SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ARCH COAL, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] 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:
Notes:
[ARCH COAL, INC. LOGO]
CityPlace One, Suite 300,
St. Louis, Missouri 63141
(314) 994-2700
March 27, 1998
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Arch Coal, Inc. (the "Company") which will be held at the Company's headquarters
at CityPlace One, Suite 300, St. Louis, Missouri, in the lower level auditorium,
on Wednesday, April 22, 1998, at 10:00 a.m., local time. The formal Notice of
the Annual Meeting, the Proxy Statement and a proxy card accompany this letter.
The Company (formerly Arch Mineral Corporation) is the resulting corporation of
a business combination of Ashland Coal, Inc. ("Ashland Coal") and Arch Mineral
Corporation, which occurred on July 1, 1997. As a result of this combination,
Ashland Coal became a wholly-owned subsidiary of the Company.
We hope that you will be present at the meeting. Whether or not you plan
to attend, please complete, sign and return the enclosed proxy card in the
postage-prepaid envelope, also enclosed. The prompt return of your proxy card
will be greatly appreciated.
The Company's Annual Report for 1997 is also enclosed.
Sincerely yours,
/s/ John R. Hall
John R. Hall
Chairman of the Board
/s/ Steven F. Leer
Steven F. Leer
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
ARCH COAL, INC.
TO BE HELD APRIL 22, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Stockholders of Arch Coal, Inc. ("Arch Coal" or the "Company") will be held at
the Company's headquarters, CityPlace One, Suite 300, St. Louis, Missouri, in
the lower level auditorium, on Wednesday, April 22, 1998, at 10:00 a.m., local
time, for the following purposes:
1. To elect ten (10) directors each to serve until the Annual Meeting
of the Stockholders in 1999 and until their successors are duly
elected and qualified.
2. To ratify the Arch Coal, Inc. 1997 Stock Incentive Plan previously
adopted by the Company's stockholders.
3. To ratify the appointment of Ernst & Young LLP as independent
auditors for 1998.
4. To transact such other business as may properly come before the
Annual Meeting.
The close of business on March 9, 1998 has been fixed as the record date
for the Annual Meeting. All holders of Common Stock of record at that time will
be entitled to vote at the Annual Meeting. Cumulative voting rights exist with
respect to the election of directors. A list of stockholders will be open for
examination by any stockholder at the Annual Meeting and for a period of ten
days prior to the date of the Annual Meeting during normal business hours at the
principal executive offices of the Company, CityPlace One, Suite 300, St. Louis,
Missouri.
The Annual Meeting may be adjourned from time to time without notice other
than an announcement at the meeting, or any adjournment thereof, and any
business for which notice is hereby given may be transacted at any such
adjournment.
By Order of the Board of Directors,
/s/ Jeffry N. Quinn
Jeffry N. Quinn
Senior Vice President - Law and Human
Resources Secretary and General Counsel
St. Louis, Missouri
March 27, 1998
NOTE -- IT IS IMPORTANT YOUR SHARES BE VOTED AT THE ANNUAL MEETING.
Please sign, date and return your proxy
as promptly as possible.
ARCH COAL, INC.
CityPlace One, Suite 300
St. Louis, Missouri 63141
(314) 994-2700
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1998
This Proxy Statement and the form of proxy enclosed herewith are furnished
in connection with the solicitation of proxies by the Board of Directors of Arch
Coal, Inc. ("Arch Coal" or the "Company") to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Wednesday, April 22, 1998, at
10:00 a.m., local time, and at any adjournment thereof, at Arch Coal's principal
executive offices located at CityPlace One, St. Louis, Missouri, in the lower
level auditorium. Arch Coal (formerly Arch Mineral Corporation) is the resulting
corporation of a business combination (the "Merger") of Ashland Coal, Inc.
("Ashland Coal") and Arch Mineral Corporation ("Arch Mineral") which occurred on
July 1, 1997. As a result of the Merger, Ashland Coal became a wholly-owned
subsidiary of Arch Coal. The approximate date on which this Proxy Statement and
the accompanying form of proxy are first being sent to stockholders is March 27,
1998. An annual report to stockholders, including financial statements for the
year ended December 31, 1997, is enclosed with this Proxy Statement.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the directions made thereon by
the stockholders. Unless otherwise indicated, a proxy will be voted FOR the
election of the nominees for director named below, FOR ratification of the Arch
Coal, Inc. 1997 Stock Incentive Plan (the "Stock Incentive Plan"), and FOR
ratification of the appointment of Ernst & Young LLP, independent public
accountants, as the Company's auditors for the year ending December 31, 1998,
and in the discretion of the proxies on any other matter properly before the
Annual Meeting. Any proxy given pursuant to this solicitation may be revoked at
any time prior to the voting thereof, but such revocation shall not be effective
unless written notice thereof has been given to the Secretary of the Company. A
proxy may also be revoked by furnishing a duly executed proxy bearing a later
date to the Secretary of the Company or by attending the Annual Meeting and
voting in person. Attendance at the meeting will not have the effect of revoking
a proxy unless the stockholder so attending shall, in writing, so notify the
Secretary of the meeting prior to the voting of the proxy.
Only the holders of record of shares of Common Stock, par value $.01 per
share ("Common Stock"), of Arch Coal at the close of business on March 9, 1998,
are entitled to notice of and to vote at the Annual Meeting. Cumulative voting
rights exist with respect to the election of Directors. Cumulative voting means
that a stockholder has the right, in person or by proxy, to multiply the number
of votes to which such stockholder is entitled by virtue of his or her share
ownership by the number of Directors to be elected and cast this total number of
votes for any one nominee, or to distribute the total number of votes, in any
proportion, among as many nominees as the stockholder desires, up to the number
of Directors to be elected. The named proxies will have the right to vote
cumulatively and to distribute votes among nominees as they deem advisable. On
all other matters to come before the Annual Meeting, each share of Common Stock
is entitled to one vote. As of March 9, 1998, there were 39,657,898 shares of
Common Stock issued and outstanding held by approximately 871 holders of record.
The holders of a majority of the outstanding shares of stock, present in
person or by proxy, shall constitute a quorum. For purposes of determining the
presence of a quorum, abstentions will be included in the computation of the
number of shares of Common Stock that is present. Approval of the proposals to
ratify the Stock Incentive Plan and to ratify the appointment of independent
auditors for 1998 will each require the affirmative vote of the holders of a
majority of the shares of Common Stock that are present or represented at the
Annual Meeting and entitled to vote. If your proxy card is specifically marked
as abstaining from voting on either proposal, your shares will, in effect, be
voted against such proposal. Broker non-votes will not be counted as being
entitled to vote on a proposal and will not affect the outcome of the vote on
such proposal.
Whole shares of Common Stock credited to the account of a participant in
Arch Coal's Dividend Reinvestment Plan will be voted in accordance with the
proxy card returned by the participant. The shares of Common Stock held under
the Arch Coal, Inc. Employee Thrift Plan will be voted by its Trustee in
accordance with the instructions received by participants and, if a participant
does not provide instructions, the Trustee will vote the shares for which no
instructions are received in the same proportion as shares for which
instructions are received from other participants.
ELECTION OF DIRECTORS
(PROPOSAL 1 ON THE PROXY CARD)
Under the Company's Restated Certificate of Incorporation and By-laws, the
Board of Directors is to consist of such number of directors as is determined
from time to time by a two-thirds vote of the Board. The Board of Directors has
determined that effective at the time of the next election of the Board, the
number of Directors constituting the whole Board shall be ten. The Board of
Directors currently consists of thirteen members. Messrs. Robert A. Charpie,
Thomas Marshall and Ronald E. Samples, currently members of the Board, will
retire at the end of the current term, at which time the Board will be reduced
from thirteen to ten Directors. All of the nominees have consented to serve if
elected.
