Company Name: Peabody Energy Corp.
Public Availability Date: February 19, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
26 January 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549 Re: Shareholder proposal submitted by Amalgamated Bank LongView Midcap 400 Index
Fund to Peabody Energy Corporation Dear Counsel:
I write on behalf of Amalgamated Bank LongView Midcap 400 Index Fund (the
"Fund"), which submitted a shareholder resolution to Peabody Energy Corporation
("Peabody" or the "Company"). By letter dated 12 January 2004, counsel for
Peabody advised the Division that Peabody intends to omit the resolution and
sought no-action relief accordingly. For the reasons stated below, the Fund
respectfully urges the Division to deny Peabody's request.
The Fund's Resolution and Peabody's Initial Comments
The Fund's resolution is a garden-variety governance proposal of the sort that
has been voted at various companies in recent years. In brief, it asks the
Company to adopt a policy of nominating independent director candidates who, if
elected, would constitute two-thirds of the board. The criteria for independence
are set out in the resolution, and they are based on standards adopted by the
Council of Institutional Investors. Peabody's response begins (at 2-3) by stating its disagreement on policy grounds
with the fact that the resolution proposes standards higher than those set out
in New York Stock Exchange listing standards. This, of course, is not a basis
for exclusion under Rule 14a-8 and is more suitable for a statement in
opposition. Suffice it to say that if the Fund were satisfied with the NYSE
standards, it would not have proposed the resolution in the first place.
Peabody notes too that the board currently has ten members (not 12, as the
proposal states) and that one director recently resigned. This is the sort of
objection that (one hopes) could be resolved on an informal basis between
counsel outside of the no-action process. The Fund has always been willing
toupdate resolutions following submission and is willing to do so here. With
that preface, we respond to the specific exclusions cited by Peabody as follows.
Rule 14a-8(i)(8): Relating to Director Elections
The (i)(8) exclusion permits the exclusion of proposals that relate "to an
election for membership on the company's board of directors or analogous
governing body." Peabody objects to the fact that the proposal identifies by
name one inside director (the Chairman/CEO) and several directors affiliated by
Lehman Brothers, the largest shareholder. Peabody argues that because the
Chairman/CEO and one of the Lehman directors are up for election in 2004, the
resolution casts doubts on their abilities and will adversely influence
Peabody's attempt to solicit proxies on their behalf. The resolution is also
said to be ambiguous as to whether incumbent directors on Peabody's classified
board who are not up for election this year could serve out their terms.
Taking the last point first, the Fund's proposal focuses on policy and does not
seek to affect 2004 director elections or to shorten anyone's term. As Peabody
concedes (at 4), the Division does not object to proposals that are clear on
this point. Although we believe that the Fund's intent is clear, we are willing
to add a sentence to clarify the point, i.e., that the Board should pursue this
goal following this year's election without shortening the term of an incumbent
director and transition to an independent board through its power to nominate
candidates to stand for election by shareholders. See Conseco, Inc. (5 April
2002). Indeed, the Fund would have been happy to make this change had Peabody's
counsel picked up the telephone. As for the objection to the naming of individuals in the supporting statement,
we note that the Fund's resolution (even without the additional sentence
described above) does not directly criticize individual directors in the same
way as the two no-action letters that Peabody cites. In American Telephone &
Telegraph Co. (28 January 1983), the resolution asked that "a vote of no
confidence be had in regard to the present management and directors of AT&T."
The Division viewed this language as directly questioning the abilities of the
management directors running for election that year. By contrast, the Fund's
resolution expresses no view about the 2004 director elections. Indeed, from a
shareholder's perspective, one might conclude that the individual incumbents
deserve re-election, but that over time, Peabody should move to the level of
independence recommended in the proposal. The resolution in PepsiCo., Inc. (1 February 1999) sought to force the
resignation of individual directors whose professional responsibilities had
changed. The supporting statement noted that PepsiCo's board "includes two CEOs
who were ousted from their own places of employment. We believe that directors
should submit a resignation under circumstances such as these." Thisis far more
clearly a direct attack on incumbents seeking re-election than the Fund's
resolution, which focuses on a more neutral standard of independence without
regard to who is up for re-election that year. Moreover, Conseco rejected the company's (i)(8) argument with respect to a
similar board independence proposal that identified by name certain individual
directors as non-independent, one of whom was up for re-election that year.
