Company Name: Peabody Energy Corp.
Public Availability Date: February 13, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER
[INQUIRY LETTER]
January 10, 2006
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Station Place
100 F Street, N.E.
Washington, DC 20549
Re: Peabody Energy Corporation - Request for No-Action Letter Regarding
Exclusion of Stockholder Proposal Submitted by the Sheet Metal Workers' National
Pension 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 2006 Annual Meeting of Stockholders (collectively the "Proxy
Materials") a proposal (the "Proposal") from the Sheet Metal Workers' National
Pension Fund (the "Proponent"). The Proposal requests that the Board of
Directors "initiate the appropriate process to amend the Company's governance
documents (certificate of incorporation or bylaws) to provide that director
nominees shall be elected by the affirmative vote of the majority of votes cast
at an annual meeting of shareholders."
The cover letter and proposal received from the Proponent and related
correspondence are attached hereto as Exhibit A 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
March 31, 2006. 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.
As discussed more fully below, the Company believes it may exclude the Proposal
pursuant to Rule 14a-8(i)(10).
I. Background - Reasons for Opposition
The Company views good corporate governance as a priority. Each year, the Board
of Directors reviews its corporate governance policies to identify any changes
or improvements that it believes would strengthen its governance and benefit its
stockholders. During its most recent review, the Board specifically addressed
the issue of whether directors should be elected by the affirmative vote of a
majority of votes cast at a stockholders' meeting. As part of the process, the
Board considered recent governance trends, input received from independent
governance advisors, and other research and analysis, and took into account the
fact that holders of 37% of the Company's stock represented at the 2005 annual
meeting supported a similar stockholder proposal. After considering the
foregoing and other relevant factors, on December 8, 2005, the Company adopted a
corporate governance principle on majority voting, a copy of which is attached
hereto as Exhibit B. Under the policy, if, in an uncontested election, a
director nominee receives more "withheld" than "for" votes, the director nominee
must promptly tender his or her resignation to the Chairman of the Board
following certification of the stockholder vote.
The Company believes this policy is a fair standard that strengthens the
Company's governance, enhances the legal significance of the stockholders vote
in the election of directors and allows the Board to be more responsive to
stockholders, while at the same time, not allowing special interest groups to
influence decisions to the detriment of all stockholders. The Company also
believes this policy meets the rationale for the Proposal as indicated in the
Proponent's supporting statement. In the supporting statement, the Proponent
states that the Proposal is designed to "give shareholders a meaningful role in
the director election process." The Company believes its policy provides all
stockholders with a more meaningful role in the director election process than
the Proposal for the reasons discussed below.
As evidenced by the materials attached as Exhibit C, the Proponent and several
other unions have recently embarked on a coordinated campaign to improve their
ability to unionize the Company's employees. The Company believes the Proponent,
which owns only 13,400 shares out of more than 131,415,000 shares outstanding,
is using the Proposal as a tool to further its own interests and not the
interests of the Company's stockholders as a whole.
II. The Proposal May Be Excluded Pursuant to Rule 14a-8(i)(10) Because It Has
Been Substantially Implemented
Prior to 1983, the Staff permitted exclusion of a proposal under Rule
14a-8(i)(10) only in cases where the proposal was fully implemented. In 1983,
however, the Commission announced an interpretative change to permit exclusion
of a proposal that had been "substantially implemented" because the previous
formulaic application defeated its purpose. See SEC Release No. 34-20091 §II.E.5
(August 16, 1983).1 The Staff has indicated that whether a proposal has been
substantially implemented "depends upon whether its particular policies,
practices and procedures compare favorably with the guidelines of the proposal."
See Texaco, Inc (March 28, 1991) (involving a proposal requesting adoption of
environmental guidelines covering implementation of operational and managerial
programs as well as periodic assessment and review). In reaffirming the
"substantially implements" standard in the 1998 amendments to the Rule, the SEC
noted that a proposal need not be fully effected to be excludable, thus
acknowledging that a company need not implement a proposal precisely as proposed
by the stockholder. See Release No. 34-40018 at n.30 (May 21, 1998).