At the Annual Meeting, ten directors are to be elected, each to hold
office until the next annual election of directors and until a successor is
elected and qualified. In the election, the ten persons who receive the highest
number of votes cast will be elected.
It is the intention of the persons named in the enclosed proxy (Messrs.
Steven F. Leer and Jeffry N. Quinn), unless otherwise instructed in any form of
proxy, to vote FOR the election of the ten nominees named below, each of whom is
currently a member of the Board of Directors. Such proxy holders also may vote
such shares cumulatively for less than the entire number of nominees if any
situation arises which, in the opinion of the proxy holders, makes such action
necessary or desirable. Arch Coal has no reason to believe that any of the
nominees will not be available for election as Directors. Arch Coal is
soliciting and the proxy holders are being granted discretionary authority to
cumulate and to vote the shares of stock as they determine. If stockholders do
not wish to confer authority to cumulate their votes as provided in the proxy,
stockholders may exercise their right to cumulate votes in the election of
Directors by attending the meeting and voting in person.
NOMINEES FOR DIRECTOR
Information regarding each nominee for election as a Director is set forth
below:
JAMES R. BOYD, age 51, has been a director of the Company since
1990. He is Senior Vice President and Group Operating Officer of Ashland
Inc. with responsibility for APAC, Inc., Ashland Services Company and Arch
Coal.
PAUL W. CHELLGREN, age 55, a director of Ashland Coal from 1981 to
1997, has been a director of the Company since 1997. He has been Chairman
of the Board of Ashland Inc. since 1997, Chief Executive Officer of
Ashland Inc. since 1996 and President of Ashland Inc. since 1992. Mr.
Chellgren was Chief Operating Officer of Ashland Inc. from 1992 to 1996
and Senior Vice President and Chief Financial Officer of Ashland Inc. from
1988 to 1992. He is a Director of Ashland Inc., PNC Bank Corp. and
Medtronic Inc.
THOMAS L. FEAZELL, age 61, has been a director of the Company since
1997 and was a director of Ashland Coal from 1981 to 1997. He has served
as Senior Vice President, General Counsel and Secretary of Ashland Inc.
since 1992. He is a Director of National City Bank of Ashland, Kentucky.
JUAN ANTONIO FERRANDO, age 56, a director of Ashland Coal from 1988
to 1997, has been a director of the Company since 1997. He is a Director
of Carboex International, Ltd. ("Carboex") and has been Senior Vice
President, Business Development, Carboex, S.A. (a coal supply firm) since
1986.
JOHN R. HALL, age 65, has been Chairman of the Board of the Company
since 1997 and a director since 1979. In January 1997, he retired as
Ashland Inc.'s Chairman of the Board and Director, positions he had held
since 1981 and 1968, respectively. In October 1996, Mr. Hall retired as
Chief Executive Officer of Ashland Inc., a position he had held since
1981. He is also a Director of Banc One Corporation, The Canada Life
Assurance
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Company, CSX Corporation, Humana Inc., Reynolds Metals Company and Ucar
International Inc. and is a member of the American Petroleum Institute
Executive Committee.
ROBERT L. HINTZ, age 67, a director of the Company since 1997, has
been Chairman of the Board of R. L. Hintz & Associates (a management
consulting firm) since 1989. Mr. Hintz was a director of Ashland Coal from
1993 to 1997. Mr. Hintz retired in 1988 as Executive Vice President of CSX
Corporation. He is a Director of Reynolds Metals Company, Scott &
Stringfellow, Inc., Chesapeake Corporation, Christian Childrens Fund and
St. Joseph's Villa. He is Chairman of MVC-VCU Hospital Hospitality House.
DOUGLAS H. HUNT, age 45, has been a director of the Company since
1995. He is the Director of Acquisitions of Petro-Hunt Corporation (a
private oil and gas exploration and production company).
STEVEN F. LEER, age 45, has been President and Chief Executive
Officer and a director of the Company since 1992. Prior to joining the
Company, Mr. Leer served as Senior Vice President of The Valvoline
Company, a subsidiary of Ashland Inc. He serves on the Board of Directors
of Mercantile Trust Company, National Association. He is also a Director
of the Center for Energy and Economic Development, Chairman of the Coal
Policy Committee for the National Coal Council, and Vice Chairman of the
National Mining Association.
JAMES L. PARKER, age 60, has been a director of the Company since
1995. He is President of Hunt Petroleum Corporation (a private oil and gas
exploration and production company), a position that he has held for more
than five years.
J. MARVIN QUIN, age 50, has been a director of the Company since
1997, and was a director of Ashland Coal from 1992 to 1997. He has been
Senior Vice President and Chief Financial Officer of Ashland Inc. since
1992. He also serves as a Director of Kentucky Electric Steel, Inc.
Except as otherwise indicated, the nominees have held the principal
occupations described above during the past five years. Ashland Inc. owns
approximately 54% of the outstanding shares of Common Stock (see "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT").
3
INFORMATION CONCERNING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES
Prior to the Merger, the Board of Directors of Arch Mineral held one
regular and three special board meetings in 1997. Subsequent to the Merger and
for the remainder of 1997, the Board held four additional regular meetings.
After the consummation of the Merger, the Board established five standing
committees: the Audit Committee, the Committee on Directors, the Finance
Committee, the Personnel and Compensation ("P&C") Committee and the Stock
Incentive Committee. During 1997, each nominee attended more than 75% of the
total meetings of the Board and the Committees on which he served. Overall
attendance at Board and Committee meetings during 1997 was approximately 95%.
The Audit Committee, comprised of Mr. Hintz (Chairman) and Messrs.
Ferrando, Parker and Samples, met twice during 1997. Its duties include
recommending Arch Coal's independent auditors, reviewing the scope and results
of external and internal audits, reviewing internal accounting controls,
reviewing significant changes in accounting principles, approving in advance all
substantial services which are not audit-related to be provided by the
independent auditors, obtaining and reviewing reports on legal compliance and
reviewing material litigation and related matters, if any.
The Committee on Directors is comprised of Mr. Chellgren (Chairman) and
Messrs. Feazell, Hunt and Marshall. The Committee on Directors met once during
1997. 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.
The Finance Committee is comprised of Mr. Charpie (Chairman) and Messrs.
Boyd, Ferrando, Parker and Quin. It met twice in 1997. This Committee reviews
and approves fiscal policies relating to the Company'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 the
Company's employee benefit plans.
The P&C Committee is comprised of Mr. Feazell (Chairman) and Messrs.
Charpie, Chellgren, Hunt and Marshall. It met five times during 1997. The duties
of this Committee include the approval of the compensation of senior executives
of the Company and its subsidiaries above specified dollar levels and the
selection of participants and awards under Arch Coal's incentive plans (except
for those made under the Stock Incentive Plan which is administered by the Stock
Incentive Committee). The P&C Committee also establishes policies regarding
compensation, position evaluations, transfers, and terminations. In addition, it
provides oversight of Arch Coal retirement, savings and other benefit plans.
The Stock Incentive Committee, which met twice in 1997, is comprised of
Mr. Marshall (Chairman) and Messrs. Hintz, Hunt and Samples. The Committee
recommends the establishment of policies dealing with stock-based compensation
and administers all stock-based incentive compensation plans, including the
Stock Incentive Plan.