Given the similarities between the two proposals, and the Division's ruling in
Conseco, Peabody has not carried its burden of proving that the Fund's
resolution violates the (i)(8) exclusion. That said, we acknowledge that Conseco did credit an argument that Peabody does
not raise, namely, that certain information about the independence of individual
named directors was inaccurate or misleading within the meaning of Rule
14a-8(i)(3). The Division agreed, and it required deletion of the sentence
containing that inaccurate information about named individuals. Here, Peabody
does not claim that the Fund has misstated the independence or non-independence
of individual board members who are identified by name in the resolution. Nor,
as we discuss below, does Peabody's separate (i)(3) claim have anything to do
with individual board members or nominees. In any event, and without conceding
the legal point, should the Division conclude that, even with the clarifying
sentence discussed above, the deletion of identifiers is required to avoid any (i)(8)
issue as to this year's election, the Fund is willing to delete the names of
individual directors in the supporting statement. Rule 14a-8(i)(3): Materially False or Misleading Statements
Peabody's final objection is one that it concedes the Division rejected less
than two years ago. Specifically, Peabody argues that the proposal is materially
false or misleading because it defines independence according to whether a
potential director candidate is a "significant" customer or supplier or is
affiliated with a non-profit group that has received "significant" grants from
the Company. This is grasping at straws. Peabody admits (at 3) that its current
board fails to meet the proposed two-thirds standard of independence. One cannot
say then that the proposal is so vague and indefinite that the company will not
know how to implement it, which is the usual (i)(3) argument.
More significantly, Peabody acknowledges that The Gap, Inc. (18 March 2002)
expressly considered identical objections to the use of the word "significant"
in a similar board independence proposal. Nothing has changed over the past two
years. In an effort to suggest that something has, Peabody cites recent NYSE and
NASDAQ listing standards, which are said to indicate a trend by the exchanges
towards supposedly more "objective" criteria for determining director
independence. This argument fails to persuade. The key adjective in the listing standards is "material." It may well be true
that the NASDAQ standards forbid "material" relationships and then define
"material" with reference to specific dollar terms and percentages. It may also
be true that the NYSE prohibits "material" disqualifying relationships, although
(as Peabody concedes) the NYSE standards also permit individual companies to
establish their own standard of materiality, provided that it is disclosed to
shareholders. Neither fact establishes that the Fund's proposal, which uses a
more stringent standard, is materially false or misleading.
The fact that the Fund's proposal uses a different standard of independence that
the ones used by the exchanges does not render it materially false or
misleading. Moreover, the NYSE standards (which govern Peabody) are not entirely
"objective" because they contain a huge loophole in the form of a grant of
discretion to individual boards to define what is "material" using their own
"objective" criteria. Peabody's citations to no-action letters about "excessive and gratuitous
violence" on television (Hershey Foods Corp. (27 December 1988); Jos. Schlitz
Brewing Co. (21 March 1977)) have little bearing in this arena, both because
"excessive violence" is hard to define and also because the "material"
vocabulary used by the exchanges does not render the "significant" vocabulary
used by the Fund into something that is materially false or misleading.
Conclusion. For these reasons, we respectfully ask the Division to advise Peabody that the
Division does not concur with the Company's view that the Fund's resolution may
be excluded from the Company's proxy materials. Thank you for the opportunity to submit these comments. Please do not hesitate
to contact me if there is additional information that I can provide.
Please note too that I am moving my offices as of 1 February 2004. After that
date, I can be reached at: 5301 Wisconsin Avenue, N.W., Suite 350
Washington, D.C. 20015
(202) 364-6900 Fax: (202) 364-9960
Email: cfhitchcock@yahoo.com Very truly yours,
/s/ Cornish F. Hitchcock
cc: Susan H. Easton, Esq. [APPENDIX 1]
1 December 2003 Mr. Frederick D. Palmer
Executive Vice President and Corporate Secretary
Peabody Energy Corporation
701 Market Street
St. Louis, Missouri 63101
By UPS and facsimile; (314) 342-7614 Re: Shareholder proposal for 2004 annual meeting
Dear Mr. Palmer: On behalf of the Amalgamated Bank LongView MidCap 400 Index Fund (the "Fund"), a
long-term institutional investor in your Company, 1 submit the enclosed
shareholder proposal for inclusion in the proxy materials that Peabody Energy
Corp. plans to circulate to shareholders in anticipation of the 2004 annual
meeting. The proposal is being submitted under SEC Rule 14a-8, and it asks the
board to adopt a policy that two-thirds of all directors shall be independent as
that terms is defined in the resolution. The Fund is an S&P MidCap 400 index fund, located at 11-15 Union Square, New
York, N.Y. 10003, with assets exceeding $100 million. Created by the Amalgamated
Bank in 1997, the Fund has beneficially owned more than $2000 worth of Peabody
common stock for more than one year. A letter from the Bank confirming ownership
is being submitted under separate cover. The Fund plans to continue ownership
through the date of the 2004 annual meeting, which a representative is prepared
to attend. If you require any additional information, please let me know.