Indeed, the Staff has generally permitted exclusion of proposals where the
essential objective of the proposal has been implemented, even though every
aspect has not. See, e.g., Xcel Energy, Inc (February 17, 2004) (proposal
requesting a report on how the company is responding to rising regulatory,
competitive, and public pressure to significantly reduce carbon dioxide and
other emissions was excludable where a report was already published covering the
substantive components of the proposal); The Gap, Inc (March 16, 2001) (proposal
calling for a report on the child labor practices of the company's suppliers was
excludable because a majority of the substantive issues requested were addressed
in a report posted on the company's website); Masco Corporation (March 29,
1999)(proposal excludable even though the proposal called for outside directors
to "not be employed directly or indirectly by the company and/or its present or
former affiliates, or by an entity benefiting from a relationship therewith" and
the company implemented a resolution stating that outside directors, "shall not
be employed directly or indirectly by the company or by any of its affiliates,
or by an entity benefiting from a material relationship therewith"); Eli Lilly
and Company (January 25, 1999) (proposal to prevent the company from purchasing
human fetuses excludable based on the company's representation that it did not
purchase human fetuses and did not plan to purchase human fetuses); and H.J.
Heinz Company (June 18, 1997) (proposal excludable where proposal asked for
information about certain board policies and board responded by issuing
guidelines that addressed most of the items in the proposal).
We note that the Staff recently determined that adopting a corporate governance
principle similar to the policy adopted by the Company does not constitute
substantial implementation of a similar proposal. See Heulett-Pack and Company
(January 5, 2006). However, the Company believes that noaction letter was
incorrectly decided and requests that the Staff reconsider its position. The
Company believes, for the reasons discussed below, that adopting its corporate
governance policy requiring director resignation constitutes substantial
implementation of the Proposal.
1. Peabody's Corporate Governance Principle on Majority Voting
As indicated above, on December 8, 2005, the Company adopted a corporate
governance principle on majority voting. Pursuant to this principle, in an
uncontested election of directors, any director nominee who receives a greater
number votes "withheld" from his or her election than votes "for" his or her
election will promptly tender his or her resignation to the Chairman of the
Board following certification of the stockholder vote. The Company's Nominating
and Corporate Governance Committee will then promptly consider the resignation
and recommend to the Board whether to accept or reject the resignation. In
making its recommendation, the Committee is to consider all factors it deems
relevant, including without limitation, the reasons why stockholders "withheld"
votes for election from such director. The Board is required to act on the
Committee's recommendation within 90 days following the date of the stockholders
meeting.
2. Substantial Implementation
The Company believes its corporate governance principle on majority voting
"compares favorably" with the Proposal because the end results are substantially
the same. Indeed, as discussed below, in certain circumstances, the end results
are superior. While the Staff rejected similar arguments in Heulett-Packand
Company (January 5, 2006), the Company believes that its policy renders the
Proposal moot and that the Staff's position in Heulett-Packand Company was
incorrect.
A. Majority of Votes Not "Withheld"
In an election, stockholders may either vote "for" a particular director nominee
or withhold their votes. Pursuant to the Company's policy, if a director nominee
receives less than a majority of "withheld" votes, the nominee will have been
supported by a majority of the votes cast and will be elected to the Board. In
this situation, the outcomes under the Company's policy and the Proposal are the
same. Under both the Proposal and the Company's policy, in order for a director
nominee to be elected definitively, the director must not receive a majority of
votes "withheld." Thus, the Company has substantially implemented this aspect of
the Proposal.
B. Majority of Votes "Withheld" From a Non-Incumbent Nominee
In a far less common situation, if a non-incumbent director nominee receives a
majority of votes "withheld," the outcomes under the Proposal and the Company's
policy will be substantially the same. Under the Proposal, the non-incumbent
nominee would not become a director, which would most likely leave the Board
with a vacancy. If such a vacancy exists, the Board would determine what action
to take, which could include appointing the non-incumbent director nominee or
another person to serve on the Board, or reducing the size of the Board to
eliminate the vacancy, subject to charter and state law requirements. Under the
Company's policy, such a non-incumbent director nominee would become a director,
but would be required to tender his or her resignation. The Board would then
determine whether to accept or reject the resignation. The Company's policy
provides that:
In considering whether to accept or reject the tendered resignation, the
Nominating and Corporate Governance Committee will consider all factors deemed
relevant by its members including, without limitation, the stated reasons why
shareholders "withheld" votes for election from such Director, the length of
service and qualifications of the Director whose resignation has been tendered,
the Director's contributions to the Company, the Company's Corporate Governance
Guidelines, and whether any special interest groups conducted a campaign
involving the election of directors to further the interests of such group, as
opposed to the best interests of all shareholders.
In that situation, under the Proposal and the Company's policy, the Board's
determination is equivalent to that used to fill such a vacancy in accordance
with Delaware law and the Company's charter documents. Thus, the Company has
substantially implemented this aspect of the Proposal.
