UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrantþ
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Westmoreland Coal Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Westmoreland Values
Our Vision, Mission, and Values reflect who we are
and what we stand for as a company.
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Our Vision
To deliver the premium value in the coal industry. |
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Our Mission
Westmoreland Coal Company is dedicated to diligently applying our mining expertise to attain economic advantages.
• Leverage unique operations • Maximize transportation advantages • Identify and develop niche reserves • Cultivate unique partnerships • Sustain efficiency and standardization
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| Our Values
Our decisions and practices are guided by the values below. They are the core to who we are and how we behave as a company.
To excel at the pillars of coal mining by: • Uncompromised safety • Environmental stewardship • State-of-the-art mining techniques
To exceed partner expectations by: • Fair and collaborative approach • Community and tribal partnerships • Delivery of shareholder value • Agile and responsive interactions • Commitment focused - we do what we say
To maintain a foundation of integrity by: • Honest, transparent, and respectful communication • Highest legal and ethical standards • Pride in our work and our company • Dedication to diversity - respect and honor all |
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2012 was a year of growth at Westmoreland Coal Company.
We achieved strong growth in our core business, achieved record EBITDA and deleveraged the business, all while creating a sustainable platform for the future. We achieved our results through a commitment to our core values of excelling at the pillars of coal mining, exceeding partner expectations and maintaining a foundation of integrity. These values reflect who we are and what we stand for as a company. They are designed to guide us as we move towards the future and they form the basis of our success.
WESTMORELAND COAL COMPANY
2 North Cascade Avenue, 2nd Floor
9540 S. Maroon Circle, Suite 200
Englewood, Colorado
Springs, Colorado 8090380112
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Westmoreland Stockholders:
We are very pleased that this year's annual meeting will be our first virtual meeting of stockholders. You will be able to attend the 2013 Annual Meeting, vote, and submit your questions during the meeting via live webcast by visitingwww.virtualshareholdermeeting.com/WLB2013. Be sure to have your 12-Digit Control Number to enter the meeting. The Annual Meeting of Stockholders of Westmoreland Coal Company will be held at our corporate offices located at 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 80903via the Internet on Thursday,Tuesday, May 20, 201021, 2013 at 8:30 a.m. Mountain Daylight Time, for the following purposes: 1.
The election by the holders of Common Stock of four directors to the Board of Directors to serve for a one-year term;
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| 1. | The election of eight directors to the Board of Directors to serve for a one-year term; |
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The election by the holders of Series A Convertible Exchangeable Preferred Stock, each share of which is represented by four Depositary Shares, of two additional directors to the Board of Directors to serve for a one-year term;
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| 2. | Advisory approval of Westmoreland Coal Company's executive compensation; |
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The ratification of the appointment by the Audit Committee of Ernst & Young LLP as principal independent auditor for fiscal year 2010; and
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| 3. | The ratification of the appointment of Ernst & Young LLP as principal independent auditor for fiscal year 2013; and |
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To transact such other business as may properly come before the meeting or any postponement or adjournment thereof.
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| 4. | To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. |
Only stockholders of record at the close of business on March
26, 201025, 2013 will be entitled to notice of and to vote at the meeting and any postponement or adjournment thereof.
YOUR VOTE IS IMPORTANT.Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote by proxy over the Internet or by telephone, or, if you received paper copies of the proxy materials, you can also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the annual meeting regardless of whether you attend in person.attend. This proxy statement, the annual report to stockholders and the proxy voter card are being mailed on or about March 29, 2010April 5, 2013. By Order of the Board of Directors,
/s/ Morris W. Kegley
Morris W. Kegley
General Counsel and Secretary
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| By Order of the Board of Directors, | |
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| By Order of the Board of Directors, Jennifer S. Grafton General Counsel and Secretary | |
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 20, 2010.21, 2013. This notice, the accompanying proxy statement and Westmoreland Coal Company’s Annual ReportCompany's annual report to stockholders for the fiscal year ended December 31, 20092012 are available atwww.proxyvote.com.
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PROXY STATEMENT
PROXY SUMMARY
We provide below highlights of certain information in this proxy statement. As it is only a summary, please review the complete proxy statement and 2012 annual report before you vote.
2012 Performance Highlights
2012 was a year of growth at Westmoreland Coal Company. We achieved strong growth in our core business through the acquisition of the Kemmerer Mine, achieved record EBITDA and cash flow, and deleveraged the business, while establishing a strong and stable platform for future success.
Our total operating income increased 172%, up to $28.9 million in 2012 from $10.6 million in 2011.
We achieved 44% growth in Adjusted EBITDA in 2012, up over $30 million from 2011.
We lowered our net debt in 2012 through 28% growth in operating cash flow and the extinguishment of $44.8 million in debt.
We received an S&P credit rating upgrade to B-, the only coal company to receive an upgrade in 2012.
We acquired the Kemmerer Mine and, over the course of the year, successfully and seamlessly transitioned it into our operations.
We continued our strong track record of safety, 32% lower than the national average reportable incident rate.
As a result of strong succession planning, we announced plans for the transition of the CEO role from Keith E. Alessi to coal veteran Robert P. King; Mr. Alessi will transition to the Executive Chairman role.
See page 36 for information about reconciliation of non-GAAP financial measures.
Executive Compensation Program
Our executive compensation program is designed to reward our leadership team for delivering results and building long-term value. We believe our program's performance measures align the interests of our stockholders and senior executives by tying pay outcomes to our short- and long-term performance. Several important features of our executive compensation program are:
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No employment agreements or individual change-in-control agreements for executive officers, other than Mr. Alessi's Transition Agreement described below; all executive officers are at-will employees; |
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| ü | No company aircraft or company-provided vehicles, other than vehicles used at mine operation sites; |
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| ü | No SERPS, defined benefit plans or other executive-only retirement plans; |
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| ü | Our long-term incentive awards included performance-vested restricted stock units whose value is based on achievement of three-year free cash flow targets; and |
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| ü | We require our executive officers to have significant ownership of company stock. |
For more information on our compensation programs, total compensation in 2012 and our compensation philosophy, see our Compensation Discussion and Analysis that starts on page 15.
Corporate Governance Highlights
At Westmoreland Coal Company, good governance remains a critical component of our corporate culture. Several of our key governance strengths and actions are noted in the table below.
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| BOARD AND OTHER GOVERNANCE INFORMATION | 2013* |
| Size of Board | 8 |
| Number of Independent Directors | 6 |
| Diverse Board (as to Gender, Experience and Skills) | Yes |
| Annual Election of All Directors | Yes |
Majority Voting for Directors - Bylaw amendment approved by Board in January 2013 | Yes |
| Separate Chairman & CEO | Yes |
Lead Independent Director - Effective as of April 8, 2013 | Yes |
| Independent Directors Meet Without Management Present | Yes |
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| Annual Board Self-Evaluation Conducted by Independent Third-Party | Yes |
| Annual Equity Grant to Non-Employee Directors | Yes |
| Board Orientation Program | Yes |
| Code of Business Conduct and Ethics for Directors | Yes |
| Corporate Governance Guidelines for Directors | Yes |
| Annual Advisory Approval of Executive Compensation | Yes |
| Policy Prohibiting Use of Corporate Funds for Political Expenditures | Yes |
* As of March 25, 2013
Meeting Agenda Items
Item 1-Election of Directors
You are being asked to elect 8 directors. One of our current directors, Mr. Michael D'Appolonia, will retire from our board when his current term ends in May. Each of our other current directors is standing for reelection to hold office until the next annual meeting of stockholders and until his or her successor is duly elected and qualified. Effective with Mr. D'Appolonia's retirement, the board is nominating Mr. Craig Mackus to serve for the coming year. All directors attended greater than 75% of the meetings of the board and board committees on which they served in 2012.
SUMMARY INFORMATION ABOUT OUR DIRECTOR NOMINEES
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| Keith E. Alessi | | 58 | | 2007 | | CEO, Westmoreland Coal Company | | |
| Gail E. Hamilton | | 63 | | 2011 | | Retired IT Executive | | X |
| Michael G. Hutchinson | | 57 | | 2012 | | Retired Audit Partner, Deloitte & Touche | | X |
| Robert P. King | | 60 | | 2012 | | President and COO, Westmoreland Coal Company | | |
| Richard M. Klingaman | | 77 | | 2006 | | Retired Energy Industry Consultant | | X |
| Craig R. Mackus | | 61 | | — | | Retired Equipment Manufacturer CFO | | X |
| Jan B. Packwood | | 69 | | 2011 | | Retired Public Utility CEO | | X |
| Robert C. Scharp | | 66 | | 2011 | | Retired Coal Industry Executive | | X |
Our board recommends a vote FOR the election of the director candidates nominated by the board.
Item 2-Advisory Approval of Our Executive Compensation - Our board recommends a vote FOR this proposal.
We are asking stockholders to approve on an advisory basis the compensation of our named executive officers, who are discussed in more detail in the Compensation Discussion and Analysis, which starts on page 15. We hold this advisory vote on an annual basis.
Item 3-Ratification of Appointment of Ernst & Young LLP for 2013 - Our board recommends a vote FOR this proposal.
Ernst & Young LLP has been our independent registered public accounting firm since 2009. The fees paid to E&Y are detailed on page 35. One or more representatives of E&Y will be present at the meeting, will be given the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
PROXY STATEMENT
Table of Contents
WESTMORELAND COAL COMPANY
2 North Cascade Avenue, 2nd Floor
9540 S. Maroon Circle, Suite 200
Englewood, Colorado
Springs, Colorado 8090380112
ANNUAL MEETING OF STOCKHOLDERS To be held May
20, 201021, 2013
GENERAL INFORMATION ABOUT THE
20102013 ANNUAL MEETING OF STOCKHOLDERS
This proxy statement is being furnished by the Board of Directors
(the “Board”) of Westmoreland Coal Company
(the “Company”) to holders of our common stock and depositary shares in connection with the solicitation by the Board of
Directors of proxies to be voted at the Annual Meeting of Stockholders of Westmoreland Coal Company
(the “Annual Meeting”) to be held
at our corporate offices located at 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 80903via the Internet on Thursday,Tuesday, May 20, 201021, 2013 at 8:30 a.m. Mountain Daylight Time, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders and this proxy statement.This proxy statement and the enclosed proxy voter card relating to the Annual Meeting
of Stockholders are first being mailed
and made available to stockholders on
our website on or about
March 29, 2010.April 5, 2013. As of March
26, 2010,25, 2013, the record date,
members of Westmoreland Coal Company’s managementthe Company's officers and directors are the record and beneficial owners of a total of
267,853394,780 shares (approximately
2.5%2.75%) of
Westmoreland Coal Company’sthe Company's outstanding common stock and
7,850 (approximately 1.2%) of Westmoreland Coal Company’shave no ownership in the Company's outstanding depositary shares. It is
management’smanagement's intention to vote all of its shares in
favor ofthe manner recommended by the Board for each matter to be considered by the stockholders.
QUESTIONS AND ANSWERS ABOUT THE 20102013 ANNUAL MEETING OF STOCKHOLDERS
What is a Virtual Annual Meeting?
A virtual annual meeting of stockholders is an official annual meeting held over the Internet that offers the ability to verify attendance and provides an interactive element that allows for real-time voting in a secure environment. The virtual meeting also enables two-way engagement, allowing stockholders to ask questions of corporate officers and directors. The virtual meeting provides Westmoreland a new, low-cost way for stockholders to attend and interact with management, and has the potential to increase participation and reduce costs associated with meeting facilities and travel.
Westmoreland will be hosting the 2013 Annual Meeting live via the Internet. A summary of the information you need to attend the meeting online is provided below:
Any stockholder can attend the 2013 Annual Meeting live via the Internet atwww.virtualshareholdermeeting.com/WLB2013;
Webcast starts at 8:30 a.m. Mountain Time;
Stockholders may vote and submit questions while attending the Annual Meeting on the Internet;
Please have your 12-Digit Control Number to enter the Annual Meeting;
Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted atwww.virtualshareholdermeeting.com/WLB2013; and
Webcast replay of the Annual Meeting will be available until May 21, 2014.
Who can vote at the meeting? Only stockholders who owned our common stock or depositary shares, each of which represents one quarter of a share of Series A Convertible Exchangeable Preferred Stock, $1.00 par value (“depositary shares”)
, of record at the close of business on March
26, 201025, 2013 are entitled to vote. Each holder of common stock is entitled to one vote per share. Each holder of depositary shares is entitled to one vote per share.
The common stock and depositary shares will vote separately on Proposal No. 1 (only common) and Proposal No. 2 (only depositary), but will vote together as a single class on Proposal No. 3. There were
10,619,30914,357,179 shares of common stock and
640,515639,840 depositary shares outstanding on March
26, 2010.25, 2013.
What constitutes a quorum for the meeting? The holders of a majority of the aggregate voting power of the common stock and depositary shares outstanding on the record date, present in person or by proxy at the meeting,Annual Meeting, shall constitute a quorum to conduct business at the meeting.Annual Meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have discretionary authority to
vote on a particular matter and has not received voting instructions from its client) are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the
annual meeting.Annual Meeting.
Via the Internet at www.proxyvote.com;
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By phone at 1-800-690-6903; or
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By completing and mailing in a paper proxy card.
If your shares are registered directly in your name with
Computershare Trust Company, our transfer agent, you are considered a stockholder of record with respect to those shares and the proxy card and voting instructions have been sent directly to
you by Broadridge Financial Solutions, Inc.you. If, like most stockholders, you hold your shares in “street name” through a stockbroker, bank or other nominee rather than directly in your own name, you may not vote your shares in person at the
meetingAnnual Meeting without obtaining authorization from your stockbroker, bank or other
nominee, and younominee. You need to submit voting instructions to your stockbroker, bank or other nominee in order to cast your vote.
Generally, you will receive instructions from your stockbroker, bank or other nominee that you must follow in order to have your shares voted.We encourage you to register your vote via the Internet. If you attend the
meeting,virtual Annual Meeting, you may also submit your vote in person
over the Internet and any votes that you previously submitted
–- whether via the Internet, by phone or by mail
–- will be superseded by the vote that you cast at the
meeting.Annual Meeting. Whether your proxy is submitted by the Internet, by phone or by mail, if it is properly completed and submitted and if you do not revoke it prior to the
meeting,Annual Meeting, your shares will be voted at the
meetingAnnual Meeting as specified by you or, if you do not specify a choice as to a particular matter, in the manner set forth in this proxy
statement or as otherwise specified by you.statement.
Can I change my vote after I return my proxy card? Yes. Even after you have submitted your proxy card, you may change your vote at any time before the proxy is exercised by either filing with our Secretary a written notice of revocation or a duly executed proxy card bearing a later date or by voting in person at the
meeting.Annual Meeting. The powers of the proxy holders will be suspended if you attend the
meetingAnnual Meeting in person and so request. However, attendance at the
meetingvirtual Annual Meeting will not, by itself, revoke a previously granted proxy. If you want to change or revoke your proxy and you hold your shares in “street name,” contact your broker or the nominee that holds your shares. Any written notice of revocation sent to us must include the
stockholder’sstockholder's name and must be received prior to the
meetingAnnual Meeting to be effective.
What vote is required to approve each item? Due to a recent amendment to our Bylaws approved by the Board, we now have a majority vote standard for election of directors (Proposals 1 and 2) requires thatdirectors. In an uncontested election, each director receivewill be elected by a vote of the affirmative votemajority of the votes cast, meaning the number of shares cast “for” a director exceeds the number of votes cast “against” that director. In a contested election, the directors will be elected by a plurality of the votes cast, with respect to that director atmeaning the annual meeting. This means that, with respect to each Proposal, the nominees who receivedirectors receiving the largest number of “FOR”“for” votes will be elected to the open positions. With respect to Proposal 1, regardless of whether the majority of votes cast or plurality standard applies, broker non-votes, abstentions and withheld votes will have no effect because such votes are not treated as being cast.
In an uncontested election, a nominee who does not receive a majority vote will not be elected. Neither broker non-votes nor abstentionsAn incumbent director who is not elected because he or she does not receive a majority vote will have any effectcontinue to serve as a holdover director until the earliest of: (a) 90 days after the date on which the election inspector determines the voting results as to that director, (b) the date on which the Board appoints an individual to fill the office held by that director, or (c) the date of directors. Thethat director's resignation.
Approval of Proposals 2 and 3 requires the affirmative vote of
all stockholders, having a majority of the
votesshares present
in person or represented by proxy
at the meeting and entitled to vote
onat the
matter, are necessaryAnnual Meeting. With respect to
ratify the appointment of Ernst & Young LLP (Proposal 3). AbstentionsProposals 2 and 3, broker non-votes will have no effect, but abstentions will have the same effect as a vote against
this proposal. Cumulative voting is not permitted for any of the proposals included in this proxy statement.such proposals.
Which ballot measures are
broker non-votes treated? What is the effect of not casting my vote?
Morris W. Kegley and Jennifer S. Grafton were named by our Board of Directors (the “Board”) as proxy holders. They will vote all proxies,considered “routine” or record an abstention or withholding, in accordance with the directions on the proxy. If no contrary direction is given, the shares will be voted as recommended by the Board. If you hold your shares in street name through a stockbroker, bank or other nominee rather than directly in your own name, your broker or nominee is not permitted to exercise voting discretion with respect to the election of directors. If you do not give your broker or nominee specific instructions, your shares will not be voted on this matter. As brokers may vote on the ratification of our auditors, shares represented by such “broker non-votes” will be voted in favor of Proposal 3.
“non-routine”?
If you hold your shares in street name, it is critical that you cast your vote if you want it to count in the election of directors (Proposals 1 and 2). In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of directors, your bank or broker was allowed to vote those shares on your behalf in the election of directors as they felt appropriate. However, recent changes in stock exchange rules removed the ability of your bank or broker to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or broker how to vote in the election of directors, no votes will be cast on your behalf. Your bank or broker will, however, continue to have discretion to vote any uninstructed shares on the
The ratification of the appointment of
ourErnst & Young LLP as the Company's independent registered public
acc ountingaccounting firm
for 2013 (Proposal 3)
. is a matter considered routine under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore broker non-votes are not expected in connection with Proposal 3.
The election of directors (Proposal 1) and advisory approval of the Company's executive compensation (Proposal 2) are matters considered non-routine under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposals 1 and 2.
How are you handling solicitation of votes?
The accompanying proxy is solicited on behalf of our
Board.Board and the cost of solicitation borne by us. In addition to solicitations by mail, our directors, officers, and employees may solicit proxies by telephone, e-mail and personal interview, but will receive no additional compensation for doing so. We will also request brokerage houses, custodians, nominees, and fiduciaries to forward copies of the proxy material to those persons for whom they hold shares and request instructions for voting the proxies. We will reimburse those brokerage houses and other persons for their reasonable expenses for such services.
Do I have any rights of appraisal?
Under Delaware law, stockholders are not entitled to
dissenters’dissenters' rights on any proposal referred to herein.
Where can I find the voting results of the
meeting?Annual Meeting?
We will announce preliminary general voting results at the
meetingAnnual Meeting and publish final detailed voting results on a Form 8-K that we will file within four business days after the
meeting.Annual Meeting.
How do I submit a stockholder proposal for the
2011 annual meeting?2014 Annual Meeting?
Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement and proxy card for the
20112014 Annual Meeting of Stockholders (the
“2011“2014 Annual Meeting”) must be submitted to the Secretary at our offices,
2 North Cascade Avenue, 2nd Floor,9540 S. Maroon Circle, Suite 200, Englewood, Colorado
Springs, Colorado 80903,80112, no later than
December 7, 2010.November 26, 2013. In addition, such proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934.
If a stockholder wishes to present a proposal before the
20112014 Annual Meeting,
but does not wish to havewithout having the proposal
considered for inclusionincluded in our proxy statement and proxy card, such stockholder must give written notice to the Secretary at the address noted above. The Secretary must receive such notice no earlier than January 21,
20112014 and no later than February 20,
2011,2014, and the stockholder must comply with the provisions of
Sections 2.5 or 2.6, as applicable, of our bylaws.
Only proposals included in the proxy statement or that comply with our advance notice bylaw requirements will be considered properly brought before the Annual Meeting.
Does the Company offer an opportunity to receive future proxy materials electronically?
Yes. If you are a stockholder of record or a member of the 401(k) plan, you may, if you wish, receive future proxy statements and annual reports online rather than receiving proxy materials in paper form. If you elect this feature, you will receive an e-mail message notifying you when the materials are available, along with a web address for viewing the materials and instructions for voting by telephone or on the Internet. If you have more than one account, you may receive separate e-mail notifications for each account.You may sign up for electronic delivery in two ways:
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If you vote online, youYou may sign up for electronic delivery at that time; or
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You may sign up at any time by visiting
http://enroll.icsdelivery.com/wlb.
If you received this proxy statement electronically, you do not need to do anything to continue receiving proxy materials electronically in the future. If you hold your shares in a brokerage account, you may also have the opportunity to receive proxy materials electronically. Please follow the instructions of your broker.
How can I get electronic access to the proxy materials and the annual report?
This proxy statement and our 20092012 Annual Report are available atwww.proxyvote.com.; see your ballot for information. Will I receive a separate proxy statement if I share the same address and last name as another stockholder?
No. If you are the beneficial owner, but not the record holder, of shares of our stock, your broker, bank or other nominee may only deliver one copy of this proxy statement and our Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and our Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and who wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.