Very truly yours, /s/
Cornish F. Hitchcock [APPENDIX 2]
RESOLVED: The shareholders of Peabody Energy Corporation ("Peabody" or the
"Company") urge the Board of Directors to adopt a policy of nominating
independent directors who, if elected by the shareholders, would constitute
two-thirds of the Board. For purposes of this proposal, the term "Independent
Director" shall mean a director who is not or who, during the past five years,
has not been:
employed by Peabody or one of its affiliates in an executive capacity;
an employee or owner of a firm that is a paid adviser or consultant to Peabody
or one of its affiliates;
employed by a significant Peabody customer or supplier;
a party to a personal services contract with Peabody or an affiliate thereof,
as well as with Peabody's Chair, CEO or other executive officer;
an employee, officer or director of a foundation, university or other
non-profit organization receiving significant grants or endowments from Peabody
or one of its affiliates;
a relative of an executive of Peabody or one of its affiliates;
part of an interlocking directorate in which Peabody's CEO or another
executive officer serves on the board of another corporation that employs the
director. SUPPORTING STATEMENT This proposal seeks to establish a level of independence that we believe will
promote clear and objective decision-making in the best long-term interest of
all shareholders. Peabody's 12-person board presently fails to meet the proposed two-thirds
standard, as it includes one insider (Chairman/CEO Irl F. Engelhardt) and four
directors affiliated with Lehman Brothers (Messrs. Goodspeed, Lentz, Schlesinger
and Washkowitz). Lehman Brothers has provided significant banking services to
the Company in recent years, including service as Peabody's lead underwriter on
its initial public offering. In addition, Lehman Brothers Merchant Banking
Partners II L.P. and affiliates remain Peabody's largest shareholder.
Even though all transactions involving Lehman Brothers may have occurred at
arms' length, we do not believe that the current structure is in the best
interest of the public investors who own a majority of the outstanding shares.
In our view, the best time to provide for diverse perspective and independent
governance is earlier, rather than later. We believe that a board with a substantial and clear majority of independent
directorsand all independent audit, compensation and nominating committeesis
an essential component of an effective corporate governance system. An
independent board can best represent all shareholders and inspire shareholder
confidence in the quality and impartiality of its decision-making processes and
the decisions themselves, as well as avoid the appearance of conflicts of
interest. The standard of independence that we propose is that recommended by the Council
of Institutional Investors, an organization of large pension funds that has been
a leading advocate of corporate governance reform. We urge you to vote FOR this resolution. [INQUIRY LETTER]
January 12, 2004 SECURITIES EXCHANGE OF 1934 RULE 14A-8
BY HAND Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Peabody Energy Corporation - Request for No-Action Letter Regarding
Exclusion of Stockholder Proposal Submitted by the Amalgamated Bank LongView
MidCap 400 Index Fund Dear Ladies and Gentlemen:
Pursuant to Rule 14a-8(j) of the Securities Exchange Act of 1934, as amended,
Peabody Energy Corporation, a Delaware corporation (the "Company"), hereby gives
notice of its intention to omit from its proxy statement and form of proxy for
the Company's 2004 Annual Meeting of Stockholder (collectively the "Proxy
Materials") a proposal (the "Proposal") from the Amalgamated Bank LongView
MidCap 400 Index Fund (the "Proponent"). The Proposal urges the Board of
Directors to: [A]dopt a policy of nominating independent directors who, if elected by the
shareholders, would constitute two-thirds of the Board. For purpose of this
proposal, the term "Independent Director" shall mean a director who is not or
who, during the past five years, has not been:
employed by [the Company] or one of its affiliates in an executive capacity;
an employee or owner of a firm that is a paid advisor or consultant to [the
Company] or one of its affiliates;
employed by a significant [Company] customer or supplier,
a party to a personal services contract with [the Company] or an affiliate
thereof, as well as with [the Company's] Chair, CEO or other executive officer;
an employee, officer or director of a foundation, university or other
non-profit organization receiving significant grants or endowments from [the
Company] or one of its affiliates;
a relative of an executive of [the Company] or one of its affiliates;
part of an interlocking directorate in which [the Company's] CEO or another
executive officer serves on the board of another corporation that employs the
director. The cover letter and proposal received from the Proponent are attached hereto as
Exhibit A and other correspondence with the Proponent is attached hereto as
Exhibit B. Enclosed are six (6) copies of this letter as well as six (6) copies
of the exhibits attached hereto. The Company respectfully requests the
concurrence of the Staff of the Division of Corporation Finance (the "Staff")
that no enforcement will be recommended if the Company omits the Proposal from
its Proxy Materials. The Company intends to begin distribution of its Proxy Materials on or after
April 2, 2004. Accordingly, pursuant to Rule 14a-8(j), this letter is being
submitted not less than 80 days before the Company files its definitive
materials and form of proxy with the Securities and Exchange Commission.