C. Majority of Votes "Withheld" From an Incumbent Nominees
With respect to incumbent director nominees who receive a majority of votes
"withheld," the Company believes that its corporate governance principle on
majority voting is superior to the Proposal in that it addresses potential
issues that could arise under the Proposal. As acknowledged in the supporting
statement, if the Proposal is implemented, the status of an incumbent director
nominee that fails to receive a majority vote is unclear. Pursuant to §141(b) of
the Delaware General Corporation Law, a director "shall hold office until such
director's successor is elected and qualified or until such director's earlier
resignation or removal." Under the Proposal, an incumbent director nominee who
does not receive majority support would continue as a director because such
director's successor will not have been elected and qualified and the director
will not have resigned or been removed. The Board cannot remove a director under
Delaware law. Under the Company's policy, such a director would tender his or
her resignation. If the Board accepts the resignation, the nominee will no
longer be a director. If the Board rejects the resignation, the nominee will
continue to serve on the Board - the same result as would be obtained under the
Proposal. In no case will the consequences under the Company's policy as it
relates to incumbent directors receiving a majority of "withheld" votes be less
effective than the Proposal. The Company's policy is more effective than the
Proposal at removing a director opposed by stockholders because it provides a
process by which the director may cease to serve as such by requiring the
incumbent director to tender his or her resignation if he or she receives a
greater number of "withheld" votes than "for" votes.
D. Contested Elections
Based on the Proposal's supporting statement, the Proposal would not apply to
situations where there are multiple nominees for a Board position. The Proposal
indicates that a plurality vote standard "may be appropriate in director
elections when the number of director nominees exceeds the available board
seats." The Company's policy resolves any such concern because it only applies
to uncontested elections. Pursuant to the Company's policy, plurality voting
would apply to situations where there are multiple nominees for a Board
position. Thus, the Company believes it has implemented that aspect of the
Proposal.
E. Analysis
With the Company's corporate governance principle on majority voting, the
Company has substantially implemented the Proposal. The minor differences
between the Company's corporate governance principle on majority voting and the
Proposal do not alter that fact as the focus of Rule 14a-8(i)(10) is on the
result, not the process. See Release No. 34-12999 (Nov. 22, 1976)(In deciding
early in the Rule's history not to require that a proposal be implemented "by
action of management," the Commission noted that "mootness" can be caused by
reasons other than the actions of management, such as statutory enactments,
court decisions, business changes and supervening corporate events.").
Therefore, the Company believes it is entitled to exclude the Proposal pursuant
to Rule 14a-8(i)(10).
We note that the Proposal requests that the Board initiate the appropriate
process to amend the Company's governing documents; however, the Company
believes its corporate governance principle on majority voting compares
favorably with the Proposal because the end results are substantially the same.
The procedure set forth in the Company's corporate governance principle will
operate in substantially the same manner regardless of whether it is set forth
in a company policy or in the Company's by-laws. We recognize that the Board may
change the Company's corporate governance principle at any time, by majority
vote of the directors; however, the same holds true with respect to the
amendment of the Company's bylaws, which can be effected by a majority vote of
the directors without a vote of the stockholders. Accordingly, the legal
significance of the Company's policy and any changes made to the bylaws pursuant
to the Proposal are substantially similar.
The Staff has held that the manner of implementation is not determinative of
whether a proposal has been substantially implemented. See e.g., General Motors
Corporation (March 14, 2005)(proposal requesting the company adopt a policy that
any future poison pill be redeemed or put to a shareholder vote within four
months after adoption excludable where the company agreed to put to any future
plan to a shareholder vote within twelve months) and Southwest Airlines Co.
(February 10, 2005)(proposal requesting that the company take the necessary
steps, in the most expeditious manner possible, to adopt and implement the
annual election of each director excludable because the company adopted a bylaw
to phase-in the annual election of each director). In particular, in the
corporate governance context, the Staff has held that the precise manner of
implementation is not determinative. See, e.g., General Motors Corporation
(March 4, 1996)(proposal requesting a policy of a secret ballot for all votes of
stockholders that could only be amended by a majority stockholder vote was
excludable because the company had a similar policy, even though the policy
could be changed without a majority vote of stockholders); Archon Corp. (March
10, 2003)(proposal requesting Board provide for special election to fill vacant
special director position deemed excludable where Board itself elected a new
director); and Nash-Finch Co. (March 15, 1978)(proposal requesting nomination of
no fewer than two non-employees as directors deemed excludable where Board
itself named two such individuals as directors).
