Edgar Filing: ARCH COAL INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

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Check the appropriate box:

[ ] Preliminary Proxy Statement
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[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

ARCH COAL, INC.
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(Name of Registrant as Specified In Its Charter)

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

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[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
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Notes:

Reg. Section 240.14a-101.

SEC 1913 (3-99)

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[ARCH COAL, INC. LOGO]

ONE CITYPLACE DRIVE, SUITE 300
ST. LOUIS, MISSOURI 63141
(314) 994-2700
March 18, 2003

To Our Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders of
Arch Coal, Inc. which will be held at our headquarters at CityPlace One, One
CityPlace Drive, St. Louis, Missouri, in the lower level auditorium, on
Thursday, April 24, 2003, at 10:00 a.m., local time. The formal Notice of the
Annual Meeting, the Proxy Statement and a proxy card accompany this letter.

We hope that you will be present at the meeting. Whether or not you plan to
attend, please cast your vote by telephone or on the Internet, or complete, sign
and return the enclosed proxy card in the postage-prepaid envelope, also
enclosed. The prompt execution of your proxy will be greatly appreciated.

Arch Coal's Annual Report for 2002 is contained in this document and begins
on page II-1.

Sincerely yours,

/s/ JAMES R. BOYD
JAMES R. BOYD
Chairman of the Board

/s/ STEVEN F. LEER
STEVEN F. LEER
President and Chief Executive Officer

[ARCH COAL, INC. LOGO]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DATE: Thursday, April 24, 2003

TIME: 10:00 a.m., local time

PLACE: CityPlace One
One CityPlace Drive
Lower Level Auditorium
St. Louis, Missouri 63141

MATTERS TO BE VOTED ON:

- Election of three directors

- Ratification of the appointment of Ernst & Young LLP as principal
independent auditors for the year 2003

- Any other matters if properly raised

Only stockholders of record at the close of business on March 10, 2003 may
vote at the meeting. Your vote is important. Whether you plan to attend the
annual meeting or not, PLEASE CAST YOUR VOTE BY PHONE OR ON THE INTERNET, OR
COMPLETE, DATE AND SIGN YOUR PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
If you attend the meeting and prefer to vote in person, you may do so even if
you have previously voted by proxy. Directions to the annual meeting are on page
I-18 of the proxy statement.

/s/ ROBERT G. JONES
ROBERT G. JONES
Vice President -- Law, General Counsel
and Secretary

March 18, 2003

TABLE OF CONTENTS

PAGE
NUMBER
------

PART I. PROXY STATEMENT
Information About the Annual Meeting........................ I-1
Election of Directors (Proxy Item No. 1).................... I-4
Structure of the Board.................................... I-4
Nominees For a Three-Year Term That Will Expire in 2006... I-4
Directors Whose Terms Will Expire in 2004................. I-4
Directors Whose Terms Will Expire in 2005................. I-5
Board Meetings and Committees............................. I-5
Audit Committee Report.................................... I-6
Compensation of Directors................................. I-7
Ownership of Arch Coal Common Stock......................... I-8
Ownership by Directors and Executive Officers............. I-8
Ownership by Others....................................... I-9
Compensation of Executive Officers.......................... I-10
Report of the Personnel and Compensation Committee........ I-10
Summary Compensation Table................................ I-13
Stock Option Grants....................................... I-14
Stock Option Exercises and Year-End Values................ I-14
Pension Plans............................................. I-15
Employment Agreements..................................... I-15
Section 16(a) Beneficial Ownership Reporting Compliance... I-16
Related Party Transactions................................ I-16
Stock Price Performance Graph............................. I-17
Ratification of Independent Auditors (Proxy Item No. 2)..... I-18
Additional Information...................................... I-18
Information About Stockholder Proposals................... I-18
Directions to the Annual Meeting.......................... I-18
Multiple Copies of Annual Report to Stockholders.......... I-19
Exhibit A -- Audit Committee Charter........................ A-1

PART I. PROXY STATEMENT FOR THE ARCH COAL, INC. 2003 ANNUAL MEETING OF
STOCKHOLDERS

INFORMATION ABOUT THE ANNUAL MEETING

WHY AM I RECEIVING THESE PROXY MATERIALS?

Arch Coal's Board of Directors is soliciting proxies to be voted at the
2003 Annual Meeting of Stockholders. This proxy statement includes information
about the issues to be voted upon at the meeting.

On March 18, 2003, we began mailing these proxy materials to all
stockholders of record at the close of business on March 10, 2003. On March 1,
2003, there were 52,383,417 shares of Arch Coal common stock outstanding. As
required by Delaware law, a list of stockholders entitled to vote at the annual
meeting will be available at the annual meeting and for 10 days prior to the
meeting, during normal business hours, at Arch Coal's offices, One CityPlace
Drive, Suite 300, St. Louis, Missouri 63141.

WHAT AM I VOTING ON?

We are aware of two items to be voted on by stockholders at the annual
meeting:

- Election of three directors: Frank M. Burke, Thomas A. Lockhart and James
L. Parker; and

- Ratification of Ernst & Young LLP as the Company's independent auditors
for 2003.

HOW MANY VOTES DO I HAVE?

You have one vote for each share of Arch Coal common stock that you owned
at the close of business on March 10, 2003, the record date. These shares
include:

- Shares held directly in your name as the "stockholder of record";

- Shares held for you as the beneficial owner through a broker, bank, or
other nominee in "street name"; and

- Shares credited to your account in the Arch Coal, Inc. Employee Thrift
Plan or the Mingo Logan Savings Plan.

IF I AM A STOCKHOLDER OF RECORD, HOW CAN I VOTE MY SHARES?

You can vote by proxy or in person.

HOW DO I VOTE BY PROXY?

If you are a stockholder of record, you may vote your proxy by telephone,
Internet, or mail. Our telephone and Internet voting procedures are designed to
authenticate stockholders by using individual control numbers. Voting by
telephone or Internet will help Arch Coal reduce costs.

- Voting Your Proxy by Telephone

In the U.S. and Canada, you can vote your shares by telephone by calling
the toll-free telephone number on your proxy card. Telephone voting is
available 24 hours a day, 7 days a week, up through the day before the
meeting. Easy-to-follow voice prompts allow you to vote your shares and
confirm that your instructions have been properly recorded. If you vote
by telephone, you do not need to return your proxy card.

- Voting Your Proxy By Internet

You can also choose to vote via the Internet. The web site for Internet
voting is on your proxy card. Internet voting is also available 24 hours
a day, 7 days a week, up through the day before the meeting. If you vote
via the Internet, you do not need to return your proxy card.

- Voting Your Proxy By Mail

If you choose to vote by mail, simply mark your proxy card, date and sign
it, and return it in the postage-paid envelope provided.

I-1

If you vote by proxy using any of these three methods, the persons named on
the card (your "proxies") will vote your shares in the manner you indicate. You
may specify whether your shares should be voted for all, some, or none of the
nominees for director and whether your shares should be voted for or against the
other proposals. If you vote by telephone or Internet and choose to vote with
the recommendation of Arch Coal's Board of Directors, or if you vote by mail,
sign your proxy card, and do not indicate specific choices, your shares will be
voted:

- "FOR" the election of all three nominees for director;

- "FOR" ratification of the appointment of the principal independent
auditors for 2003.

If any other matter is presented, your proxies will vote in accordance with
their best judgment. At the time this proxy statement went to press, we knew of
no matters that needed to be acted on at the annual meeting other than those
discussed in this proxy statement.

If you wish to give a proxy to someone other than the persons named on the
enclosed proxy card, you may strike out the names appearing on the card and
write in the name of any other person, sign the proxy, and deliver it to the
person whose name has been substituted.

MAY I REVOKE MY PROXY?

If you give a proxy, you may revoke it in any one of three ways:

- Submit a valid, later-dated proxy;

- Notify Arch Coal's Secretary in writing before the annual meeting that
you have revoked your proxy; or

- Vote in person at the annual meeting.

HOW DO I VOTE IN PERSON?

If you are a stockholder of record, you may cast your vote in person at the
annual meeting.