I. BackgroundReasons for Company Opposition
The Company's Board of Directors is a strong proponent of board independence and
believes it has taken effective measures to ensure that at least a majority of
its members are independent, as required by New York Stock Exchange ("NYSE")
rules. However, the Board objects to the independence standards set forth in the
Proposal because they exceed the requirements of the NYSE, which were developed
as part of an exhaustive public process, and would place unnecessary constraints
on the Company's ability to select and retain qualified Board members.
For example, the Proposal would require that at least two-thirds of the Board of
Directors be independent, versus NYSE rules which require a majority of
independent directors. The Board believes the Proposal's minimum two-thirds
requirement is overly restrictive and does not properly consider the ownership
of the Company. Furthermore, the Board believes the definition of independence set forth in the
Proposal is too rigid and, unlike the NYSE definition, does not perrnit the
Board to consider "all relevant facts and circumstances" when determining
whether a director is independent. Finally, the Board believes the Proposal's
five-year "cooling off" period is excessive and does not allow for appropriate
consideration of former officers and employees of the Company, its affiliates
(including significant stockholders), significant customers and suppliers,
advisors and consultants who have substantial knowledge regarding the Company
and its industry. In comparison, the NYSE requires a three-year "cooling off"
period for a similar, but more narrow and well-defined, group of persons.
The Company also objects to the Proposal because the Proposal relates to an
election for membership on the Company's Board of Directors and is vague and
misleading in violation of the proxy rules. The Board of Directors believes that one of its primary goals is to advise
management on strategy and to monitor the Company's performance. It believes the
best way to accomplish this goal is by choosing directors who possess a
diversity of experience, knowledge and skills that are particularly relevant to
the Company. The standard of independence presented by the Proposal is more
limiting than that prescribed by the NYSE and the SEC and it is also more
limiting than that advocated by many corporate governance "thought leaders."
While independent judgment in the boardroom is essential, the Board of Directors
believes that it is inadvisable for the Board to sacrifice the experience and
wisdom of directors who meet the NYSE standard of independence and who can
provide a useful perspective on significant risks and competitive advantages and
an understanding of the challenges facing the Company, simply because they would
not meet the Proposal's more stringent standard of independence.
II. Statement of Reasons for Omission
In 1998, the Securities and Exchange Commission amended Rule 14a-8, and in doing
so, it set forth in (1) Rule 14a-8(i) the provisions formerly set forth in Rule
14a-8(c), (2) Rule 14a-8(c) the provisions formerly set forth in Rule
14a-8(a)(4), and (3) Rule 14a-9(b)(2) the provisions formerly set forth in Rule
14a-8(a)(1). Although the numbering changed, these new provisions of Rule14a-8
parallel those of former Rule14a-8 to the extent relevant to the discussion
below. See Release No. 34-40018 (1998). Therefore, the Company believes that the
Staff positions cited in this letter regarding the above described old
provisions of Rule 14a-8 generally remain valid and are equally applicable to
the above described new provisions of Rule 14a-8. A. Rule 14-8(i)(8)The Proposal Relates to an Election of Directors
A Proposal may be omitted under Rule 14-8(i)(9) if it "relates to an election
for membership on the company's board of directors or analogous governing body."
The Proponent's statement of support recites that the Company's "12-member board
presently fails to meet the proposed two-thirds standard, as it includes one
insider (Chairman/CEO Irl F. Engelhardt) and four directors affiliated with
Lehman Brothers (Messrs. Goodspeed, Lentz, Schlesinger and Washkowitz)." As a
preliminary matter, the Company notes that this statement is not completely
accurate as only 10 directors currently serve on the Board and Mr. Goodspeed has
resigned from the Board. It remains true, however, that the Board would
presently fail to meet the proposed two-thirds standard, under the Proponent's
definition of independence (in contrast to the New York Stock Exchange's
definition). In addition, depending on how the Proposal's definition of
"independent" is interpreted (see Section II.B.), additional members of the
Board may be determined to not beindependent (for example, due to their
positions with non-profit organizations supported by the Company).