We note that the Proponent's supporting statement indicates that the Company's
approach is inadequate, because the Proposal, if implemented, would allow "for
continued use of the plurality standard and would allow director nominees to be
elected despite only minimal shareholder support." The Company believes these
concerns are misplaced because any director nominee who receives a greater
number of "withheld" votes than votes "for" his or her election is required to
tender his or her resignation. As explained above, this approach compares
favorably to the Proposal with respect to all director elections.
Similarly, viewed from the perspective of whether stockholders are being given a
meaningful voice in director elections, we believe that this approach is
substantially the same as the Proposal. Any director who fails to receive
majority support will be required to tender his or her resignation, with the
Board placed in the position of deciding whether to accept such resignation.
Since that decision is effectively the same as the decision it would face in
determining whether or how to fill a vacancy pursuant to the Proposal, we
believe stockholders are being given substantially equivalent voice under both
approaches.
Further, we note that the supporting statement states that the Proposal "is not
intended to limit the judgment of the Board in crafting the requested governance
change." To avoid the issues discussed above, the Company exercised its
discretion and implemented a solution - a policy that requires the resignation
of a director nominee that receives a greater number of votes "withheld" than
"for" his or her election. The fact that the Company has not sought to change
its governing documents does not change the fact that the Company has
substantially implemented the Proposal and, at least in one scenario, provided a
superior solution. The Staff has previously indicated that a proposal can be
substantially implemented even if the company's approach contains some
exceptions. See, e.g., Intel Corp. (March 11, 2003) (proposal requesting
submission of equity compensation plans and amendments to shareholder votes was
substantially implemented by board policy); and Archon Corp. (March 10,
2003)(proposal requesting a special election to fill a board vacancy deemed
substantially implemented when board exercised authority to fill vacancy).
We note that the Staff has in some cases declined to permit exclusion of
proposals that requested that policies be effected through charter documents
when the company sought to effect the change through alternative means. See,
e.g., PG& E (February 28, 2002). However, these arose prior to widespread
development and acceptance of corporate governance policies that are now
mandated or recognized by stock exchange and Commission rules, such as board
committee charters, codes of ethics and codes of conduct.2 In addition, as noted
previously, the Proponent itself acknowledged that the Proposal "is not intended
to limit the judgment of the Board in crafting the requested governance change."
Further, as noted above, even if the Company implemented the Proposal through an
amendment to the Company's bylaws, the Board would retain the power to amend
that bylaw without the approval of stockholders. Thus, the legal significance of
a bylaw and the Company's policy are substantially similar. As stated by the
Staff in the Texaco letter discussed above, a determination as to whether a
company has substantially implemented a proposal should depend upon "whether
[the company's] particular policies, practices and procedures compare favorably
with the guidelines of the proposal," not on where those policies, practices or
procedures are embodied.
Based on the above, the Company respectfully requests that the Staff agree with
its analysis that the Proposal may be excluded pursuant to Rule 14a-8(i)(10)
because the Company's policy substantially implements each aspect of the
Proposal. While the Staff disagreed with this position in Heulett-Packard
Company (January 5, 2006), the Company requests that the Staff reconsider its
position and allow for exclusion of the Proposal in this instance.
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 2006 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. A copy of the Staff's response may be faxed as follows:
To the Proponent (attention: Matthew Hernandez) at 703-739-7856; and
To the undersigned at 314-552-8061.
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 or me at
314-259-2061.
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/
Ashley Wright Baker
Enclosures
cc: Matthew Hernandez Joseph W. Bean
-----FOOTNOTES-----
1 In adopting its new "substantially implements" standard, the SEC stated: "In
the past, the staff has permitted the exclusion of proposals under Rule
14a-8(c)(10) only in those cases where the action requested by the proposal has
been fully effected. The Commission proposed an interpretative change to permit
the omission of proposals that have been "substantially implemented by the
issuer." While the new interpretative position will add more subjectivity to the
application for the provision, the Commission has determined the previous
formalistic application of this provision defeated its purpose." Release No.
20091, at §II.E.5. (Aug. 16, 1983)
2 For example, the significance of board committee charters is recognized under
Item 7(d) of Schedule 14A (relating to disclosure of nominating and audit
committee charters). Likewise, codes of ethics are governance documents that are
recognized under Item 406 of Regulation S-K.