DIRECTORS
DIRECTOR NOMINEE AND EXECUTIVE OFFICERS
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Name | Age | Director/ Executive Officer Since | Position |
Keith E. Alessi | 55 | 2007 | Director; President and Chief Executive Officer |
Thomas J. Coffey | 57 | 2000 | Director –Independent |
Michael R. D’Appolonia | 61 | 2008 | Director– Independent |
Richard M. Klingaman | 74 | 2006 | Director– Independent |
William M. Stern | 64 | 2000 | Director– Independent |
Frank T. Vicino Jr. | 46 | Nominee | Director Nominee– Independent |
Morris W. Kegley | 62 | 2007 | General Counsel and Secretary |
Todd A. Myers | 46 | 2002 | Vice President of Coal Sales |
John V. O’Laughlin | 59 | 2005 | Vice President of Coal Operations |
Kevin A. Paprzycki | 39 | 2008 | Chief Financial Officer |
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| Name | Age | Director/ Executive Officer Since | Position |
| Keith E. Alessi | 58 | 2007 | Director and Executive Chairman beginning April 8, 2013; Chief Executive Officer through April 5, 2013 |
| Gail E. Hamilton | 63 | 2011 | Director - Independent |
| Michael G. Hutchinson | 57 | 2012 | Director - Independent |
| Robert P. King | 60 | 2012 | Director; President and Chief Operating Officer; Chief Executive Officer beginning April 5, 2013 |
| Richard M. Klingaman | 77 | 2006 | Director - Independent; Chairman of the Board |
| Jan B. Packwood | 69 | 2011 | Director - Independent |
| Robert C. Scharp | 66 | 2011 | Director - Independent |
| Jennifer S. Grafton | 37 | 2011 | General Counsel and Secretary |
| Douglas P. Kathol | 60 | 2010 | Executive Vice President |
| Joseph E. Micheletti | 47 | 2011 | Senior Vice President - Coal Operations |
| Kevin A. Paprzycki | 42 | 2008 | Chief Financial Officer and Treasurer |
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| Director Nominee | | | |
| Name | Age | Director/ Executive Officer Since | Position |
| Craig R. Mackus | 61 | — | Director nominee |
The Board has fixed the number of directors following the Annual Meeting at eight. All our directors bring to our Board a wealth of leadership experience derived from their service as executives
of corporations.and respected professionals. Certain individual qualifications and skills of our directors that contribute to the
Board’sBoard's effectiveness as a whole are described in the following paragraphs.
Keith E. Alessi currently serves as a director and served as our President and Chief Executive Officer.Officer until April 5, 2013. Beginning April 8, 2013, he will assume the Executive Chairman position on our Board. Since he began working for us in 2007, he has assumed various roles including Executive Chairman and Interim President and Interim Chief Executive Officer. In additionother various interim roles. Prior to his work with us,Westmoreland, Mr. Alessi has beenwas an adjunct lecturer at the Ross School of Business at the University of Michigan since March 2002. Priorfrom 2001 to Westmoreland, Mr. Alessi2010 and was an Adjunct Professor at The Washington and Lee University Law School from 1999 to 2007. He previously served as Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of Lifestyle Improvement Centers, LLCa number of public and private companies from April 20031982 to May 2006.2000. Mr. Alessi currently serves as a member of the board of directors of Town Sports International Holdings, Inc., H&E Equipment Services, Inc. and MWI Veterinary Supply, Inc. Mr. Alessi’s wealthAlessi has over 30 years of experience in turnaround management including his roles as Vice-Chairman of Farm Fresh and Chief Executive Officer of Jackson Hewitt and Telespectrum Worldwide, Inc., givesexperience gained in a senior executive capacity. This has given him unique insights into the hurdles, challenges and opportunities we facefacing Westmoreland and provides him the necessary leadership experience to help lead us during this integral transition period.the company as its Executive Chairman.
Gail E. Hamilton most recently served as Executive Vice President of Symantec Corporation, an infrastructure software and services provider, retiring in 2005. Previously, she served as the General Manager of the Communications Division of Compaq Computer Corporation and as the General Manager of the Telecom Platform Division for Hewlett-Packard Company. She is currently a director of Arrow Electronics Inc., OpenText Corp., and Ixia. In the last five years, Ms. Hamilton has also served as a director of Washington Group International and Surgient, Inc.
Ms. Hamilton is a former senior executive with business and operational experience at a public technology company, whose strategic planning and business development experience are invaluable in guiding the development and progression of our information technology infrastructure and programs. In addition,
Mr. Alessi hasMs. Hamilton's extensive
public company board experience, including chairing numerous audit committees and serving on compensation, corporate governance and nominating committees.
Thomas J. Coffeyhas been a Partner of B2B CFO Partners, LLC, a professional financial services organization, since 2005. Prior to 2005, Mr. Coffey was Vice President-Finance, Global Infrastructure Services from 1999 to 2005 and Vice President-Operations Analysis from 1998 to 1999 of Unisys Corporation, a technology services company.
Mr. Coffey has over 25 years of financial and operational management experience working with both public and private companies. He has served as the Chief Financial Officer of a public company, worldwide divisional Chief Financial Officer of a global technology companyboard experience will bring further professionalism and a Partner with a Big 4 accounting firm. His extensive experience is invaluable to our Board’s responsibility for financial and accounting issues.
Michael R. D’Appolonia is President and Chief Executive Officer of Kinetic Systems, Inc., a global provider of process and mechanical solutionsinsight to the electronics, solarboard room.
Michael G. Hutchinson recently retired from Deloitte & Touche. His Deloitte career spanned nearly 35 years, leading their Denver Energy and biopharmaceutical industries. From 1986 to 2006, Mr. D’Appolonia was President of Nightingale & Associates, LLC, a global management consulting firm providing financialNatural Resources Practice for the last fifteen years while at the same time managing the Audit and operational restructuring services. Mr. D’Appolonia is a memberEnterprise Risk Management practice of the boardDenver office.
As the former lead audit partner at a
member of the board of directors of The Washington Group International, Inc. from 2001 to 2007.
top four auditing firm, Mr. D’Appolonia’s experience as Chief Executive Officer of a large global organization brings to our Board the perspective of a leader facing the same set of current external economic, social and governance issues. In addition, Mr. D’AppoloniaHutchinson brings to the Board his substantial expertise in accounting and finance matters, which he gained during his 35 years of experience in public accounting. Mr. Hutchinson is well qualified to serve as a director based on his experience with accounting principles, financial controls and evaluating financial statements of public companies in the energy sector, particularly from an extensive knowledgeauditor's perspective.
Robert P. King joined Westmoreland in March 2012 as President and Chief Operating Officer. Beginning April 5, 2013, he will serve as our Chief Executive Officer. From 2006 through 2012, Mr. King held various executive leadership roles at Consol Energy, Inc., including Executive Vice President - Business Advancement and Support Services from 2009 through March 2012. Mr. King has over 30 years experience in the coal industry, both underground and surface mines.
Mr. King brings a breadth of
the construction industry and alternativecoal mining experience to Westmoreland, both as a top executive of a Fortune 500 energy
solutions, including solar power and storage solutions for solar and wind energy. Mr. D’Appolonia also has extensive public company,
boardas well as his hands-on operational experience
including chairing a compensation committee and serving on audit, corporate governance and nominating committees.running coal mining operations.
Richard M. Klingaman has been a consultant to the natural resources and energy industries since May 1992. Prior to consulting, Mr. Klingaman was a senior executive with Penn Virginia Corporation, a natural resources company specializing in coal, oil, natural gas, timber, lime and limestone. Mr.
Klingaman’s decades ofKlingaman's extensive experience in the mining and energy industries, including as Senior Vice President of a large natural resources company, provides him with an intimate knowledge of our operations and our industry.
In addition, he brings knowledge of coal by-products and non-aqueous coal beneficiation techniques.William M. Sternhas been Executive Vice President of Stern Brothers & Company, a broker-dealer since 1999, and has been employed in various capacities, including as a senior executive, in
Jan B. Packwood was the banking industry for several decades.
Mr. Stern’s current leadership of a broker-dealer, past senior management experience with various banking organizations and expertise in financial markets and financial analysis is valuable to our Board’s discussions and oversight of the Company’s capital and liquidity needs. In addition, Mr. Stern vice-chaired the Equity Committee during the Fremont General Company bankruptcy.
Frank T. Vicino, Jr.is the President of F. Vicino Drywall Inc. and F. Vicino and Co. Inc., contracting and construction companies located in South Florida.
Mr. Vicino is the largest individual shareholder of our depositary shares at 17.0% of the outstanding shares. As such, he is uniquely qualified to represent the depositary shareholders as one of the preferred stock directors due to his commitment to the goal of maximizing stockholder value.
Executive Officer Information
Keith E. Alessi, our President and Chief Executive Officer of IDACORP, Inc. (NYSE: IDA), a holding company whose main subsidiary, Idaho Power Company, is an electric utility engaged in the generation, transmission, distribution, sale and purchase of electric energy, from 1999 to 2006. Prior to such time, Mr. Packwood served in various executive-level capacities of Idaho Power Company beginning in the 1980s. He currently serves as a director of IDACORP, Inc. and of various IDACORP, Inc. subsidiaries, including Idaho Power Company, IDACORP Financial Services, Inc. and Ida-West Energy Company.
As the former President and Chief Executive Officer of an electric utility involved in the mining and use of coal in the Pacific Northwest, Mr. Packwood brings to the Board a vast knowledge of our and our main customers' business, including an understanding of the risks faced by our own power plant and the power plants we supply. This expertise will be invaluable in directing the future of our power plant operations, as well as providing insight into potential growth and expansion activities in our mining segment.
Robert C. Scharp was previously the Chief Executive Officer of Shell Coal Pty Ltd from 1997 to 2000 and then Chief Executive Officer of Anglo Coal Australia from 2000 to 2001. He served as the Chairman of the Shell Canada Energy Mining Advisory Council from 2005 to 2010. He had a 22 year career with Kerr McGee Corporation including serving as President - Kerr McGee Coal Corporation and Senior Vice President - Oil and Gas Production. Mr. Scharp was a director of Bucyrus International from 2005 to 2011 and was a director of Foundation Coal Holdings from 2005 to 2009. Mr. Scharp is also a retired Army National Guard colonel.
Mr. Scharp brings a wealth of coal mining industry experience to the Board, including invaluable chief executive operational oversight of coal mine operations. Mr. Scharp's vast industry experience will assist the Board in driving future operational mining excellence and evaluating potential growth and expansion opportunities.
Director Nominee Information
Craig R. Mackus became chief financial officer of Bucyrus International, Inc. in June 2004 after serving as vice president-finance from October 2002 through June 2004 and as controller from February 1988 through May 2006. Mr. Mackus retired from Bucyrus International, Inc. in 2011 upon its merger with Caterpillar. He also served as Bucyrus's secretary from May 1996 through his retirement in 2011.
As a senior manager of an international manufacturing company provided equipment to the mining industry, Mr. Mackus will bring significant financial, governance and operational mining experience to the Board. As the CFO during a major merger transaction between Bucyrus International Inc. and Caterpillar, Mr. Mackus will also provide the Board with his first-hand experience in significant M&A activity.
Executive Officer Information
Keith E. Alessi, our Chief Executive Officer until April 5, 2013, is discussed above under “Director Information.”
Jennifer S. Grafton joined Westmoreland as Associate General Counsel in December 2008 and was named General Counsel and Secretary in February 2011. Prior to Westmoreland, Ms. Grafton worked in the corporate group of various Denver-based and national law firms focusing her practice on securities and corporate governance. She is a member of the Colorado bar.
Douglas P. Kathol joined Westmoreland in 2003 as Vice President - Development, adding additional responsibility as Treasurer in 2008. In 2010, Mr. Kathol was named Executive Vice President. Prior to Westmoreland, Mr. Kathol spent almost twenty years in various positions, including Senior Vice President of Norwest Corporation, a consulting firm providing expertise to the energy, mining, and natural resources industries.
Robert P. King, our President and Chief Operating Officer and our Chief Executive Officer beginning April 5, 2013, is discussed above under “Director Information.”
Joseph E. Micheletti joined Westmoreland in 2001 and has held a series of positions with Westmoreland since such time, including President and General Manager of our Jewett Mine. In June 2011, Mr. Micheletti was named Senior Vice President - Coal Operations. Mr. Micheletti has worked in the production, maintenance, processing, and engineering disciplines of the mining industry for 24 years and sits as a Director of the Rocky Mountain Coal Mining Institute.
Kevin A.Paprzycki joined Westmoreland as Controller and Principal Accounting Officer in June 2006 and was named Chief Financial Officer in April 2008. In June 2010, he was also named Treasurer. Prior to Westmoreland, heMr. Paprzycki was Corporate Controller at Applied Films Corporation from 2005 to 2006. Mr. Paprzycki became a certified public accountant in 1994 and a certified financial manager and certified management accountant in 2004. Morris W. Kegley joined Westmoreland in October 2005 as Assistant General Counsel and was named General Counsel in August 2007. Prior to Westmoreland, he worked in the legal department of Peabody Energy Company from 2004 to 2005. He is a member of the bar of Indiana, Illinois, Wyoming, and Colorado.
Todd A. Myers joined Westmoreland in January 2000 as Vice President, Marketing and Business Development and, in 2002, became Vice President, Sales and Marketing, a position that is now called Vice President, Coal Sales. Prior to Westmoreland, Mr. Myers was Senior Consultant and Manager of the environmental consulting group of a nationally recognized energy consulting firm, specializing in coal markets, independent power development, and environmental regulation.
John V. O’Laughlin joined Westmoreland in February 2001 as Vice President, and was promoted to Vice President of Coal Operations in May 2005. Prior to Westmoreland, Mr. O’Laughlin was Vice President of Mine Operations for Washington Group International, formerly known as Morrison-Knudsen Co.
We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders and maintaining our integrity in the marketplace. The
Board adopted an updated codeCode of
business conduct, effective January 1, 2010,Conduct Handbook for directors, officers and employees,
known as our Code of Conduct Handbook. The Code of Conduct Handbook, in conjunction with the Certificate of Incorporation, Bylaws,
and Board committee charters
and Corporate Governance Guidelines, form the framework for the governance of Westmoreland. All of these documents are available
aton our website at www.westmoreland.com.
On an annual basis, all directors, officers and employees sign an acknowledgement that they have received and reviewed the guidelines provided in the Code of Conduct Handbook. We will post on
thisour website any amendments to the Code of Conduct Handbook or waivers of the Code of Conduct Handbook for directors and executive officers.
You can request a copy of any of these documents by writing to the General Counsel,Corporate Secretary, Westmoreland Coal Company, 2 North Cascade Ave., 2nd Floor,9540 S. Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903.80112.
Board Structure
and Risk OversightThe Board separatedof Directors does not have a policy regarding the positionsseparation of the roles of Chief Executive Officer and Chairman of the Board of Directors as the Board believes it is in the best interests of Westmoreland to make that determination based on the position and direction of Westmoreland and the membership of the Board. Currently, the roles of Chairman of the Board and Chief Executive Officer in May 2009 and elected Richard M. Klingaman, an independent director, as our Chairman, and Keith E. Alessi as our President and Chief Executive Officer. Separating these positions allowsCEO are split, allowing our CEO to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. On October 26, 2012, the Board announced plans for the transition of Keith Alessi from Chief Executive Officer to Executive Chairman and the transition of Robert King from President and Chief Operating Officer to President and Chief Executive Officer effective April 8, 2013. At this time, we believe that Mr. Alessi transitioning to the role of Executive Chairman, as Mr. King grows into his new role as CEO, is the most desirable approach for promoting long-term stockholder value. Such a structure promotes a unified approach on corporate strategy development and allows for consistency and a smooth transition while our new CEO assumes his responsibilities. The Executive Chairman acts as a bridge between management and the Board, recognizeshelping both to pursue their common purpose more efficiently. As Executive Chairman, Mr. Alessi will continue to play an important role in the time, effort,Company's strategic direction, will chair all regular sessions of the Board and, energy thatin consultation with the Lead Director and with input from the CEO, is requiredset the agenda for Board meetings.
In accordance with our Corporate Governance Guidelines, if our Chairman of the Board does not qualify as an independent director, our Board selects an independent director to
devote to his position inpreside over non-management executive sessions of the
current business environment, as well asBoard. Mr. Klingaman, an independent director, was appointed by the
commitment requiredBoard to serve as
Lead Director beginning on April 8, 2013. The role of our Lead Director is to assist the Executive Chairman and the remainder of the Board in assuring effective corporate governance in managing the affairs of the Board and the Company. Our Lead Director works with our Chairman
particularly asto approve all meeting agendas, and presides at (i) executive sessions of the
Board’s oversight responsibilities continue to grow. While our Bylaws and corporate governance guidelines do not require that our Chairman and CEO positions be separate,non-employee directors, which are held in conjunction with each regularly scheduled quarterly meeting of the Board,
believes that having separate positions(ii) executive sessions of the independent directors, which are held at least once a year, and
having an independent outside director serve(iii) any other meetings as
Chairmandetermined by the Lead Director. Our Lead Director is
also a member of the
appr opriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.Board's
5
Executive Committee, providing additional representation for the independent directors in any actions considered by the Executive Committee between Board meetings.
Risk Oversight by the Board of Directors
Risk is inherent with every business, and how well a business manages risk can ultimately influence its success. We face a number of risks, including economic risks, operational risks, environmental and regulatory risks, and others, such as the impact of competition,
weather conditions and
weather conditions.pressures from competing fuel sources. Management is responsible for the day-to-day management of risks that we face, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
The Board believes that establishing the right “tone at the top” and
that full and open communication between management and the Board
isare essential for effective risk management and oversight.
OurHistorically, our Chairman
talkshas regularly
communicated with our CEO to discuss strategy and the risks
facing us. Seniorwe face, and we expect the CEO to continue to have similar communications with the Executive Chairman and Lead Director in the future. The executive management
attendteam attends the quarterly board meetings and
areis available to address any questions or concerns raised by the Board on risk management-related matters. Each quarter, the Board receives presentations from senior management on strategic matters involving our operations and is provided extensive materials that highlight the various factors that could lead to risk in our organization. The Board
has heldholds a strategic planning session with
seniorthe management
team on an annual basis to discuss strategies, key challenges, and risks and opportunities for us.
Further, the Board is empowered to hire its own advisors without management approval to assist it in fulfilling its duties.
While the Board is ultimately responsible for our risk oversight, our
Audit Committee and Compensation and Benefits Committeecommittees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. The Compensation and Benefits Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and
programs, as well asprograms. The Nominating and Corporate Governance Committee is tasked with the oversight of succession planning for our directors and executive officers.
On an annual basis, pursuant to such committee's charters, the committees assess risk and have specific conversations with senior management regarding the risks faced.
Director Independence
NASDAQ Marketplace Rules require that a majority of the Board be independent. No director qualifies as independent unless the Board determines that the director has no direct or indirect relationship with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In assessing the independence of its members, the Board examined the commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships of each member. The Board's inquiry extended to both direct and indirect relationships with the Company. Based upon both detailed written submissions by nominees and discussions regarding the facts and circumstances pertaining to each nominee, considered in the context of applicable NASDAQ Marketplace Rules, the Board has determined that all of the nominees for election, other than Messrs. Alessi and King, are independent. Mr. Alessi will not be considered independent until at least three years have elapsed since his last date of employment. The independent directors meet during most Board meetings in separate executive session without management present. Currently, the Chairman of the Board, who is an independent director, presides over these meetings. In the future, the Lead Director will preside over such meetings.
Each member of the Audit Committee must, in addition to the independence requirements of the NASDAQ Marketplace Rules, meet the heightened independence standards required for audit committee members under the NASDAQ Marketplace Rules listing standards, Section 10A of the Securities Exchange Act of 1934, and Rule 10A-3 thereunder. The Board determined that Messrs. D'Appolonia, Packwood and Hutchinson, the 2012 Audit Committee members, each met such heightened independence standards. Beginning in July 2013, each member of the Compensation and Benefits Committee must, in addition to the independence requirements of the NASDAQ Marketplace Rules, meet heightened independence standards required for compensation committee members under the NASDAQ Marketplace Rules listing standards. In 2012, the members of the Compensation and Benefits Committee met such heightened independence standards.
Communicating with the Board
Stockholders who wish to write directly to the Board on any topic should address communications to the Board of Directors
in care of the Lead Director, Westmoreland Coal Company Board of Directors, 9540 S. Maroon Circle, Suite 200 Englewood, Colorado 80112. Our Lead Director will report on stockholder communications to the Board and provide copies or specific
summaries to directors on matters deemed to be of appropriate importance. In general, communications from stockholders relating to corporate governance will be forwarded to the Board unless they are frivolous, obscene, repeat the same information contained in earlier communications, or fails to identify the author.
COMMITTEES OF THE BOARD OF DIRECTORS
As of the date of this proxy statement, our Board has
fiveeight directors and the following
five standingfour committees: (1) Audit; (2) Compensation and Benefits; (3) Nominating and Corporate Governance;
and (4)
Pricing; and (5) Executive.
The Board has set the number of directors following the Annual Meeting at eight. The current committee membership, the number of meetings during
the last fiscal year2012 and the function of each of the
standing committees are described below. Each of the
standing committees
except for the Pricing and Executive Committee, operateoperates under a written charter adopted by the Board. All
of the committee charters are available on our website at www.westmoreland.com. During fiscal year 2009,2012, the Board held eight meetings.nine meetings plus a strategic planning session. Each director serving during fiscal year 20092012 attended at least 75%90% of the aggregate of all Board and applicable standing committee meetings held during the period that he or she served as a director. Directors are expected to attend the annual me etingAnnual Meeting of stockholders.Stockholders. All directors attended the last annual meetingAnnual Meeting of stockholders.
| | | | | | | | | | |
Name of Director | | Audit | | Compensation and Benefits | | Nominating and Corporate Governance | | Pricing | | Executive |
Non-Employee Directors: | | | | | | | | | | |
Thomas J. Coffey | | Chair | | Member | | Member | | | | |
Michael R. D’Appolonia | | | | Chair | | | | | | Member |
Richard M. Klingaman | | Member | | Member | | | | Member | | Member |
William M. Stern | | Member | | | | Chair | | | | |
Employee Director | | | | | | | | | | |
Keith E. Alessi | | | | | | | | Mem ber | | Chair |
Number of Meetings in Fiscal 2009 | | 5 | | 5 | | 3 | | 0(1) | | 0 |
(1)Stockholders. The Pricing Committee acted only by unanimous written consent infollowing table highlights meetings and committee membership during fiscal year 2009.