The Board is a classified board resulting in one-third of the directors standing
for re-election each year. Messrs. Engelhardt and Washkowitz are both members of
the class who will stand for re-election at the 2004 Annual Meeting of
Stockholders. Dr. Schlesinger's term will expire in 2005 and Mr. Lentz's term
will expire in 2006. It is clear that the Proposal is directed at these
directors as each is specifically named in the supporting statement. The
Proposal can therefore be seen as an attack on the composition of the Board, and
an effort to undermine the Company's solicitation of support for Messrs.
Engelhardt and Washkowitz, the directors who are up for re-election at the 2004
Annual Meeting of Stockholders and who do not meet the Proposal's independence
standard, since Messrs. Engelhardt and Washkowitz would be disqualified as
nominees for director at the upcoming annual meeting if the Proposal were
implemented. If the Proponent does not support the reelection of Messrs. Engelhardt and
Washkowitz or any other director, there are several actions that it can take,
however, it cannot use a Rule 14a-8 shareholder proposal as a forum to contest
the election of certain candidates for Company directorships. As the Staff made
clear in American Telephone and Telegraph Company, (avail. January 28, 1983) and
PepsiCo, Inc., (avail February 1, 1999), a company may exclude a proposal that
"question[s] the ability" of particular individuals to serve on a company's
Board of Directors. That is exactly what the Proposal does.
The Staff has also consistently taken the position that proposals setting forth
qualifications for directors which would either disqualify previously elected
directors from completing their terms or disqualify nominees at the upcoming
annual meeting may properly be excluded from a proxy statement if not
appropriately revised. See, e.g., Raytheon Co. (avail. March 9, 1999) (proposal
requesting board to take necessary steps to ensure all directors elected
annually with 70% majority of independent directors); General Dynamics Corp.
(avail. March 25, 1992) (proposal requesting board amend bylaws to provide for
board to consist of majority of "independent directors"); Waste Management, Inc.
(available March 8, 1991) (proposal recommending board amend bylaws to provide
for majority of board to be independent); Dillard Department Stores, Inc.
(avail. March 7, 1991) (same); Tribune Company (avail. March 7, 1991) (same).
Under this line of precedent, the Proposal relates to the election of directors.
Consequently, the Company believes it may exclude the Proposal under Rule
14a-8(i)(8). Should the Staff permit the Proponent to revise the Proposal, the
Company requests that the Proposal be revised so as not to affect the incumbent
director nominees at the 2004 Annual Meeting of Stockholders.
B. Rule 14a-8(i)(3) - The Proposal is Vague, Rendering it Misleading in
Violation of the Proxy Rules A company may exclude a shareholder proposal and supporting statement under Rule
14a-8(i)(3) if it is "contrary to any of the Commission's proxy rules ...
prohibiting false or misleading statements inproxy soliciting materials." The
Staff has previously determined that a proposal and supporting statement is
sufficiently vague and indefinite to justify its exclusion where "the standards
under the proposal may be subject to differing interpretations." Hersbey Foods
Corp. (avail. December 27, 1988). For example, in Jos. Schlitz Brewing Co.
(avail. Mar. 21, 1977), the Staff permitted the exclusion of a shareholder's
proposal requiring the company to cease advertising on programs containing
"excessive and gratuitous violence." In that instance, the Staff agreed with the
company that the determination of what constitutes "excessive and gratuitous
violence" is "a highly subjective matter." The Proposal includes similarly "subjective matters" in that it seeks to
prohibit a director from being considered independent if he or she is, or has
been in the last five years, employed by a "significant" customer or supplier or
is, or has been in the last five years, an employee, officer or director of a
foundation, university or other non-profit organization that receives
"significant" grants or endowments from the Company or one of its affiliates.