[INQUIRY LETTER]
November 30, 2005
Jeffery L. Klinger
VP, General Counsel & Secretary
Peabody Energy Corporation
701 Market Street
St. Louis, MO 63101-1826
Re: Director Election Majority Vote Standard Proposal
Dear Jeffery L. Klinger:
On behalf of the Sheet Metal Workers' National Pension Fund ("Fund"), I hereby
submit the enclosed shareholder proposal ("Proposal") for inclusion in the
Peabody Energy Corporation ("Company") proxy statement to be circulated to
Company shareholders in conjunction with the next anmual meeting of
shareholders. The Proposal relates to an amendment to the Company's governance
documents to provide that director nominees shall be elected by the affirmative
vote of the majority of votes cast at an annual meeting of shareholders. The
Proposal is submitted under Rule 14(a)-8 (Proposals of Security Holders) of the
U.S. Securities and Exchange Commission proxy regulations.
The Fund is the beneficial owner of approximately 13400 shares of the Company's
common stock that have been held continuously for more than a year prior to this
date of submission. The Fund and other Sheet Metal Worker pension funds are
long-term holders of the Company's common stock. The Proposal is submitted to
initiate a change to the director election vote standard to provide that in
director elections a majority vote standard will be used in lien of the
Company's current plurality vote standard.
The Fund intends to hold the shares through the date of the Company's next
armual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter.
Either the undersigned or a designated representative will present the Proposal
for consideration at the armual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact me at
(703) 739-7000. Copies of correspondence or a request for a "no-action" letter
should likewise be directed to me at Sheet Metal Workers' National Pension Fund,
601 N. Fairfax Street, Suite 500, Alexandria, VA 22314. Copies should also be
forwarded to Mr. Craig Rosenberg, ProxyVote Plus, Two Northfield Plaza,
Northfield, IL 60093.
Sincerely,
/s/
Matthew Hernandez
Corporate Governance Advisor
Enclosure
cc: Craig Rosenberg
[APPENDIX]
Director Election Majority Vote Standard Proposal
Resolved: That the shareholders of Peabody Energy Corporation ("Company") hereby
request that the Board of Directors initiate the appropriate process to amend
the Company's governance documents (certificate of incorporation or bylaws) to
provide that director nominees shall be elected by the affirmative vote of the
majority of votes cast at an annual meeting of shareholders.
Supporting Statement: Our Company is incorporated in Delaware. Delaware law
provides that a company's certificate of incorporation or bylaws may specify the
number of votes that shall be necessary for the transaction of any business,
including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII,
Section 216). The law provides that if the level of voting support necessary for
a specific action is not specified in a corporation's certificate or bylaws,
directors "shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors."
Our Company presently uses the plurality vote standard to elect directors. This
proposal requests that the Board initiate a change in the Company's director
election vote standard to provide that nominees for the board of directors must
receive a majority of the vote cast in order to be elected or re-elected to the
Board.
We believe that a majority vote standard in director elections would give
shareholders a meaningful role in the director election process. Under the
Company's current standard, a nominee in a director election can be elected with
as littie as a single affirmative vote, even if a substantial majority of the
votes cast are "withheld" from that nominee. The majority vote standard would
require that a director receive a majority of the vote cast in order to be
elected to the Board.
The majority vote proposal received high levels of support last year, winning
majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil,
Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory
firms recommended voting in favor of the proposal.
Some companies have adopted board governance policies requiring director
nominees that fall to receive majority support from shareholders to tender their
resignations to the board. We believe that these policies are Inadequate for
they are based on continued use of the plurality standard and would allow
director nominees to be elected despite only minimal shareholder support. We
contend that changing the legal standard to a majority vote is a superior
solution that merits shareholder support.
Our proposal is not intended to limit the judgment of the Board in crafting the
requested governance change. For instance, the Board should address the status
of incumbent director nominees who fail to receive a majority vote under a
majority vote standard and whether a plurality vote standard may be appropriate
in director elections when the number of director nominees exceeds the available
board seats.
We urge your support for this important director election reform.
[STAFF REPLY LETTER]
February 13, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peabody Energy Corporation Incoming letter dated January 10, 2006
The proposal requests that the board initiate the appropriate process to amend
Peabody Energy's governance documents (certificate of incorporation or bylaws)
to provide that director nominees shall be elected by the affirmative vote of
the majority of votes cast.
We are unable to concur in your view that Peabody Energy may exclude the
proposal under rule 14a-8(i)(10). Accordingly, we do not believe that Peabody
may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(10).
Sincerely,
/s/
Ted Yu
Special Counsel
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