IF I HOLD SHARES IN STREET NAME, HOW CAN I VOTE MY SHARES?

You can submit voting instructions to your broker or nominee. In most
instances, you will be able to do this over the Internet, by telephone, or by
mail. Please refer to the voting instruction card included in these materials by
your broker or nominee.

HOW DO I VOTE MY SHARES HELD IN ARCH COAL'S DIVIDEND REINVESTMENT AND DIRECT
STOCK PURCHASE AND SALE PLAN?

If you are a participant in the Dividend Reinvestment and Direct Stock
Purchase and Sale Plan for stockholders of Arch Coal, your proxy will also serve
as an instruction to vote the whole shares you hold under this plan in the
manner indicated on the proxy. If your proxy is not received, your shares held
in the plan will not be voted.

HOW DO I VOTE MY ARCH COAL COMMON STOCK HELD IN THE EMPLOYEE THRIFT PLAN OR THE
MINGO LOGAN SAVINGS PLAN?

If you are both a registered stockholder of Arch Coal and a participant in
its Employee Thrift Plan or the Mingo Logan Savings Plan, you will receive a
single proxy card that covers shares of Arch Coal common stock credited to your
plan account as well as shares of record registered in exactly the same name.
Accordingly, your proxy card also serves as a voting instruction for the trustee
of the plan. If your plan account is not carried in exactly the same name as
your shares of record, you will receive separate proxy cards for individual and
plan holdings. If you own shares through one of these plans and you do not
return your proxy by Friday, April 18, 2003, the trustee will vote your shares
in the same proportion as the shares that are voted by the other participants in
the plan. The trustee will also vote unallocated shares of Arch Coal common
stock held in the plan in direct proportion to the voting of allocated shares in
the plan for which voting instructions have been received unless doing so would
be inconsistent with the trustee's duties.

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IS MY VOTE CONFIDENTIAL?

Yes. Voting tabulations are confidential.

WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?

Election of three The nominees who receive the most votes for the available
directors (Proxy positions will be elected. If you do not vote for a
Item No. 1) particular nominee, or you indicate "withhold authority to
vote" for a particular nominee on your proxy card, your vote
will not count either "for" or "against" the nominee.

Ratification of The affirmative vote of a majority of the shares present in
appointment of person or by proxy at the annual meeting is required to
independent auditors ratify the appointment of the principal independent auditors
(Proxy Item No. 2) for 2003. If you "abstain" from voting, it will have the
same effect as if you voted "against" this proposal.

In order to have a valid stockholder vote, a stockholder quorum must exist
at the annual meeting. A quorum will exist when stockholders holding a majority
of the outstanding shares of Arch Coal stock are present at the meeting, either
in person or by proxy.

If a broker indicates on its proxy that it does not have authority to vote
certain shares held in "street name" on particular proposals, the shares not
voted ("broker non-votes") will have no effect on these proposals. Broker
non-votes occur when brokers do not have discretionary voting authority on
certain proposals under the rules of the New York Stock Exchange and the
beneficial owner has not instructed the broker how to vote on these proposals.

WHO IS PAYING THE COSTS OF SOLICITING THESE PROXIES?

Arch Coal is paying the cost of preparing, printing, and mailing these
proxy materials. We will reimburse banks, brokerage firms, and others for their
reasonable expenses in forwarding proxy materials to beneficial owners and
obtaining their instructions. A few officers and employees of Arch Coal may also
participate in the solicitation, without additional compensation.

WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?

We intend to announce preliminary voting results at the meeting. We will
publish the final results in our Quarterly Report on Form 10-Q for the first
quarter of 2003. You can obtain a copy of the Form 10-Q by logging on to our
website at www.archcoal.com, by calling the Securities and Exchange Commission
at (800) SEC-0330 for the location of the nearest public reference room, or
through the EDGAR system at www.sec.gov.

CAN I RECEIVE FUTURE STOCKHOLDER COMMUNICATIONS OVER THE INTERNET?

Yes. You may consent to access future stockholder communications (e.g.,
annual reports, proxy statements, and interim communications) from us or on our
behalf over the Internet instead of receiving those documents in the mail.
Providing such communications over the Internet will reduce our printing and
postage costs and the number of paper documents you would otherwise receive. If
you give your consent, in the future, when, and if, material is available over
the Internet, you will receive notification which will contain the Internet
location of the material. There is no cost to you for this service other than
charges you may incur from your Internet provider, telephone and/or cable
company. Once you give your consent, it will remain in effect until you inform
us otherwise. To give your consent, if your shares are registered in your name,
follow the prompts when you vote by telephone or over the Internet. If you vote
by mail, check the appropriate box located at the bottom of the proxy card. If
your shares are registered in the name of a nominee, follow the directions
provided by such nominee if this option is available.

I-3

ELECTION OF DIRECTORS

(PROXY ITEM NO. 1)

STRUCTURE OF THE BOARD

Our Restated Certificate of Incorporation and by-laws provide for a Board
of Directors that is divided into three classes as equal in size as possible.
The classes have three-year terms, and the term of one class expires each year
in rotation at that year's annual meeting. The size of the Board can be changed
by a two-thirds vote of the entire Board and is currently set at nine members.
Vacancies on the Board may be filled by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy, or a new
directorship created by an increase in the size of the Board, serves for the
remainder of the full term of the class of directors in which the vacancy or
newly created directorship occurred. As a matter of policy, the Board will
submit the nomination of a director elected to fill a vacancy to the vote of the
Company's stockholders at the next annual meeting.

Mr. Ignacio Dominguez Urquijo resigned as a Director of the Company on June
5, 2002. Mr. Urquijo served as a Director of the Company since 1998.

Arch Coal's Board of Directors has nominated three individuals for election
as directors for a three-year term that will expire in 2006: Frank M. Burke,
Thomas A. Lockhart and James L. Parker. All nominees are currently serving as
directors of the Company.

The Board is not aware that any nominee named in this proxy statement will
be unwilling or unable to serve as a director. If, however, a nominee is
unavailable for election, your proxy authorizes us to vote for a replacement
nominee if the Board names one. As an alternative, the Board may reduce the
number of directors to be elected at the meeting.

NOMINEES FOR A THREE-YEAR TERM THAT WILL EXPIRE IN 2006:

Frank M. Burke, 63, has been a director of Arch Coal since September 2000.
He has served as Chairman, Chief Executive Officer and Managing General Partner
of Burke, Mayborn Company, Ltd., a private investment and consulting company
since 1984. Mr. Burke is also a director of Kaneb Services LLC, Xanser
Corporation, Kaneb Pipe Line Company (general partner of Kaneb Pipe Line
Partners, LP), a member of the Board of Managers of Dorchester Minerals
Management GP LLC (general partner of Dorchester Minerals, L.P.) and a member of
the National Petroleum Council.

Thomas A. Lockhart, 67, has been a director of Arch Coal since February
2003 and a member of the Wyoming State House of Representatives since 2000. Mr.
Lockhart worked for PacificCorp, an electric utility, for over 30 years and
retired in 1998 as a Vice President. Mr. Lockhart is also a director of
Community First Bank of Wyoming.

James L. Parker, 65, has been a director of Arch Coal since 1995. He was
President of Hunt Petroleum Corporation, a private oil and gas exploration and
production company, from 1990 until his retirement in February 2001 and since
1994 has been President and a director of Hunt Coal Corporation, a subsidiary of
Hunt Petroleum.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES

DIRECTORS WHOSE TERMS WILL EXPIRE IN 2004:

Steven F. Leer, 50, has been President and Chief Executive Officer and a
director of Arch Coal since 1992. He is also a director of the Norfolk Southern
Corporation and Natural Resource Partners, L.P. and Chairman of the Center for
Energy and Economic Development and the National Coal Council.

I-4

Robert G. Potter, 64, has been a director of Arch Coal since April 2001.
Mr. Potter was Chairman and Chief Executive Officer of Solutia Inc., a producer
and marketer of a variety of high performance chemical-based materials, from
1997 to his retirement in 1999. Mr. Potter served for 32 years with Monsanto
Company (now Pharmacia Corporation) prior to its spin-off of Solutia in 1997,
most recently as the Chief Executive of its chemical businesses. Mr. Potter is a
Director of Stepan Company and of some private companies of which he is also an
investor.