2012.
|
| | | | | | | | |
| Name of Director | | Audit | | Compensation and Benefits | | Nominating and Corporate Governance | | Executive |
| Non-Employee Directors: | | | | | | | | |
| Michael R. D'Appolonia | | Chair | | Member | | | | Member |
| Gail E. Hamilton | | | | Member | | Member | | |
| Michael G. Hutchinson | | Member | | Member | | | | |
| Richard M. Klingaman | | | | | | | | Member |
| Jan B. Packwood | | Member | | | | Chair | | Member |
| Robert C. Scharp | | | | Chair | | Member | | |
| Employee Director: | | | | | | | | |
| Keith E. Alessi | | | | | | | | Chair |
| Robert P. King | | | | | | | | |
| Number of Meetings in 2012 | | 8 | | 6 | | 3 | | 1 |
The Audit Committee provides oversight of the quality and integrity of our accounting, auditing and financial reporting
practices.practices and is responsible for retaining and terminating our independent accounts. The committee exercises its oversight obligations through regular meetings with management, the
directorDirector of
internal controlsInternal Audit and our independent registered public accounting firm, Ernst & Young LLP. The Audit Committee is also responsible for oversight of risks relating to accounting matters, financial reporting and regulatory compliance. To satisfy these oversight responsibilities, the committee separately meets with our Chief Financial Officer,
the Director of Internal
Controls,Audit, Ernst & Young LLP and management. The committee also receives periodic reports regarding issues such as the status and findings of audits being conducted by the internal and independent auditors, the status of material litigation, accounting changes that could affect our financial statements and proposed audit adjustments. The Board has determined that
Thomas J. Coffey isMichael G. Hutchinson qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
Under its charter, the Audit Committee assists the Board of Directors in fulfilling the Board's responsibility for oversight of Westmoreland's financial reporting process and practices, and its internal control over financial reporting. Management is primarily responsible for our financial statements, the reporting process and assurance for the adequacy of the internal controls and thecontrol over financial reporting process. Ernst & Young LLP is ourreporting. Our independent registered public accounting firm, andErnst & Young LLP, is responsible for performing an independent audit of our consolidatedWestmoreland's financial statements in accordance withand internal control over financial reporting, and for expressing an opinion on the conformity of our audited financial statements to generally accepted auditing standardsaccounting principles used in the United States and for issuing audit reports on the adequacy of our internal control over financial reporting.
The Audit Committee has reviewed and discussed with Ernst & Young LLP Westmoreland's audited consolidated financial statements and
the assessment of the effectiveness of internal
controlscontrol over financial reporting. The Audit
Committee’s responsibility is to monitor and oversee these processes on behalf of the Board.
In this context, the committeeCommittee has discussed with Ernst & Young LLP, during the 2012 fiscal year, the matters required to be discussed by Statement ofon Auditing Standards No. 114,61, as amended (Communication
with Audit Committees) as adopted by the Public Company Accounting Oversight Board. The
Auditors Communication With Those Charged With Governance,andAudit Committee has received
from and
discussed with Ernst & Youngreviewed the written disclosures and the letter
from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding
the independent accountant'ssuch firm's communications with the
audit committeeAudit Committee concerning independence, and
has discussed with
Ernst & Youngthe independent accountants their
independence from Westmoreland and its management.independence.
The Audit Committee discussed with our internal and independent auditors the overall scope and plans for their respective audits. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of its examinations, the evaluations of our internal controls and the overall quality of our financial reporting. The Audit Committee also has reviewed and discussed the audited financial statements with management.
Based on the reviews and discussions described above, the Audit Committee recommended to the Board that the audited financial statements and assessment of internal controls over financial reporting be included in our Annual Report on Form 10-K for the fiscal year ended December 31,
2009.2012. The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for fiscal year
2010.2013.
Michael G. Hutchinson, Chairman
Jan B. Packwood
Richard M. Klingaman
William M. Stern
Compensation and Benefits Committee
The Compensation and Benefits Committee is responsible for assuring that the Board, our Chief Executive Officer, other executive officers, and our key management are compensated appropriately and in a manner consistent with our approved compensation strategy, internal equity considerations, competitive practice, and any relevant laws or regulations. In addition, the committee reviews our compensation programs to ensure that our programs are not incentivizingpromoting imprudent risk-taking, as well as overseeing succession planning.risk-taking. In accordance with its charter, the committee may retain and terminate outside counsel, compensation consultants, or other experts or consultants, as it deems appropriate, form and delegate authority to subcommittees and may delegate authority to one or more designated members of the committee. To assist it in satisfying its oversight responsibilities, the committee retained, as ofchose in February 2010,2012 to continue its relationship with Buck Consulting, which began in February 2010. In late 2012, the committee hired Pay Governance to serve as its consultant for fiscal year 2013.
Compensation and meets regularly with managem entBenefits Committee Risk Assessment
On an annual basis, the committee reviews and discusses the structure of our compensation program to understandassess whether any aspect of the program could potentially be expected to provide an incentive to our executive officers or other employees to take any unnecessary or inappropriate risks that could threaten our operating results, financial human resourcescondition or impact long-term stockholder value. To assist the committee in their review in February 2013, the committee engaged Pay Governance to conduct a risk assessment of our incentive-based compensation plans (including the annual and shareholder implicationslong-term incentive programs) and our compensation practices.
Based on the findings of Pay Governance, our internal controls, policies and risk-mitigating components in our incentive arrangements as well as the committee's formal review and discussion, the committee believes our compensation programs represent an appropriate balance of short-term and long-term compensation and do not encourage executive officers or other employees to take on unnecessary or excessive risks that are reasonably likely to have a material adverse effect on us.
Our incentive compensation is designed to reward bonus-eligible employees for committing to and achieving goals that are intended to be challenging yet provide them a reasonable opportunity to reach the threshold amount, while requiring meaningful growth to reach the target level and substantial growth to reach the maximum level. The amount of growth required to reach the maximum level of compensation is developed within the context of the normal business planning cycle and, while difficult to achieve, is not viewed to be at such an aggressive level that it would induce bonus-eligible employees to take inappropriate risks that could threaten our financial or operating stability. In addition, the annual bonus program contains a cap on the maximum financial payout to employees as a whole.
Our executive compensation program includes the following features to help minimize risk.
Compensation Mix. We allocate compensation between fixed and contingent components, between annual cash incentives and long-term time-based incentives, based in part on an employee's position and level of responsibility within the organization. We believe our mix of compensation elements helps to ensure that executives and other employees who are eligible
for incentive compensation do not focus on achieving short-term results at the expense of the long-term growth and sustainability of the Company. None of our employees receive commissions.
Base salary is the only assured portion of compensation that we provide to our executives and other employees. Consequently, our incentive compensation arrangements are intended to reward performance.
The annual incentive plan establishes cash-based award opportunities that are payable if, and only to the extent that, pre-established corporate financial and individual performance objectives are achieved, subject to the discretion of the committee to exclude certain events outside our direct control and to reward exemplary performance.
The long-term component of the executive compensation program consists of grants of time-vested and performance-based restricted stock units or cash awards. The use of both time-based and performance-based awards for fiscal 2013 balances our desire to drive long-term growth with the retention pressures we face from our direct peers, as well as from emerging and evolving competitors.
Stock Ownership Guidelines. We have established stock ownership guidelines to ensure that our executives' interests are aligned with those of stockholders. These guidelines also help ensure that the decisions being made.our executives implement to achieve our financial and strategic objectives are focused on our long-term growth and health. We believe that this policy effectively mitigates the possibility that our executives would make business decisions to influence stock price increases in the short-term that cannot be sustained over the long-term or would liquidate their equity holdings to capture short-term fluctuations in our stock price.
Board Approval of Transactions. Management must obtain approval from the Board for significant transactions (i.e., mergers, acquisitions, dividends, etc.) that could impact the achievement of previously approved financial performance targets used in the executive compensation program, and the Compensation and Benefit Committee retains the discretion to ignore the impact of certain factors over which management has no control (such as accounting changes or force majeure events) for purposes of determining whether pre-established performance targets have been met.
Compensation and Benefits Committee Interlocks and Insider Participation
During
2009,2012, each of Messrs.
Klingaman, CoffeyD'Appolonia, Hutchinson and
D’AppoloniaScharp and Ms. Hamilton served on our Compensation and Benefits Committee. None of these directors was a current or former officer or employee of
our company,the Company, and none had any related
personparty transaction involving
our company.the Company that is disclosable under Item 404 of Regulation S-K. During
2009,2012, none of our executive officers served on the board of directors of any entity that had one or more executive officers serving on our Board.
Compensation
Committee Risk Assessment
In early 2010, utilizing various risk assessment tools provided by Buck Consulting, the committee thoroughly reviewed our compensation policies and practices for all employees, including executive officers. As part of the risk assessment, the committee reviewed our compensation programs for certain design features that have been identified by experts as having the potential to encourage excessive risk-taking such as compensation mix overly weighted toward annual incentives and unreasonable goals or thresholds. The committee determined that, for all employees, our compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation. The committee, with the assistance of Buck Consulting, intends to continue, on an on-going basis, a process of thoroughly reviewing our compensation policies and programs to determine if any risk mitigation programs should be put into place to further discourage imprudent risk-ta king activities.
7
Table of Contents
CompensationBenefits Committee Report
The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Compensation and Benefits Committee recommended to the Board that the Compensation Discussion and Analysis, provided
below,herein, be included in this proxy
statement.statement and incorporated by reference into Westmoreland's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Robert C. Scharp, Chairman
Gail E. Hamilton
Michael
R. D’Appolonia, ChairmanThomas J. Coffey
Richard M. Klingaman
G. Hutchinson
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee identifies and recommends individuals qualified to be nominated as members of the Board and considers director candidates brought to the Board by stockholders. The committee also provides oversight on corporate governance matters and provides for the evaluation of Board, committee, and individual director performance. performance, as well as provides oversight on succession planning.
The committee regularly assesses the mix of skills and industry experience currently represented on the Board, whether any vacancies on the Board are expected due to retirement or otherwise, the skills represented by retiring directors, and additional skills highlighted during the Board self-assessment process that could improve the overall quality and ability of the Board to carry out its functions. In the event vacancies are anticipated or arise, the Nominating and Corporate Governance Committee considers various potential candidates for director and employs the same process for evaluating all can didates,candidates, including those submitted
by stockholders. The committee is responsible for ensuring all director nominees undergo a thorough background check prior to nomination or appointment as a director and to review any adverse findings prior to such nomination or appointment. Candidates may come to the attention of the committee through current Board members, professional search firms, stockholders or other persons.
In 2012, we received recommendations from local law firms, public audit firms and similar professionals to help identify a director candidate for appointment to the Board.
The committee initially evaluates a candidate based on publicly available information and any additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection criteria and the
committee’scommittee's initial evaluation is favorable, the candidate is contacted by the chairman of the committee for an interview to determine the mutual levels of interest in pursuing the candidacy. The committee is tasked with considering whether the candidate is (i) independent pursuant to the requirements of
the NYSE Amex,The NASDAQ Stock Market, (ii) accomplished in his or her field and has a reputation, both personal and professional, that is consistent with our ideals and integrity, (iii) able to read and understand basic financial statements, (iv) knowledgeable as to us and the issues affecting our business, (v) committed to enhancing stockholder value, (vi) able to understand fully the legal responsibilities of a director and the governance processes of a
p ublicpublic company, (vii) able to develop a good working relationship with other Board members and senior management and (viii) able to suggest business opportunities to us. If these discussions and considerations are favorable, the committee makes a final recommendation to the Board to nominate the candidate for election.
Mr. Vicino, who is standing for election, referred himself to the committee and holds approximately 17% of our depositary shares.In considering whether to recommend any particular candidate,
including incumbent directors, for inclusion in the
Board’sBoard's slate of recommended director nominees, the Nominating and Corporate Governance Committee takes into consideration a number of criteria which include: professional work experience; skills; expertise; diversity; personal and professional integrity; character; temperament; business judgment; time availability in light of other commitments; dedication; conflicts of interest; and public company experience. The committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. The committee focuses on issues of diversity, such as diversity of education, professional experience and differences in viewpoints and skills. The committee does not have a formal policy with respect to diversity; however, the Board and the committee believe that it is essential that the Board members represent
divers e viewpoints.diverse viewpoints and strives to ensure that the slate of nominees represents a wide breadth of diverse backgrounds and skill sets to adequately represent the needs of the stockholders. With respect to the nomination of continuing directors for re-election, the
individual’sindividual's contributions to the Board are also considered. We believe that the backgrounds and qualifications of our directors, considered as a group,
should provide a composite mix of skills, experience, and knowledge that will assure that the Board can continue to fulfill its responsibilities.
On March 1, 2010, the Board adopted a
The Board's retirement policy
for directors mandatingmandates that directors elected to the Board at our annual meeting
will be required to retire from the Board at the first annual meeting of stockholders following the
director’sdirector's 75th birthday. The Board grandfathered all
current directors
who will turn 75 prior tothen serving as a director at the
time the policy was adopted in November 2010,
annual meeting, making the new retirement policy only applicable to current and future directors who will turn 75
following our 2010 annual meeting.after May 2010.
Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, Westmoreland Coal Company,
2 North Cascade Avenue, 2nd Floor,9540 South Maroon Circle, Suite 200, Englewood, Colorado
Springs, CO 80903.80112. Assuming that appropriate biographical and background material has been provided on a timely basis, the committee will evaluate stockholder-recommended candidates by following the same process, and applying the same criteria, as it follows for candidates submitted by others. If the Board determines to nominate a stockholder-recommended
can didatecandidate and recommends his or her election, then his or her name will be included in our proxy statement for the next annual meeting.
Stockholders also have the right to nominate director candidates directly, without any action or recommendation on the part of the committee or the Board, by following the procedures set forth in Section 2.6, “Advance Notice of Nominees,” in our bylaws. Among other things, a stockholder wishing to nominate a director candidate must give notice to us within the specified time period that includes the information about the stockholder and the proposed nominee required by the bylaws. Any stockholder wishing to nominate a candidate for election to the Board pursuant to the bylaw provision must strictly comply with the procedures specified in Section 2.6 of the bylaws.
Candidates nominated by stockholders in accordance with these procedures will not be included in our proxy statement for the next annual meeting.Executive Committee
During 2009,2012, the Board had two other standing committeesan Executive Committee. Pursuant to its charter adopted by the Board in addition toFebruary 2012, the committees set forth above: the Executive Committee and the Pricing Committee. The Executive Committee is authorized to act on behalf of the Board during periods between Board meetings. During 2009,2012, the Executive Committee held no meetings. one meeting.
DIRECTOR COMPENSATION
The
PricingBoard's goal in designing directors' compensation is to provide a competitive package that will enable it to attract and retain highly skilled individuals with relevant experience and that reflects the time and talent required to serve on the Board. Compensation for our non-employee directors is reviewed by the Compensation and Benefits Committee
acts inwith the
eventassistance of
offerings ofPay Governance. In February 2013, the
Company’s securities with respect to matters such as determining the priceCompensation and
terms at which such securities shall be sold to underwritersBenefits Committee recommended and the
public. During 2009,Board approved the
Pricing Committee held no meetings, but acted by unanimous written consent on several occasions with respect tobelow compensation structure for fiscal year 2013. All non-employee directors receive the
contribution of shares to our pension plans.
Director Independence
The NYSE Amex listing standards generally define an “independent director” as a non-employee director who is affirmatively determined by the Board not to have a material relationship with the listed company that would interfere with the exercise of independent judgment. Our Board has determined that each of our directors, with the exception of our Chief Executive Officer, is independent as defined by the NYSE Amex. The independent directors meet during most Board meetings in separate executive session without management present. The Chairman of the Board, who is an independent director, presides over these meetings. The Board considered Mr. Vicino’s 17% ownership of our depositary shares as a factor when considering his independence and did not feel such ownership would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Each member of the Audit Committee must,“Annual Cash Retainer” in addition to any other retainers they may be entitled for service as the independenc e requirementsChair of the NYSE Amex, meet the heightened independence standards requireda committee or for audit committee members under the NYSE Amex listing standards, Section 10Aserving as a member of the Securities Exchange Act of 1934, and Rule 10A-3 thereunder. The Board has determined that Messrs. Coffey, Klingaman and Stern each meet such heightened independence standards.
Communicating with the Board
The Board has provided a process that permits stockholders to communicate directly with the Board. Stockholders who wish to write directly to the Board on any topic should address communications to the Board of Directors in care of the Chairman, Westmoreland Coal Company Board of Directors, Westmoreland Coal Company, 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado 80903. Our Chairman will report on stockholder communications to the Board and provide copies or specific summaries to directors on matters deemed to be of appropriate importance. In general, communications from stockholders relating to corporate governance will be forwarded to the Board unless they are frivolous, obscene, repeat the same information contained in earlier communications, or fail to identify the author.
committee.
|
| | |
| Type of Compensation | | Amount |
| Annual Cash Retainer | | $35,000 |
Annual Stock Award Retainer (restricted stock units with one-year vest) | | 7,000 shares of common stock |
| Annual Retainer for Executive Chairman | | $240,000 |
| Annual Retainer for Lead Independent Director | | $9,000 |
| Annual Retainer for Committee Chair: | | |
| Audit Committee | | $7,000 |
| Compensation and Benefits Committee | | $7,000 |
| Nominating and Corporate Governance Committee | | $3,000 |
| Annual Retainer for Serving on the Audit, C&B or N&CG Committees | | $5,000 per committee |
Attendance at Board or Committee Meeting (in-person) | | $1,500 per meeting |
Attendance at Board or Committee Meeting (telephonic) | | $1,000 per meeting |
DIRECTOR COMPENSATION FOR 2009
| | | |
Name(1) | Fees Earned Or Paid In Cash($) | Stock Awards($)(2) | Total Compensation($) |
Thomas J. Coffey | 56,000 | 29,992 | 85,992 |
Michael R. D’Appolonia | 42,800 | 29,992 | 72,792 |
Richard M. Klingaman | 81,038 | 29,992 | 111,030 |
William M. Stern | 40,000 | 29,992 | 69,992 |
2012 Non-Employee Director Compensation
|
| | | |
| Name(1) | Fees Earned Or Paid In Cash($) | Grant Date Fair Value of Stock Awards($)(2) | Total Compensation ($) |
| Michael R. D'Appolonia | 75,970 | 70,005 | 145,975 |
| Gail E. Hamilton | 67,050 | 70,005 | 137,055 |
| Michael G. Hutchinson | 28,204 | 56,576 | 84,780 |
| Richard M. Klingaman | 79,500 | 70,005 | 149,505 |
| Jan B. Packwood | 67,750 | 70,005 | 137,755 |
| Robert C. Scharp | 66,800 | 70,005 | 136,805 |
| Former Directors | | | |
| Thomas J. Coffey | 26,286 | — | 26,286 |
|
| |
(1) | Mr. Alessi, who is our Chief Executive Officer and a director, doesMr. King, who is our Chief Operating Officer, do not receive any additional compensation for histheir services as a director. |
(2) | 3,631 shares of common8,952 restricted stock units were awarded to each non-employee director re-electedelected to the Board in May 2009. Sale of the shares is2012. The restricted untilstock units vest on May 2010.22, 2013. The grant date fair value of these awards was $8.26$7.82 per share.
8,025 restricted stock units were awarded to Mr. Hutchinson, who was elected to the Board on August 1, 2012. His restricted stock units vest on May 22, 2013. The grant date fair value of this award was $7.05 per share. |
Non-Employee Director Stock Ownership Guidelines
In March 2011, the Board adopted stock ownership guidelines for non-employee directors under which the directors are expected to own Westmoreland equity with a three-year timetable to comply. Due to a change in the director equity grant, the directors now are required to own 15,000 shares of common stock. Presently, none of our
directors is recommended by the Compensation and Benefits Committee and determined by the full Board. The Compensation and Benefits Committee reviews director compensation on an annual basis and considers information from our human resources department and any consultants retained by the committee in formulating its recommendation.
9
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Annual Retainer and Meeting Fees
Our non-employee directors except for our Chairman ofhave met the Board and our Chairman of the Audit Committee, receive an annual cash retainer of $30,000 paid quarterly. Our Chairman of the Board receives a cash retainer of $90,000 and our Chairman of the Audit Committee receives a cash retainer of $41,000. All retainers are prorated in any quarterly period in which the individual is not a director and/or the Chairman for the entire quarterly period. Each non-employee director also receives $1,000 per meeting attended of the Board and of each committee of which he is a member. Any director who participates in meetings by telephone, rather than in person, receives a reduced fee of $500 per meeting. There is no reduction in fee for meetings in which all directors participate telephonically. In addition, the Chairman of the Audit Committee receives an additional $750 per meeting, the Chairman of the Compensation and Benefits Committee receives an additional $650 per meeting an d all other committee chairmen receive an additional $500 per meeting attended and chaired. Should multiple meetings of the full Board or a committee occur on the same day, we pay each director only one meeting fee plus a chairperson fee, if applicable.
ownership guideline.
Long-Term Compensation
Pursuant to the 2007 equity plan, each non-employee director is entitled to receive, upon his or her election/ re-election to the Board, a grant of restricted stock equal to $30,000 in value with a one-year restriction on resale. Under the 2007 plan, each non-employee director has historically received, as an initial grant upon his or her first joining the Board, equity equal to $60,000 in value. However, in 2010, the Board amended the 2007 plan to eliminate the initial equity award as peer and survey data did not demonstrate comparable initial director grants and the Board did not feel that such an initial grant was necessary to incentivize new directors.