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of March 9, 1998,
unless otherwise noted, concerning ownership of the outstanding Common Stock by
those persons known to Arch Coal to be the beneficial owner of more than 5% of
the total outstanding Common Stock; each director or nominee for a director;
each of the executive officers named in the Summary Compensation Table; and all
directors and executive officers as a group. Except as noted and for Common
Stock acquired by means of dividend reinvestments under the Company's Dividend
Reinvestment Plan in respect of dividends payable to holders of record on March
9, 1998, the listed persons have no other right to acquire beneficial ownership
of Common Stock exercisable within 60 days. Ashland Inc. owns Common Stock
representing approximately 54% of the voting power of Arch Coal, and has the
power to elect a majority of the Board of Directors. Pursuant to an Agreement
between the Company, Ashland Inc. and Carboex, the Company has agreed to
nominate for election as a Director of the Company a person designated by
Carboex, and Ashland Inc. has agreed to vote sufficient shares of the Common
Stock in a manner sufficient to cause the election of such nominee. Pursuant to
such Agreement, Ashland Inc. will vote its shares of Common Stock in favor of
the election of Mr. Juan Ferrando as a Director. Each stockholder listed below
has sole voting and dispositive power with respect to the Common Stock listed,
unless otherwise noted.
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------- --------- --------
Ashland Inc. 21,552,167 54.3%
P.O. Box 391
Ashland, Kentucky 41114
Hunt Coal Corporation 2,199,659 5.5
5000 Thanksgiving Tower
Dallas, Texas 75201
Carboex International, Ltd. 2,050,000 5.2
Sasoon Building
Shirley Street & Victoria Avenue
P.O. Box N-272
Nassau, Bahamas
James R. Boyd(1) 1,000 *
Robert A. Charpie 10,000 *
Paul W. Chellgren(1) 5,426(2) *
Thomas L. Feazell(1) 678(3) *
Juan Antonio Ferrando (4) -- --
John R. Hall 10,500(5) *
Robert L. Hintz 1,000 *
Douglas H. Hunt 500 *
Patrick A. Kriegshauser -- --
Steven F. Leer 1,010(6) *
Thomas Marshall 2,500 *
James L. Parker 698,258(7) 1.8
J. Marvin Quin(1) 500 *
Jeffry N. Quinn 2,070(8) *
Ronald Eugene Samples 2,000(9) *
Robert W. Shanks -- --
Kenneth G. Woodring 73,434(10) *
All directors and executive
officers of the Company as a
group (22 persons) 885,061(11) 2.2
- ---------------
* Less than one percent of the outstanding shares.
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(1) Messrs. Boyd, Chellgren, Feazell and Quin are executive officers of
Ashland Inc. and to the extent they may be deemed to be control persons of
Ashland Inc., they may be deemed to be beneficial owners of shares of
Common Stock owned by Ashland Inc. Each of Messrs. Boyd, Chellgren,
Feazell and Quin disclaims beneficial ownership of such shares.
(2) Includes 1,086 shares owned by members of Mr. Chellgren's family as to
which he disclaims beneficial ownership.
(3) Includes 141 shares owned jointly with Mr. Feazell's spouse.
(4) Mr. Ferrando is a Director 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. Ferrando disclaims beneficial
ownership of such shares.
(5) Includes 500 shares owned by Mr. Hall's spouse as to which he disclaims
beneficial ownership.
(6) Includes 1,000 shares owned jointly with Mr. Leer's spouse.
(7) Consists of shares owned by trusts of which Mr. Parker is co-trustee. Mr.
Parker is also President and a Director of Hunt Coal Corporation, and he
may be deemed to share voting and dispositive power with respect to shares
of Common Stock owned by Hunt Coal Corporation. Mr. Parker disclaims
beneficial ownership of all such shares.
(8) Shares are held jointly with spouse.
(9) Includes 1,000 shares owned by Mr. Samples' spouse as to which he
disclaims beneficial ownership.
(10) Includes 68,835 shares held subject to stock options.
(11) Includes 2,586 shares owned by family members of persons in the group for
which such persons disclaim beneficial ownership, 6,505 shares held by
executive officers under Arch Coal's Employee Thrift Plan and 135,335
shares held subject to stock options.
PERSONNEL AND COMPENSATION COMMITTEE AND
STOCK INCENTIVE COMMITTEE REPORT ON
EXECUTIVE COMPENSATION FOR 1997
GENERAL
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 P&C Committee also approves all
compensation payments to the Chief Executive Officer and other executives,
except for grants of stock-based compensation.
The Stock Incentive Committee, which is also comprised entirely of
non-employee directors, is responsible for approving grants of stock options,
performance shares and other stock-based compensation under the Stock Incentive
Plan.
The current members of both of these committees 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:
1. A base salary;
2. A performance-based annual bonus; and
3. A long-term incentive program consisting of periodic grants of both
stock options and performance shares or units.
6
The fundamental objective of the Company's executive compensation program
is to attract, retain and motivate key executives to enhance long-term
profitability and stockholder value. The Company's compensation program meets
this objective by:
1. 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;
2. 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 overall performance
of the Company;
3. Increasing the emphasis on variable pay and long-term incentives at
more senior levels of the Company;
4. Rewarding executives for both the short and long-term enhancement
of stockholder value; and
5. 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 (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 12.
ANNUAL BASE SALARY
Annual salary is designed to compensate executives for their sustained
individual performance. Salaries for senior-level executive officers are
reviewed by the P&C Committee and are generally targeted at the median of Arch
Coal's Compensation Peer Group. Consideration is given to individual results and
experience, as well as corporate and operational performance. Salaries are
reviewed and adjusted on a 12 to 18 month basis but can be frozen as a result of
poor company performance or other reasons as determined in the Committee's sole
judgment.
ANNUAL INCENTIVE BONUS
During 1997, the Company adopted a transitional incentive bonus plan for
the period July 1, 1997 through December 31, 1997, replacing annual incentive
plans in place prior to the Merger that were terminated upon the consummation of
the Merger. Bonuses were paid under the terminated plans for the period January
1, 1997 through June 30, 1997, and under the transitional plan for performance
during the second half of 1997.
Incentive compensation is generally awarded based upon the successful
achievement of both individual and Company operating performance objectives. A
minimum Company financial performance level must be met before incentive bonus
awards are generated. Assuming the initial threshold is met, the Company's
overall performance, as well as the executive's individual performance, are
considered in determining the amount of the award.
A participant's maximum potential payout is based on his or her level of
participation in the bonus plan. The maximum award level generally increases
based upon an executive's potential to affect operations or profitability. In
addition, 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 evaluation of the extent to which an
individual has successfully discharged his duties during the year. The CEO's
individual performance factor is based upon the Board's evaluation of the CEO's
performance in discharging his duties.
Awards for the Chief Executive Officer and other senior-level officers are
based upon overall corporate performance. For the group operating officers,
awards are based upon both corporate performance as well as upon the performance
of the business units for which they are responsible. Awards to other corporate
employees are based upon overall corporate performance while the awards to other
operating subsidiary employees are based upon a combination of both corporate
and subsidiary performance. All award payments are subject to the final and
conclusive review and approval of the P&C Committee.
LONG-TERM INCENTIVES
The P&C Committee has determined a maximum long-term incentive opportunity
for each of the Company's executive officers, delivered through awards of stock
options and performance shares.
7
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 number of
shares has been established for each executive level established under the bonus
plan. This target helps to establish the range of stock options to be granted
annually to key employees. At the discretion of the Stock Incentive Committee,
awards can be made that deviate from these general guidelines.
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 years; however, options will immediately vest upon
a "change in control" of Arch Coal or upon an employee's death, retirement or
disability.