Theodore D. Sands, 57, has been a director of Arch Coal since 1999 and,
since February 1999, has served as President of HAAS Capital, LLC, a private
consulting and investment company. Mr. Sands is also a director of Mosiac Group,
Inc., Protein Sciences Corporation and Terra Nitrogen Corporation. Mr. Sands
served as Managing Director, Investment Banking for the Global Metals/Mining
Group of Merrill Lynch & Co. from 1982 until February 1999.

DIRECTORS WHOSE TERMS WILL EXPIRE IN 2005:

James R. Boyd, 56, Chairman of the Board, has been a director of Arch Coal
since 1990. He served as Senior Vice President and Group Operating Officer of
Ashland Inc., a multi-industry company with operations in chemicals, motor oil,
car care products and highway construction, from 1989 until his retirement in
January 2002.

Douglas H. Hunt, 50, has been a director of Arch Coal since 1995 and, since
May 1995, has served as Director of Acquisitions of Petro-Hunt, LLC, a private
oil and gas exploration and production company.

A. Michael Perry, 66, has been a director of Arch Coal since 1998. He
served as Chairman of Bank One, West Virginia, N.A. from 1993 and as its Chief
Executive Officer from 1983 to his retirement in June 2001. Mr. Perry is also a
director of Champion Industries, Inc.

BOARD MEETINGS AND COMMITTEES

The Board of Directors met eight times in 2002. In addition to meetings of
the full Board, directors attended meetings of Board committees. Each director
attended at least 75% of the aggregate Board meetings and meetings of committees
of which he is a member. A description of each committee and its current
membership follows.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

Members: Mr. Parker (Chairman), Mr. Perry, and Mr. Potter

The Nominating and Corporate Governance Committee (Committee on Directors)
met three times during 2002. Its functions include: the development of corporate
governance policies, procedures and practices; the recruitment and
recommendation to the Board of Directors of nominees for directors; and the
oversight of the annual evaluation of directors and management; and the review
and recommendation of the directors' compensation program. Prior to October 24,
2002, the Committee was known as the Committee on Directors.

FINANCE COMMITTEE

Members: Mr. Sands (Chairman), Mr. Boyd, Mr. Hunt, Mr. Leer and Mr.
Lockhart

The Finance Committee met six times in 2002. This Committee reviews and
approves fiscal policies relating to Arch Coal's financial structure, including
its debt, cash and risk management. It also reviews and recommends to the Board
appropriate action with respect to significant financial matters, major capital
expenditures and acquisitions, and funding policies of Arch Coal's employee
benefit plans.

I-5

PERSONNEL AND COMPENSATION ("P&C") COMMITTEE

Members: Mr. Hunt (Chairman), Mr. Burke, Mr. Lockhart, Mr. Potter and Mr.
Sands

The P&C Committee met three times during 2002. The duties of this Committee
include the approval of the compensation of executive officers of Arch Coal and
its subsidiaries above specified dollar levels and the selection of participants
and awards under Arch Coal's incentive plans. The P&C Committee also establishes
policies regarding compensation, position evaluations, transfers, and
terminations. In addition, it provides oversight of Arch Coal's retirement,
savings and other benefit plans.

AUDIT COMMITTEE

Members: Mr. Burke (Chairman), Mr. Parker and Mr. Perry

The Audit Committee met eight times during 2002. Its primary responsibility
is to oversee the Company's financial reporting process on behalf of the Board
including evaluating, recommending and, if necessary, replacing Arch Coal's
independent auditors, reviewing year-end and interim financial statements and
the adequacy and effectiveness of internal accounting and financial controls.
The Audit Committee is composed solely of independent directors and operates
under a written charter adopted by the entire Board.

AUDIT COMMITTEE REPORT

Management is responsible for Arch Coal's internal controls and the
financial reporting process while the independent auditors are responsible for
expressing an opinion on the conformity of the Company's audited financial
statements with accounting principles generally accepted in the United States.
In this context, the Audit Committee has met with and held discussions with
management and with Arch Coal's internal and independent auditors.

The Audit Committee reviewed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee also met with the auditors, with and without management present, to
discuss the results of their examinations and their evaluations of Arch Coal's
internal controls. The Committee also reviewed with the independent auditors
their judgment as to the quality, and not just the acceptability, of the
Company's accounting principles and financial controls and such other matters as
are required to be discussed with the Audit Committee under auditing standards
generally accepted in the United States. In addition, the Audit Committee
discussed with the independent auditors the auditors' independence from
management and Arch Coal including the matters in the written disclosures
required by the Independence Standards Board and whether the provision of
non-audit services to the Company by the firm is compatible with maintaining
auditor independence. Pursuant to a policy adopted by the Board of Directors,
Arch Coal's independent auditors may only perform services on behalf of the
Company which are related to the audit or consist of tax compliance and tax
consulting services. Finally, the Committee received management representation
that the Company's consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States.

During 2002 and 2001, Ernst & Young charged fees for services rendered to
the Company as follows:

FEE
-------------------
SERVICE 2002 2001
------- -------- --------

Audit....................................................... $585,000 $566,563
Audit related services...................................... 292,823 32,769
Tax services................................................ 437,295 300,214
All other services.......................................... -- --

Audit related services in 2002 relate primarily to audits and accounting
consultation in connection with the Company's contribution of reserves to
Natural Resource Partners and other accounting and internal control
consultation. Audit related services in 2001 were comprised of accounting
consultation related to

I-6

the adoption of a new accounting standard and internal control consultation
related to the Company's information systems.

Substantially all of the tax services in 2002 and 2001 were related to tax
compliance. These services were comprised primarily of preparation of certain of
the Company's federal and state tax returns.

In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2002 for filing with the Securities and
Exchange Commission. The Audit Committee and the Board of Directors have also
recommended, subject to stockholder ratification, the selection of Ernst & Young
as Arch Coal's independent auditors for 2003.

A copy of the Audit Committee Charter is attached to this proxy statement
as Exhibit A.

AUDIT COMMITTEE
Frank M. Burke, Chairman
James L. Parker
A. Michael Perry

COMPENSATION OF DIRECTORS

Directors who are Arch Coal employees do not receive payment for their
services as directors. The following table displays all components of
compensation for non-employee directors:

AMOUNT OF
FORM OF COMPENSATION COMPENSATION**
-------------------- --------------

Annual Board Retainer*...................................... $ 75,000
Additional Annual Retainer for Chairman of the Board........ $100,000
Additional Annual Retainer for Audit Committee Chairman..... $ 30,000
Additional Annual Retainer for other Committee Chairmen..... $ 5,000
Board Attendance Fee (each meeting)......................... $ 1,250
Committee Attendance Fee (each meeting)..................... $ 1,250
New Director Fee***......................................... $ 30,000

---------------

* At least $40,000 of the annual retainer is subject to mandatory deferral
under Arch Coal's Outside Director's Deferred Compensation Plan into a
hypothetical investment in Arch Coal stock and is payable in cash upon the
director's termination of service.

** Effective January 1, 2003, the Annual Board Retainer was increased from
$55,000 to $75,000 per year and effective October 1, 2002, the Additional
Annual Retainers for the Audit Committee Chairman and the other Committee
Chairmen were increased from $10,000 to $30,000 and $4,000 to $5,000,
respectively. All other fees remained constant from 2001 levels.

*** New directors receive an additional $30,000 during their first full year of
service on the Board. This additional amount is subject to mandatory
deferral under the Deferred Compensation Plan.

Arch Coal also pays for each director's costs of attending Board meetings
and, under the Arch Coal, Inc. Director Matching Gift Program, the Company
donates $2.00 for each dollar contributed by directors to accredited
institutions of higher education up to a maximum of $6,000 each year.
Non-employee directors do not have a retirement plan nor do they participate in
the Company's benefit plans.