2009 Outstanding Equity Awards at Fiscal Year-End for Directors
| | | | | | |
| Option Awards | Stock Awards |
Name | Securities Underlying Unexercised Options (#) Exercisable | Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Shares that have not vested (#)(1) | Market value of shares that have not vested as of 12/31/09($)(2) |
Thomas J. Coffey | 10,000 | 0 | 18.00 | 5/31/11 | | |
5,000 | 0 | 15.31 | 5/24/12 | | |
1,762 | 0 | 25.13 | 6/23/16 | | |
Michael R. D’Appolonia | | | | | 1,458 | 12,991 |
Richard M. Klingaman | 3,733 | 0 | 23.98 | 2/27/16 | | |
William M. Stern | 5,000 | 0 | 18.00 | 5/31/11 | | |
5,000 | 0 | 15.31 | 5/24/12 | | |
1,762 | 0 | 25.13 | 6/23/16 | | |
| |
(1)
| Mr. D’Appolonia received an initial grant of 2,916 shares upon being elected as a director on July 23, 2008. These shares vest over a two-year period.
|
(2)
| Market value of unvested restricted stock was determined by multiplying the closing price of $8.91 on December 31, 2009 by the number of shares.
|
10
Table of Contents
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information, as of March 1, 2010,2013, concerning beneficial ownership by: holders of more than 5% ofany class of our voting securities; directors and director nominees;securities; directors; each of the named executive officers listed in the Summary Compensation Table; and all directors and executive officers as a group. The information provided in the table is based on our records, information
filed with the SEC and information provided to us, except where otherwise noted. The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity or individual has sole or shared voting power or investment power and also any shares that the entity or individual has the right to acquire withi nwithin 60 days of March 1, 20102013 through the exercise of any stock options,the conversion of depositary shares at a conversion ratio of 1.708 shares of common stock for each depositary share, the vesting of restricted stock or upon the exercise or conversion of other rights. Unless otherwise indicated, each person has sole voting and investment power with respect to the shares set forth in the table. The percentage calculations set forth in the table are based on 10,541,55614,287,900 shares of common stock outstanding and 640,516639,840 depositary shares outstanding on March 1, 2010.2013
. | | | | |
Name of Beneficial Owner | Common
Stock | % of
Common | Depositary
Shares | % of Depositary |
5% or Greater Equity Holders | | | | |
Jeffrey L. Gendell (1) | 3,276,751 | 26.7% | 4,300 | * |
Stephen D. Rosenbaum (2) | 131,404 | 1.2% | 60,000 | 9.4% |
T. Rowe Price (3) | 757,700 | 7.2% | — | — |
BlackRock, Inc. (4) | 585,263 | 5.5% | — | — |
Officers, Directors and Director Nominees |
Frank T. Vicino, Jr. (5) | 185,711 | 1.7% | 108,730 | 17.0% |
William M. Stern (6) | 67,453 | * | 7,850 | 1.2% |
Thomas J. Coffey (7) | 48,795 | * | — | — |
Richard M. Klingaman (8) | 7,442 | * | — | — |
Michael R. D’Appolonia (9) | 6,547 | * | — | — |
Keith E. Alessi (10) | 53,601 | * | — | — |
John V. O’Laughlin (11) | 44,733 | * | — | — |
Todd A. Myers (12) | 40,862 | * | — | — |
Morris W. Kegley (13) | 3,763 | * | — | — |
Kevin A. Paprzycki (14) | 3,657 | * | — | — |
Delbert L. Lobb | 0 | * | — | — |
Directors and Executive Officers as a Group (9 persons) | 276,853 | 2.5% | 7,850 | 1. 2% |
* Percentages of less than 1% are indicated by an asterisk
|
| | | | |
| Name of Beneficial Owner | Common Stock | % of Common | Depositary Shares | % of Depositary Shares |
| 5% or Greater Equity Holders | | | | |
| Jeffrey L. Gendell(1) | 2,683,468 | 18.78% | 3,700 | * |
| Frank Vicino, Jr.(2) | 181,612 | 1.26% | 106,330 | 16.6% |
| Stephen D. Rosenbaum(3) | 131,404 | * | 60,000 | 9.4% |
| T. Rowe Price(4) | 772,800 | 5.41% | — | — |
| Officers and Directors |
| Michael R. D'Appolonia | 12,388 | * | — | — |
| Gail E. Hamilton | 2,940 | * | — | — |
| Michael G. Hutchinson | — | | | |
| Richard M. Klingaman | 13,283 | * | — | — |
| Jan B. Packwood | 2,940 | * | — | — |
| Robert C. Scharp | 2,940 | * | — | — |
| Keith E. Alessi(5) | 206,664 | 1.43% | — | — |
| Kevin A. Paprzycki(6) | 27,275 | * | — | — |
| Douglas P. Kathol(7) | 63,220 | * | | |
| Robert P. King(8) | 36,005 | * | | |
| Joseph E. Micheletti(9) | 14,958 | * | — | — |
| Directors and Executive Officers as a Group (11 persons) | 392,280 | 2.71% | — | — |
_________
|
| |
* Percentages of less than 1% are indicated by an asterisk |
| (1) | The total for Mr. Gendell includes shares of common stock, as well as shares of common stock issuable upon conversion of (i) depositary shares and (ii) the senior secured convertible notes issued March 4, 2008.shares. According to a Schedule 13D/A filed February 1, 2010,January 4, 2013, Mr. Gendell owns 549,000 shares of common stock of which he has sole voting and dispositive power. In addition, Tontine Capital Partners, L.P. and other limited partnerships and limited liability companies that are affiliates of Tontine Capital Partners, L.P. own 998,2042,128,150 shares of common stock 4,300and 3,700 depositary shares that are convertible into 7,343 shares of common stock and senior secured convertible notes which are convertible into 1,725,8086,318 shares of common stock. Mr. Gendell is either a managing member of, or a managing member of the general partner of, these limited partnerships and limited liability companies and has shared vo tingvoting and dispositive power over these shares. All of the foregoing shares may be deemed to be beneficially owned by Mr. Gendell. Mr. Gendell disclaims beneficial ownership of these shares for purposes of Section 16(a) under the Exchange Act, or otherwise, except as to shares directly owned by Mr. Gendell or representing Mr. Gendell's pro rata interest in, and interest in the profits of, these limited partnerships and limited liability companies. The address for Mr. Gendell is 55 Railroad Avenue, Greenwich, CT 06830. |
(2) | According to a Schedule 13D/A filed on February 19, 2010 and a Form 4 filed on December 28, 2012, Mr. Frank Vicino Jr. beneficially owns 106,330 depositary shares of which he has sole voting and sole dispositive power for 84,350 shares, and shared voting and dispositive power over 21,980 shares. The common stock total for Mr. Vicino includes 181,612 common shares issuable upon conversion of depositary shares. The address for Mr. Vicino is 3312 NE 40th Street, Fort Lauderdale, Fl 33308. |
| (3) | The total for Mr. Rosenbaum includes shares of common stock, as well as shares of common stock issuable upon conversion of depositary shares. The depositary shares are convertible into 102,480102,459 shares of common stock. The address for Mr. Rosenbaum is 817 N. Calvert Street, Baltimore, MD 21202. |
(3)
(4) | According to a Schedule 13G/A filed on February 11, 2010,2013, these securities are owned by various individual and institutional investors, including 591,800 shares held by T. Rowe Price Small-Cap Stock Fund, Inc., which T. Rowe Price Associates, Inc. (Price Associates) serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of SECthe reporting requirements T. Roweof the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, itPrice Associates expressly disclaims that it is, in fact, the beneficial owner.owner of such securities. The principal business address of T. Rowe Price is 100 East Pratt St., Baltimore, Maryland 21289. 21202. |
(4)
(5) | According to a reportIncludes 7,043 shares of common stock held by Prudential Retirement, as trustee of the Westmoreland's 401(k) plan, 30,556 shares of common stock that may be purchased upon the exercise of options under our 2002 Plan, 60,000 shares of common stock that may be purchase upon the exercise of options under our 2007 Plan and 34,000 shares of restricted stock issued under our 2007 Plan that will vest on Schedule 13G filed on January 29, 2010, BlackRock Inc. (a) is a parent holding company or control person and (b) has sole voting power over 585,263 shares, shared voting power over no shares, sole dispositive power over 585,263 shares and shared dispositive power over no shares. The principal business address of BlackRock is 40 East 52nd Street, New York, NY 10022.
April 1, 2013. |
|
(5)
| According to a Schedule 13D/A filed on February 19, 2010, Mr. Frank Vicino Jr., a director nominee, beneficially owns 108,730 depositary
|
| (6) | Includes 5,848 shares of which he has sole voting and sole dispositive power for 86,750 shares, and shared voting and dispositive power over 21,980 shares. The common stock total for Mr. Vicino includes 184,857held by Prudential Retirement, as trustee of the Westmoreland's 401(k) plan, 7,000 shares of common shares issuable upon conversion of depositary shares. |
(6)
| Includes 10,000 common sharesstock that may be purchased upon exercise of options under the 2000 Directors’our 2007 Plan 3,631and 6,067 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2013.
|
| (7) | Includes 6,559 shares of common shares for which sale is restricted until May 2010 and 13,408 common shares issuable upon conversion of depositary shares. The depositary shares includes 2,800 depositary shares held in a trust as to which Mr. Stern is a trustee and beneficiary, 3,000 sharesstock held by a trustPrudential Retirement, as to which Mr. Stern is sole trustee and 2,050 shares held in trust as to which Mr. Stern is sole trustee and beneficiary. |
(7)
| Includes 15,000 common shares that may be purchased upon exercise of options and 3,631 common shares for which sale is restricted until May 2010.
|
(8)
| Includes 3,631 common shares for which sale is restricted until May 2010.
|
(9)
| Includes 1,458 restricted common shares subject to vesting and forfeiture and 3,631 common shares for which sale is restricted until May 2010.
|
(10)
| Includes 3,046 common shares held through the Westmoreland's 401(k) plan, and 50,5557,500 shares of common sharesstock that may be purchased upon exercise of options under equity plans.
our 2002 Plan, 7,000 shares of common stock which may be purchased upon exercise of options under our 2007 Plan and 7,752 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2013. In addition, beneficial ownership includes 13,878 shares of common stock owned by Mr. Kathol's wife. Mr. Kathol expressly disclaims beneficial ownership of these securities, and this disclosure shall not be an admission that the reporting person is the beneficial owner of such securities for purposes of Section 16 or for any other purpose. |
(11)
(8) | Includes 3,8341,301 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland's 401(k) plan and 39,2999,704 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2013. |
| (9) | Includes 2,387 shares of common stock held by Prudential Retirement, as trustee of the Westmoreland's 401(k) plan, 5,000 shares of common stock that may be purchased upon exercise of options under equity plans. |
(12)
| Includes 3,678 commonour 2007 Plan and 4,356 shares held through the 401(k) plan and 25,633 common sharesof restricted stock issued under our 2007 Plan that may be purchased upon the exercise of options.
|
(13)
| Includes 1,430 common shares held through the 401(k) plan and 2,333 common shares that may be purchased upon exercise of options under the 2007 plan.
|
(14)
| Includes 1,324 common shares held through the 401(k) plan and 2,333 common shares that may be purchased upon exercise of options under the 2007 plan.
will vest on April 1, 2013. |
Table of Contents
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and
the NYSE Amex.The NASDAQ Stock Market. To the knowledge of management, based solely on its review of such reports, no person who at any time during the fiscal year ended December 31,
2009,2012, was a director,
executive officer, or beneficial owner of more than ten percent of any class of equity securities of
Westmoreland Coalthe Company failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal
year, except for lateyear. However, while all directors and officers timely filed in 2012 according to our understanding of the interpretations governing Section 16 at such time, we recently amended a number of Form
4 filings for Messrs. Alessi, Kegley, Myers, O’Laughlin and Paprzycki relating4s dating back to
a July 2009 grant of2010 to restate the manner in which we are reporting restricted stock units
with time-based vesting provisions. After a thorough review and
late Form 4 filings, madediscussion with outside counsel, we felt it appropriate to restate these forms so that stock ownership by all directors and officers was reflected as derivatives in Table 2 at the date of grant and report vesting on
a Form 5, by Mr. Vicino.Table 1, as opposed to the manner in which grants had been reported on Table 1.
EQUITY COMPENSATION PLAN INFORMATION
At December 31,
2009,2012, we had stock options and stock appreciation rights (“SARs”) outstanding from
threetwo stockholder-approved stock plans
for employees that were approved by stockholders, one stockholder-approved plan for employees and non-employee directors and one plan
for non-employee directors that was not approved by stockholders. The 2000 Nonemployee
Directors’Directors' Stock Incentive Plan is the only plan not approved by stockholders and provided for the grant of stock options to non-employee directors at the time they were first elected to the Board and at the time of each subsequent re-election to the Board. In October 2009, the Board terminated the 2000
Performance Unit Plan, the 2000 Long-Term Incentive Stock Plan, the 2000 Nonemployee
Directors’Directors' Stock Incentive Plan and
the 2002 Long-Term Incentive Stock Plan.several other stock-holder approved plans. The termination of these plans does not impair the rights of any participant under any award granted pursuant to the plans. All
futu renew equity issuances, whether to directors or officers,
will beare made out of our stockholder-approved 2007 plan.
| | | |
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | Weighted Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Equity plans approved by security holders | 276,224(1) | $ 19.71 | 422,722(3) |
Equity plans not approved by security holders | 75,000(2) | $ 15.85 | 0 |
Total | 351,224 | $ 18.89 | 422,722 |
|
| | | |
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options (a) | Weighted Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
| Equity plans approved by security holders | 193,123(1) | $21.18 | 164,683(3) |
| Equity plans not approved by security holders | 0(2) | $— | — |
| Total | 193,123 | $21.18 | 164,683 |
__________
|
| |
(1) | Excludes SARs to acquire 139,26788,967 shares of common stock with exercise prices above $8.91,$9.34, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock Market on December 31, 2009.30, 2012. At December 31, 2009, 139,2672012, 88,967 SARs were outstanding with base prices between $19.37 and $29.48. |
(2) | Excludes SARs to acquire 16,067 shares of common stock with exercise prices above $8.91,$9.34, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock market on December 31, 2009.30, 2012. At December 31, 2009,2012, 16,067 SARs were outstanding with base prices between $23.985 and $25.14. |
(3) | Number of securities remaining available for future issuance reflects the reservation of 95,100416,032 shares for issuance to certain employees and directors upon the completion of certain time-based and performance-based vesting restrictions related to restricted stock units issued on July 1, 2009. 2010, April 1, 2011, June 1, 2012 and May 22, 2012. |
COMPENSATION DISCUSSION AND ANALYSIS
Westmoreland Coal Company has experienced dramatic changes since its inception in 1854. Originally focused on underground mining
The purpose of this Compensation Discussion and Analysis (“CD&A”) is to provide stockholders with a description of the material elements of our Company's compensation program for our executive officers, including our executive officers named in the Appalachian Basin, we have since divested ourselves of all eastern mining properties and assets, movedtables below, referred to as our headquarters to the West and purchased five surface coal mining operations. Since 2001, we have dramatically refocused our energies on becoming an energy company focused on niche coal markets where we take advantage of long-term coal contracts and rail transportation advantages. To understand our companyNamed Executive Officers, for fiscal year 2012, and the way inpolicies and objectives which we compensate our executives, itsupport the program. This discussion is important to understand our business environment oversupplemented by compensation tables and accompanying narratives that follow below.
The CD&A is divided into the last several yearsfollowing sections:
Executive Summary
Components of the Executive Compensation Program for 2012
Compensation Program and Governance
Role of the Compensation Consultant and the recent struggles that we have faced. CEO in Compensation Program
Components of Executive Compensation in Fiscal Year 2012
Named Executive Officer Compensation in Fiscal Year 2012
Realized Pay vs. Reported Total Compensation
Review of Performance-Based Compensation
Compensation for Fiscal Year 2013
Executive Summary
We believe that fully understanding who2012 was a strong year for the Company in a challenging environment. The Company increased its operating income 172%, despite the adverse impacts from a slowing worldwide economy and a difficult regulatory environment. Sales from our new Kemmerer Mine fueled this growth, and the Company finished 2012 with record Adjusted EBITDA of $105.8 million, a 44% increase over 2011. Westmoreland generated increased cash flow that allowed the Company to deleverage the business and extinguish approximately $45.0 million in debt. Standard & Poor's Ratings Services upgraded Westmoreland's corporate credit rating and issue-level rating on its senior secured notes in late 2012 to B- from CCC+. A stable outlook was assigned to all ratings. In addition, Moody's Investors Service, Inc. upgraded the issue-level rating on the senior secured notes to Caa1 from Caa2 in February 2013, while also changing the outlook on the company from stable to positive. Westmoreland was the only company in the coal space to receive an upgrade in 2012.
Key business highlights for Westmoreland in 2012 include:
We acquired and integrated the Kemmerer Mine, which created additional revenue, cash flow and operating income;
We successfully closed on the issuance of add-on notes to our senior secured notes in January 2012, which financed the Kemmerer transaction;
We entered into a $20.0 million revolving credit facility with The Private Bank, increasing the Company's liquidity;
We had a commendable safety year achieving a reportable incident rate 32% below the national average, which included safety award recognition for our mines and our power facility;
We forged good working relationships with our union workforces, highlighted by a new six-year agreement with the UMWA at our Kemmerer Mine, a four-year agreement with the IUOE at our Savage Mine and a six-year agreement with the IUOE at our Colstrip Mine;
We formally announced our succession plan for our CEO role in October, the transition of Keith Alessi from CEO to Executive Chairman in April 2013 and Bob King from COO to CEO at the same time;
We continued our dedication to environmental stewardship, highlighted by the receipt of a state-wide reclamation award at our Jewett Mine for innovative techniques in stream channel restoration; and
We focused on the long-term viability of the business through the acquisition of 56.4 million tons of new coal resources at our Colstrip Mine.
Aligned with the Company's strong 2012 performance and significant business accomplishments, the amount of the annual incentive compensation earned by each of the named executive officers for 2012 paid out at 138% of targeted levels. The above-target payout was a result of the Company's free cash flow performance significantly exceeding the performance target the Board established for 2012. The value of long-term incentive compensation awards remained at a static percentage in 2012, with any increase in value a reflection in an increase in base salary. In 2012, base salaries were largely increased at a modest inflationary rate. Mr. Paprzycki's base salary increased 6% to help better align his base pay with peer group data and the responsibility of his position. Mr. Alessi's base salary increased 16% in 2012 to reflect his lack of a base salary increase since he joined the company in 2007.
Factors Creating Alignment between Pay and Performance and Balancing Risk
Our pay programs strongly support our key business objectives and are aligned with the success of our stockholders. Accordingly, if our stockholder value declines, so does the compensation delivered in the form of equity to our executives. Further, as an executive's level of responsibility within our organization increases, so does the percentage of total compensation that we arelink to performance. The chart below shows base salary and annual and long-term incentive compensation as a companypercentage of total compensation opportunity (on average and using target awards for fiscal 2012) for our Chief Executive Officer and other named executive officers.
Westmoreland's executive compensation program includes the steps we have taken overfollowing features designed to maintain an appropriate alignment between corporate performance and incentives to perform and deliver competitive total compensation, while also protecting the lastCompany against inappropriate risk-taking and conflicts among the interests of the Company, its stockholders and its executives:
A substantial portion of each executive's total compensation (cash plus long-term incentives) is performance-based, varying from approximately 70 percent for the CEO to a range of 50 to 70 percent for the other named executive officers;
An incentive compensation program that utilizes several years to position ourselves to forge ahead into the next decade will provide insight into our past compensation practicesperformance-based metrics, focused on growth in EBTIDA and the steps we intend to take in the futurefree cash flow;
Stock ownership guidelines that are designed to align the
payfinancial interests of
our executives with
creating long-term stockholder value.
Business Environment
Our business is unusual in that a high proportion of our revenues, and therefore cash flows, are contractually set or limited by contractual relationships. For example, our ROVA power facility is under contract to provide electricity to its sole customer under contracts that run through 2019. Under the termsthose of the contract, the rate at which we are paid is set for the contract term and management can only affect profitability of the ROVA division through cost control. Similarly, our Jewett and Rosebud mines are under long-term contracts that set the terms under which the remaining coal reserves at those mines will be sold. Once again, management must focus on cost control, standardization, and efficiency in order to generate cash and profits. These circumstances make it incumbent upon management to exercise strong financial and reporting controls as so many of the key drivers in the business are not controllable. Additionally, since a large pro portion of our coal sales are contractually committed to specific customers, if a
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Table of Contents
customer should suffer an unexpected event that prevents them from accepting coal deliveries, we have nowhere to sell the committed coal. Coupled with these long-term contracts, we have been burdened by substantial post-retirement health care liabilities to retirees, and have struggled to generate enough cash at our operating subsidiaries to fund the cost of corporate overhead and these post-retirement liabilities. Our lack of liquidity has limited our opportunity to consider options that might grow the business.
In 2007, we hired Mr. Keith E. Alessi as Interim Chief Executive Officer at a difficult time in our history when we were not producing cash flows sufficient to fund our operations. Shortly after Mr. Alessi’s arrival, it was discovered that we were facing our second major accounting restatement in two years. The Board charged Mr. Alessi with standardizing our operations, implementing procedures and controls, reducing corporate overhead, stabilizing cash flow and setting a new, focused strategic vision. From 2007 through the end of 2008, management radically overhauled the business through staffing changes, elimination of unnecessary perquisites and compensation structures, settling of numerous outstanding litigations, consolidating and leveraging benefits across all business units, standardizing and streamlining financial and business reporting and restructuring all of our major debt arrangements. Additionally, a new long-term contract was entered into with our sole customer at the Jewett mine.