Performance Shares
Performance shares have been granted under the Stock Incentive Plan
covering a four-year performance period beginning January 1, 1998. Performance
shares can be earned based upon Arch Coal's total stockholder return ("TSR")
relative to two external benchmarks: the Compensation Peer Group and the
Standard and Poor's 400 mid-cap index. Each of these performance factors is
weighted equally at 50%. In order for the minimum payout to be generated under
the performance share grants, TSR over the 4-year period must be at least equal
to or greater than the median of either the TSR of the Compensation Peer Group
or at least equal to or greater than the 25th percentile of the S & P 400
mid-cap index. Maximum payouts will be generated if the Company's TSR is at
least equal to the 75th percentile level of each group. Awards granted under the
program to-date cover a four-year performance period, with the number of
performance shares initially granted based upon the employee's responsibility
level, performance and salary.
Payments with respect to performance shares earned during the four-year
performance period may be made wholly or partially in cash, or wholly or
partially in shares of Arch Coal Common Stock, at the discretion of the Stock
Incentive Committee and as permitted by applicable securities laws. The Stock
Incentive Committee can adjust, in its discretion, the performance measures
established and may adjust any payments earned during any performance period
downward based on poor performance or such factors as the Committee deems
appropriate.
DEDUCTIBILITY OF COMPENSATION
Under Section 162(m) of the Internal Revenue Code (the "Code"), the
Company is subject to loss of the deduction for compensation in excess of
$1,000,000 paid per year to any of the executive officers named in this Proxy
Statement. It is likely that the deduction can be preserved if the stockholders
ratify the Stock Incentive Plan (see "PROPOSAL TO RATIFY THE 1997 STOCK
INCENTIVE PLAN") and if Arch Coal complies with certain conditions in the design
and administration of its compensation programs. The Committee intends to make
every reasonable effort, consistent with sound executive compensation principles
and the future needs of the Company, to ensure that all future amounts paid to
its executive officers will be fully deductible by the Company.
OTHER PLANS
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 or paid to
executives under the plans.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
1997 Company Performance
Since the Merger, the Company has made significant progress in identifying
synergies resulting from the Merger and successfully integrating the merged
companies.
8
The table below shows key measures of the Company's financial performance
for 1997 compared to 1996 in each case on a pro forma combined basis after
giving effect to the Merger. Excluding merger-related expenses, the Company's
net income on a pro forma combined basis for 1997 was $75.5 million. During the
fourth quarter of 1997, total debt declined by $49 million which resulted in a
debt to capital ratio of 31% as of December 31, 1997. The Company's income from
operations before the effects of changes in accounting principles, unusual
items, net interest expense, income taxes, depreciation, depletion and
amortization ("EBITDA") equalled $298 million on a pro forma combined basis for
the year ended December 31, 1997. In addition, Arch Coal subsidiaries were
honored with ten national, regional or state safety and environmental awards
during the year.
(IN MILLIONS EXCEPT PER SHARE DAT 1997 (PRO FORMA)* 1996 (PRO FORMA)*
---------------------------------- ---------------- ----------------
Net income $51.7 $47.9
Net impact of merger-related expenses 23.8 -
Net income, excluding merger-related expenses $75.5 $47.9
Earnings per common share $ 1.30 $ 1.21
Net impact of merger-related expenses .60 -
Earnings per common share, excluding merger-related expenses $ 1.90 $ 1.21
Total debt as a percent of total capital 31% 40%
Return on common equity 8.6% 8.1%
Return on common equity, excluding merger-related expenses 12.5% 8.1%
- --------------
* This pro forma combined financial information assumes the Merger occurred at
the beginning of the periods presented.
1997 CEO Compensation
Mr. Leer became the Company's Chief Executive Officer in 1992. Upon
consummation of the Merger and consistent with the assumption of increased
duties and responsibilities resulting from the Merger, Mr. Leer received a base
salary increase of $75,000 effective July 1. Mr. Leer received a grant of 30,000
stock options on July 23, 1997, 10,000 of which vest July 23, 1998, an
additional 10,000 of which vest on July 23, 1999 and the remainder of which
fully vest on July 23, 2000. Such options would nonetheless fully vest upon a
"change in control" of Arch Coal or Mr. Leer's death, retirement or disability.
Considering the Company's post-Merger performance and in view of the
successful integration efforts associated with the Merger and synergies achieved
during the six-month period ending December 31, 1997, Mr. Leer received a bonus
in 1998 covering the last half of 1997 in the amount of $160,000. This was in
addition to the bonus of $162,500 paid in July 1997 under the Company's former
incentive compensation plan for Mr. Leer's performance during the first half of
1997.
This report is submitted by the P&C Committee with respect to all matters
set forth in the Report, except for those matters related to stock options and
performance shares, and by the Stock Incentive Committee only with respect to
stock options and performance shares.
In summary, these Committees believe that the total compensation
opportunities provided to the Company's executive officers create a strong
linkage and alignment with the long-term best interest of Arch Coal and its
stockholders.
PERSONNEL AND STOCK INCENTIVE
COMPENSATION COMMITTEE COMMITTEE
---------------------- ---------------
Thomas L. Feazell, Chairman Thomas Marshall, Chairman
Robert A. Charpie Robert L. Hintz
Paul W. Chellgren Douglas H. Hunt
Douglas H. Hunt Ronald Eugene Samples
Thomas Marshall
9
EXECUTIVE COMPENSATION
The following table is a summary of compensation information for each of
the last three years for the Chief Executive Officer and each of the other four
most highly compensated executive officers, based upon annual salary and bonus
for the fiscal year ended December 31, 1997, paid by Arch Coal or its
subsidiaries:
SUMMARY COMPENSATION TABLE(1)
LONG-TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------ ------ -------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS(2) COMPENSATION OPTIONS(3) PAYOUTS(4) COMPENSATION(5)
POSITION YEAR ($) ($) ($) (#) ($) ($)
- ------------------ ----- ------ -------- ------------ --------- ---------- ----------------
Steven F. Leer 1997 375,058 322,500 -0- 30,000 144,000 22,403
President & CEO 1996 309,731 310,000 -0- -0- -0- 18,600
1995 299,421 -0- -0- -0- -0- 9,000
Kenneth G. Woodring 1997 285,819 138,969 30,814(6) 15,000 29,085 17,049
Executive Vice President 1996 237,500 -0- -0- 15,000(7) -0- 6,300
1995 237,019 86,763 -0- 7,500(7) -0- 6,290
Robert W. Shanks 1997 220,227 134,109 7,037(6) 13,250 63,157 12,441
Vice President - Operations 1996 175,727 123,200 -0- -0- -0- 10,560
1995 155,168 -0- -0- -0- -0- 9,000
Jeffry N. Quinn 1997 206,564 127,220 -0- 13,575 42,560 12,294
Senior Vice President- 1996 171,656 120,540 -0- -0- -0- 10,332
Secretary & General Counsel 1995 151,784 -0- -0- -0- -0- 9,000
Patrick A. Kriegshauser 1997 185,942 114,440 -0- 13,575 31,959 11,057
Senior Vice President- 1996 133,857 94,360 23,460(6) -0- -0- 9,500
CFO and Treasurer 1995 109,731 -0- -0- -0- -0- 9,240
(1) Prior to the Merger, Mr. Woodring was Senior Vice President - Operations of
Ashland Coal and received compensation and benefits under applicable
Ashland Coal plans, which amounts are reflected in this table. Messrs.
Leer, Shanks, Quinn and Kriegshauser were, prior to the Merger, employees
of the Company received compensation and benefits under its then applicable
plans, as reflected above.
