units at the
end of a Performance Period to the extent provided under the Award. The number
of Performance Units earned, and value received from them, will be contingent
on the degree to which the performance measures established at the time of
grant of the Award are met.
11.2. The Committee shall designate the Employees to whom Performance Units are
to be granted, and the number of Performance Units to be subject to each such
Award.
11.3. For each Participant, the Committee will determine the value of
Performance Units, which may be stated either in cash or in units representing
shares of Stock; the performance measures used for determining whether the
Performance Units are earned; the Performance Period during which the
performance measures will apply; the relationship between the level of
achievement of the performance
B-9
measures and the degree to which Performance Units are earned; whether, during
or after the Performance Period, any revision to the performance measures or
Performance Period should be made to reflect significant events or changes that
occur during the Performance Period; and the number of earned Performance Units
that will be settled in cash and/or shares of Stock.
11.4. Settlement of Performance Units shall be subject to the following:
(a) The Committee will compare the actual performance to the performance
measures established for the Performance Period and determine the number of
Performance Units as to which settlement is to be made;
(b) Settlement of Performance Units earned shall be wholly in cash, wholly
in Stock or in a combination of the two, to be distributed in a lump sum or
installments, as determined by the Committee; and
(c) Shares of Stock distributed in settlement of Performance Units shall
be subject to such vesting requirements and other conditions, if any, as the
Committee shall determine, including, without limitation, restrictions of the
type that may be imposed with respect to Restricted Stock under Section 8.
11.5. Except as otherwise provided by the Committee, any Award of Performance
Units which is not earned by the end of the Performance Period shall be
forfeited. If a Participant's Date of Termination occurs prior to the end of a
Performance Period, the Committee, in its sole discretion, may determine that
the Participant will be entitled to settlement of all, any portion, or none of
the Performance Units as to which he or she would otherwise be eligible, and
may accelerate the determination of the value and settlement of such
Performance Units or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION 12
Stock Purchase Program
12.1. The Committee may, from time to time, establish one or more programs
under which Employees will be permitted to purchase shares of Stock under the
Plan, and shall designate the Employees eligible to participate under such
Stock purchase programs. The purchase price for shares of Stock available under
such programs, and other terms and conditions of such programs, shall be
established by the Committee. The purchase price may not be less than 75% of
the Fair Market Value of the Stock at the time of purchase (or, in the
Committee's discretion, the average Stock value over a period determined by the
Committee), and further provided that if newly issued shares of Stock are sold,
the purchase price may not be less than the aggregate par value of such newly
issued shares of Stock.
12.2. The Committee may impose such restrictions with respect to shares
purchased under this Section 12, as the Committee, in its sole discretion,
determines to be appropriate. Such restrictions may include, without
limitation, restrictions of the type that may be imposed with respect to
Restricted Stock under Section 8.
SECTION 13
Merit Awards
13.1. The Committee may from time to time make an Award of Stock under the Plan
to selected Employees for such reasons and in such amounts as the Committee, in
its sole discretion, may determine. The consideration to be paid by an Employee
for any such Merit Award, if any, shall be fixed by the Committee from time to
time, but, if required by the General Corporation Law of the State of Delaware,
it shall not be less than the aggregate par value of the shares of Stock
awarded to him or her.
SECTION 14
Phantom Stock Awards
14.1. The Committee may make Phantom Stock Awards to selected Employees which
may be based solely on the value of the underlying shares of Stock, solely on
any earnings or appreciation thereon, or
B-10
both. Subject to the provisions of the Plan, the Committee shall have the sole
and complete authority to determine the number of hypothetical or target shares
as to which each such Phantom Stock Award is subject and to determine the terms
and conditions of each such Phantom Stock Award. There may be more than one
Phantom Stock Award in existence at any one time with respect to a selected
Employee, and the terms and conditions of each such Phantom Stock Award may
differ from each other.
14.2. The Committee shall establish vesting or performance measures for each
Phantom Stock Award on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time, in its sole discretion,
determine. Such measures may be based on years of service or periods of
employment, or the achievement of individual or corporate performance
objectives, but shall, in each instance, be based upon one or more of the
business criteria as determined pursuant to Section 4.7. The vesting and
performance measures determined by the Committee shall be established at the
time a Phantom Stock Award is made. Phantom Stock Awards may not be sold,
assigned, transferred, pledged, or otherwise encumbered, except as provided in
Section 17, during the Performance Period.
14.3. The Committee shall determine, in its sole discretion, the manner of
payment, which may include cash or shares of Stock in such proportions as the
Committee shall determine.