TheCompany's stockholders;
A Compensation and Benefits Committee (the “Committee”) recognizedof experienced and independent individuals, who are assisted by an independent compensation consultant that provides no other services to the unique difficulties presented by our business modelCompany;
No tax gross-up provisions in any compensation plans;
No employment agreements or individual change-in-control agreements with any employees, other than Mr. Alessi's Transition Agreement; and the transition period we were undergoing with new leadership and understood the complexity of implementing substantive business growth in troubled economic times that include very tight credit markets. As such, the Committee sought to put into place a compensation structure that recognized the difficulty of the tasks that management would face. The Committee did not feel that traditional incentive measurements,
No excessive perquisites such as
earningscompany aircraft or
cash flow, were appropriate drivers of incentive compensation, as these measurements could not be realistically improved in the short term. Therefore, individual project-based accountabilitiescar leases, other than for
senior managers were set and up to 45% of their incentive bonuses were tied to achievement of these goals.
Fiscal 2009 – The Year in Review
In 2009, a number of severe and adverse business conditions arose that could not have been anticipated when we set our fiscal year 2009 budgets. First, there was a catastrophic failurevehicles used at our largest customer’s power plant that resulted in the plant being shut down for over six months. In the same time period, a second large customer also experienced extended down time at its power facility. Finally, at the end of the third quarter, our ROVA I power plant experienced an unanticipated outage following a scheduled outage, resulting in lost power sales. These outages combined with overall reduced volume as a result of general economic conditions resulted in significant reductions in revenues and cash flows. In addition, due to the outages, general economic conditions, and atypical weather conditions that lowered overall coal sales in 2009, we faced several covenant violations of our major debt instruments in 2009, which required the paym ent of penalties and resulted in all of our outstanding debt being reclassified to current. Despite these adverse conditions, our management team was able to:
mine operation sites.
·
Mitigate potential debt-related issues through the negotiation of reasonable covenant waivers with our WML lenders and the refinancing of our revolving and term debt with First Interstate Bank;
·
Freeze the pension plans and eliminate retiree health care benefits for non-union employees, while implementing an enhanced 401(k) plan to minimize the effects of the pension freeze;
·
Achieve significant cost containment of our post-retirement medical obligations through successful negotiations with the United Mine Workers of America;
·
Implement administrative and healthcare network improvements for our retiree population resulting in substantial cost savings and reduced retiree medical liabilities;
·
Successfully implementing the Indian Coal Production Tax Credit transaction; and
·
Continue standardization of processes and procedures to eliminate redundancies and costs, such as transitioning all non-union employees to the same health, welfare and paid leave plans.
These measures that management implemented during 2009 were taken into account when the individual performance component of annual incentive compensation was considered.
Fiscal 2010 – The Year Ahead
In light of the unique nature of our business, the fact that we have no true comparables given the cost-plus nature of our long-term contracts and the changing compensation landscape, the Committee, with the assistance of Buck Consultants (a newly-hired Committee compensation consultant), intends to thoroughly review
We believe our executive compensation programprograms, as more fully described in this CD&A and accompanying tables contained in this Proxy Statement, are structured in the best manner possible to support our Company and grow our business profitably for 2011. Themany years, as well as to support our culture and the traditions that have guided us for nearly 150 years.
Significant Compensation Actions During 2012
During 2012 and the first two months of 2013, the Company and the Compensation and Benefits Committee intendsmade the following decisions and took the following actions with respect to the Company's executive compensation program:
As part of the committee's annual review our currentof the executive compensation peer group, compensation components, including executive incentives, the need for additional policies, such as a clawback,we removed several companies from this group and the overall manner in which we attract and retain our key executivesadded several new companies to ensure that our compensation philosophyeach of the peer companies in the group remain reasonably similar to us in terms of key metrics, such as revenues and programs are properly aligned with our strategic business objectives and do not incentivize imprudent risk-taking behavior. In addition, dueemployees, as well as added companies to the pension freeze implementedpeer group to better reflect the public companies with whom we compete for talent;
Adjusted the performance metrics used in July 2009,the annual incentive program for 2012 to include EBITDA and free cash flow; and
Thoroughly reviewed and set the compensation package for Mr. King who began employment with the Company intendsin March 2012 as President and COO with an eye toward his eventual succession to review totalthe CEO role, which compensation packages for executives in lightpackage was 70% performance-based and included an immediate grant of stock to ensure his alignment with stockholder success.
Components of the changesExecutive Compensation Program for 2012
Throughout this CD&A, the individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2012, as well as the other individuals included in the
executive’s retirement benefits.“Summary Compensation Table” on page 28 of this proxy statement, are referred to as the “named executive officers.” They were (i) Keith Alessi, our Chief Executive Officer, (ii) Kevin Paprzycki, our Chief Financial Officer and Treasurer, (iii) Robert P. King, our President and Chief Operating Officer; (iv) Doug Kathol, our Executive Vice President, and (v) Joseph Micheletti, our Senior Vice President - Coal Operations.
Our executive compensation program consists of three main elements.
|
| | | | |
Element of Executive Officer Compensation | | Description | | Purpose |
| Base Salary | | Ongoing cash compensation based on the executive officer's role. Salary levels are evaluated annually and are based on each executive's role and responsibility, applicable experience, unique skills, past performance, and future potential with us. Individual increases to base salary are not guaranteed for our named executive officers and are provided only at the committee's discretion after a review of an individual's performance and relevant market data. | | • Provide a degree of financial certainty and stability.
• Retention and attraction of executive talent.
• Recognize competitive market conditions and reward individual performance through periodic increases. |
| Annual Incentive Award | | The annual incentive plan is intended to provide compensation for performance based on the achievement of strategic goals and objectives. The incentive pay is based on financial performance and personal performance, while executives with direct mining operational responsibility also have a safety component. If the thresholds for the financial and safety components are not met, then no payout is made for that particular component. | | • Motivate executive officers to achieve key annual goals and position the Company for long-term success.
• Reward executive officers for individual performance and overall Company performance during the year. |
| Long-Term Awards | | Long-term incentive awards are designed to align the interests of our executives with those of our stockholders. Awards typically are granted annually under the Company's equity incentive plan. The performance-based awards vest upon the achievement of a preset three-year cumulative free cash flow measure. The number of shares issued is based on a percentage of the executive's base salary divided by the stock price on the date of grant. | | • Provide an incentive for executive officers to achieve long-term, sustainable success for the Company and to create stockholder value.
• Attract, motivate, reward and retain executive talent. |
| Post-Employment Benefits | | We have a severance policy that provides, under certain circumstances, executives with 12 months of base pay, in addition to 9 months of outplacement assistance and 12 months of health benefits at the same cost share as active employees. Payment is triggered upon: involuntary termination that is not for cause; the sale of a facility or division; or a position being relocated by at least fifty miles. Otherwise, we do not guarantee or provide any other compensation or benefits to our executives upon their departure. | | • Provide a degree of financial certainty and stability.
• Retention and attraction of executive talent.
• Recognize competitive market conditions |
Compensation Program and Governance
General Compensation Practices and Philosophy
Based on a holistic review, our compensation philosophy is
intended to
compensate executives with competitive salaries and long-term incentive programsclosely align the performance of the Company to that
link their total pay with our performance. Our named executive officers are at-will employees and do not have employment agreements. In addition, we do not provide any perquisites to our executives.of enhancing stockholder value. Our compensation program is intended to
attract, retain
reward, and
motivatereward our executives and is guided by several key principles:
Design a program that
is simple, easy to understand, incents performance and aligns with long-term stockholder interests
by usingthrough the use of equity awards;
·
Target compensation
is at median of peer group, with the long-term goal of bringing lower compensated executives to target levels
that are competitive with our industry and the markets in which we compete for executive talent;·
Structure compensationas they continue to reflect our business situation;
·
gain experience;
Link pay to performance by making a substantial
percentageportion of total executive compensation variable or “at risk”
; over the short- and
·
long-term; and
Provide a compensation program that emphasizes direct compensation as opposed to perquisites and other benefits.
The Committee is responsible for setting the
Westmoreland bases its total mixcompensation strategy on a moderate growth model. As a moderate growth company, Westmoreland seeks to maintain salaries at or near peer group medians, provides a portion of components that encompass our compensation program, which currently includes base salary, annualshort-term incentive based on financial, safety and long-term compensation. As has been our historical practice, in general, our compensation components are targeted as follows: 60% base salary, 25% incentive compensationpersonal goals and 15% long-term compensationprovides a significant percentage of pay in the form of equity. This compensation mix has been appropriate duelong-term incentives. Our officers are at-will employees and do not have employment agreements.
The Westmoreland benefits philosophy is to our past economic hardshipsprovide officers with protection and security through health and welfare, retirement, disability insurance and life insurance programs. During fiscal year 2012, the transitional nature ofmanagement team was eligible to receive the business.same benefits that are generally available to other Westmoreland employees. In 2009, utilizing peer and survey data, we analyzed and determined that our total cash compensation program was competitive with said data and felt that maintaining the current mix of cash components was appropriate at that time. Dueaddition to the methodologiescompany-wide benefits, the Board elected to provide executive physical examinations to officers starting in fiscal year 2012, for evaluating equity andwhich we cover the poor performancecosts that are not otherwise covered under each executive officer's chosen health plan. We believe that the executive physical is a prudent measure to help ensure the health of our stock, we were unableexecutives. The executive physical is a benefit generally provided by our peer companies and is available at a reasonable cost to performWestmoreland.
In 2012, our disability benefit was capped at a solid analysiscertain dollar threshold, which did not allow the management team to have 60% disability pay replacement as did the general employee population. As such, for 2013, Westmoreland is providing additional long-term disability insurance to the management team so that the team can achieve the same percentage of disability coverage as non-executives.
Stock Ownership Guidelines and Clawback Policies
To align the available data, which might have resulted in an adjustmentinterests of our long - -term equity compensation component. While we feel thatexecutive management team with the components areinterests of our stockholders and to promote our commitment to sound corporate governance, the proper mixCompensation and Benefits Committee approved stock ownership guidelines in 2011. The management team is expected to be in compliance with these guidelines within five years of compensationbecoming subject to the policy. The ownership requirement for attracting and retaining key executives, increasing our long-term profitability and building stockholder value,officers is calculated as a multiple of base salary as follows:
|
| |
| Executive Level | Multiple of Base Salary |
| CEO | 3.0x |
| COO | 2.0x |
| CFO, EVP and SVP | 1.5x |
| Other executive officers | 1.0x |
At this time, the Committee
withhas not adopted a clawback policy for the
assistancemanagement team. While in full support of
Buck Consultants, will be analyzing our compensation componentssuch a policy, in concept, the Compensation and Benefits Committee is waiting for more formal guidance from the Securities and Exchange Commission in response to
determine if our current allocationthe recent Dodd Frank legislation before adoption and implementation of
components is the most appropriate for meeting our objectives and business strategy.a formal policy.
Peer Comparisons and Survey Data
In 2009,order to facilitate an understanding of trends and comparative practices in executive compensation was evaluated using national, broad-based industry survey data, internal equitygenerally and with respect to the specific levels and mix of target compensation opportunities provided to our executives as well as program design in the market within which we compete for similar positionstop talent, our Compensation and proxyBenefits Committee considers executive compensation comparative data of a meaningfulour peer group for benchmark analysis.companies. In creating our peer group, we noted that there are very few comparably-sized publicly-tradedpublicly-
traded coal companies to align ourselves with for comparative purposes. In addition, a third of our executive team comes from segments other than mining. With these two factorsThe companies in mind, we benchmarked ourselves relative to aour peer group have at least one of the following characteristics:
Are focused on comparable industry (energy-related), specifically, coal, mining and oil and gas-related companies;
Have a comparable size in relation to revenue and employees; and
Are publicly-traded Colorado headquartered companies with similar revenue and employee base. Revenue and employee base are used as reference points to determine the composition of the peer group because they provide a reasonable basis for comparing like positions and scopes of responsibilities. The companies included in the peer group differ from those listed in the indices used to prepare our stock price performance graph, which can be found in our 2009 Annual Report to Stockholders. We felt that t he companies listed in the compensation peer group more closely represent the employment markets in whichwhom we compete for executivetop public company talent. In 2009,
Our Compensation and Benefits Committee reviews the composition and appropriateness of our peer group
consistedcompanies annually. Following a review in early 2013, the committee determined, with the assistance of
the followingPay Governance, that our 2012 peer group companies
as comparedneeded to
our coal segment:be updated for executive compensation comparative purposes. The 2013 peer group companies are listed below:
| | | |
Name | Business | Revenues in Millions ($) | Employees |
Westmoreland Coal Company | Coal Mining (Coal Segment Only) | 420 | 1118 |
Atheros Communications Inc. | Wireless/wire communication products | 472 | 1079 |
PMC-Sierra, Inc. | Semiconductor solutions | 525 | 1064 |
James River Coal Company | Coal Mining | 568 | 1750 |
Rhino Resources Partners, L.P. (as of 12/31/2007) | Coal Mining | 403 | 875 |
Horsehead Holding Corp. (as of 12/31/2007) | Zinc producer | 546 | 1080 |
Affymetrix, Inc. | Genetic analysis businesses | 410 | 1128 |
Zeeco Instruments, Inc. | Solutions for HB-LED and solar | 442 | 1195 |
Northwest Pipe | Large diameter steel pipeline systems | 439 | 1217 |
Churchill Downs, Inc. | Pari-Mutuel wagering properties | 430 | 1000 |
USANA Health Sciences, Inc. | Science-based personal care/ nutrition | 429 | 948 |
Maidenform Brands, Inc. | Intimate apparel | 413 | 1120 |
California Water Service Group | Treatment and distribution of water | 410 | 929 |
Calgon Carbon Corporation | Water and air purifiers | 400 | 943 |
Reddy Ice Holdings | Packaged ice manufacturer | 329 | 1400 |
|
| | | |
| Access Midstream Partners | Atwood Oceanics | Cal Dive International | Dril-Quip |
| HEICO | Oxford Resources Partners | Parker Drilling Co. | Pioneer Energy Services |
| Bill Barrett Corp. | BioFuel Energy | Forest Oil | Hecla Mining |
| Intrepid Potash | Molycorp | Penford Corporation | Stillwater Mining |
| Genesee & Wyoming | Rhino Resource Partners | Innospec | Thompson Creek Metals |
In
2009,2012, we used Economic Research Institute
CompAnalyst and
Hay GroupCompAnalyst market data as additional comparison points. Total market data was compared with individual pay for each position, and
“compa-ratios”“compra-ratios” were determined.
Compa-ratiosCompra-ratios are an
individual’sindividual's current salary divided by the reference point of the market data. For example, if an
individual’sindividual's salary is $125,000 and the mid-point of the market data for that position was $100,000, the
compa-ratiocompra-ratio for that individual would be 125%, meaning such person is earning 25%
greatermore than the average of the market.
The Compensation and Benefits Committee considers internal pay equity when making compensation decisions.decisions for the executive management team. However, the Committeecommittee does not use a fixed ratio or formula when comparing compensation among executive officers. Our CEO is compensated at a higher level than other executive officers due to his significantly greater level of experience, accountability and responsibility. Mr. Alessi’sAlessi's total cash compensation was 4.523.25 times greater than the average of our four other named executive officers which differential includes his 2009 special discretionary bonus.in 2012. We feel that Mr. Alessi’sAlessi's cash compensation for 20092012 as compared to the other named executive officers is appropriate based on his significant contributionsrole in refocusing our business since 2007 andleading the relatively modest cash compensation of our executive team. Since joining us in 2007, Mr. Alessi has received no base pay increases, modest special discretionary bonuses and has forfeited over 60% of his initial equity grant.team to meet the Board's strategic objectives for 2012. Our next highest paid named executive officer makes 1.292.29 times our lowest paid named executive officer. We believe such internalWhile this pay equity highlightsis more disparate than in past years, it reflects the reasonablenesshiring of Mr. King as the CEO successor, whose pay was targeted at a higher level than the other members of executive management.
Federal Income Tax and Other Consequences
Under Section 162(m) of the
dispersionInternal Revenue Code, we may not be able to deduct certain forms of
paycompensation in excess of $1,000,000 paid per year to our named executive
officers.
officers who are employed by us at year-end. The Compensation Administrationand Benefits Committee believes that it is generally in our best interest to satisfy the requirements for deductibility under Internal Revenue Code Section 162(m). Accordingly, the Compensation and Benefits Committee has taken appropriate actions, to the extent it believes feasible, to preserve the deductibility of annual incentive and long-term performance awards. However, notwithstanding this general policy, the Compensation and Benefits Committee also believes that there may be circumstances when our interests are best served by maintaining flexibility in the way compensation is provided, whether or not compensation is fully deductible under Internal Revenue Code Section 162(m). Accordingly, we reserve the authority to award non-deductible compensation in appropriate circumstances. Further, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended by us to satisfy the requirements for deductibility under Section 162(m) does in fact do so.
Role of
Management in Determining Executivethe Compensation
The Committee establishes our overall compensation strategy to ensure that our executives are rewarded appropriately Consultant and that executive compensation supports our business strategy and objectives. At the beginning of the calendar year, each executive sets personal performance goals, which are approved by the CEO for the executive teamin Compensation Program
Compensation Consultant
The Compensation and
by the Committee for the CEO, targeted to positively influence stockholder’s value. At the end of the calendar year, performance is evaluated by the CEO, for the other named executive officers, and by the Board, for the CEO, against the previous year’s goals and individual accomplishments during the year. The Committee reviews and approves the compensation, including base salaries, annual incentives, long-term incentives, and other benefits, of our named executive officers. The Committee also reviews and approves the compensation for other key executives who are not identified in this report. Generally, the annual incentive bonuses are paid out during the first quarter of the calendar year while increases to base salaries occur at the beginning of the second quarter. Long-term incentives, which are based on management tiers, are typically awarded on July 1st of each year.
While the Committee has the responsibility to monitor and approve all compensation for our named executive officers, management also plays an important role in determining executive compensation. At the Committee’s request, management recommends appropriate company-wide and mine financial and non-financial performance goals. Management works with the Committee to establish the agenda and prepare meeting information for each Committee meeting. In addition, the CEO assists the Committee by providing his evaluation of the performance of the executive officers who report directly to him, and recommends compensation levels for such officers. The Committee also has a process for soliciting from the CEO a candid and critical self-assessment of his own performance, which is used to assist the Committee and the Board in their evaluation of the CEO’s performance. The CEO is not present during the Committee’s evaluation and each director provides an independent analysis of the CEO’s performance.
Role of Compensation Consultants
TheBenefits Committee has the authority to retain outside counsel, consultants directly; however,and other advisors to assist it in evaluating compensation or in otherwise discharging its duties and responsibilities. In October 2012, the Compensation and Benefits Committee did not retain a consultant for fiscal year 2009. For 2009,engaged Pay Governance (the “Consultant”) to advise the Committee, through management, obtained survey information from ancommittee regarding the
structuring of executive compensation consulting firm,for 2013. The Consultant also assists the Hay Group,committee in determining appropriate peers for executivespurposes of comparing (but not benchmarking) market compensation, and provides other related services. The committee has authorized Pay Governance to interact with management on behalf of the committee, as needed in connection with advising it. In prior years, the mining industry. This survey data, together with proxy data from companies in similar industries and/orcommittee had also retained the services of a similar size, was studied by management and the Committee during 2009. In February 2010, the Committee hired Buck Consulting to serve as the Committee’s compensation consultantconsultants to assist it in fulfilling its duties.
The Consultant has not provided any services for the Company other than the services it provided to the Compensation and Benefits Committee. After considering, among other things, the absence of any business or personal relationship between the Consultant and any member of the committee or any executive officer of the Company, the committee has concluded the Consultant's work does not raise any conflict of interest.
Determining Executive Compensation
At the February 2013 meeting of the Compensation and Benefits Committee,
it made determinations regarding 2012 and 2013 executive officer compensation. The following table summarizes the roles of the Compensation and Benefits Committee, the Consultant, and executive management in
thoroughly reviewing our executive compensation
program for future periods.decision making.
Components of the Executive Compensation Programs
|
| | |
| Responsible Party | | Roles and Responsibilities |
Compensation and Benefits Committee of the Board of Directors
The committee is currently comprised of four Independent Directors and reports to the Board. | | • Retains independent counsel, consultants and other advisers to assist it in evaluating compensation or in otherwise discharging its responsibilities. • Works with the CEO to set performance goals at the beginning of each year targeted to positively influence stockholder value and evaluates CEO performance in relation to those goals and overall performance of the Company. • Authority to determine and approve compensation for our executive officers. • Reviews and approves overall compensation strategy and all programs in which our executive officers participate, including equity, bonus (including all performance-based goals), retirement and other benefit plans. • Reviews compensation philosophy, metrics and amounts, and the results of stockholder say-on-pay votes, before establishing executive compensation. • Considers comparable metrics in the Company's peer group. |
Consultant to the Compensation Committee Pay Governance, as an independent consultant retained directly by the committee, provides consulting advice on matters of governance and executive compensation | | • Provides advice and opinion on the appropriateness and competitiveness of our compensation programs relative to market practice. • Performs all functions at the direction of the committee. • Attends Compensation and Benefit Committee meetings. • Provides advice regarding compensation decision-making governance. • Provides market data, as requested. • Consults on various compensation matters and recommends compensation program designs and practices. • With the cooperation of management, works to conduct an assessment of the risks arising from our compensation programs. • Confers with CEO and VP of HR on compensation levels, incentives and goals. |
Chief Executive Officer With the support of other members of the management team | | • Works with the other executive officers to set personal performance goals at the beginning of each year targeted to positively influence stockholder value. • Reviews performance of the other executive officers against the set goals and makes recommendations to the committee with respect to their compensation. • Confers with the committee concerning design and development of compensation and benefit plans for Company employees. • Recommends appropriate company-wide and mine and power financial and non-financial performance goals for the annual incentive program. |
Our executive compensation program consists of three main elements:
Base Salary
In determining base salaries, each executive’s role and responsibility, applicable experience, unique skills, past performance, future potential with us, salary levels for similar positions (compa-ratios), and internal equity are considered. Starting in 2010, the Committee was guided in its base salary determinations by a merit matrix that takes into account compa-ratios and performance. This matrix, which was utilized for all employees, including our named executive officers, allowed the Committee to approve recommended base pay increases out of the available merit pool, which was set at 2.5% for 2010. For example, an outstanding performing executive who has a low compa-ratio, such as 80%, would be eligible for a 4% merit increase, while, conversely, a lower performing executive with a high compa-ratio, such as 120%, would not be eligible for a merit increase.