(2) For 1995, 1996 and for the period from January through June 1997, this
amount includes, for Mr. Woodring, the amounts awarded under the Ashland
Coal, Inc. Incentive Compensation Plan for Key Employees, and for Messrs.
Leer, Shanks, Quinn and Kriegshauser, amounts awarded under the Arch
Mineral Incentive Compensation Plan. For the period July through December
1997, this amount includes amounts earned under the Arch Coal, Inc.
Incentive Compensation Plan. All amounts listed were awarded with respect
to the subject year and paid in the immediately succeeding year, with the
exception of the amounts awarded for the period January through June 1997,
which were paid in 1997.
(3) Represents options granted under the Stock Incentive Plan.
(4) This amount represents the pro rata amounts paid in 1997 under Performance
Unit Plans of Ashland Coal to Mr. Woodring and of Arch Mineral to Messrs.
Leer, Shanks, Quinn and Kriegshauser for that portion of the 1995 - 1998
performance cycle that had been completed prior to termination such plans,
which plans were terminated upon consummation of the Merger.
(5) This amount represents contributions made to the applicable Employee Thrift
Plan, and for 1996 and 1997, contributions by the Company under its ERISA
Forfeiture Plan.
(6) Represents amounts paid for the reimbursement of taxes paid by the listed
individuals.
(7) These options were granted under the Ashland Coal 1995 and 1988 Stock
Incentive Plans ("Prior Plans") and, together with 46,335 options granted
in prior years under the Prior Plans were, upon consummation of the Merger
and in accordance with the agreement executed in connection with the Merger
(the "Merger Agreement"), replaced by options under the Stock Incentive
Plan. These replacement options are exercisable on the same terms and
conditions (including per share exercise prices) as were applicable to such
options under the Plan granted. Upon consummation of the Merger and in
accordance with the Merger Agreement, the Prior Plans were terminated.
10
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
----------------------------- VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES RATES OF STOCK PRICE
UNDERLYING % OF TOTAL APPRECIATION
OPTIONS OPTIONS GRANTED FOR OPTION TERM
GRANTED TO EMPLOYEES --------------------
NAME (#)(2) IN FISCAL YEAR 5%($) 10%($)
- ---- -----------------------------------------------------------
Steven F. Leer 30,000 10.0% $525,913 $1,332,767
Kenneth G. Woodring 15,000(3) 5.0% 262,957 666,384
Robert W. Shanks 13,250 4.4% 232,278 588,639
Jeffry N. Quinn 13,575 4.5% 237,976 603,077
Patrick A. Kriegshauser 13,575 4.5% 237,976 603,077
(1) All options granted expire July 23, 1007 and are exercisable at a base
price of $27.8750.
(2) The options are not exercisable during the first year following the date
of the grant. The options are exercisable with respect to 33 1/3 percent
of the underlying shares upon the first anniversary date of the grant and
until the second anniversary, and are exercisable between the second and
third anniversaries of the grant with respect to 66 2/3 percent of the
underlying shares. After the third anniversary of the date of the grant,
the options are exercisable with respect to 100 percent of the underlying
shares.
(3) In addition to the grant shown in the table, upon consummation of the
Merger and in accordance with the Merger Agreement, Mr. Woodring became
vested in 68,835 options that had been granted under the Prior Plans and
received an equal number of vested options under the Stock Incentive Plan
in substitution therefor. The substitute vested options are exercisable on
the same terms and conditions (including per share exercise prices) as
were applicable to such options granted under the Prior Plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)
---------------------- ---------------------
NAME EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
--------- ------------------------------- -----------------------------
Steven F. Leer -0- / 30,000 -0- / -0-
Kenneth G. Woodring 68,835 / 15,000 373,548 / -0-
Robert W. Shanks -0- / 13,250 -0- / -0-
Jeffry N. Quinn -0- / 13,575 -0- / -0-
Patrick A. Kriegshauser -0- / 13,575 -0- / -0-
LONG TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR (1)
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD UNTIL
NAME OR OTHER RIGHTS MATURATION OR PAYOUT
- ---- ------------------ --------------------
Steven F. Leer 23,000 1/1/98 - 12/31/01
Kenneth G. Woodring 11,500 1/1/98 - 12/31/01
Robert W. Shanks 7,200 1/1/98 - 12/31/01
Jeffry N. Quinn 7,000 1/1/98 - 12/31/01
Patrick A. Kriegshauser 5,700 1/1/98 - 12/31/01
(1) Performance shares will be earned based on the Company's performance
during the four-year performance cycle measured on the basis of its TSR as
compared to the TSR of: (1) a comparator group; and (2) the S&P's 400
mid-cap index. The awards will be based 50% on each of the two performance
measures. The Company must achieve a TSR equal to at least the median of
the comparator group to receive 50% of the portion of the award based upon
such comparison and a TSR at the 75th percentile to receive 100% of that
portion of the award. Similarly, the Company must reach a TSR equal to the
25th percentile, median or 75th percentile to achieve 20%, 50% or 100%,
respectively, of the portion of the award based on the S&P's 400 mid-cap
index.
11
ARCH PERFORMANCE GRAPH(1)
[PERFORMANCE GRAPH APPEARS HERE]
Measurement Period
(Fiscal Year Covered) Arch Coal S&P 400 Peer Group (1)
- ----------------------------- ---------- ---------- --------------
Measurement Point-12/31/92 $100.00 $100.00 $100.00
Fiscal Year Ended 12/31/93 $121.00 $114.00 $116.00
Fiscal Year Ended 12/31/94 $116.00 $110.00 $104.00
Fiscal Year Ended 12/31/95 $88.00 $144.00 $123.00
Fiscal Year Ended 12/31/96 $117.00 $171.00 $105.00
Fiscal Year Ended 12/31/97 $117.00 $227.00 $106.00
- -----------------
(1) Peer Companies include: Cyprus Amax Minerals Company, Freeport-McMoran
Copper & Gold Inc., Newmont Mining Corporation, The Pittston Company,
Rochester & Pittsburgh Coal Company, Southern Peru Copper Corporation,
Vulcan Materials Company and Zeigler Coal Holding Company.
PENSION PLAN
In October 1997, the Company adopted a Cash Balance Pension Plan (the
"Pension Plan") effective January 1, 1998, to combine and replace both the Arch
Coal, Inc. (formerly Arch Mineral) Pension Plan and the Ashland Coal, Inc.
Pension Plan for salaried employees (each, the "Prior Pension Plan"). As of
January 1, 1998, all participants were vested in the Pension Plan. New hires
after January 1, 1998, will vest after three years of service. The Pension Plan
establishes an opening balance for each plan participant which is based on the
present value of each participant's earned pension benefit, payable at age 65,
under the Prior Pension Plan as of December 31, 1997. On an annual basis (or a
shorter period if a participant's employment is terminated), a participant's
account is credited with the following: (i) contribution credits equal to a
percent of total pay based upon the participant's age at year end; (ii)
transition credits for a period equal to a participant's credited service under
a Prior Pension Plan as of December 31, 1997 (to a maximum of 15 years from
December 31, 1997) both in accordance with the percentage amounts set forth
below; and (iii) interest credits based on one-year treasury yields plus 1%.
AGE AT CONTRIBUTION CREDITS* TRANSITION CREDITS
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.