14.4. Except as otherwise provided by the Committee, any Award of Phantom Stock
which is not earned by the end of the Performance Period shall be forfeited. If
a Participant's Date of Termination occurs prior to the end of a Performance
Period, the Committee, in its sole discretion, may determine that the
Participant will be entitled to settlement of all or a portion of the Phantom
Stock for which he or she would otherwise be eligible, and may accelerate the
determination of the value and settlement of Phantom Stock or make such other
adjustment as the Committee, in its sole discretion, deems desirable.
SECTION 15
Termination of Employment
15.1. If a Participant's employment is terminated by the Participant's Employer
for Cause or if the Participant's employment is terminated by the Participant
without the written consent and approval of the Participant's Employer, all of
the Participant's unvested Awards, including any unexercised Options, shall be
forfeited.
15.2. If a Participant's Date of Termination occurs by reason of death,
Disability or Retirement, all Options and Stock Appreciation Rights outstanding
immediately prior to the Participant's Date of Termination shall immediately
become exercisable and shall be exercisable until one year from the
Participant's Date of Termination and thereafter shall be forfeited if not
exercised, and all restrictions on any Awards outstanding immediately prior to
the Participant's Date of Termination shall immediately lapse. Options and
Stock Appreciation Rights which are or become exercisable at the time of a
Participant's death may be exercised by the Participant's designated
beneficiary or, in the absence of such designation, by the person to whom the
Participant's rights will pass by will or the laws of descent and distribution.
15.3. If a Participant's Date of Termination occurs by reason of Participant's
employment being terminated by the Participant's Employer for any reason other
than Cause, or by the Participant with the written consent and approval of the
Participant's Employer, the Restricted Period shall lapse on a proportion of
any Awards outstanding immediately prior to the Participant's Date of
Termination (except that, to the extent that an Award of Restricted Stock,
Restricted Stock Units, Performance Units, Performance Stock and Phantom Stock
is subject to a Performance Period), such proportion of the Award shall remain
subject to the same terms and conditions for vesting as were in effect prior to
the Date of Termination and shall be determined at the end of the Performance
Period. The proportion of an Award upon which the Restricted Period shall lapse
shall be a fraction, the denominator of which is the total number of months of
any Restricted Period applicable to an Award and the numerator of which is the
number of months of such Restricted Period which elapsed prior to the Date of
Termination.
15.4. Options and Stock Appreciation Rights which are or become exercisable by
reason of the Participant's employment being terminated by the Participant's
Employer for reasons other than Cause or
B-11
by the Participant with the consent and approval of the Participant's Employer,
shall be exercisable until 60 days from the Participant's Termination Date and
shall thereafter be forfeited if not exercised.
15.5. Except to the extent the Company shall otherwise determine, if, as a
result of a sale or other transaction (other than a Change in Control), a
Participant's Employer ceases to be a Related Company (and the Participant's
Employer is or becomes an entity that is separate from the Company), the
occurrence of such transaction shall be treated as the Participant's Date of
Termination caused by the Participant's employment being terminated by the
Participant's Employer for a reason other than Cause.
15.6. Notwithstanding the foregoing provisions of this Section 15, the
Committee may, with respect to any Awards of a Participant (or portion thereof)
that are outstanding immediately prior to the Participant's Date of
Termination, determine that a Participant's Date of Termination will not result
in forfeiture or other termination of the Award, or may extend the period
during which any Options or Stock Appreciation Rights may be exercised, but
shall not extend such period beyond the expiration date set forth in the Award.
SECTION 16
Adjustments to Shares
16.1. If the Company shall effect a reorganization, merger, or consolidation,
or similar event or effect any subdivision or consolidation of shares of Stock
or other capital readjustment, payment of stock dividend, stock split,
spin-off, combination of shares or recapitalization or other increase or
reduction of the number of shares of Stock outstanding without receiving
compensation therefor in money, services or property, then the Committee shall
appropriately adjust (i) the number of shares of Stock available under the
Plan, (ii) the number of shares of Stock available under any individual or
other limitations under the Plan, (iii) the number of shares of Stock subject
to outstanding Awards and (iv) the per-share price under any outstanding Award
to the extent that the Participant is required to pay a purchase price per
share with respect to the Award.
16.2. If the Committee determines that an adjustment in accordance with the
provisions of Subsection 16.1 would not be fully consistent with the purposes
of the Plan or the purposes of the outstanding Awards under the Plan, the
Committee may make such other adjustments, if any, that the Committee
reasonably determines are consistent with the purposes of the Plan and/or the
affected Awards.
16.3. To the extent that any reorganization, merger, consolidation, or similar
event or any subdivision or consolidation of shares of Stock or other capital
readjustment, payment of stock dividend, stock split, spin-off, combination of
shares or recapitalization or other increase or reduction of the number of
shares of Stock hereunder is also accompanied by or related to a Change in
Control, the adjustment hereunder shall be made prior to the acceleration
contemplated by Section 20.