I-7

OWNERSHIP OF ARCH COAL COMMON STOCK

OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS

The following table shows Arch Coal common stock owned beneficially by the
Company's directors and executive officers as of March 1, 2003. In general,
"beneficial ownership" includes those shares a person has the power to vote or
the power to transfer, and stock options that are exercisable currently or
become exercisable within 60 days. Except as otherwise noted, each person has
sole voting and investment power over his or her shares.

SHARES UNDERLYING PERCENTAGE OF
SHARES OF OPTIONS EXERCISABLE OUTSTANDING
BENEFICIAL OWNER COMMON STOCK WITHIN 60 DAYS TOTAL SHARES
---------------- ------------ ------------------- --------- -------------

James R. Boyd, Chairman of the Board
and Director(1)(2).................. 44,855 -0- 44,855 *
Frank M. Burke, Director(2)........... 62,885 -0- 62,885 *
Douglas H. Hunt, Director(2)(3)....... 23,533 -0- 23,533 *
Steven F. Leer, President, CEO and
Director(1)(4)...................... 29,847 210,860 240,707 *
Thomas A. Lockhart, Director.......... 100 -0- 100 *
James L. Parker, Director(2)(5)(7).... 2,390,316 -0- 2,390,316 4.6%
A. Michael Perry, Director(2)......... 12,563 -0- 12,563 *
Robert G. Potter, Director (2)(6)..... 11,313 -0- 11,313 *
Theodore D. Sands, Director(2)........ 39,313 -0- 39,313 *
John W. Eaves, Executive Vice
President and Chief Operating
Officer(4)(8)....................... 51,481 77,043 128,534 *
Kenneth G. Woodring, Executive Vice
President -- Operations(4).......... 13,447 124,050 137,497 *
Robert E. Messey, Senior Vice
President and Chief Financial
Officer............................. -0- 43,193 43,193 *
Robert W. Shanks, Vice President --
Operations(4)....................... 1,347 73,650 74,997 *
All directors and executive officers
of Arch Coal as a group (18
persons)(9)......................... 2,617,844 779,873 3,397,717 6.5%

---------------

* Less than one percent of the outstanding shares.

(1) Includes shares held jointly with such person's spouse in the following
amounts: Mr. Boyd -- 1,045 and Mr. Leer -- 1,010.

(2) Includes shares held under the Director Deferred Compensation Plan in the
following amounts: Mr. Boyd -- 11,116; Mr. Burke -- 12,885; Mr.
Hunt -- 12,533; Mr. Parker -- 6,284; Mr. Perry -- 6,284; Mr.
Potter -- 7,313; and Mr. Sands -- 14,313.

(3) Mr. Hunt also has a beneficial interest in a trust known as the Lyda
Hunt-Herbert Trusts -- Douglas Herbert Hunt in the amount of 209,477 shares.
Mr. Hunt does not control the Trust.

(4) Includes shares held under Arch Coal's Employee Thrift Plan in the following
amounts: Mr. Leer -- 28,837; Mr. Eaves -- 1,491; Mr. Shanks -- 1,097; and
Mr. Woodring -- 2,340.

(5) Includes 2,199,659 shares owned by Hunt Coal Corporation. Mr. Parker is a
director and executive officer of Hunt Coal, and he may be deemed to share
voting and dispositive power with respect to the shares of common stock
owned by Hunt Coal. Mr. Parker disclaims beneficial ownership of such
shares.

(6) Includes 4,000 shares held in Robert G. Potter Trust dated 11/5/1992, Robert
G. Potter as Trustee.

(7) Includes 185,000 shares owned by Lyda Hunt -- Herbert Trusts -- Lilly Hunt,
James L. Parker as Trustee.

(8) Includes 50,000 shares of restricted stock. Mr. Eaves has the power to vote
such shares prior to the grant's January 31, 2008 vesting date.

(9) Includes 37,688 shares held by executive officers under Arch Coal's Employee
Thrift Plan and 3,513 shares held by executive officers under Arch Coal's
Deferred Compensation Plan.

I-8

OWNERSHIP BY OTHERS

The following table shows all persons or entities that Arch Coal knows were
"beneficial owners" of more than five percent of Arch Coal common stock on March
1, 2003, and is based on filings made by such owners with the Securities and
Exchange Commission.

SHARES OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK CLASS*
---------------- ------------ ----------

Mellon Financial Corporation**
One Mellon Center
Pittsburgh, Pennsylvania 15258............................ 3,384,607 6.5%
Prudential Financial, Inc.
751 Broad Street
Newark, New Jersey 07102-3777............................. 2,912,109 5.6%
Greenlight Capital, L.L.C
420 Lexington Avenue, Suite 1740
New York, New York 10170.................................. 2,851,100 5.4%
Jennison Associates LLC
466 Lexington Avenue
New York, New York 10017.................................. 2,842,178 5.4%

---------------

* Percentage of the Company's outstanding shares of common stock on March 1,
2003.

** This entity has disclaimed beneficial ownership of the shares attributed to
it pursuant to the U.S. securities laws.

I-9

COMPENSATION OF EXECUTIVE OFFICERS

REPORT OF THE PERSONNEL AND COMPENSATION COMMITTEE

THE P&C COMMITTEE

The P&C Committee is comprised entirely of independent directors and has
the responsibility for reviewing and approving changes to Arch Coal's executive
compensation policies and programs. The Committee also approves all compensation
payments to the Chief Executive Officer and other executive officers, except for
grants of stock-based compensation, which are approved by the Board of Directors
as a whole.

COMPENSATION PRINCIPLES

Arch Coal's compensation program for executives consists of three key
elements:

- A base salary;

- A performance-based annual bonus; and

- A long-term incentive program consisting of periodic grants of both stock
options and performance shares or units.

The fundamental objective of Arch Coal's executive compensation program is
to attract, retain and motivate key executives to enhance long-term
profitability and stockholder value. Arch Coal's compensation program meets this
objective by:

- 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;

- Providing total compensation opportunities which are comparable to the
opportunities provided by a group of peer companies of similar size and
diversity to Arch Coal in analogous or related businesses (the
"compensation peer group"), as well as general industry indices. The
compensation peer group companies utilized for analyzing compensation
comparisons are currently the same companies as utilized in the
performance graph shown on page I-17;

- Linking the compensation of Arch Coal executives to the operating and
financial performance of the Company by making significant elements of
each executive's compensation sensitive to the Company's overall
performance;

- Emphasizing variable pay and long-term incentives at more senior levels
of the company; and

- Rewarding executives for both the short and long-term enhancement of
stockholder value.

ANNUAL BASE SALARY

Base compensation is determined in accordance with the executive
compensation principles established by the Committee. The Committee considers
overall company performance, individual performance, competitive compensation
and target pay levels when determining compensation.

ANNUAL INCENTIVE BONUS

Incentive Compensation Plan

The Company's incentive compensation plan provides opportunities for key
executives of Arch Coal to earn annual incentive compensation based upon the
successful achievement of individual and Company financial and operating
performance objectives. Approximately 200 employees were eligible to participate
in the plan in 2002.

A participant's maximum annual incentive opportunity is based upon his or
her level of participation in the bonus plan. The incentive opportunity
increases based upon an executive's potential to affect

I-10

operations or profitability. The maximum incentive opportunity in 2002 for the
Chief Executive Officer was 150% of base salary while the maximum incentive
opportunity for the other executives, including the other executive officers
named in this proxy statement, was 80% to 100% of base salary.

Awards for corporate employees, including the CEO, are based on overall
corporate and individual performance. Awards to operating subsidiary employees
are based on a combination of corporate, subsidiary and individual performance.
Company performance is determined by comparing the Company's actual performance
against objective performance measures, which are established by the Board at
the beginning of each calendar year. For 2002, these performance measures, which
are weighed equally, are:

- earnings per share (EPS);

- adjusted earnings before interest, taxes, depreciation, and amortization
(adjusted EBITDA); and

- production costs per ton.

Company performance is weighted more at senior levels in the organization;
however, all participants in the program have an individual performance factor
which is based upon an evaluation of the extent to which an individual has
successfully discharged his or her duties during the year. All award payments
are subject to the review and approval of the Committee.