15
Components of Executive Compensation in Fiscal Year 2012
Base Salaries
|
| | |
| 2012 Base Salaries for Named Executive Officers | |
| | |
| Name | Position | Base Salary |
| Keith E. Alessi | Chief Executive Officer | $700,000 |
| Robert P. King | President and COO | $425,000 |
| Douglas P. Kathol | Executive Vice President | $287,513 |
| Kevin A. Paprzycki | Chief Financial Officer and Treasurer | $260,000 |
| Joseph E. Micheletti | Senior Vice President - Coal Operations | $230,603 |
Annual Incentive Compensation
The annual incentive plan is intended to provide variable compensation awarded for performance based on strategic goals and objectives. The incentive pay is based on financial performance and personal performance, while executives with direct mining operational responsibility also have a safety component. If the thresholds for the financial and safety components are not met, then no payout is made for that particular component.
The annual incentive plan goals for fiscal year
20092012 were set by the
Compensation and Benefits Committee in
March 2009February 2012 and encompassed the following:
|
| | |
GOAL | COMPONENTS | PERCENT OF TOTAL BONUS |
| Financial | | |
Financial
| Threshold =
Goal: Annual budgeted operating incomeEBITDA and free cash flow of the mine/ division1·
Westmoreland Coal Company • 50% payout upon meeting 80% of goal will be paid out(threshold) • 100% payout upon meeting the threshold·
Between 50% to 100% of goal will be paid out(target)
• 200% payout upon exceeding the threshold by 7.5%·
Between 100% and 200%meeting 120% of goal will be paid out upon exceeding the threshold by 15%
(maximum) | ·
• 40% for mine operationalMr. Micheletti • 60% for other executives ·
55% for corporate office executives
|
| Safety | | |
Safety
| Threshold =
Goal: Annual National Mine Safety and Health Administration (MSHA) average for reportable incident rate for surface mines in the coal industry 2·
• 50% of goal will be paid outpayout upon meeting the threshold·
Between 50% to 100% of goal will be paid out(threshold)
• 100% payout upon exceeding the threshold by 25%·
Between 100% and 200%meeting 125% of goal will be paid out(target)
• 200% payout upon exceeding the threshold by 50%meeting 150% of goal (maximum) | ·
30%
• 20% for mine operational executives·
Mr. Micheletti • Not applicable for corporateother executives |
| Individual | | |
Individual
| The percentage payout is evaluated on achievement of certain individual goals established between the executive and the CEO (or, in the case of the CEO, between him and the Committee)Board) and will be based on the executive’sexecutive's overall performance. An executive may receive greater than 100% payout for the individual goal based on exemplary performance, as approved by the Committee. Compensation and Benefits Committee, or in the case of the CEO, by the Board. The Board has great flexibility in exercising discretion relating to the individual AIP component and has the ability to reward executives based on the results of the year, notwithstanding that a particular executive did not meet the specific goal laid out at the beginning of the year. | ·
30%• 40% of AIP
|
|
| | | | | | |
Target vs. Actual Annual Incentive Bonuses Paid for 2012 Performance for Named Executive Officers |
| |
| Name | Percentage of Annual Base Salary in 2012 | Target Total Cash Incentive Bonus(1) | Percentage of Target Individual Bonus Approved | Percentage of Target Financial Bonus Approved(2) | Percentage of Target Safety Bonus Approved(3) | Total Cash Bonus |
| Keith E. Alessi | 100% | $700,000 | 200% | 138% | — | $1,141,423 |
| Robert P. King | 100% | $318,750 | 100% | 138% | — | $392,302 |
| Douglas P. Kathol | 40% | $115,005 | 100% | 138% | — | $141,543 |
| Kevin A. Paprzycki | 35% | $91,000 | 100% | 138% | — | $111,998 |
| Joseph E. Micheletti | 35% | $80,711 | 100% | 138% | 128% | $103,656 |
__________
|
| |
| (1) | Mr. King began working for mine operational executives·
45%Westmoreland on March 26, 2012. As such, his target AIP is prorated to reflect his start date.
|
| (2) | In 2012, the annual budgeted EBITDA goal and free cash flow goal for Westmoreland Coal Company was $116.6 million and $51.9 million, respectively. The 2012 actual EBITDA and free cash flow were $105.9 million and $72.4, respectively. The weighted actual performance for corporate office executivesfinancial was 105% of goal, resulting in 138% financial payout. See page 36 for a reconciliation of non-GAAP financial numbers. |
| (3) | In 2012, the average national reportable incident rate was 1.65, which is a calculation based on total hours worked and reportable incidents. In 2012, the average reportable incident rate for Westmoreland as a whole was 1.12, 32% below the national average. This safety performance resulted in 128% payout. In 2012, the safety goals were only relevant to Mr. Micheletti. |
1 In 2009, annual budgeted operating income for Messrs. Alessi, Kegley, and Paprzycki was ($5.416) million. The 2009 actual operating income was ($29.162) million. In 2009, annual budgeted operating income for Messrs. Myers and O’Laughlin was $26.473 million. The 2009 actual operating income was $0.467 million.
2 In 2009, the average national reportable incident rate was 2.11, which is a calculation based on total hours worked and reportable incidents. In 2009, the average reportable incident rate for the mines Mr. O’Laughlin oversaw was 1.38.
In February 2010, the Committee approved annual incentive compensation payouts for performance in fiscal year 2009. As the 2009 financial component threshold was not met, there was no financial component payout. As such, the entire incentive compensation payout was based on the individual performance component, except for Mr. O’Laughlin, whose incentive payout also included a safety component payout.
| | | | |
Target vs. Actual Annual Incentive Bonuses
Paid for 2009 Performance |
Name | Percentage of Total Compensation | Target Cash Incentive Bonus | Percentage of Target Bonus Approved | Total Cash Bonus |
Keith E. Alessi | 70% | $411,923 | 90% | $370,731 |
John V. O’Laughlin | 50% | $112,611 | 71% | $80,535 |
Kevin A. Paprzycki | 40% | $85,230 | 45% | $38,354 |
Morris W. Kegley | 40% | $85,385 | 90% | $76,847 |
Todd A. Myers | 40% | $93,314 | 90% | $83,983 |
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Table of Contents
Long-Term Incentive
Compensation
Long-term incentive awards are designed to align the interests of our executives with those of our stockholders. In 2009,
On June 1, 2012, we
moved from options toissued time-based restricted stock units with a three-year vest
to more appropriately incentivize our executives. Long-term equity awards for 2009 were made on July 1, 2009 based on a tiered system that provides an identical number ofand performance-based restricted stock units
to executives in that tier, which awards are between approximately 20% and 40% of such executive’s base salary compensation. To determine the number of restricted stock units awarded towith a
named executive officer in a given tier, the Committee multiplies the assigned percentage of base salary compensation, such as 20%, times the average of the base salaries of all individuals assigned to such tier. The resulting number is divided by the fair value of our common stock on the grant date to determine the number of restricted stock units granted to such tier, rounded for ease of administration.three-year cliff vest.
| | | |
Long-Term Incentive Awards for 2009 |
Name | Long-Term Incentive Tier | Number of Restricted Stock Units | Grant Date Fair Value of RSUs ($) |
Keith E. Alessi | 40% | 30,000 | 245,100 |
John V. O’Laughlin | 30% | 8,400 | 68,628 |
Kevin A. Paprzycki | 20% | 5,600 | 45,752 |
Morris W. Kegley | 20% | 5,600 | 45,752 |
Todd A. Myers | 20% | 5,600 | 45,752 |
|
| | | | |
| Long-Term Incentive Awards for Named Executive Officers for 2012 |
| |
| Name | Percentage of Base Salary | Number of Time-Based RSUs | Number of Performance-Based RSUs | Grant Date Fair Value of RSUs |
| Keith E. Alessi | 150% | 71,919 | 71,918 | $1,050,010 |
| Robert P. King | 100% | 29,112 | 29,110 | $425,021 |
| Douglas P. Kathol | 80% | 15,756 | 15,754 | $230,023 |
| Kevin A. Paprzycki | 70% | 12,468 | 12,466 | $182,018 |
| Joseph E. Micheletti | 70% | 11,058 | 11,056 | $161,432 |
Post-Employment Benefits
We have a severance policy that provides, under certain circumstances, our executives with twelve months of base pay, in addition to nine months of outplacement assistance and 12 months of health benefits at the same cost share as active employees. Payment under the severance policy is triggered upon the following events: involuntary termination that is not for cause, such as a layoff; the sale of a facility or division, such as the sale of a specific mine; and a position being relocated at least fifty miles. Except for this severance policy, we do not guarantee or provide any other cash compensation or benefits to our executives upon their departure from Westmoreland. For full walk-away amounts for each of our named executive officers upon the happening of certain events, such as involuntary termination without cause or change-in-control, see “EXECUTIVE COMPENSATION FOR 2009-Potential Payments upon Termination or Change-in-Control”below.
Summary of
Named Executive Officer Compensation
in Fiscal Year 2012
| | | | | |
| | |
| Keith E. Alessi: President and Chief Executive Officer
| |
| | |
| Total Cash Received
for 2009
| 2009 Base Salary
| Bonus for 2009
| # of RSUs / Grant Date Fair Value
of 2009 RSUs
| |
| $1,309,1921
| $600,000
| $720,7312
| 30,000 RSUs/ $245,100
| |
|
(1) Mr. Alessi’s actual base salary earnings for 2009 of $588,461 were less than his annualized base salary of $600,000 as he did not accept the role of CEO until the end of January.
| |
| (2) Mr. Alessi’s bonus for 2009 included his annual incentive plan bonus of $370,731, as well as a special discretionary bonus of $350,000.
| |
| | |
Keith E. Alessi: Chief Executive Officer
|
| | | |
Total Salary and Bonus Cash Received for 2012 | 2012 Base Salary | Bonus for 2012 | # of RSUs / Grant Date Fair Value of 2012 RSUs |
| $1,814,500 | $700,000 | $1,141,423 | 143,837 RSUs/ $1,050,050 |
For 2012, the Board increased Mr. Alessi’sAlessi's base salary at $600,000 for 2010,to $700,000, which put this component of compensation near 75% of the peer group. The Board reviewed Mr. Alessi's compensation history and comparative data from the Company's peer group, noting that such base pay was appropriate in light of available peer group information. With the assistance of Buck Consulting, the Committee intends to take a holistic look at the CEO’s total compensation package, including his base salary to determine ifhad not increased since he joined the Company in 2007. The Board felt that this new base salary was appropriate given Mr. Alessi's experience and past performance meeting strategic goals.
Annual Incentive Compensation
Financial Component: The financial component was based on budgeted EBITDA and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 105%, resulting in 138% financial payout.
Individual Component:The Compensation and Benefits Committee recommended and the Board approved a 200% individual performance payout for Mr. Alessi. Mr. Alessi is receiving not onlyoversaw the proper amount of compensation, butbest year in the proper mix of compensation components.
Annual Incentive Compensation
Financial Component: As we failed to meet our 2009Company's history from a financial component threshold, the Committee awarded no payout for the financial component.
Individual Component:Mr. Alessi’s individual component performance goals for 2009 were as follows:
·
Provide direction to the senior management team;
·
Assure adequate liquidity to allow for continued operations;
·
Reduce and/or eliminate heritage costs;perspective, including record operating income and
·
Standardize the Information Technology function.
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Table of Contents
The Committee felt EBITDA. Mr. Alessi did an excellent jobprovided high-level leadership in all functional areas in fiscalthe integration of the Kemmerer Mine, which achieved and exceeded first year 2009acquisition performance assumptions. Additionally, the Company successfully entered into a six year agreement with the UMWA at Kemmerer, improved safety by 40%, lowered MSHA citations by 60% and expressed their pleasure with his overall performance navigating the difficulties that arose throughout the year. As such, the Committee awardedreduced grievances by 80%. Mr. Alessi 200% of his individual component based on the following: his leadership during two unscheduled outages at customer facilities, as well as an unscheduled outage at ROVA; his excellent jobwas pivotal in controlling those costs that are controllable; the achievement of certain key milestones in 2009, including those associated with heritage costs, pension and post-retirement medical liabilities; his performance in managing our liquidity issues throughout the year; the successful closingdeveloping alternative strategies to affect a material deleveraging of the Indian Coal Production Tax Credit transaction;balance sheet in 2012 and excellent progress in the development of staff and succession planning.
Safety Component: Not applicable.
Discretionary Bonus
The Committee awarded Mr. Alessiestablishing a special discretionary bonus of $350,000 in recognition of his exemplary work since joining us in 2007. As discussed above under “Business Environment,” Mr. Alessi joined Westmoreland at a very difficult time in our history and has taken great strideslong-term strategy to substantially change our landscape, including standardizing our operations, implementing procedures and controls, reducing corporate overhead, stabilizing cash flow and setting a new, focused strategic vision. From 2007 through the end of 2009, Mr. Alessi led a radical overhaul ofcontinue deleveraging the business through staffing changes, eliminationfree cash flow generation and the potential monetization of unnecessary perquisitesassets. The Board also recognized Mr. Alessi's strong contribution to succession planning and compensation structures, settlingthe successful succession planning for his successor.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2012, Mr. Alessi was awarded long-term equity at a targeted
40%150% of
his base salary, which
iswas at a
substantially higher tier than the other named executive officers. The
CommitteeBoard felt such
higher tier levelgrant was warranted due to Mr.
Alessi’sAlessi's direct responsibility for overseeing the entire organization, as well as direct responsibility for our
company’sCompany's profits and losses.
The Board and Mr. Alessi felt strongly that his compensation should be directly tied to that of the stockholders and our overall financial results.
| | | | | | | | |
| | |
| Kevin A. Paprzycki: Chief Financial Officer | |
| | | | | |
| Total Cash Received for 2009 | 2009 Base Salary | Bonus for 2009 | # of RSUs / Grant Date Fair Value of 2009 RSUs | |
| $245,3541 | $207,000 | $38,354 | 5,600 RSUs/ $45,752 | |
|
(1) Mr. Paprzycki’s actual base salary earnings for 2009 of $213,076.95 were more than his annualized base salary due to the extra pay period in 2009. | |
| | |
Robert P. King: President and Chief Operating Officer
|
| | | |
Total Salary and Bonus Cash Received for 2012 | 2012 Base Salary | Bonus for 2012 | # of RSUs / Grant Date Fair Value of 2012 RSUs |
| $761,052 | $425,000 | $392,302 | 58,222 RSUs/ $425,021 |
Mr. King was brought on board as part of a long-term succession plan in March 2012 with the title of President and Chief Operating Officer. The Compensation and Benefits Committee awardeddetermined Mr. Paprzycki a 2.5% merit increase to hisKing's base salary for 2010, bringing his base salary to $212,175 effective aswith the assistance of April 1, 2010. Mr. Paprzycki’s 2.5% merit increasethe compensation consultant, utilizing peer group and market survey data.
Annual Incentive Compensation
Financial Component: The financial component was based on a commendablebudgeted EBITDA and free cash flow at the consolidated corporate level. The weighted actual performance ratingfor these corporate financial goals was 105%, resulting in 138% financial payout.
Individual Component: Management proposed and a compa-ratio of 102% of peer and survey data. The Committee feels Mr. Paprzycki’s base salary is appropriate given his relative years of experience compared to other chief financial officers and the scope of responsibilities, which does not currently include treasury or investor relations.
Annual Incentive Compensation
Financial Component: As we failed to meet our 2009 financial component threshold, the Committee awarded no payout for the financial component.
Individual Component:Mr. Paprzycki’s individual component performance goals for 2009 were as follows:
·
Timely completion of financial closes, operational packages delivered to management, quarterly board of director packages and SEC filings per target schedule; and
·
Improvements to forecasting process, including implementation of rolling forecast for each quarter end, more valuable forecast change information, and system-loaded forecasts that generate financials by the second quarter of 2009.
The Committee approved a 100% individual component payout for Mr. Paprzycki as he timely completed all financial closes and delivered operational packages to management and quarterly board of director packages and SEC filings per the target schedule. In addition, Mr. Paprzycki made improvements to our forecasting process, including implementation of rolling forecast for each quarter end, more valuable forecast change information, and system-loaded forecasts that generate financials by the second quarter of 2009.
Safety Component: Not applicable.
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Table of Contents
Long-Term Incentive Compensation
The Committee awarded Mr. Paprzycki 5,400 restricted stock units based on his placement in the 20% long-term incentive tier, as discussed above.
| | | | | | | | |
| | |
| Morris W. Kegley: General Counsel and Secretary | |
| | | | | |
| Total Cash Received for 2009 | 2009 Base Salary | Bonus for 2009 | # of RSUs / Grant Date Fair Value of 2009 RSUs | |
| $290,3101 | $207,375 | $76,847 | 5,600 RSUs/ $45,752 | |
|
(1) Mr. Kegley’s actual base salary earnings for 2009 of $213,463.15 were more than his annualized base salary due to the extra pay period in 2009. | |
| | |
Base Salary
The Committee awarded Mr. Kegley a 4.0% merit increase to his base salary for 2010, bringing his base salary to $215,671 effective as of April 1, 2010. Mr. Kegley’s 4.0% merit increase was based on an outstanding performance rating and a compa-ratio of 78% of peer and survey data. The Committee feels Mr. Kegley’s base salary is appropriate given his limited experience relating to corporate governance and SEC-related disclosure and compliance for which he has hired an attorney specializing in such areas whom he oversees.
Annual Incentive Compensation
Financial Component: As we failed to meet our 2009 financial component threshold, the Committee awarded no payout for the financial component.
Individual Component:Mr. Kegley’s individual component performance goals for 2009 were as follows:
·
Provide legal support for the successful conclusion of employee litigation; and
·
Provide legal support for Phase 1 negotiations with the UMWA on retiree health costs.
The Committee approved a 200% individual performance payout for Mr. Kegley due to his exemplary negotiation work with the UMWA. During the second quarter of 2009, Mr. Kegley was able to successfully negotiate a settlement of the Aguilar judgment. In the fourth quarter of 2009, Mr. Kegley successfully completed Phase 1 of the multi-year process to contain costs relating to retiree medical benefits, negotiating a new prescription drug program that is projected to save significant costs and reduce liabilities.
Safety Component: Not applicable.
Long-Term Incentive Compensation
The Committee awarded Mr. Kegley 5,400 restricted stock units based on his placement in the 20% long-term incentive tier, as discussed above.
| | | | | | | | |
| | |
| Todd A. Myers: Vice President – Coal Sales | |
| | | | | |
| Total Cash Received for 2009 | 2009 Base Salary | Bonus for 2009 | # of RSUs / Grant Date Fair Value of 2009 RSUs | |
| $317,2701 | $226,633 | $83,983 | 5,600 RSUs/ $45,752 | |
|
(1) Mr. Myers’s actual base salary earnings for 2009 of $233,286.70 were more than his annualized base salary due to the extra pay period in 2009. | |
| | |
Base Salary
The Committee awarded Mr. Myers a 3.0% merit increase to his base salary for 2010, bringing his base salary to $233,432 effective as of April 1, 2010. Mr. Myer’s 3.0% merit increase was based on a commendable performance rating and a compa-ratio of 95% of peer and survey data. The Committee feels Mr. Myers’ base salary is appropriate given his institutional knowledge of the business and our customer base and his leadership in strategic efforts and initiatives.
Annual Incentive Compensation
Financial Component: As we failed to meet our 2009 financial component threshold, the Committee awarded no payout for the financial component.
19
Table of Contents
Individual Component:Mr. Myers’ individual component performance goals for 2009 were as follows:
·
Absaloka Coal Private Letter Ruling for Indian Coal Tax Production Credit; and
·
Renew expiring coal contracts for Xcel, Western Fuels, and MERC.
The Committee approved a 200% individual performance payout for Mr. Myers due to his continued work and efforts in 2009 to secure the Indian Coal Production Tax Credit for coal produced at WRI. The final IRS Private Letter Ruling was received in 2009, completing the final steps of the tax credit transaction. It is projected that the tax credit could increase WRI’s income and cash flows before taxes over the period October 2008 through December 31, 2012 by as much as $37 million.
Safety Component: Not applicable.