12
As of December 31, 1997, the estimated annual annuities (based on one-year
treasury yields) payable at age 65 to Messrs. Leer, Woodring, Shanks, Quinn and
Kriegshauser were $318,205, $173,880, $220,788, $219,324, and $200,376,
respectively.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
Mr. Leer entered into an employment agreement with the Company dated March
1, 1992. The agreement is automatically renewed from year to year unless
terminated sixty days in advance of the end of each year. The agreement provides
for an annual base salary of not less than $250,000 and requires the Company to
maintain an incentive compensation plan under which Mr. Leer is entitled to
receive annual bonuses of up to 100% of his base salary; however, the amount of
the bonus actually received is to be determined on the basis of the achievement
by the Company of certain performance goals as established by the Board of
Directors (or a committee thereof) on an annual basis.
Messrs. Woodring, Shanks, Quinn and Kriegshauser and certain other senior
employees have Retention/Severance Agreements with the Company. Pursuant to
these Agreements, if the employment of the covered employee is terminated prior
to June 30, 1998, other than for "Cause" (as defined in the Agreement) the
covered employee will receive severance benefits of 24 months base pay,
continuation of medical benefits for 24 months, outplacement assistance and
acceleration of the vesting of their incentives, including stock options.
COMPENSATION OF DIRECTORS
Non-employee Directors of Arch Coal during 1997 received a prorated portion
of an annual retainer of $25,000 and a $1,250 fee for each Board or Committee
meeting attended and expenses incurred in attending all such meetings. A
Director who serves as a chairman of a committee or as Chairman of the Board
received an additional pro rata fee of $4,000 for each chairmanship held by such
Director. Messrs. Boyd, Chellgren, Feazell, and Quin have waived the payment of
their fees and retainers, which waiver may be withdrawn at any time. Under the
Deferred Compensation Plan for Directors' Fees, a Director who is separately
compensated for his services on the Board or a committee of the Board may defer
all or part of his Director's retainer, meeting fees and any per diem
compensation for special assignments. A Director may elect to earn interest on
deferred amounts based on either the prime rate (as quoted by Citibank as its
prime commercial lending rate on the last day of each calendar quarter) or based
on a hypothetical investment in Common Stock. Deferred amounts, plus earnings,
are payable in cash to the Director, his estate, or beneficiary over such period
of time as might be designated by the Director, in no event to extend beyond the
twentieth anniversary of the termination of his services as a Director.
Additionally, during 1997, Mr. Samples received $16,650 under a consulting
agreement that terminated June 30, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon consummation of the Merger, the Board established its P&C Committee
and Stock Incentive Committee. All current members of the Committees have served
since the inception of the Committees. None of the members of either Committee
are officers or employees of Arch Coal or any of its subsidiaries. Mr. Samples
served as President and Chief Executive Officer of the Company from 1988 to
1992. Messrs. Boyd, Chellgren, Feazell and Quin are employees of Ashland Inc.
(see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for further information
about the relationship of Arch Coal with Ashland Inc.).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Arch Coal purchased fuel, oil and other products and services from Ashland
Inc. at current market prices using standard purchase orders. Such purchases
amounted to approximately $4.7 million in 1997.
Ashland Inc. currently guarantees approximately $12.3 million of coal
royalty payments, land lease and various other obligations of Ashland Coal.
Management believes charges between Arch Coal and Ashland Inc. for services
rendered or provided were reasonable, and that the other transactions described
above were concluded on terms equivalent to those prevailing among unaffiliated
parties.
13
During 1997, Mr. Samples' son, Mr. Ronald Samples, II, an employee of a
subsidiary of the Company, received cash compensation totaling $72,369 and
participated in various employee benefits available to similarly situated
employees.
Ernst & Young LLP, whose appointment as independent auditor for Arch Coal
is sought to be ratified under Proposal 3, is also the independent auditor for
Ashland Inc., and Ernst & Young S.A., a Spanish affiliate of Ernst & Young LLP,
is the independent auditor for Carboex.
The Company, Ashland Inc., Carboex, and various trusts, and corporations
owned by trusts, for the benefit of descendants of H. L. and Lyda Hunt are
parties to a Registration Rights Agreement pursuant to which certain of such
stockholders will have certain rights to require the Company to register the
sale of such stockholders' shares of Common Stock under the Securities Act of
1933, as amended (the "Securities Act"). Subject to certain limitations, all
such stockholders also have certain incidental rights under the Registration
Rights Agreement to include shares of Common Stock in registration statements
filed under the Securities Act with respect to offerings of Common Stock by
other stockholders of the Company.
Pursuant to a Stockholders Agreement between the Company, Ashland Inc. and
Carboex, the Company has agreed to nominate for election as a director of the
Company a person designated by Carboex, and Ashland Inc. has agreed, among other
things, to vote its shares of Common Stock in a manner sufficient to cause the
election of such nominee. In addition, pursuant to this Agreement, Ashland Inc.
has agreed that if it or any of its affiliates desire to sell or otherwise
dispose of (other than pursuant to a public offering or pursuant to the
Registration Rights Agreement described above) 50% or more of the shares of
Common Stock then held by Ashland Inc. and its affiliates to an Industrial Buyer
(as defined in the Stockholders Agreement) or 20% or more of the total
outstanding shares of Common Stock to an Industrial Buyer, then subject to the
satisfaction of certain conditions, Carboex will have the right to sell or
otherwise dispose of all of the shares of Common Stock then held by it in such
transaction.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers and any persons beneficially holding more than ten
percent of the Common Stock are required to report their ownership of Common
Stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC") and the New York Stock Exchange. Specific due dates for
these reports have been established and the Company is required to report in
this proxy statement any failure to file by these dates. All of these filing
requirements were satisfied. In making these statements, the Company has relied
on copies of the reports that its executive officers and directors have filed
with the SEC.
PROPOSAL TO RATIFY
THE 1997 STOCK INCENTIVE PLAN
(PROPOSAL 2 ON THE PROXY CARD)
On April 1, 1997, the Company's Board of Directors recommended to its
stockholders the adoption of the Stock Incentive Plan. Prior to the Merger, on
April 4, 1997, the stockholders adopted and approved the Stock Incentive Plan
effective upon the consummation of the Merger.
The Stock Incentive Plan is being submitted for approval in order to
qualify it under Section 162(m) of the 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 purpose of the Stock Incentive Plan is to provide a flexible mechanism
to provide incentives to, and to encourage ownership of, Common Stock by
officers and other selected key management employees of the Company and its
subsidiaries. An aggregate of 6,000,000 shares of Common Stock have been
reserved for issuance pursuant to the Stock Incentive Plan, including options
covering 674,935 shares granted at the time of the Merger in substitution for
vested options under two Ashland Coal stock option plans. The following table
shows the grants made under the Stock Incentive Plan during 1997.
14
NEW PLAN BENEFITS
ARCH COAL, INC. 1997 STOCK INCENTIVE PLAN
NAME NUMBER OF UNITS(1)
---- -----------------
Steven F. Leer 53,000
Kenneth G. Woodring 26,500(2)
Robert W. Shanks 20,450
Jeffry N. Quinn 20,575
Patrick A. Kriegshauser 19,275
Executive Officer Group 74,600
Non-Executive Employee Group 266,500
- ---------
(1) Includes the grant of stock options and performance shares. (See tables
entitled "OPTION GRANTS IN LAST FISCAL YEAR" and "LONG TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR.") The closing price for Arch Coal Common Stock
on March 9, 1998, was $26.00.
(2) Mr. Woodring also received 68,835 replacement options. (See footnote 7 to
the "SUMMARY COMPENSATION TABLE.")
The Board of Directors believes that the successful implementation of the
Company's business strategy will depend upon attracting and retaining able
executives, managers and other key employees. The Board also believes that the
ability to grant Awards (defined below) under the Stock Incentive Plan will
strengthen the ability of the Company to attract and retain capable personnel.