2002 Incentive Bonuses

The table below shows key measures of Arch Coal's financial performance for
2002 compared to 2001:

2002 2001
-------- --------
(IN MILLIONS EXCEPT
PER SHARE DATA)

Net income (loss)........................................... $ (2.6) $ 7.2
Income from operations...................................... 29.3 62.5
Debt........................................................ 747.3 773.9
Adjusted EBITDA(1).......................................... 228.9 282.3
Earnings (loss) per share................................... $(0.05) $ 0.15

---------------

(1) Adjusted EBITDA is defined for purposes of the incentive compensation plan
in the same manner as in the Company's financial statements, which are
attached to this document as Part II.

The Company's performance in 2002 did not result in a bonus pay-out to the
Company's executive officers based on the corporate performance measures
referenced above.

LONG-TERM INCENTIVES

The Committee has determined that a long-term incentive opportunity for
each of Arch Coal's executive officers should be delivered through awards of
stock options and phantom performance shares. The Committee intends that these
long-term incentive opportunities be competitive and based on actual Company
performance.

Stock Options

Arch Coal's employee stock option program is a long-term plan designed to
link executive compensation with increased stockholder value. A target value has
been established for each executive officer and other key employees of Arch
Coal. This target helps to establish the range of stock options to be granted
periodically to key employees. At the discretion of the Board of Directors,
awards can be made that deviate from these general guidelines.

All stock options are granted with an exercise price equal to the closing
price of common stock on the date of grant. Vesting of stock options generally
occurs over a period of three to four years, as determined

I-11

by the Committee; however, options will generally immediately vest upon a change
in control of Arch Coal or upon an employee's death, retirement or disability.

In 2002 the Board of Directors determined that it was appropriate to grant
stock options to the Chief Executive Officer, the other executives, and all
other stock option recipients of two times the normal level. The Committee felt
this would create a significant incentive for immediate and sustained
improvement in corporate performance and would serve as a retention device for
the key employees of the corporation. This grant was made by the Board with the
understanding that no grants of stock options would be made in 2003. The vesting
schedule of the grants is 25% per year for four years.

Restricted Stock Award

On December 18, 2002, the Board of Directors elected John W. Eaves as Arch
Coal's Executive Vice President and Chief Operating Officer. Mr. Eaves had
previously held the position of Senior Vice President -- Marketing. In
connection with Mr. Eaves' promotion, the Board awarded him a restricted stock
grant in the amount of 50,000 shares of Arch Coal common stock. The grant will
vest in its entirety on January 31, 2008, if Mr. Eaves is an active employee on
that date or on the earlier change of control of the Company.

DEDUCTIBILITY OF COMPENSATION

Under Section 162(m) of the Internal Revenue Code, Arch Coal is subject to
the loss of the deduction for compensation in excess of $1 million paid to one
or more of the executive officers named in this proxy statement. This deduction
can be preserved if Arch Coal complies with certain conditions in the design and
administration of its compensation programs.

The P&C Committee will make reasonable efforts, consistent with sound
executive compensation principles and the needs of Arch Coal, to ensure that all
future amounts paid to its executive officers will be fully deductible by the
Company.

OTHER PLANS

Arch Coal maintains a Deferred Compensation Plan pursuant to which certain
executives can defer base and annual incentive compensation. Arch Coal also
maintains an Employee Thrift Plan, a Cash Balance Pension Plan, insurance and
other benefit plans for its employees. Executives participate in these plans on
the same terms as other eligible employees, subject to any legal limits on the
amounts that may be contributed by or paid to executives under the plans.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Mr. Leer's base compensation was increased to $650,000 in 2002 based on the
base compensation principles outlined above. For 2002, Mr. Leer's maximum
incentive opportunity under Arch Coal's annual incentive compensation plan was
150% of his base salary, or $975,000. As described above, the corporation's
performance in 2002 did not result in a bonus pay-out.

GENERAL

This report is submitted by the P&C Committee with respect to all matters
set forth in the report, except for those matters related to stock options and
restricted stock awards and by the entire Board of Directors (other than Mr.
Lockhart who joined the Board in February 2003), but only with respect to stock
options and restricted stock awards. Mr. Leer excused himself from Board
meetings and abstained from voting with respect to all matters relating to
stock-based compensation.

I-12

In summary, the Committee and the Board believe that the total compensation
opportunities provided to Arch Coal's executive officers create a strong linkage
and alignment with the long-term best interest of Arch Coal and its
stockholders.

PERSONNEL AND
COMPENSATION COMMITTEE ARCH COAL, INC. BOARD OF DIRECTORS
---------------------- ----------------------------------

Douglas H. Hunt, Chairman James R. Boyd, Chairman
Frank M. Burke Frank M. Burke
Robert G. Potter Douglas H. Hunt
Theodore D. Sands Steven F. Leer
James L. Parker
A. Michael Perry
Robert G. Potter
Theodore D. Sands

SUMMARY COMPENSATION TABLE

The following table is a summary of compensation information for each of
the last three years for the Chief Executive Officer and each of the other four
most highly compensated executive officers, based upon annual salary for the
year 2002:

LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------- RESTRICTED UNDERLYING ALL OTHER
NAME AND OTHER ANNUAL STOCK OPTION COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1) AWARD(2)($) AWARDS(#) (3)($)
------------------ ---- --------- -------- --------------- ----------- ---------- ------------

Steven F. Leer............. 2002 650,000 -0- 3,981 -0- -0- 36,363
President & Chief
Executive 2001 575,000 274,500 3,909 -0- 177,400 29,008
Officer 2000 500,000 457,344 3,639 -0- -0- 26,277
John W. Eaves.............. 2002 320,000 -0- 5,053 1,055,500 -0- 19,148
Executive Vice President
& 2001 295,000 116,800 3,806 -0- 62,200 16,461
Chief Operating Officer 2000 275,000 201,231 171 -0- -0- 13,393
Kenneth G. Woodring........ 2002 380,000 -0- 4,507 -0- -0- 21,805
Executive Vice
President -- 2001 365,000 134,300 3,909 -0- 78,500 16,666
Operations 2000 350,000 251,213 4,139 -0- -0- 9,669
Robert J. Messey........... 2002 305,000 -0- 3,650 -0- -0- 11,945
Senior Vice President and 2001 275,000 105,100 7,615 -0- 31,400 10,200
Chief Financial Officer 2000(4) 20,096 17,022 -- -- 30,000 -0-
Robert W. Shanks........... 2002 275,000 -0- 4,718 -0- -0- 16,800
Vice
President -- Operations 2001 260,000 117,700 3,909 -0- 55,000 10,195
2000 250,000 153,750 4,326 -0- -0- 10,200

---------------

(1) Represents tax reimbursement payments.

(2) The value shown is the number of restricted shares times the market price of
Arch Coal common stock on the day of grant. The value given does not reflect
the fact that the shares are restricted. Mr. Eaves receives the same cash
dividends on the restricted shares as holders of Arch Coal common stock, but
he cannot sell the shares during the restricted period. For more information
on Mr. Eaves' restricted stock award, see the discussion on page I-12 of
this proxy statement.

(3) This amount represents: contributions made to the applicable Employee Thrift
Plan for 2000, 2001 and 2002, and credits made under Arch Coal's Deferred
Compensation Plan for 2001 and 2002. All contributions to the Employee
Thrift Plan were made during the listed year. All credits pursuant to the
Deferred Compensation Plan were made in the following year.

(4) Mr. Messey's employment with Arch Coal began in December 2000.