SECTION 17
Transferability and Deferral of Awards
17.1. Awards under the Plan are not transferable except by will or by the laws
of descent and distribution. To the extent that a Participant who receives an
Award under the Plan has the right to exercise such Award, the Award may be
exercised during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing provisions of this Section 17, the Committee may,
subject to any restrictions under applicable securities laws, permit Awards
under the Plan (other than an Incentive Stock Option) to be transferred by a
Participant for no consideration to or for the benefit of the Participant's
Immediate Family (including, without limitation, to a trust for the benefit of
a Participant's Immediate Family or to a Partnership comprised solely of
members of the Participant's Immediate Family), subject to such limits as the
Committee may establish, provided the transferee shall remain subject to all of
the terms and conditions applicable to such Award prior to such transfer.
17.2. The Committee may permit a Participant to elect to defer payment under an
Award under such terms and conditions as the Committee, in its sole discretion,
may determine; provided that any such deferral election must be made prior to
the time the Participant has become entitled to payment under the Award.
B-12
SECTION 18
Award Agreement
18.1. Each Participant granted an Award pursuant to the Plan shall sign an
Award Agreement which signifies the offer of the Award by the Company and the
acceptance of the Award by the Participant in accordance with the terms of the
Award and the provisions of the Plan. Each Award Agreement shall reflect the
terms and conditions of the Award. Participation in the Plan shall confer no
rights to continued employment with an Employer nor shall it restrict the right
of an Employer to terminate a Participant's employment at any time for any
reason, not withstanding the fact that the Participant's rights under this Plan
may be negatively affected by such action.
SECTION 19
Tax Withholding
19.1 All Awards and other payments under the Plan are subject to withholding of
all applicable taxes, which withholding obligations shall be satisfied (without
regard to whether the Participant has transferred an Award under the Plan) by a
cash remittance, or with the consent of the Committee, through the surrender of
shares of Stock which the Participant owns or to which the Participant is
otherwise entitled under the Plan pursuant to an irrevocable election submitted
by the Participant to the Company at the office designated for such purpose.
The number of shares of Stock needed to be submitted in payment of the taxes
shall be determined using the Fair Market Value as of the applicable tax date
rounding down to the nearest whole share.
SECTION 20
Change in Control
20.1. After giving effect to the provisions of Section 16 (relating to the
adjustment of shares of Stock), and except as otherwise provided in the Plan or
the Agreement reflecting the applicable Award, upon the occurrence of a Change
in Control:
(a) All outstanding Options (regardless of whether in tandem with Stock
Appreciation Rights) shall become fully exercisable and may be exercised at any
time during the original term of the Option;
(b) All outstanding Stock Appreciation Rights (regardless of whether in
tandem with Options) shall become fully exercisable and may be exercised at any
time during the original term of the Option;
(c) All shares of Stock subject to Awards shall become fully vested and be
distributed to the Participant; and
(d) Performance Units may be paid out in such manner and amounts as may be
reasonably determined by the Committee.
SECTION 21
Mergers / Acquisitions
21.1 In the event of any merger or acquisition involving the Company and/or a
Subsidiary of the Company and another entity which results in the Company being
the survivor or the surviving direct or indirect parent corporation of the
merged or acquired entity, the Committee may grant Awards under the provisions
of the Plan in substitution for awards held by employees or former employees of
such other entity under any plan of such entity immediately prior to such
merger or acquisition upon such terms and conditions as the Committee, in its
discretion, shall determine and as otherwise may be required by the Code to
ensure such substitution is not treated as the grant of a new Award for tax or
accounting purposes.
21.2 In the event of a merger or acquisition involving the Company in which
the Company is not the surviving corporation, the Acquiring Corporation shall
either assume the Company's rights and
B-13
obligations under outstanding Awards or substitute awards under the Acquiring
Corporation's plans, or if none, securities for such outstanding Awards. In the
event the Acquiring Corporation elects not to assume or substitute for such
outstanding Awards, and without limiting Section 20, the Board shall provide
that any unexercisable and/or unvested portion of the outstanding Awards shall
be immediately exercisable and vested as of a date prior to such merger or
consolidation, as the Board so determines. The exercise and/or vesting of any
Award that was permissible solely by reason of this Section 21.2 shall be
conditioned upon the consummation of the merger or consolidation. Unless
otherwise provided in the Plan or the Award, any Awards which are neither
assumed by the Acquiring Corporation nor exercised on or prior to the date of
the transaction shall terminate effective as of the effective date of the
transaction.