Like "excessive and gratuitous violence," the criteria that something be
"significant" is subject to differing interpretations and the Proposal does not
include any guidance to assist the Company or the stockholders in determining
what type of relationship would preclude under the Proposal a director from
serving on one of the Committees. The Company acknowledges that in some instances the Staff has declined to concur
with substantially similar views. See, e.g., The Gap, Inc.. (avail. March 18,
2002). However, the recent trend toward clear criteria for independence
determinations would appear to render terms such as "significant" more
ambiguous. The Company notes that the The Nasdaq Stock Market ("Nasdaq") has for
some time assisted companies in determining whether "material" relationships
exist by providing objective tests relying on specific dollar figures or
percentages. See NASD Manual, Rule 4200(a)(14) (approved Nov. 4, 2003 as Rule
4200(15), as amended). The NYSE, on which the Company's stock is traded,
recently adopted similar objective tests. While the NYSE also requires that
listed companies' boards affirmatively determine that a director has no
"material" disqualifying relationship, the board is permitted to establish its
own objective standard of materiality so long as it is disclosed in the
company's annual proxy statements in order to "provide[.] investors with an
adequate means of assessing the quality of the board independence." See NYSE
Listed Company Manual, Rule 303A.02. The criteria that something be
"significant" is no more certain than the requirement that something be
"material," a criteria which both Nasdaq and the NYSE appear to view as
sufficiently vague to require or permit objective tests. Accordingly, it seems
likely that, if the Proposal were adopted, the Board would conclude it would be
necessary to establish and disclose objective criteria for determining whether a
customer or supplier is "significant" or whether a non-profit organization
receives a "significant" grant or endowment. Such objective criteria may differ
from what the Proponent envisions and/or from what the stockholders envision
when deciding whether to vote for the Proposal. Consequently, the Company
believes that it may, alternatively, exclude the Proposal from the Proxy
Materials under Rule 14a-8(i)(3). III. Notification and Request
In view of the foregoing, the Company hereby gives notice of its intention to
omit the Proposal from its Proxy Materials for its 2004 Annual Meeting of
Stockholders. The Company hereby requests confirmation that the Staff will not
recommend any enforcement action if the Company omits the Proposal from its
Proxy Materials. Pursuant to Rule 14a-8(j)(1), by copy of this letter, the
Company is notifying the Proponent of its intention to omit the Proposal from
its Proxy Materials. In the event that the Staff disagrees with the conclusion expressed herein
regarding the omission of the Proposal from the Company's Proxy Materials, or
should any additional information be required, the Company would appreciate an
opportunity to confer with the Staff prior to the issuance of its response.
Please feel free to contact R. Randall Wang at 314-259-2149, Brian K. Feezel at
314-259-2467 or me at 314-259-2589. Please acknowledge your receipt of this letter and the attached exhibits by
stamping the enclosed (additional) copy of this letter and returning it in the
enclosed self-addressed envelope. Sincerely,
/s/ Susan H. Easton
Enclosures cc: Cornish F. Hitchcock [INQUIRY LETTER]
February 13, 2004 SECURITIES EXCHANGE OF 1934 RULE 14A-8
BY HAND Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Peabody Energy Corporation - Request for No-Action Letter Regarding
Exclusion of Stockholder Proposal Submitted by the Amalgamated Bank Long View
MidCap 400 Index Fund - Reply to Response of Amalgamated Bank LongView MidCap
400 Index Fund Dear Ladies and Gentlemen:
On behalf of Peabody Energy Corporation (the "Company"), we respectfully submit
this letter in reply to the response dated January 26, 2004 (the "Response") of
Amalgamated Bank LongView MidCap 400 Index Fund (the "Proponent") to the
Company's request for confirmation that the Staff will not recommend any
enforcement action if the Company omits the Proponent's stockholder proposal
(the "Proposal") from its proxy statement and form of proxy for the Company's
2004 Annual Meeting of Stockholders (collectively, "Proxy Materials").
In accordance with Rule 14a-8(j), enclosed are six (6) copies of this letter.
The Company respectfully affirms its request for the concurrence of the Staff of
the Division of Corporation Finance (the "Staff") that no enforcement will be
recommended if the Company omits the Proposal from its Proxy Materials.