I-13

STOCK OPTION GRANTS

The following table shows information with respect to the options granted
to the named executive officers during 2002:

POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM
NAME AND OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------------
PRINCIPAL POSITION GRANTED IN 2002 PER SHARE DATE 5%($) 10%($)
------------------ ---------- ---------- -------------- ---------- ------------ ------------

Steven F. Leer.............. 109,450 4.48% 18.15 2012 1,249,310 3,165,997
President & Chief
Executive 109,450 4.48% 22.60 2012 1,555,615 3,942,234
Officer
John W. Eaves............... 35,950 1.47% 18.15 2012 410,349 1,039,905
Executive Vice President & 35,950 1.47% 22.60 2012 510,958 1,294,868
Chief Operating Officer
Kenneth G. Woodring......... 42,700 1.75% 18.15 2012 487,396 1,235,158
Executive Vice
President -- 42,700 1.75% 22.60 2012 606,896 1,537,993
Operations
Robert J. Messey............ 34,250 1.40% 18.15 2012 390,944 990,730
Senior Vice President and
Chief 34,250 1.40% 22.60 2012 486,796 1,233,636
Financial Officer
Robert W. Shanks............ 30,900 1.26% 18.15 2012 352,706 893,827
Vice
President -- Operations 30,900 1.26% 22.60 2012 439,182 1,112,974

STOCK OPTION EXERCISES AND YEAR-END VALUES

The table below sets forth option exercises during 2002 by the named
executive officers and the following information with respect to the status of
their options as of December 31, 2002:

- The total number of exercisable and unexercisable stock options held at
December 31, 2002; and

- The aggregate dollar value of in-the-money unexercised options at
December 31, 2002.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END(#) AT FY-END($)*
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ----------- ------------------------- -------------------------

Steven F. Leer............ -0- -0- 133,897/397,403 635,943/503,740
John W. Eaves............. -0- -0- 51,616/135,484 240,749/171,835
Kenneth G. Woodring....... -0- -0- 94,598/165,802 272,541/201,422
Robert J. Messey.......... -0- -0- 23,034/106,866 225,550/230,595
Robert W. Shanks.......... -0- -0- 51,182/118,618 240,749/154,463

---------------

* Calculated based on the closing stock price of the Company's common stock on
the last trading day of 2002 of $21.59.

I-14

PENSION PLANS

On January 1, 1998, Arch Coal replaced its existing pension plans with a
new Cash Balance Pension Plan. The benefits of a participating individuals under
the former plans were vested as of that date and his or her cash balance account
was credited with the present value of his or her earned pension benefit,
payable at age 65. Salaried employees hired after January 1, 1998 become vested
after three years of employment. On an annual basis (or a shorter period if a
participant's employment is terminated), each participant's account is credited
with the following:

- contribution credits equal to a percent of total pay;

- transition credits for a period equal to a participant's credited service
under the prior pension plan as of December 31, 1997 (to a maximum of 15
years from December 31, 1997); and

- interest credits based on one-year treasury yields plus 1%.

The percentage amounts of the contribution and transition credits, which
are shown in the following chart, are based on the participant's age at year
end:

CONTRIBUTION CREDITS TRANSITION CREDITS AS
AGE AT YEAR END AS % OF TOTAL PAY* % 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.

As of December 31, 2002, the estimated annual annuities (based on one-year
treasury yields) payable at age 65 to executive officers named in this proxy
statement are as follows:

ESTIMATED ANNUAL
NAME PAYMENTS*
---- ----------------

Steven F. Leer.............................................. $344,005
John W. Eaves............................................... $174,283
Kenneth G. Woodring......................................... $185,325
Robert J. Messey............................................ $ 42,246
Robert W. Shanks............................................ $173,545

---------------

* Assumes the executive officer works until age 65, annual base compensation
remains unchanged from 2002, and that future incentive compensation is equal
to the average of that awarded over the last four years. The interest rate
used for determining the annuity was 4.93%. The interest credits for 2003 and
future years was 4.25%.

EMPLOYMENT AGREEMENTS

Each executive officer has an employment agreement with Arch Coal that
requires the Company to continue the executive's salary and benefits for one
year if he or she is terminated by the Company without cause. If, however, the
executive resigns for good reason or is terminated without cause within two
years after a change in control of the Company, then, depending upon his or her
position, the executive would receive a payment equal to up to three-times the
highest annual compensation (including incentive

I-15

compensation) received by such executive during the prior three years. In
addition, certain benefits would continue for up to three years depending upon
the benefit and position held by the executive.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under the securities laws, Arch Coal's directors, executive officers and
any persons beneficially holding more than ten percent of the Company's common
stock are required to report their ownership of the common stock and any changes
in that ownership to the SEC and the New York Stock Exchange. Specific due dates
for these reports have been established and Arch Coal is required to report in
this proxy statement any failure to file by these dates. All of these filing
requirements were satisfied in 2002. In making these statements, Arch Coal has
relied on copies of the reports that its executive officers and directors have
filed with the SEC.

RELATED PARTY TRANSACTIONS

Arch Coal holds a 34% ownership interest in Natural Resource Partners, L.P.
(NRP). Mr. Leer, President, CEO and a director of Arch Coal, and another
executive officer of Arch Coal serve on NRP's board of directors. Arch Coal
leases certain coal reserves from NRP and pays royalties to NRP for the right to
mine those reserves. Arch Coal paid $4.3 million in royalty payments to NRP
during 2002.

I-16

STOCK PRICE PERFORMANCE GRAPH

The graph below compares the cumulative total return to stockholders (stock
price appreciation plus reinvested dividends) on the Company's common stock with
the cumulative total return on two indices: a peer group and the Standard &
Poor's (S&P) 400 Index. The graph assumes that:

- You invested $100 in the Company's common stock and in each indicia at
the closing price on December 31, 1997;

- all dividends were reinvested; and

- you continued to hold your investment through December 31, 2002.

5-YEAR TOTAL SHAREHOLDER RETURN

ARCH COAL INC VS S&P 400 (MIDCAP) AND INDUSTRY PEER GROUP

[LINE GRAPH]

SOURCE: Standard & Poor's Research Insight
NOTES: Assumes $100 invested on 12/31/97 in Arch Coal Inc stock, in the S&P 400
(MidCap), and in an Industry Peer Group.

Reflects month-end dividend reinvestment, and annual reweighting of the
Industry Peer Group.

The companies included in the Industry Peer Group are:

Consol Energy Inc, Freeport McMoran Copper&Gold, Massey Energy Co,
Newmont Mining Corp, Peabody Energy Corp, Pittston Co, and Southern Peru
Copper

--------------------------------------------------------------------------------
12/1997 12/1998 12/1999 12/2000 12/2001 12/2002
--------------------------------------------------------------------------------

Arch Coal Inc 100 64 44 56 91 88
S&P 400 (MIDCAP) 100 119 137 161 160 136
Industry Peer Group 100 68 95 78 92 100

I-17

RATIFICATION OF INDEPENDENT AUDITORS

(PROXY ITEM NO. 2)

We are asking you to ratify the Board's appointment of Ernst & Young LLP as
principal independent auditors to examine the consolidated financial statements
of the Company and its subsidiaries for the year 2003. The Audit Committee has
recommended the selection of Ernst & Young to the Board. Ernst & Young has acted
as Arch Coal's independent auditors since 1997, is knowledgeable about the
Company's operations and accounting practices and is well qualified to act as
auditor.

Although we are not required to seek your approval of this appointment, the
Board believes it to be sound corporate practice to do so. If you do not ratify
the appointment of independent auditors, the Audit Committee will investigate
the reasons for your rejection and the Board will reconsider the appointment.

Representatives of Ernst & Young do not plan to make a formal statement at
the annual meeting. However, they will attend the meeting and be available to
respond to appropriate questions.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR 2003

ADDITIONAL INFORMATION

INFORMATION ABOUT STOCKHOLDER PROPOSALS

If you wish to submit proposals for possible inclusion in our 2004 proxy
materials, we must receive them on or before November 24, 2003. Proposals should
be mailed to:

Arch Coal, Inc.
One CityPlace Drive
Suite 300
St. Louis, Missouri 63141
Attention: Robert G. Jones, Vice President -- Law, General Counsel and
Secretary

If you wish to nominate directors and/or propose proper business from the
floor for consideration at the 2003 Annual Meeting of Stockholders, our by-laws
provide that:

- You must notify Arch Coal's Secretary in writing;

- Your notice must have been received at Arch Coal's headquarters not
earlier than January 24, 2003 and not later than February 13, 2003; and

- Your notice must contain the specific information required in our
by-laws.

We will send copies of these requirements to any stockholder who writes to
us requesting this information. Please note that these three requirements apply
only to matters that you wish to bring before your fellow stockholders at the
2003 Annual Meeting without submitting them for possible inclusion in our 2003
proxy materials.