Long-Term Incentive Compensation
The Committee awarded Mr. Myers 5,400 restricted stock units based on his placement in the 20% long-term incentive tier, as discussed above.
| | | | | | | | |
| | |
| John V. O’Laughlin: Vice President – Coal Operations | |
| | | | | |
| Total Cash Received for 2009 | 2009 Base Salary | Bonus for 2009 | # of RSUs / Grant Date Fair Value of 2009 RSUs | |
| $305,7571 | $220,007 | $80,535 | 8,400 RSUs/ $68,628 | |
|
(1) Mr. O’Laughlin’s actual base salary earnings for 2009 of $225,221.71 were more than his annualized base salary due to the extra pay period in 2009. | |
| | |
Base Salary
The Committee awarded Mr. O’Laughlin a 2.5% merit increase to his base salary for 2010, bringing his base salary to $225,508 effective as of April 1, 2010. Mr. O’Laughlin’s 2.5% merit increase was based on a commendable performance rating and a compa-ratio of 100% of peer and survey data. The Committee feels Mr. O’Laughlin’s base salary is appropriate given his scope of responsibilities and a blend of available chief operating officer and vice president of mines base salary comparables from peer group data gathered from proxy statements, which the Committee feels is the more appropriate comparable salary data for Mr. O’Laughlin than survey data that reflects salaries of similarly-positioned individuals at significantly larger companies.
Annual Incentive Compensation
Financial Component: As we failed to meet our 2009 financial component threshold, the Committee awarded no payout for the financial component.
Individual Component:Mr. O’Laughlin’s individual component performance goals for 2009 were as follows:
·
Improve safety results at all mines relative to the national average; and
·
Ensured continued training for corporate and salaried personnel and offered production and maintenance training to craft employees throughout the year.
The Committee approved a 100% individual performance payout for Mr. O’LaughlinKing. Mr. King joined the Company in 2012 and immediately established expectations for operations and the Company. Mr. King focused his efforts on developing plans for an optimal organizational structure and was active in the strategy of the business and in potential growth projects. Mr. King was particularly effective in reinforcing safety objectives and setting a new tone-at-the-top for expected safety performance, while putting renewed emphasis on customer relationships and the importance of communicating with our customers.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2012, the Compensation and Benefits Committee awarded Mr. King 58,222 restricted stock units representing 100% of his base salary, which is the second largest equity grant on the executive team. The Compensation and Benefits Committee felt this award appropriate given Mr. King's direct operational responsibilities and to incentivize Mr. King to make decisions that will create and sustain stockholder value.
On-Boarding Benefits
Mr. King was hired by Westmoreland in March 2013. As part of his package, he was provided relocation, a cash signing bonus and an initial equity grant. Mr. King was granted 25,000 shares in March 2013 to ensure his alignment with long-term strategic goals and the creation of stockholder value. Mr. King was also given $50,000 upon joining the Company, and is entitled to an additional $50,000 on his one-year anniversary.
Mr. King was offered a relocation package for his move from Pennsylvania to Colorado. The Company paid $79,002 in 2012 primarily towards final moving expenses, transportation of household goods, temporary living expenses, and a miscellaneous allowance of one-month's salary.
Douglas Kathol: Executive Vice President
|
| | | |
Total Salary and Bonus Cash Received for 2012 | 2012 Base Salary | Bonus for 2012 | # of RSUs / Grant Date Fair Value of 2012 RSUs |
| $427,168 | $287,513 | $141,543 | 31,510 RSUs/ $230,023 |
Base Salary
For 2012, the Compensation and Benefits Committee increased Mr. Kathol's base salary to $287,513 effective April 1, 2012, which puts this component of compensation near the 25% of the peer group.
Annual Incentive Compensation
Financial Component: The financial component was based on budgeted EBITDA and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 105%, resulting in 138% financial payout.
Individual Component: Management proposed and the Committee approved a 100% individual performance payout for Mr. Kathol. Mr. Kathol had a strong year in 2012 focused on pursuing potential acquisition opportunities and enhancing the sales function. Under Mr. Kathol's leadership, the Company renewed several critical coal supply contracts, He also was a key player in the rationalization of the Company's bonding collateral and replacing a key surety supplier.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2012, the Compensation and Benefits Committee awarded Mr. Kathol 31,510 restricted stock units representing 80% of his base salary. The Compensation and Benefits Committee felt this award appropriate given Mr. Kathol's direct responsibility for strategic growth initiatives.
Kevin A. Paprzycki: Chief Financial Officer and Treasurer
|
| | | |
Total Salary and Bonus Cash Received for 2012 | 2012 Base Salary | Bonus for 2012 | # of RSUs / Grant Date Fair Value of 2012 RSUs |
| $367,960 | $260,000 | $111,998 | 24,934 RSUs/ $182,018 |
Base Salary
The Compensation and Benefits Committee approved Mr. Paprzycki's new base salary for 2012 in line with peer group data, bringing his base salary to $260,000 effective as he metof April 1, 2012. This increase in base salary brings this component of compensation to near 25% of peer group data.
Annual Incentive Compensation
Financial Component: The financial component was based on budgeted EBITDA and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 105%, resulting in 138% financial payout.
Individual Component: Management proposed and the Committee approved a 100% individual performance payout for Mr. Paprzycki. In 2012, Mr. Paprzycki strengthened the Company's relationships with Standard & Poor's and Moody's that resulted in an upgrade to our credit rating. He also worked with new bond investors and obtained analyst coverage for the Company. Mr. Paprzycki was also particularly effective in working to amend covenants in loan documents to provide cushion and reduce pension funding requirements.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2012, the Compensation and Benefits Committee awarded Mr. Paprzycki 24,934 restricted stock units, which reflected 70% of his base salary. This percentage reflects his key leadership role in the Company.
Joseph E. Micheletti: Senior Vice President - Coal Operations
|
| | | |
Total Salary and Bonus Cash Received for 2012 | 2012 Base Salary | Bonus for 2012 | # of RSUs / Grant Date Fair Value of 2012 RSUs |
| $332,751 | $230,603 | $103,656 | 22,114 RSUs/ $161,432 |
Base Salary
For 2012, the Compensation and Benefits Committee increased Mr. Micheletti's base salary to $230,603 effective April 1, 2012, which puts this component of compensation below the 25% of the peer group, but commensurate with his limited time in this new role.
Annual Incentive Compensation
Financial Component: The financial component was based on budgeted EBITDA and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 105%, resulting in 138% financial payout.
Individual Component: Management proposed and the Committee approved a 100% individual performance payout for 2009, which included an improved safety record at all mines relativeMr. Micheletti. Mr. Micheletti led the highly successful integration of Westmoreland Kemmerer, Inc. while adjusting to the national average, continued training for corporatecustomers' needs and salaried personnelchallenging market conditions. He also standardized safety reports and production and maintenance trainingworked to craft employees throughout the year.share best practices across all mines. Mr. Micheletti also made significant progress in cost control initiatives.
Safety Component: Mr. O’Laughlin was paid 184% of hisMicheletti's safety component due to above average industry safety records at all, but one, of our mines.was based on his role as Senior Vice President - Coal Operations. With direct operational responsibility for all of our mines as Senior Vice President - Coal Operations, Mr. O’Laughlin’sMicheletti's safety component payout isin such role was based upon an average of reportable incident rates at all mine locations. In 2009,2012, the average national reportable incident rate was 2.11,1.65, which is a calculation based on total hours worked and reportable incidents. In 2009,2012, the average reportable incident rate for the mines Mr. O’LaughlinMicheletti oversaw was 1.38,1.12, which is significantly less than the national average. This commendable safety record correlated into a 128% safety component payout.
Long-Term Incentive Compensation
For fiscal year 2012, Mr.
O’LaughlinMicheletti was awarded
long-term equity at a targeted 30% of base salary,22,114 restricted stock units, which is a higher tier
award than other
named executive officers.vice presidents at 70% of his base salary. The
Compensation and Benefits Committee felt such higher tier level was warranted due to Mr.
O’Laughlin’sMicheletti's direct responsibility for overseeing more employees than any other named executive officer, direct responsibility for a large portion of our
company’scompany's profits and losses, and his direct operational responsibility for all mining operations.
Relocation
Mr. Micheletti was offered a relocation package as part of his promotion to Senior Vice President - Coal Operations to cover his move from Texas to Montana. In 2012, the Company paid $8,812 towards final moving expenses, transportation of household goods, and home purchase closing costs.
Realized Pay vs. Reported Total Compensation
The SEC's calculation of total compensation includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of compensation actually realized by the named executives in 2012. To supplement the SEC-required disclosure, we have included an additional table that shows compensation actually realized by each of the named executives in 2012. Set forth below we have provided a table showing for each named executive: (1) 2012 compensation actually realized by the named executive, as reported on each named executive's W-2 form (Realized Compensation Total), and (2) 2012 compensation as determined under SEC rules (Summary Compensation Total). We believe this information provides a helpful view of compensation actually received by our named executive officers in 2012, and is useful to our stockholders in assessing the alignment between executive pay and our performance. The amounts reported in this table differ from the amounts reported as total compensation in the 2012 Summary Compensation Table and are not a substitute for those amounts.
|
| | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Non-Equity Incentive Plan Compen- sation ($) | Change in Pension Value Earnings ($) | All Other Compen- sation ($) | Summary Compen- sation Total ($) | Realized Compen- sation Total ($) |
Keith E. Alessi(5) CEO | 2012 | 673,077 | — | 1,050,010 | 1,141,423 | 4,517 | 16,848 | 2,885,875 | 1,689,171 |
Kevin A. Paprzycki CFO and Treasurer | 2012 | 255,962 | — | 182,018 | 111,998 | 8,957 | 16,774 | 575,709 | 458,729 |
Robert P. King(5) President and COO | 2012 | 318,750 | 50,000 | 730,771 | 392,302 | — | 88,760 | 1,580,583 | 746,395 |
Douglas P. Kathol Executive Vice President | 2012 | 285,625 | — | 230,023 | 141,543 | 17,782 | 16,848 | 691,821 | 505,569 |
Joseph E. Micheletti SVP - Coal Operations | 2012 | 229,095 | — | 161,432 | 103,656 | 34,159 | 25,400 | 553,742 | 385,839 |
Reconciliation of Realized Compensation Column to Summary Compensation Table
The amounts reported in the Realized Compensation Column reflect income for 2012 shown as reported on the named executives' W-2 forms. These amounts differ from the amounts reported as total compensation in the 2012 Summary Compensation Table required under SEC rules and are not a substitute for the amounts reported in the 2012 Summary Compensation Table. For 2012, realized compensation represents: (1) total compensation, as determined under applicable SEC rules, minus (2) the aggregate grant date fair value of equity awards (as reflected in the Stock Awards and Option Awards columns), minus (3) the year-over-year change in pension value (as reflected in the Change in Pension Value column), plus (4) the value realized in 2012 from the vesting of RSUs before payment of any applicable withholding taxes. In addition, realized compensation reflects any bonus actually paid in the year shown, whereas total compensation under SEC rules reflects any bonus earned for the year shown. For more information on total compensation as calculated under the SEC rules, see the narrative and notes accompanying the 2012 Summary Compensation Table set forth on page 28.
Review of Performance-Based Compensation
The Board is keenly focused on tying executive compensation to the performance of the Company. On an annual basis, the management team has a significant portion of their compensation aligned with key financial metrics and performance indicators. These metrics are approved by the Compensation and Benefits Committee in February each year. In 2012, the committee elected to tie the management team's short-term bonus to EBITDA and free cash flow. Due to extraordinary performance by the management team and the Company in 2012, the short-term bonus paid out at 138%.
Beginning in 2011, the Compensation and Benefits Committee began issuing 50% of the long-term incentive component of compensation in the form of performance-based awards. These awards cliff vest over three years and pay out if the threshold goal has been met. If the team exceeds the target goal by 20% or more, the awards pay out at 150%. In 2011, the Compensation and Benefits Committee set a three-year cumulative free cash flow goal for the performance-based LTIPs. As of December 31, 2012, the Company was approximately 100% of the way towards meeting the goal due to the successful acquisition and on-boarding of the Kemmerer Mine. As such, free cash flow generated in 2013 will likely result in the Company exceeding the target by 20%, resulting in the award paying out at 150%. In 2012, the Compensation and Benefits Committee set a three-year cumulative free cash flow goal for that year's performance-based LTIPs. As of December 31, 2012, the Company was 31% towards achieving such goal.
Compensation for Fiscal Year 2013
As approved by the Compensation and Benefits Committee and, for the CEO, by the Board, the following table illustrates the total targeted compensation packages for the projected named executive officers for 2013 who are expected to serve in the capacities below following the Annual Meeting:
|
| | | | | |
| Name | Position | Base Salary ($) | Targeted AIP ($) | Targeted LTIP ($) | Targeted Total Compensation ($) |
| Robert P. King | President and CEO | 500,000 | 500,000 | 625,000 | 1,625,000 |
| Kevin A. Paprzycki | CFO and Treasurer | 300,000 | 105,000 | 210,000 | 615,000 |
| Douglas P. Kathol | Executive Vice President | 296,138 | 103,648 | 207,297 | 607,083 |
| Joseph E. Micheletti | SVP - Coal Operations | 263,000 | 92,050 | 184,100 | 539,150 |
| Jennifer S. Grafton | General Counsel and Secretary | 230,000 | 80,500 | 161,000 | 471,500 |
New Chief Executive Officer Compensation
On October 26, 2012, the Company announced the transition of Mr. Keith Alessi from CEO to Executive Chairman and the transition of Mr. Robert King from President and COO to President and CEO effective as of Monday, April 8, 2013. When Mr. King was hired in March 2012 as President and COO, his compensation was determined taking into account his anticipated transition into the CEO role, including having his short-term and long-term bonus opportunity, both variable components of compensation, set at 100% of his base salary.
In February 2013, the Compensation and Benefits Committee, with the assistance of Pay Governance, discussed the appropriate compensation package for Mr. King upon transitioning into the CEO role. After deliberation, the committee recommended to the Board a compensation package for Mr. King as CEO, which the Board approved. The compensation package for Mr. King will be $500,000 base salary, 100% of base salary for AIP target, and 125% of base salary for LTIP target.
EXECUTIVE COMPENSATION FOR
20092012
Summary Compensation Table
The following
table summarizestables set forth information regarding the
fiscal 2012 compensation
paid to each individual who served asfor our
principal executive officer or principal financial officer in 2009 andChief Executive Officer, Chief Financial Officer, our
other three
next most highly compensated executive officers who were serving as executive officers at
December 31, 2009. We referthe end of fiscal 2012 (collectively, our “named executive officers”). Columns required by SEC rules are omitted where there is no amount to
thesereport. The table also sets forth information regarding the fiscal 2010 and/or fiscal 2011 compensation for those individuals
as ourwho were also named executive
officers.
officers in fiscal 2010 and/or fiscal 2011. | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | Change in Pension Value Earnings ($) | All Other Compensation ($)(3) | Total ($) |
Keith E. Alessi CEO and President | 2009 | 588,461 | 350,000 | 245,100 | — | 370,731 | 20,044 | 16,643 | 1,590,979 |
2008 | 403,846 | — | — | 710,400 | 242,308 | 3,775 | 12,222 | 1,372,551 |
2007 | 351,692 | — | — | 1,355,000 | 422,031 | — | 21,157 | 2,149,880 |
Kevin A. Paprzycki Chief Financial Officer | 2009 | 213,077 | — | 45,752 | — | 38,354 | 3,599 | 12,467 | 313,249 |
2008 | 189,450 | — | — | 82,880 | 34,101 | 8,741 | 7,088 | 322,260 |
Morris W. Kegley General Counsel and Secretary | 2009 | 213,463 | — | 45,752 | — | 76,847 | 38,224 | 12,472 | 386,758 |
2008 | 200,156 | — | — | 82,880 | 36,028 | 30,301 | 7,411 | 356,776 |
2007 | 175,154 | — | — | — | 39,410 | 21,494 | 9,421 | 245,479 |
Todd A. Myers Vice President of Coal Sales | 2009 | 233,287 | — | 93,352 | — | 83,983 | (6,699) | 12,603 | 416,526 |
2008 | 218,568 | — | — | 82,880 | 78,685 | 29,014 | 7,582 | 416,729 |
2007 | 208,542 | — | — | — | 37,538 | 14,552 | 8,066 | 268,698 |
John V. O’Laughlin Vice President of Coal Operations | 2009 | 225,222 | — | 68,628 | — | 80,535 | (5,611) | 12,552 | 381,326 |
2008 | 211,374 | — | — | 177,600 | 45,657 | 52,408 | 6,971 | 494,010 |
2007 | 200,665 | — | — | — | 89,336 | 32,235 | 9,758 | 331,994 |
Former Named Executive Officer |
Delbert Lobb(4) Former CEO and President | 2009 | 67,606 | — | — | — | — | — | 5,500 | 73,106 |
2008 | 326,923 | 200,000 | 1,639,000 | 296,000 | — | — | 59,657 | 2,521,580 |
|
| | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Non-Equity Incentive Plan Compen- sation ($)(2) | Change in Pension Value Earnings ($) | All Other Compen- ation ($)(3)(4) | Total ($) |
Keith E. Alessi(5) CEO | 2012 | 673,077 | — | 1,050,010 | 1,141,423 | 4,517 | 16,848 | 2,885,875 |
| 2011 | 588,460 | — | 900,009 | 668,460 | 8,027 | 16,572 | 2,181,528 |
| 2010 | 492,305 | — | 884,775 | 482,239 | 4,004 | 16,572 | 1,879,895 |
Kevin A. Paprzycki CFO and Treasurer | 2012 | 255,962 | — | 182,018 | 111,998 | 8,957 | 16,774 | 575,709 |
| 2011 | 237,720 | — | 171,516 | 133,202 | 14,478 | 16,369 | 573,285 |
| 2010 | 213,948 | — | 72,309 | 101,994 | 5,907 | 16,202 | 410,360 |
Robert P. King(5) President and COO | 2012 | 318,750 | 50,000 | 730,771 | 392,302 | — | 88,760 | 1,580,583 |
Douglas P. Kathol Executive Vice President | 2012 | 285,625 | — | 230,023 | 141,543 | 17,782 | 16,848 | 691,821 |
| 2011 | 273,942 | — | 224,400 | 159,577 | 31,893 | 76,515 | 766,327 |
| 2010 | 248,392 | — | 119,996 | 134,806 | 16,409 | 16,444 | 536,047 |
Joseph E. Micheletti SVP - Coal Operations | 2012 | 229,095 | — | 161,432 | 103,656 | 34,159 | 25,400 | 553,742 |
| 2011 | 191,736 | — | 60,139 | 128,546 | 57,061 | 53,194 | 483,826 |
__________
|
| |
(1) | Amounts in these columns represent the aggregate grant date fair value of the equity awarded calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 –- Share-Based Payment. Amounts for 2008 and 2007 have been recalculated to comply with the new requirements. These columns were prepared assuming none of the awards will be forfeited. Additional information is set forth in the “Grants of Plan-Based Awards” table below. Details regarding the 2009, 20082012, 2011 and 20072010 stock awards that are outstanding as of December 31, 20092012 may be found in the “2009“2012 Outstanding Equity Awards At Fiscal Year-End” table below. A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 20092012 may be found in Note 13 of the Notes to the Financial Statements in the Company’sCompany's Form 10-K for the year ended Dec emberDecember 31, 2009. 2012. |
(2) | Represents the cash bonus awarded under our Annual Incentive Plan, a discretionary performance-based award made in the first quarter of each fiscal year for performance in the prior fiscal year. |
(3) | “All Other Compensation” for 20092012 includes reimbursements and payments for our contributions to the Westmoreland's 401(k) Planplan and life insurance premiums. We contributed $11,025, $11,025, $11,025, $11,025, $11,025 and $577$15,000 in matching contributions to the 401(k) Planplan on behalf of Messrs. Alessi, Paprzycki, Kegley, Myers, O’Laughlin, and Lobb, respectively.each named executive officer except for Mr. King, who received $8,336. Our 401(k) match program provided for a match of total cash compensation earned in 20092012 up to a maximum allowable cash compensation of $245,000$250,000 equaling 3% of total cash compensation from January through June and 6% of total cash compensation from July through December.compensation. We paid life insurance premiums of $1,891, $1,442, $1,447, $1,578, $1,527$1,848, $1,774, $1,422, $1,848, and $1,248$1,589 during 20092012 for Messrs. Alessi, Paprzycki, Kegley, Myers, O’Laughlin,King, Kathol, and Lobb,Micheletti, respectively. For |
| (4) | “All Other Compensation” for 2012 also includes $79,002 and $8,812 for Messrs. King and Micheletti, respectively, for relocation of their home. Mr. King was eligible for relocation under our Relocation Policy upon accepting his position with us in Englewood, Colorado. Upon Mr. Micheletti accepting the position of Senior Vice President - Coal Operations, he was eligible for relocation under the Relocation Policy for his move from Texas to Montana. |
| (5) | Mr. Alessi and Lobb, the amount shown also includes $3,727 and $3,675 respectively ofMr. King did not receive any additional compensation for their services as a sp ecial contribution to the 401(k) Plan made during 2009. |
(4)
| Mr. Lobb resigned effective January 27, 2009. Mr. Lobb forfeited all stock and option awards at the time of his resignation. He was not vested in the pension plan.
director. |
Components of Total Compensation
We believe in compensating our executive officers with a mix of both base salary and at-risk compensation made up of cash and equity. For a thorough discussion of our compensation components and the percentage of at-risk compensation, see “Components of the Executive Compensation Program for 2012” in the Compensation Discussion and Analysis section above.
Non-Equity Incentive Plan Compensation
Non-equity incentive plan compensationamountscompensationamounts are annual cash incentives under our Annual Incentive Plan (“AIP”). The AIP is funded based on various components, which are unique to each named executive officer, and may include our annual
budgeted
operating income performance,EBITDA, annual budgeted free cash flow, MSHA average for reportable incident rate for surface mines in the coal industry, and individual performance goals, all of which are discussed above in “Compensation Discussion and Analysis.”