The Stock Incentive Plan is administered by the Stock Incentive Committee of the
Board of Directors of the Company ("Committee"). 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 (the "Awards").
The ratification of the Stock Incentive Plan requires the affirmative vote
of the majority of the outstanding shares voting thereon. The Board of Directors
recommend the stockholders vote "FOR" the ratification of the Stock Incentive
Plan.
A copy of the Stock Incentive Plan is attached as Exhibit A. The following
summary of the terms of the Stock Incentive Plan is qualified in its entirety by
reference to all of the provisions thereof.
ADMINISTRATION
The Stock Incentive Plan is administered by the Committee. Subject to the
express provisions of the Stock Incentive Plan, the Committee has the plenary
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
(the "Employees") are eligible to be selected to participate in the Stock
Incentive Plan ("Participants"). The selection of Participants from among the
Employees is within the discretion of the Committee.
AMENDMENT OF 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,
15
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.
AVAILABLE SHARES
6,000,000 shares of Common Stock are available for grant under the Stock
Incentive Plan, of which 1,316,035 have been granted as stock options or awarded
as performance shares. Shares of Common Stock related to Awards which terminate
by expiration, forfeiture, cancellation or otherwise without the issuance of
shares, or are settled in cash in lieu of Common Stock, and shares used to pay
an option exercise price will thereafter again be available for grant under the
Stock Incentive Plan.
LIMITATION ON AWARDS
The maximum number of shares of Common Stock with respect to which any
Participant may receive Awards of stock options or stock appreciation rights
during any calendar year is 300,000; the maximum number of shares of Common
Stock with respect to which any Participant may receive Awards of restricted
stock during any calendar year is 100,000; the maximum number of shares of
Common Stock with respect to which any Participant may receive Merit Awards
during any calendar year is 100,000; and the maximum number of shares of Common
Stock with respect to which any Participant may receive other Awards during any
calendar year is 100,000.
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. The
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, except as expressly provided in the
Stock Incentive Plan with respect to substitution of Awards for similar awards
upon the occurrence of certain transactions including the Merger. Upon exercise,
the option price may, at the discretion of the Committee, be paid by a
Participant in cash, shares of Common Stock, a combination thereof, or such
cashless exercise arrangement as the Committee may deem appropriate. Any stock
option granted in the form of an incentive stock option must satisfy the
applicable requirements of Section 422 of the Code.
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, except as
expressly provided in the Stock Incentive Plan with respect to substitution of
Awards for similar awards upon the occurrence of transactions like the Merger.
A tandem SAR may be granted either at the time of the grant of the related
stock option or at any time thereafter during the term of the stock option. A
tandem SAR shall be exercisable to the extent its related stock option is
exercisable, and the exercise price of such a SAR shall be the same as the
option price under its related stock option. Upon the exercise of a stock option
as to some or all of the shares covered by the Award, the related tandem SAR
shall be canceled automatically to the extent of the number of shares covered by
the stock option exercise.
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.
16
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.
PERFORMANCE GOALS
If the Committee desires payment under an Award (other than under a stock
option or SAR granted at 100% or more of the fair market value of the shares of
Common Stock as of the date of grant) to qualify as "performance-based
compensation" under Section 162(m) of the Code, the performance goals which must
be achieved in order for payment to be made shall be based upon one or more of
the following business criteria: net income; earnings per share; income from
operations before the effects of changes in accounting principles, unusual
items, net interest expense, income taxes, depreciation, depletion 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(R)"), operating costs,
sales or compliance with Company policies.
CHANGE IN CONTROL
In the event of a "Change in Control" (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.
The Stock Incentive Plan defines a "Change in Control" as 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, as in effect on the date the Stock
Incentive Plan is adopted, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and as in effect on the date
the plan was approved by the Company's stockholders; provided, that without
limitation, a "Change in Control" shall be deemed to have occurred (1) upon the
approval of the Board of Directors (or if approval of the Board is not required
as a matter of law, the stockholders 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 Common Stock would be converted into
cash, securities or other property, other than a merger in which the holders of
Common Stock immediately prior to the merger will have more than 50% of the
ownership of common stock of the surviving corporation immediately after the
merger, (B) any sale, lease, exchange or 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" (defined as
any stockholder of the Company who, immediately prior to the Effective Date
owned more than 5% of Common Stock) or any subsidiary or employee benefit plan
or trust maintained by the Company or any of its subsidiaries, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 20% of Common Stock outstanding at such time,
without prior approval of the Board of Directors.
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.
17
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 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:
1. 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
18
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.
2. 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.
3. 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.
4. 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:
(i) 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).
(ii) 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.
Deductibility of Compensation in Excess of $1 Million Per Year
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,
19
subject to approval of the Plan by the Company's stockholders, certain
performance-based compensation is exempt from this deduction limit. Stock
options and or SAR's will qualify for this exemption. In addition, certain other
Awards granted under the Stock Incentive Plan will also qualify while others may
not.
The foregoing statement is only a summary of the federal income tax
consequences of certain Awards which may be granted under the Stock Incentive
Plan and is based on the Company's understanding of present federal tax laws and
regulations.
OTHER TERMS OF AWARDS
Awards may be paid in cash, Common Stock, a combination of cash and Common
Stock or any other form of property, as the Committee shall determine. If an
Award is granted in the form of a stock award, stock option, or performance
share, or in the form of any other stock-based grant, the Committee may include
as part of such Award an entitlement to receive dividends or dividend
equivalents. At the discretion of the Committee, payment of a stock award,
performance share, performance unit, dividend, or dividend equivalent may be
deferred by a Participant.
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.
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.
Upon the grant of any Award, the Committee may, by way of an Award
Agreement or otherwise, establish such other terms, conditions, restrictions and
limitations governing the grant of such Award as are not inconsistent with the
Company Stock Incentive Plan.
PROPOSAL TO RATIFY AUDITORS
(PROPOSAL 3 ON THE PROXY CARD)
Subject to ratification by the stockholders, the Board of Directors has
appointed Ernst & Young LLP as independent auditors to audit the consolidated
financial statements of Arch Coal and its subsidiaries for the year ending
December 31, 1998. Ernst & Young LLP is also the independent auditor for Ashland
Inc. and Ernst & Young S.A., a Spanish affiliate of Ernst & Young LLP, is the
independent auditor for Carboex. Submission of the appointment to the
stockholders for their ratification is not required. However, the Board will
reconsider the appointment if it is not ratified by the stockholders.
The following resolution concerning the appointment of independent auditors
will be offered at the meeting:
"RESOLVED, that the appointment of Ernst & Young LLP by the Board of
Directors of the Corporation to audit the accounts of the Corporation and
its subsidiaries for the year ending December 31, 1998, is hereby
ratified."
20
Representatives of Ernst & Young LLP will be present at the Annual Meeting
and will have the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions. The Audit Committee and the Board
of Directors recommend the stockholders vote "FOR" such ratification.
Prior to the Merger, Arthur Andersen LLP acted as independent auditors for
the Company. Upon consummation of the Merger, the Board of Directors approved
the engagement of Ernst & Young LLP as its independent auditors for the fiscal
year ending 1997 effective July 1, 1997.