DIRECTIONS TO THE ANNUAL MEETING

From Downtown St. Louis: Take Interstate 64 West to 270 North. Exit at
Olive Boulevard. Take Olive Boulevard East to CityPlace Drive. North on
CityPlace Drive to Arch Coal's headquarters at CityPlace One.

From Lambert International Airport: Take Highway 70 West to 270 South.
Exit at Olive Boulevard. Take Olive Boulevard East to CityPlace Drive. North on
CityPlace Drive to Arch Coal's headquarters at CityPlace One.

I-18

MULTIPLE COPIES OF ANNUAL REPORT TO STOCKHOLDERS

If more than one copy of Arch Coal's Annual Report is currently being sent
to your address, we will discontinue the mailing of reports on the accounts you
select if you mark the designated box on the appropriate proxy card, or follow
the prompts when you vote if you are a stockholder of record voting by telephone
or Internet.

At least one account must continue to receive the Annual Report either by
mail or through the Internet. Mailing of dividends, dividend reinvestment
account statements, and any special notices will not be affected by your
election to discontinue future duplicate mailings of the Annual Report. To
discontinue or resume the mailing of an Annual Report to an account, you may
call American Stock Transfer & Trust Company at 1-800-360-4519.

If you own common stock through a bank, broker or other nominee and receive
more than one Arch Coal Annual Report, please contact the holder of record to
eliminate duplicate mailings.

ROBERT G. JONES
Vice President -- Law, General Counsel
and Secretary

March 18, 2003

I-19

EXHIBIT A

ARCH COAL, INC.
AUDIT COMMITTEE CHARTER

PURPOSE

The Audit Committee is appointed by the Board to assist the Board in
fulfilling its oversight over (1) the integrity of the financial statements,
internal accounting, financial controls, disclosure controls and financial
reporting processes of the Company, (2) the independent auditors' qualifications
and independence, (3) the performance of the Company's internal audit function
and independent auditors, and (4) the compliance by the Company with legal and
regulatory requirements.

The Committee shall prepare, or cause to be prepared, the report required
by the rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement.

LIMITATION OF AUDIT COMMITTEE'S ROLE

While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These are the responsibilities of
management and the independent auditors.

Additionally, the Board and the Committee recognize that financial
management (including the internal audit staff), as well as the independent
auditors, have more time, knowledge and more detailed information on the Company
than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special
assurances as to the Company's financial statements or any professional
certification as to the independent auditors' work.

COMMITTEE MEMBERSHIP

The Committee shall consist of no fewer than three members. All Committee
members shall be financially literate, as determined by the Board, and at least
one member of the Committee shall have a background in financial reporting,
accounting and auditing. All members of the Committee shall meet all other
independence, experience and expertise requirements of the New York Stock
Exchange. The Committee shall endeavor to at all times have at least one member
who is an "audit committee financial expert," as defined by SEC regulations.

The members of the Committee shall be appointed by the Board on the
recommendation of the Nominating & Corporate Governance Committee. Committee
members may be replaced by the Board.

The Board shall appoint one of the members of the Audit Committee as
Chairperson. It is the responsibility of the Chairperson to schedule all
meetings of the Committee and to provide the Committee with a written agenda
prior to each meeting.

Compensation shall be limited to director fees and committee fees.

COMMITTEE AUTHORITY AND RESPONSIBILITIES

The independent auditors shall report directly to the Audit Committee. In
that regard, the Committee is directly responsible for engagement of the
independent auditors, has the sole authority to appoint or replace the
independent auditors (subject to shareholder ratification), and shall
pre-approve all audit engagement fees and terms and all non-audit engagements
with the independent auditors and shall disclose its policies for approval of
such engagements in the Company's periodic reports filed with the SEC . In
addition, it is a direct responsibility of the Audit Committee for resolution of
disagreements between management and the independent auditors regarding
accounting and financial matters.

A-1

The Committee shall meet as often as it determines, but not less frequently
than quarterly. The Committee may delegate authority to the Chair of the
Committee and/or a subcommittee of the Audit Committee when appropriate. All
actions taken pursuant to a delegation of authority described in the previous
sentence shall be presented to the full Committee at its next regularly
scheduled meeting for review and ratification.

The Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain its own special legal, accounting or other consultants to
advise the Committee and the Company will provide adequate funding for such
activities. In addition, the Committee may request any officer or employee of
the Company or the Company's outside counsel or independent auditors to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee. The Committee shall meet with management, the internal auditors and
the independent auditors in separate executive sessions at least quarterly. The
Committee may also, to the extent it deems necessary or appropriate, meet with
the Company's investment bankers or financial analysts who follow the Company.

The Committee shall make regular reports to the Board and provide copies of
the minutes of each meeting to the Board as soon as practical after each
Committee meeting. The Committee shall review and reassess the adequacy of this
Charter annually and recommend any proposed changes to the Board for approval.
The Committee shall annually review the Committee's own performance.

The Committee, to the extent it deems necessary or appropriate, shall:

1. Discuss with management and the independent auditors the annual audited
financial statements, including disclosures made in Management's
Discussion and Analysis of Financial Condition and Results of
Operations, including their judgment about the quality, not just the
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements and the results of the audit and recommend to the
Board whether the audited financial statements should be included in the
Company's Form 10-K.

2. Discuss with management and the independent auditors the Company's
quarterly financial statements and disclosures under Management's
Discussion and Analysis of Financial Condition and Results of
Operations, including the results of the independent auditors' reviews
of the quarterly financial statements, prior to the filing of such
financial statements.

3. Discuss with management and the independent auditors, at the conclusion
of the annual audit, significant financial reporting issues and
judgments made in connection with the preparation of the Company's
financial statements, including any significant changes in the Company's
selection or application of accounting principles, any major issues as
to the adequacy of the Company's internal controls, the development,
selection and disclosure of critical accounting estimates, and analyses
of the effect of alternative assumptions, estimates or GAAP methods on
the Company's financial statements. To further this goal, the Committee
shall receive reports at least quarterly from the independent auditors,
and prior to the filing of its report with the SEC, on all critical
accounting policies and practices of the Company, all alternative
treatments of financial information within GAAP that have been discussed
with management, including the ramifications of the use of such
alternative treatments and disclosures and the treatment preferred by
the independent auditor, and other material written communications
between the independent auditor and management.

4. Discuss with management the Company's earnings press releases, including
the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and
rating agencies. The Committee need not discuss in advance each earnings
release or each instance in which the Company may provide earnings
guidance.

5. Discuss with management and the independent auditors the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.

A-2

6. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit. In particular, discuss:

(a) The adoption of, or changes to, the Company's significant auditing
and accounting principles and practices as suggested by the
independent auditors, internal auditors or management.

(b) The management letter provided by the independent auditors and the
Company's response to that letter.

(c) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management.

7. Meet with the independent auditors prior to the audit to discuss the
planning and staffing of the audit.

8. Discuss the experience, qualifications and independence of the Company's
independent auditor, including all relationships between the auditing
firm and the Company and its Directors and officers. Discuss the
experience, qualifications and independence of the lead partner as well
as the senior members of the independent auditors' team.

9. Obtain and review a report from the independent auditors at least
annually regarding (a) the independent auditors' internal
quality-control procedures, (b) any material issues raised by the most
recent quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent
audits carried out by the firm, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent auditors
and the Company.

10. At least annually, discuss the overall performance of the independent
auditors, taking into account the opinions of management and the
internal auditors.

11. At least annually, present the Committee's conclusions regarding the
independence and performance of the independent auditors to the Board
and, if so determined by the Committee, recommend that the Board take
additional action to satisfy itself as to the qualifications,
performance and independence of the independent auditors.

12. Discuss whether, in order to assure continuing auditor independence, it
is appropriate to adopt a policy of rotating the lead audit partner
more often that required by law, or even the independent auditing firm
itself on a regular basis.

13. Set policies for the Company's hiring of employees or former employees
of the independent auditors who were engaged on the Company's account.

14. Obtain and review a quarterly report on matters discussed by the
independent auditors with its national office regarding the Company.