I. Background The Company's original request was submitted to the Staff on January 12, 2004
(the "Request"). The Proposal, which is fully set forth as Exhibit A to the
Request, urges the Company's board of directors (the "Board") to adopt a policy
of nominating "independent" director nominees who, if elected, would constitute
two-thirds of the Board. The Proposal includes a definition of "independent"
which is ambiguous and appears to substantially exceed the standards established
by the New York Stock Exchange (the "NYSE"). The Company has determined, based
on an analysis of the corporate governance documents available on corporate
websites, that significant competitors in the coal industry and the vast
majority of the public companies comprising the Dow Jones Industrial Average
adhere to the NYSE standards. In contrast to the Proponent's view that more
stringent standards are necessary to protect the stockholders' interests, the
Company concurs with the conclusion of Martin Lipton of Wachtell, Lipton, Rosen
& Katz (as expressed in a recent client bulletin) that excessive standards "are
the antithesis of the kind of collegiality and relationship with the CEO that is
necessary ... to agree on the corporate mission and work collectively to enhance
the corporation's business." As Mr. Lipton explained it. "The concept that the
board as remote strangers and as the agency for the discipline of management,
rather than as partner with management in setting the strategic course of the
corporation, is contrary to all prior experience and will not lead to better
performance." Moreover, it is increasingly difficult for many companies to
attract qualified directors who can add value while providing the necessary
oversight. The Company believes that excessive independence standards like the
Proposal will only hinder its ability to recruit qualified directors. In light
of these considerations, the Company believes it has a fiduciary obligation to
its stockholders to take steps to ensure its ability to nominate an appropriate
mix of individuals to serve as directors. Accordingly, the Company has asserted
its right to exclude the Proposal pursuant to Rules 14a-8(i)(8) and 14a-8(i)(3),
as set forth in the Request and below. II. The Company's Reply to the Proponent's Response
A. Rule 14-8(i)(8)The Proposal Relates to an Election of Directors
The Proposal specifically names current directors of the Company whom the
Proponent deems to not be independent under the Proposal's standards, including
Messrs. Engelhardt and Washkowitz who will stand for re-election at the
Company's 2004 Annual Meeting of Stockholders (the "Stockholders' Meeting").
This represents an attack on the current composition of the Board, thereby
undermining the Company's solicitation of support for the named directors who
will stand for re-election. The Staff has determined similar attacks to be a
valid basis for excluding a stockholder's proposal under Rule 14-8(i)(8). See,
e.g., PepsiCo., Inc. (avail. February 1, 1999) (permitting exclusion of proposal
seeking forced resignation of directors whose employment responsibilities change
while identifying two CEOs ousted from employment). But see Conseco, Inc.
(avail. April 5, 2002) (proposal naming directors not permitted to be excluded).
The Proponent claims that the Company cannot rely on the precedent no-action
letters cited in the Request because the naming of directors is not a direct
attack and because the Proposal "expresses no view about the 2004 director
elections." Instead, the Proponent maintains that the Proposal "focuses on a
more neutral standard of independence without regard to who is up for
re-election that year." The Company emphatically disagrees with that position. The Proponent's
fundamental rationale for the Proposal is that "the current structure is [not]
in the best interests of the public investors who own a majority of the
outstanding shares." Immediately before this assertion, the Proposal names all
of the directors that the Proponent deems not to be independent under the
Proposal's standards. If submitted to the stockholders, the Proposal would be
part of the Proxy Materials which will name Messrs. Engelhardt and Washkowitz as
director nominees. Although the Proponent claims that the Proposal is merely "a
neutral standard of independence," the Proposal's criticism of the "current
structure" clearly implies that because the named directors, including Messrs.
Engelhardt and Washkowitz, are not independent in the Proponent's view, their
continued service "is [not] in the best interests of the public investors who
own a majority of the outstanding shares." Thus, the Proponent is attacking the
ability of the named directors, including Messrs. Engelhardt and Washkowitz, to
serve on the Board. Contrary to the Proponent's claim, the Proposal can be distinguished from the
proposal addressed in Conseco. While that proposal identified several directors
as not meeting the proposed independence standards, it did not expressly
criticize the current structure of the board. In contrast, the Proposal
expressly states that "the current structure is [not] in the best interests of
the public investors who own a majority of the outstanding shares." Conseco,
therefore, does not preclude the Company's position that the Proposal attacks
the current Board, including the directors who will stand for re-election at the
Stockholders' Meeting. Accordingly, the Company maintains its position that the
Proposal may be excluded from the Proxy Materials pursuant to Rule 14-8(i)(8) as
an attack on the current directors and as an effort to undermine the Company's
solicitation of support for its nominees. B. Rule 14a-8(i)(3)The Proposal is Vague, Rendering it Misleading in Violation
of the Proxy Rules The Proponent objects to the Company's position that the Proposal may be
excluded pursuant to Rule 14a-8(i)(3) as vague, rendering it misleading in
violation of the proxy rules. The word "significant" qualifies more than one of
the Proposal's independence criteria. The Company's position is that
"significant" is vague and subject to a variety of interpretations. In partial
support of its position, the Company compared "significant" to "material," a
qualifier used by the NYSE and The Nasdaq Stock Market, Inc. ("Nasdaq"), because
both words are similarly subject to a variety of interpretations. Unlike the
Proposal, however, the NYSE and Nasdaq have established quantitative standards
to provide guidance for the interpretation of "material." The Response stresses
that, despite such quantitative standards, the NYSE has a "huge loophole" which
allows listed companies to adopt their own standards so long as they are
disclosed to the company's stockholders. The Proponent asserts that this
flexibility to adopt standards defeats the Company's position that words like
"material" and "significant" are vague without guidance. That assertion is
unsupported. As the related NYSE Commentary explains, this flexibility permits
"a board [to] adopt and disclose categorical standards to assist it in making
determinations of independence." See NYSE Listed Company Manual, Rule 303A.02
(emphasis added). Despite the Proponent's claim, "categorical" standards must be
explicit; thus guidance is still provided for the application of a company's
tailored standards. The Proposal contains no objective standards for the
interpretation of "significant." Consequently, the NYSE's "loophole" does not
alter the conclusion that words like "material" and "significant" are subject to
a variety of interpretations rendering them vague without additional guidance.