Prior to the Merger, Ernst & Young LLP acted as independent auditors for
Ashland Coal. Ernst & Young LLP also acts as the independent auditors for
Ashland Inc. who consolidates the financial statements of Arch Coal as a result
of the Merger. Arthur Andersen LLP's reports on the Company's financial
statements for the fiscal years ended December 31, 1996 and 1995 did not contain
an adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements between the Company and Arthur Andersen LLP on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures during such fiscal years or thereafter through and including
the date of the conclusion of Arthur Andersen LLP's services, which, if not
resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur
Andersen LLP to make reference to the matter in their reports.
MISCELLANEOUS
The expenses of solicitation of proxies for the Annual Meeting, including
the cost of preparing and mailing this Proxy Statement and the accompanying
material, will be paid by Arch Coal. Such expenses may also include the charges
and expenses of banks, brokerage houses and other custodians, nominees or
fiduciaries for forwarding proxies and proxy material to beneficial owners of
shares. Solicitation may be made by mail, telephone, telegraph and personal
interview, and by regularly engaged officers and employees of Arch Coal, who
will not be additionally compensated therefor.
The Board of Directors knows of no other matters to be voted upon at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of proxy to vote on
such matters in accordance with their judgment.
A form of proxy which is properly signed, dated and not revoked will be
voted in accordance with the instructions contained therein. IF NO INSTRUCTIONS
ARE GIVEN, THE PERSONS NAMED IN THE FORM OF PROXY SOLICITED BY THE BOARD OF
DIRECTORS INTEND TO VOTE FOR THE NOMINEES NAMED THEREIN FOR ELECTION AS
DIRECTORS; FOR RATIFICATION OF THE STOCK INCENTIVE PLAN; AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR
1998.
Proposals of stockholders which are the proper subject for inclusion in the
Proxy Statement and for consideration at the 1999 Annual Meeting of Stockholders
must be received by Arch Coal no later than November 27, 1998, in order to be
included in Arch Coal's Proxy Statement and form of proxy card.
Please fill in, sign and date the enclosed form of proxy and return it in
the accompanying addressed envelope which requires no further postage if mailed
in the United States. If you attend the Annual Meeting and wish to vote your
shares in person, you may do so if you notify the Secretary of the meeting in
writing prior to the voting of the proxy. Your cooperation in giving this matter
your prompt attention will be appreciated.
By Order of the Board of Directors,
/s/ Jeffry N. Quinn
Jeffry N. Quinn
Senior Vice President--Law and
Human Resources
Secretary and General Counsel
St. Louis, Missouri
March 27, 1998
21
EXHIBIT A
ARCH COAL, INC.
1997 STOCK INCENTIVE PLAN
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 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 may, but in the discretion of the Committee, shall not necessarily, 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 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
A-2
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 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; income from operations before
the effects of changes in accounting principles, unusual items, net interest
expense and income taxes ("EBIT"); income from operations before the effects of
changes in accounting principles, unusual items, net interest expense, income
taxes, depreciation, depletion 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(R)); 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.
A-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:
(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
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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 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.
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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 six million
(6,000,000) 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.
(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.
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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 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.
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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 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
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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 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
shallbe 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
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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 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.
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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 shall be forfeited and
exercisable Options shall be forfeited after 90 days from the Participant's
Termination Date.
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 by the Participant with the consent and
approval of the Participant's Employer, shall be exercisable until 120 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 original 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.
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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.
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.
A-12
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 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.
A-13
PROXY
ARCH COAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON APRIL 22, 1998
The undersigned hereby appoints STEVEN F. LEER and JEFFRY N. QUINN, 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 Wednesday, April 22, 1998, and at any
adjournments thereof, with all powers the undersigned would possess if present
at such meeting (including with respect to the election of directors, the power
to cumulate votes and distribute such votes among the nominees) on the matters
set forth on the reverse side hereof and all other matters properly coming
before the meeting.
ELECTION OF DIRECTORS, NOMINEES (Comments or Change of Address)
- -------------------------------
James R. Boyd Robert L. Hintz ______________________________
Paul W. Chellgren Douglas H. Hunt
Thomas L. Feazell Steven F. Leer ______________________________
Juan Antonio Ferrando James L. Parker
John R. Hall J. Marvin Quin ______________________________
______________________________
(If you have written in the
above space, please mark the
corresponding box on the
opposite side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but 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 sign and return your card.
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
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.
The Board of Directors Recommends a Vote for All Proposals.
FOR WITHHELD
1. Election of [ ] [ ]
Directors
(see opposite side)
For, except vote withheld
from the following nominee(s):
______________________________
______________________________
FOR AGAINST ABSTAIN
2. Ratification of [ ] [ ] [ ]
the Arch Coal, Inc.
1997 Stock Incentive
Plan.
3. Ratification of [ ] [ ] [ ]
Ernst & Young LLP
as independent
Auditors for 1998.
You are encouraged to specify your choices by marking the appropriate boxes, and
promptly returning this proxy in the enclosed envelope, which requires no
postage, but you need not mark any boxes if you wish to vote in accordance with
the recommendations of the Board of Directors.
Change of Address/ Comments on opposite side. [ ]
I plan to attend the Annual Meeting [ ]
SIGNATURE(S)_____________________________________________ DATE _________________
NOTE: Please sign exactly as your name or names appear hereon, 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.
PROXY
ARCH COAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON APRIL 22, 1998
The undersigned as a participant in the Arch Coal, Inc. Employee Thrift Plan
("Plan") hereby instructs Chase Manhattan Bank, N.A., Trustee to constitute and
appoint STEVEN F. LEER and JEFFRY N. QUINN, and each of them, with power of
substitution, as the proxy of said Trustee to represent the interests of the
undersigned in the Common Stock of Arch Coal, Inc. ("Arch Coal") held under the
terms of the Plan at the Annual Meeting of Stockholders of Arch Coal to be held
at its headquarters at CityPlace One, St. Louis, Missouri, at 10:00 a.m. on
Wednesday, April 22, 1998, and at any adjournments thereof, and to vote with all
powers the undersigned would possess if present at such meeting, all shares of
Common Stock credited to the undersigned under the Plan as of the record date
for the Annual Meeting (including with respect to the election of directors, the
power to cumulate votes and distribute such votes among the nominees) on the
matters set forth on the reverse side hereof and all other matters properly
coming before the meeting.
ELECTION OF DIRECTORS, NOMINEES (Comments or Change of Address)
- -------------------------------
James R. Boyd Robert L. Hintz ______________________________
Paul W. Chellgren Douglas H. Hunt
Thomas L. Feazell Steven F. Leer ______________________________
Juan Antonio Ferrando James L. Parker
John R. Hall J. Marvin Quin ______________________________
______________________________
(If you have written in the
above space, please mark the
corresponding box on the
opposite side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but 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 sign and return your card.
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
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.
The Board of Directors Recommends a Vote for All P roposals.
FOR WITHHELD
1. Election of [ ] [ ]
Directors
(see opposite side)
For, except vote withheld
from the following nominee(s):
______________________________
______________________________
FOR AGAINST ABSTAIN
2. Ratification of [ ] [ ] [ ]
the Arch Coal, Inc.
1997 Stock Incentive
Plan.
3. Ratification of [ ] [ ] [ ]
Ernst & Young LLP
as independent
Auditors for 1998.
You are encouraged to specify your choices by marking the appropriate boxes, and
promptly returning this proxy in the enclosed envelope, which requires no
postage, but you need not mark any boxes if you wish to vote in accordance with
the recommendations of the Board of Directors.
Change of Address/ Comments on opposite side. [ ]
I plan to attend the Annual Meeting [ ]
SIGNATURE(S)_____________________________________________ DATE _________________
NOTE: Please sign exactly as your name or names appear hereon, and when signing
as attorney, executor, administrator, trustee or guardian, give your full title
as such.