SECTION 22
Termination and Amendment
22.1 The Board may suspend, terminate, modify or amend the Plan, provided that
any amendment that would (a) increase the aggregate number of shares of Stock
which may be issued under the Plan, (b) would change the method of determining
the exercise price of Options, other than to change the method of determining
Fair Market Value of Stock as set forth in Section 2.1(o) of the Plan, or (c)
materially modify the requirements as to eligibility for participation in the
Plan, shall be subject to the approval of the Company's stockholders, except
that any such increase or modification that may result from adjustments
authorized by Section 16 does not require such approval. No suspension,
termination, modification or amendment of the Plan may terminate a
Participant's existing Award or materially and adversely affect a Participant's
rights under such Award without the Participant's consent.
B-14
Arch Coal, Inc.
Annual Meeting of Stockholders
CityPlace One
Lower Level Auditorium
One CityPlace Drive
St. Louis, Missouri 63141
(314) 994-2700
Directions to the Arch Coal, Inc. Annual Meeting of Stockholders:
From Downtown St. Louis: Take Interstate 64 West to 270 North.
Exit at Olive Boulevard. Take Olive Boulevard East to CityPlace
Drive. North on CityPlace Drive to Arch Coal's headquarters at
CityPlace One.
From Lambert International Airport: Take Highway 70 West to 270 South.
Exit at Olive Boulevard. Take Olive Boulevard East to CityPlace Drive.
North on CityPlace Drive to Arch Coal's headquarters at CityPlace One.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ARCH COAL, INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
CITYPLACE ONE, LOWER LEVEL AUDITORIUM, ONE CITYPLACE DRIVE
ST. LOUIS, MISSOURI 63141
APRIL 25, 2002 AT 10:00 A.M., CENTRAL TIME
The undersigned hereby appoints STEVEN F. LEER and ROBERT G. JONES, and each of
them, with power of substitution, as the proxy of the undersigned to represent
the undersigned and to vote all shares of common stock which the undersigned
would be entitled to vote, if personally present at the Annual Meeting of
Stockholders of Arch Coal, Inc. to be held at its headquarters at CityPlace One,
St. Louis, Missouri, at 10:00 a.m. on Thursday, April 25, 2002, lower level
auditorium, and at any adjournments thereof, with all powers the undersigned
would possess if present at such meeting on the matters set forth on the reverse
side hereof and all other matters properly coming before the meeting.
If the undersigned is a participant in the Arch Coal, Inc. Employee Thrift Plan
(including pursuant to the Mingo Logan Savings Plan), and this proxy card is
received on or before April 19, 2002, then this card also provides voting
instructions to the trustee of such plan to vote at the Annual Meeting, and any
adjournments thereof, all shares of Arch Coal common stock held in the
undersigned's plan account as specified upon the matters set forth on the
reverse side hereof and all other matters properly coming before the meeting. If
the undersigned is a participant in one of these plans and does not instruct the
trustee by April 19, 2002, then the trustee will vote the undersigned's plan
account shares in proportion to the votes of the other participants in that
plan. In addition, the trustee will vote unallocated shares in the plan in
direct proportion to voting by allocated shares for which instructions have been
received.
PLEASE SEE REVERSE SIDE FOR INFORMATION ON VOTING YOUR PROXY BY TELEPHONE OR
INTERNET. You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, and mailing in your ballot or by voting by telephone or
Internet. If you vote by mail, you need not mark any boxes, if you wish to vote
in accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you vote.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING YOUR SHARES.
--------------------------------------------------------------------------------
ARCH COAL, INC.
CITYPLACE ONE
ONE CITYPLACE DRIVE, SUITE 300
ST. LOUIS, MO 63141
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number which is
located below to obtain your records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have
your proxy card in hand when you call. You will be prompted to enter your
12-digit Control Number which is located below and then follow the simple
instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Arch Coal, Inc. c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
ARCHC1 KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ARCH COAL, INC.
This proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR all
proposals. Your Board of Directors recommends a vote FOR all proposals.
1. Election of Directors
Nominees: 01) James R. Boyd
02) Douglas H. Hunt
03) A. Michael Perry
For Withhold For All
All All Except
[ ] [ ] [ ]
To withhold authority to vote, mark "For All Except" and write the
nominee's number on the line below.
-------------------------------------------------------------------
Vote On Proposals
For Against Abstain
2. Approval of Amendment to Increase Shares under the 1997 Stock Incentive Plan [ ] [ ] [ ]
3. Section 162(m) Approval of the 1997 Stock Incentive Plan [ ] [ ] [ ]
4. Ratification of Ernst & Young LLP as independent auditors for 2002 [ ] [ ] [ ]
NOTE: Please sign exactly as your name or names appear on this proxy card, and
when signing as attorney, executor, administrator, trustee or guardian, give
your full title as such. If a corporation, please sign in full corporate name by
an authorized officer. If a partnership, please sign in full partnership name by
an authorized person.
I consent to receive future stockholder communications over the Internet [ ]
I wish to discontinue duplicate mailings on this account [ ]
I plan to attend the Annual Meeting [ ]
------------------------------------------- --------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------