The Proponent also claims that the Company's statement that two-thirds of the
current Board does not meet the Proposal's standards is an admission that the
Proposal is not vague and indefinite. This conclusion by the Proponent is
incorrect. The Company's statement was made in the context of correcting the
factual record to clarify that (i) the Board currently has only 10 members and
(ii) one of the directors named in the Proposal hasretired. The Company's
statement simply reflected the Proponent's own assertion that the relationship
between the Company and Lehman Brothers is a disqualifying relationship under
the Proposal. The correction of the factual record did not negate the fact that
several directors have relationships of varying degrees with Lehman Brothers.
The Company merely used the assumption that these relationships with Lehman
Brothers preclude a finding of independence under the Proposal to support its
argument that the Proposal attacks the directors associated with Lehman
Brothers. Contrary to the Proponent's claim, it is clear that the Company is not
conceding that the implementation of the Proposal's standards will be clear in
all contexts. The immediately following sentence states: "In addition, depending
on how the Proposal's definition of `independent' is interpreted ..., additional
members of the Board may be determined to not be independent." Thus, regardless
of the Company's position with respect to the named directors, it is clear that
other cases would likely present interpretation problems. For these reasons, the Company maintains its position that the Proposal may be
excluded from the Proxy Materials pursuant to Rule 14a-8(i)(3).
III. Conclusion In view of the foregoing, the Company hereby affirms its intention to omit the
Proposal from its Proxy Materials for the Stockholders' Meeting and hereby
renews its request for confirmation that the Staff will not recommend any
enforcement action if the Company omits the Proposal from its Proxy Materials.
By copy of this letter, the Company is notifying the Proponent of its affirmed
intention to omit the Proposal from its Proxy Materials. In the event that the Staff disagrees with the conclusion expressed herein or in
the Request regarding the omission of the Proposal from the Company's Proxy
Materials, or should any additional information be required, the Company would
appreciate an opportunity to confer with the Staff prior to the issuance of its
response. Please feel free to contact R. Randall Wang at 314-259-2149, Brian K.
Feezel at 314-259-2467 or me at 314-259-2589. Please acknowledge your receipt of this letter and the attached exhibits by
stamping the enclosed (additional) copy of this letter and returning it in the
enclosed self-addressed envelope. Sincerely,
/s/ Susan H. Easton
cc: Cornish F. Hitchcock
Joseph W. BeanPeabody Energy Corporation
[STAFF REPLY LETTER]
February 19, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peabody Energy Corporation
Incoming letter dated January 12, 2004 The proposal requests that the board adopt a policy of nominating independent
directors so that independent directors would constitute two-thirds of the
board. We are unable to concur in your view that Peabody Energy may exclude the
proposal under rule 14a-8(i)(3). Accordingly, we do not believe that Peabody
Energy may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(3). There appears to be some basis for your view that Peabody Energy may exclude the
proposal under rule 14a-8(i)(8) to the extent it could, if implemented,
disqualify directors elected previously from completing their terms on the board
or disqualify nominees for director at the upcoming annual meeting. It appears,
however, that this defect would be cured if the proposal were revised to provide
that it will not affect the unexpired terms of directors elected to the board at
or prior to the upcoming annual meeting. Accordingly, unless the proponent
provides Peabody Energy with a proposal revised in this manner, within seven
calendar days after receiving this letter, we will not recommend enforcement
action to the Commission if Peabody Energy omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(8). Sincerely,
/s/ Michael R. McCoy
Attorney-Advisor
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