15. Review with the independent auditors any audit problems or difficulties
and management's response, including the independent auditors'
responses regarding accounting adjustments noted or proposed but passed
(as immaterial or otherwise).

16. Review with the independent auditors any audit problems or difficulties
in management's response regarding "management" or "internal control"
letter matters.

17. Discuss internal audit plan and review assistance to be provided
independent accountants by internal audit staff.

18. Discuss the appointment and replacement of the senior internal auditing
executive.

19. Discuss the significant reports to management prepared by the internal
audit department and management's responses.

A-3

20. Discuss with the independent auditors the responsibilities of the
internal audit department, as well as the internal audit program,
budget and staffing and any recommended changes in the planned scope of
the internal audit.

21. Discuss the Internal Audit Charter at least annually.

22. Discuss with management, the internal auditors and the independent
auditors the adequacy and effectiveness of accounting and financial
controls, including the Company's policies and procedures to assess,
monitor, and manage business risk, and legal and ethical compliance
programs (e.g., the Company's Code of Business Conduct) and any special
audit steps adopted in light of material control deficiencies.

23. Discuss with the Board the Company's policies and procedures regarding
compliance with applicable laws and regulations and with the Company's
Code of Business Conduct and Ethics.

24. Discuss management's assertion on its assessment of the effectiveness
of internal controls as of the end of the most recent fiscal year and
the independent auditors' report on management's assertion.

25. Establish and discuss annually procedures for the receipt, retention,
and treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters, and the
confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.

26. Discuss with management and the independent auditors any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the Company's
financial statements or accounting policies.

27. Discuss with the Company's General Counsel legal matters that may have
a significant impact on the financial statements or the Company's
compliance policies.

A-4

ANNUAL MEETING OF STOCKHOLDERS OF

ARCH COAL, INC.

APRIL 24, 2003

Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.

-------------\/ Please detach and mail in the envelope provided. \/-------------

------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
------------------------------------------------------------------------------------------------------------------------------------

FOR AGAINST ABSTAIN
1. Election of Directors 2. Ratification of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors for 2003.
NOMINEES
[ ]FOR ALL NOMINEES [ ] Frank M. Burke
[ ] Thomas A. Lockhart
[ ]WITHHOLD AUTHORITY [ ] James L. Parker THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
FOR ALL NOMINEES DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE
[ ]FOR ALL EXCEPT FOR ALL PROPOSALS.
(SEE instructions below)

INSTRUCTION: To withhold authority to vote for any
individual nominee(s), mark "FOR ALL
EXCEPT" and fill in the circle next to
each nominee you wish to withhold, as
shown here: [X]

I consent to receive future stockholder
communications over the Internet. [ ]

I wish to discontinue duplicate mailings
on this account. [ ]

Please check here if you plan to attend the meeting.[ ]

Signature of Stockholder _______________________ Date: _______ Signature of Stockholder____________________________ Date: _______

NOTE: This proxy must be signed exactly as the name appears hereon. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person.

ARCH COAL, INC.

ANNUAL MEETING OF STOCKHOLDERS

CITYPLACE ONE
LOWER LEVEL AUDITORIUM
ONE CITYPLACE DRIVE
ST. LOUIS, MISSOURI 63141
(314) 994-2700

DIRECTIONS TO THE ARCH COAL, INC. ANNUAL MEETING OF STOCKHOLDERS:

FROM DOWNTOWN ST. LOUIS: TAKE INTERSTATE 64 WEST TO 270 NORTH.
EXIT AT OLIVE BOULEVARD. TAKE OLIVE BOULEVARD EAST TO CITYPLACE DRIVE.
NORTH ON CITYPLACE DRIVE TO ARCH COAL'S HEADQUARTERS AT CITYPLACE ONE.

FROM LAMBERT INTERNATIONAL AIRPORT: TAKE HIGHWAY 70 WEST TO 270 SOUTH.
EXIT AT OLIVE BOULEVARD.
TAKE OLIVE BOULEVARD EAST TO CITYPLACE DRIVE.
NORTH ON CITYPLACE DRIVE TO ARCH COAL'S HEADQUARTERS AT CITYPLACE ONE.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ARCH COAL, INC.
2003 ANNUAL MEETING OF STOCKHOLDERS
CITYPLACE ONE, LOWER LEVEL AUDITORIUM, ONE CITYPLACE DRIVE
ST. LOUIS, MISSOURI 63141
APRIL 24, 2003 AT 10:00 A.M., CENTRAL TIME

The undersigned hereby appoints STEVEN F. LEER and ROBERT G. JONES, and each of
them, with power of substitution, as the proxy of the undersigned to represent
the undersigned and to vote all shares of common stock which the undersigned
would be entitled to vote, if personally present at the Annual Meeting of
stockholders of Arch Coal, Inc. to be held at its headquarters at CityPlace One,
St. Louis, Missouri, at 10:00 a.m. on Thursday, April 24, 2003, lower level
auditorium, and at any adjournments thereof, with all powers the undersigned
would possess if present at such meeting on the matters set forth on the reverse
side hereof and all other matters properly coming before the meeting.

If the undersigned is a participant in the Arch Coal, Inc. Employee Thrift Plan
(including pursuant to the Mingo Logan Savings Plan), and this proxy card is
received on or before April 18, 2003, then this card also provides voting
instructions to the trustee of such plan to vote at the Annual Meeting, and any
adjourments thereof, all shares of Arch Coal common stock held in the
undersigned's plan account as specified upon the matters set forth on the
reverse side hereof and all other matters properly coming before the meeting. If
the undersigned is a participant in one of these plans and does not instruct the
trustee by April 18, 2003, then the trustee will vote the undersigned's plan
account shares in proportion to the votes of the other participants in that
plan. In addition, the trustee will vote unallocated shares in the plan in
direct proportion to voting by allocated shares for which instructions have been
received.

PLEASE SEE REVERSE SIDE FOR INFORMATION ON VOTING YOUR PROXY BY
TELEPHONE OR INTERNET. You are encouraged to specify your choices by marking the
appropriate boxes. SEE REVERSE SIDE, and mailing in your ballot or by voting by
telephone or internet. If you vote by mail, you need not mark any boxes if you
wish to vote in accordance with the Board of Directors' recommendations. The
Proxies cannot vote your shares unless you vote.

YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING YOUR SHARES.

ANNUAL MEETING OF STOCKHOLDERS OF

ARCH COAL, INC.

APRIL 24, 2003

PROXY VOTING INSTRUCTIONS

MAIL - Date, sign and mail your proxy
card in the envelope provided as soon
as possible. COMPANY NUMBER
- OR -
TELEPHONE - Call toll-free 1-800-PROXIES ACCOUNT NUMBER
from any touch-tone telephone and follow
the instructions. Have your control number CONTROL NUMBER
and proxy card available when you call.
- OR -
INTERNET - Access "www.voteproxy.com" and
follow the on-screen instructions. Have
your control number available when you
access the web page.

------\/ Please detach and mail in the envelope provided IF you are not \/------
voting via telephone or the Internet.

----------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
----------------------------------------------------------------------------------------------------------------------------------

FOR AGAINST ABSTAIN
1. Election of Directors 2. Ratification of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors for 2003.
NOMINEES
[ ]FOR ALL NOMINEES [ ]Frank M. Burke
[ ]Thomas A. Lockhart
[ ]WITHHOLD AUTHORITY [ ]James L. Parker THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
FOR ALL NOMINEES DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE
[ ]FOR ALL EXCEPT FOR ALL PROPOSALS.
(See instructions below)

INSTRUCTION: To withhold authority to vote for any
individual nominee(s), mark "FOR ALL
EXCEPT" and fill in the circle next to
each nominee you wish to withhold, as
shown here: [X]

I consent to receive future stockholder
communications over the Internet. [ ]

I wish to discontinue duplicate mailings
on this account. [ ]

Please check here if you plan to attend the meeting.[ ]

To change the address on your account, please check the box at
right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the
account may not be submitted via this method. [ ]

Signature of Stockholder _______________________ Date: _______ Signature of Stockholder____________________________ Date: _______