Values for stock grants in the summary compensation table and numbers included in the grants of plan-based awards table relate to restricted stock and restricted stock units granted to the named executive officers under our stockholder-approved 2007 plan. The plan is administered by the Compensation and Benefits Committee, which has retained the exclusive authority to make awards under the plan. The committee approves all long-term incentive grants to executive officers other than the CEO, whose grants are approved by the Board. The committee also approves the overall grant pool for all other participants. The primary purpose of the long-term incentive plan is to link compensation with the long-term interests of stockholders.
RestrictedTime-based restricted stock units,
representing 50% of the total award, granted to the named executives officers on
JulyJune 1,
20092012 vest over three years beginning
1210 months from the grant date, with 33% of the shares becoming vested and available for release at that time, and an additional 33% vesting and becoming available for release on each successive
anniversary of the grant date.April 1st. Full vesting occurs on
the third anniversaryApril 1, 2015. Performance-based restricted stock units, representing 50% of the
grant date.total award, were also granted on June 1, 2012 and will cliff vest on April 1, 2015 upon achievement of a three-year cumulative free cash flow amount that was set by the Compensation and Benefits Committee in early 2012. Awards not yet released are forfeited upon separation.
2012 Grants of Plan-Based Awards
| | | | |
Name | Grant Date | Approval Date by Comp. Committee | All Other Stock Awards: Number of Units (#) | Grant Date Fair Value of Stock Awards($)(1) |
Keith E. Alessi | 7/01/2009 | 6/17/2009 | 30,000(1) | 245,100 |
Kevin A. Paprzycki | 7/01/2009 | 6/17/2009 | 5,600(1) | 45,752 |
Morris W. Kegley | 7/01/2009 | 6/17/2009 | 5,600(1) | 45,752 |
Todd A. Myers | 6/03/2009 | 5/13/2009 | 5,000(2) | 47,600 |
7/01/2009 | 6/17/2009 | 5,600(1) | 45,752 |
John V. O’Laughlin | 7/01/2009 | 6/17/2009 | 8,400(1) | 68,628 |
|
| | | | | | | |
| | | | Estimated Future Payouts Under Performance- Based Equity Incentive Plan Awards(1) | | |
| Name | Grant Date | Approval Date by Board | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards(#)(1) | Grant Date Fair Value of Stock Awards($)(1) |
| Keith E. Alessi | 6/1/2012 | 5/22/2012 | 57,534 | 71,918 | 86,302 | 71,919 | 1,050,010 |
| Kevin A. Paprzycki | 6/1/2012 | 5/22/2012 | 9,973 | 12,466 | 14,959 | 12.468 | 182,018 |
| Robert P. King | 6/1/2012 | 5/22/2012 | 23,288 | 29,110 | 34,932 | 29,112 | 425,020 |
| Douglas P. Kathol | 6/1/2012 | 5/22/2012 | 12,603 | 15,754 | 18,905 | 15,756 | 230,023 |
| Joseph Micheletti | 6/1/2012 | 5/22/2012 | 8,845 | 11,056 | 13,267 | 11,058 | 161,432 |
__________
|
| |
(1) | The 20092012 LTIP award granted by the Compensation and Benefits CommitteeBoard of Directors on June 17, 2009May 22, 2012 to all named executive officers consisted of time-based restricted stock units with a three-year vest and performance-based restricted stock units with a three-year cliff vest issued out of the 2007 plan with a grant date of JulyJune 1, 2009. The grant date fair value on July 1, 2009 was $8.17 per share. |
(2)
| Mr. Myers was granted a one-time issuance of 5,000 shares with no restrictions or vesting out of the 2007 plan to satisfy a past retirement obligation.2012. The grant date fair value on June 3, 20091, 2012 was $9.52$7.30 per share.
|
| |
2012 Outstanding Equity Awards at Fiscal Year-End
|
| | | | | | | | | | | | | |
| | Option Awards | Stock Awards |
| Name | Securities Underlying Unexercised Options(#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Units that have not vested (#)(1) | Market value of units that have not vested as of 12/30/12($)(2) | Unearned units that have not vested (#)(3) | Market value of unearned units that have not vested as of 12/30/12($)(2) |
| Keith E. Alessi | 30,556 |
| 24.12 |
| 5/2/2017 | | | | |
| | 60,000 |
| 21.40 |
| 7/1/2018 | | | | |
| | | | | 19,925 |
| 186,100 |
| | |
| | | | | 20,054 |
| 187,304 |
| | |
| | | | | 71,919 |
| 671,723 |
| | |
| | | | | | | 30,080 |
| 280,947 |
|
| | | | | | | 71,918 |
| 671,714 |
|
| Kevin A. Paprzycki | 2,500 |
| 29.48 |
| 6/5/2016 | | | | |
| | 1,900 |
| 24.41 |
| 7/1/2016 | | | | |
| | 7,000 |
| 21.40 |
| 7/1/2018 | | | | |
| | | | | 2,972 |
| 27,758 |
| | |
29
| | | | | | |
| Option Awards | Stock Awards |
Name | Securities Underlying Unexercised Options (#) Exercisable | Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Units that have not vested (#)(2) | Market value of units that have not vested as of 12/31/09($)(3) |
Keith E. Alessi | 20,000 | 40,000(1) | 21.40 | 7/01/18 | | |
30,556 | 0 | 24.12 | 5/02/17 | | |
| | | | 30,000 | 267,300 |
Kevin A. Paprzycki | 2,333 | 4,667(1) | 21.40 | 7/01/18 | | |
1,900 | 0 | 24.41 | 7/01/16 | | |
2,500 | 0 | 29.48 | 6/05/16 | | |
| | | | 5,600 | 49,896 |
Morris W. Kegley | 2,333 | 4,667(1) | 21.40 | 7/01/18 | | |
1,900 | 0 | 24.41 | 7/01/16 | | |
| | | | 5,600 | 49,896 |
Todd A. Myers | 683 | 0 | 18.09 | 5/29/11 | | |
2,517 | 0 | 18.19 | 5/29/11 | | |
6,700 | 0 | 12.86 | 6/24/12 | | |
6,700 | 0 | 18.08 | 6/30/13 | | |
6,700 | 0 | 17.80 | 12/31/13 | | |
12,300 | 0 | 19.37 | 7/01/14 | | |
16,200 | 0 | 20.98 | 7/01/15 | | |
7,900 | 0 | 24.41 | 7/01/16 | | |
2,333 | 4,667(1) | 21.40 | 7/01/18 | | |
| | | | 5,600 | 49,896 |
John V. O’Laughlin | 20,000 | 0 | 12.04 | 3/05/11 | | |
491 | 0 | 18.09 | 5/29/11 | | |
1,809 | 0 | 18.19 | 5/29/11 | | |
4,700 | 0 | 12.86 | 6/24/12 | | |
3,650 | 0 | 18.08 | 6/30/13 | | |
3,650 | 0 | 17.80 | 12/31/13 | | |
9,800 | 0 | 19.37 | 7/01/14 | | |
14,600 | 0 | 20.98 | 7/01/15 | | |
9,900 | 0 | 24.41 | 7/01/16 | | |
5,000 | 10,000(1) | 21.40 | 7/01/18 | | |
| | | | 8,400 | 74,844 |
|
| | | | | | | |
| | Option Awards | Stock Awards |
| Name | Securities Underlying Unexercised Options(#) Exercisable | Option Exercise Price ($) | Option Expiration Date | Units that have not vested (#)(1) | Market value of units that have not vested as of 12/30/12($)(2) | Unearned units that have not vested (#)(3) | Market value of unearned units that have not vested as of 12/30/12($)(2) |
| | | | | 3,822 | 35,697 | | |
| | | | | 12,468 | 116,451 | | |
| | | | | | | 5,732 | 53,537 |
| | | | | | | 12,466 | 116,432 |
| Robert P. King | | | | 29,112 | 271,906 | | |
| | | | | | | 29,110 | 271,887 |
| Douglas P. Kathol | 7,500 | 16.17 | 8/18/2013 | | | | |
| | 6,700 | 19.37 | 7/1/2014 | | | | |
| | 6,700 | 20.98 | 7/1/2015 | | | | |
| | 4,300 | 24.41 | 7/1/2016 | | | | |
| | 7,000 | 21.40 | 7/1/2018 | | | | |
| | | | | 4,932 | 46,065 | | |
| | | | | 5,000 | 46,700 | | |
| | | | | 15,756 | 147,161 | | |
| | | | | | | 7,500 | 75,050 |
| | | | | | | 15,754 | 147,142 |
| Joseph E. Micheletti | 5,000 | 21.40 | 7/1/2018 | | | | |
| | | | | 1,252 | 11,694 | | |
| | | | | 1,340 | 12,516 | | |
| | | | | 11,058 | 103,282 | | |
| | | | | | | 2,010 | 18,773 |
| | | | | | | 11,056 | 103,263 |
__________
|
| |
(1) | These options were awarded by the Compensation and Benefits Committee in June 2008 as part of the annual LTIP award. The options vest in three annual increments beginning 7/1/09, with the remaining two increments vesting in July 2010 and July 2011.
|
(2)
| Awards in this column consist of restricted stock units with a grant datedates of July 1, 2009.2010, April 1, 2011 and June 1, 2012. Awards of restricted stock units vest in thirds over a three-year period beginning on the first anniversary of the date of grant. To the extent vested, these units are reflected in the “Stock Vested in 2012” table below. |
(3)
(2) | The market value of the awards of restricted stock units that have not yet vested was determined by multiplying the closing price of a share of common stock on December 31, 200930, 2012 ($8.91)9.34) by the number of shares. |
| (3) | Awards in this column consist of performance-based restricted stock units with a grant date of April 1, 2011 and June 1, 2012. These awards pay out at Threshold, Target and Maximum depending on the achievement of a free cash flow metric designated by the Compensation and Benefits Committee in 2011 and 2012. Upon achievement of the performance goal on April 1, 2014 and April 1, 2015, these awards cliff vest. If performance is not achieved, all awards will forfeit. |
| | |
Name | Shares Acquired on Vesting(#) | Stock Value Realized on Vesting($) |
Todd A. Myers | 5,000 | 47,600 |
2009 Pension Benefits
| | | | |
Name(1) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit as of December 31, 2009 ($)(2) | Payments During LastFiscal Year ($) |
Keith E. Alessi | Westmoreland Retirement Plan (WCC) | 2.08 | 23,819 | — |
Kevin A. Paprzycki | Westmoreland Retirement Plan (WCC) | 3.0 | 21,241 | — |
Morris W. Kegley | Westmoreland Retirement Plan (WCC) | 3.67 | 111,217 | — |
Todd A. Myers | Westmoreland Retirement Plan (WCC) | 9.5 | 102,631 | — |
John V. O’Laughlin | Westmoreland Retirement Plan (BSS) | 9.0 | 200,250 | — |
|
| | |
| Name(2) | Shares Acquired on Vesting(#) | Stock Value Realized on Vesting($)(1) |
| Keith E. Alessi | 39,952 | 372,159 |
| Kevin A. Paprzycki | 6,750 | 63,470 |
| Douglas P. Kathol | 9,299 | 87,075 |
| Joseph E. Micheletti | 2,989 | 27,624 |
__________
|
| |
(1) | Mr. LobbThe market value of the awards was notdetermined by multiplying the closing price of a share of common stock on July 1, 2012 ($8.63) by the number of shares for those shares that vested inon July 1, 2012 and multiplying the pension plan at the time he ceased employment.
close price of a share of common stock on April 1, 2012 (11.36). |
(2) | As Mr. King did not begin employment with us until March 2012, he did not vest in any awards in 2012. |
2012 Pension Benefits
|
| | | | |
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit as of December 31, 2012 ($)(1) | Payments During Last Fiscal Year ($) |
| Keith E. Alessi | Westmoreland Retirement Plan (WCC) | 2.08 | 35,850 | — |
| Kevin A. Paprzycki | Westmoreland Retirement Plan (WCC) | 3.0 | 41,627 | — |
| Douglas P. Kathol | Westmoreland Retirement Plan (WCC) | 5.81 | 154,017 | — |
| Joseph E. Micheletti | Westmoreland Retirement Plan (WECO) | 10.0 | 183,891 | — |
__________
|
| |
| (1) | Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2009.2012. Demographic assumptions are also consistent with our pension financial reporting, with the exception that per SEC guidance, pre-retirement decrements are not used. A discount rate of 6.0%4.25% was used for 2009.2012. |
Effective July 1, 2009, the Board froze
all structures of our pension plan for non-union employees, including our named executive officers, resulting in no future benefits accruing under these plans. Prior to July 2009, each of the named executive officers except Mr.
Alessi,King who began employment with us in 2012, participated in
one of the same defined benefit pension
plansplan structures offered to other non-union employees. Eligible employees become fully vested after five years of
service, or, in any event, upon attaining age 65.vested service. The
Company's pension plan
structure provides for normal retirement at 65. Early retirement benefits are available at age 55 with 10 years of service, however at reduced benefits.
None of the named executives covered under this plan are eligible to retire as of December 31, 2009. The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 66 2/3% and 100% joint and survivor options, a 10-year certain and life
o ption, and a single life annuity.
In addition, to the main Westmoreland pension plan, Mr. O’Laughlin is covered under plan provisions for two subsidiaries where he has worked. Aspects of each subsidiary’s plan provisions may be more or less attractive than the plan provisions applicable to us. Based on Mr. O’Laughlin’s service and salary, the Beulah and Savage Salaried Employee’s (“BSS”) benefits are the most valuable as of December 31, 2009. Under the BSS plan, normal retirement age is 65. Early retirement benefits are available at age 55 with 5 years of service, but reduced 3% per year for early commencement before age 62. Mr. O’Laughlin may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 66 2/3%, 75% and 100% joint and survivor options, a 10-year certain and life option, and a single life annuity.
Mr. Alessi, and those who are hired on or after July 1, 2006, who are not subject to collective bargaining and work 1,000 or more hours per year, are covered under a new benefit plan. As eligible employees become fully vested after five years of service, Mr. Alessi is not currently eligible for participation.
2009
2012 Pension Benefits Upon
Retirement/Retirement, Termination, Disability or Death
Messrs. Paprzycki, Kathol, and Mr. MyersMicheletti are each vested in the pension plan and areentitled to an annual lifetime benefit payable upon voluntary or involuntary termination or death (paid for the life of the spouse). Mr. Alessi is not vested in the pension plan. Benefits shown assume that the event entitling the individual to benefits occurred on December 31, 2012.
Mr. Paprzycki is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). Benefits shown for Mr. O’Laughlin and Mr. Myers assume that the event entitling them to benefits occurred on December 31, 2009. The benefits for Mr. MyersPaprzycki are first payable on MarchSeptember 1, 2019.2035. Mr. Paprzycki currently is not eligible for early retirement benefits.
|
| | | | | | | |
| Name | Type of Termination | Plan | Benefit Amount | Form of Payment | Time or Period of Payment |
| Kevin A. Paprzycki | Termination | Pension Plan | $ | 732 |
| Monthly Annuity | Life |
| | Death | Pension Plan | $ | 559 |
| Monthly Annuity | Life of Spouse |
Mr. Kathol is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr.
O’LaughlinKathol are first payable on
JanuaryDecember 1,
2010.2017. Mr. Kathol currently is not eligible for early retirement benefits.
|
| | | | | | | |
| Name | Type of Termination | Plan | Benefit Amount | Form of Payment | Time or Period of Payment |
| Douglas P. Kathol | Termination | Pension Plan | $ | 1,291 |
| Monthly Annuity | Life |
| | Death | Pension Plan | $ | 985 |
| Monthly Annuity | Life of Spouse |
| | | | | |
Name
| Type of Termination
| Plan
| Benefit
Amount
| Form of
Payment
| Time or
Period of
Payment
|
John V. O’Laughlin
| Retirement/Termination
| Pension Plan
| $2,005
| Monthly Annuity
| Life
|
| Disability
| Pension Plan
| $2,005
| Monthly Annuity
| Life
|
| Death
| Pension Plan
| $919
| Monthly Annuity
| Life of Spouse
|
Todd A. Myers
| Retirement/Termination
| Pension Plan
| $1,208
| Monthly Annuity
| Life
|
| Disability
| Pension Plan
| $2,415
| Monthly Annuity
| Life to age 65
|
| Death
| Pension Plan
| $1,038
| Monthly Annuity
| Life of Spouse
|
Mr. Micheletti is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr. Micheletti are first payable on August 1, 2015.
|
| | | | | | | |
| Name | Type of Termination | Plan | Benefit Amount | Form of Payment | Time or Period of Payment |
| Joseph E. Micheletti | Termination | Pension Plan | $ | 840 |
| Monthly Annuity | Life |
| | Death | Pension Plan | $ | 319 |
| Monthly Annuity | Life of Spouse |
23
Potential Payments upon Termination or Change-in-Control
Our named executive officers are not entitled to any additional payments or benefits relating to termination of employment other than the retirement benefits
previously described in the preceding compensation tables and participation in a severance policy that is generally available to all our employees. Our severance policy covers virtually all our employees, although the amount of the severance benefit depends upon employee
tier.tier and years of service with us. The highest tier, which includes our named executive officers, provides for severance compensation equal to 12 months of monthly base pay, 9 months of outplacement assistance and 12 months of health benefit continuation. Severance benefits are payable under the policy only in the following circumstances: involuntary termination that is not for cause; termination due to sale of a facility, division or business segment; or relocation of more than 50 miles that the employee declines. Our executives do not have employment
con tractscontracts or any benefits triggered by a
change-in-control.change-in-control, unless the change-in-control results in an involuntary termination of the executive without cause. In addition, our Annual Incentive
ProgramPolicy provides that program participants are only entitled to payment of incentive payouts if they are employed on the date of payment, which typically occurs in March of the following year. All incentive payouts are forfeited should a named executive officer leave our employment for any reason,
priorunless otherwise expressly agreed to
such time.by the Compensation and Benefits Committee.
The following table represents full walk-away amounts for each of our named executive officers upon the occurrence of certain events, assuming in each case that the event in question occurred as of December 31, 2009.2012. The following tables do not include amounts payable upon termination for pension benefits, as those benefits are described above in the “2009“2012 Pension Benefits” tables.
| | | | | | |
Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death |
Keith Alessi | Salary | $0 | $600,000 | $0 | $0 | $0 |
Vested Equity(1)(2) | $0 | $0 | $267,300 | $0 | $267,300 |
Outplacement Services and health benefits | $0 | $23,125 | $0 | $0 | $0 |
| | | | | | | |
Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death |
Kevin Paprzycki | Salary | $0 | $207,000 | $0 | $0 | $0 |
Vested Equity(1)(2) | $0 | $0 | $49,896 | $0 | $49,896 |
Outplacement Services and other benefits | $0 | $22,235 | $0 | $0 | $0 |
|
| | | | | | |
| Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death(3) |
| Keith Alessi | Salary | $— | $700,000 | $— | $— | $— |
| | Vested Equity(1)(2) | $— | $— | $1,045,127 | $— | $1,378,029 |
| | Outplacement services and health benefits | $— | $23,024 | $— | $— | $— |
| | TOTAL | $— | $23,024 | $1,045,127 | $— | $1,378,029 |
|
| | | | | | |
| Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death(3) |
| Kevin Paprzycki | Salary | $— | $260,000 | $— | $— | $— |
| | Vested Equity(1)(2) | $— | $— | $179,907 | $— | $240,439 |
| | Outplacement services and health benefits | $— | $22,644 | $— | $— | $— |
| | TOTAL | $— | $22,644 | $179,907 | $— | $240,439 |
|
| | | | | | |
| Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death(3) |
| Robert P. King | Salary | $— | $425,000 | $— | $— | $— |
| | Vested Equity(1)(2) | $— | $— | $271,906 | $— | $340,188 |
| | Outplacement services and health benefits | $— | $19,380 | $— | $— | $— |
| | TOTAL | $— | $19,380 | $271,906 | $— | $340,188 |
|
| | | | | | |
| Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death(3) |
| Douglas Kathol | Salary | $— | $287,513 | $— | $— | $— |
| | Vested Equity(1)(2) | $— | $— | $239,926 | $— | $317,822 |
| | Outplacement services and health benefits | $— | $17,981 | $— | $— | $— |
| | TOTAL | $— | $17,981 | $239,926 | $— | $317,822 |
|
| | | | | | |
| Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death(3) |
| Joseph Micheletti | Salary | $— | $230,603 | $— | $— | $— |
| | Vested Equity(1)(2) | $— | $— | $127,491 | $— | $164,397 |
| | Outplacement services and health benefits | $— | $22,644 | $— | $— | $— |
| | TOTAL | $— | $22,644 | $127,491 | $— | $164,397 |
________
| | | | | | |
Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death |
Morris Kegley | Salary | $0 | $207,375 | $0 | $0 | $0 |
Vested Equity(1)(2) | $0 | $0 | $49,896 | $0 | $49,896 |
Outplacement Services and other benefits | $0 | $18,583 | $0 | $0 | $0 |
| | | | | | |
Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death |
Todd Myers | Salary | $0 | $226,633 | $0 | $0 | $0 |
Vested Equity(1)(2) | $0 | $0 | $49,896 | $0 | $49,896 |
Outplacement Services and other benefits | $0 | $23,143 | $0 | $0 | $0 |
| | | | | | |
Name | Type of Compensation | Termination for Cause/ Voluntary Termination | Involuntary Not for Cause | Termination upon Change-in-Control | Retirement | Death |
John O’Laughlin | Salary | $0 | $220,007 | $0 | $0 | $0 |
Vested Equity(1)(2) | $0 | $0 | $74,844 | $0 | $74,844 |
Outplacement Services and other benefits | $0 | $17,404 | $0 | $0 | $0 |
|
| |
(1) | Various unvested options and SARs held by our named executive officers automatically vest upon a change-in-control. However, all outstanding options held by our named executive officers have an exercise price greater than $8.91,$9.34, the closing price of our stock on December 31, 2009.2012. There is no intrinsic value in any accelerated options or vested stock options because options with an exercise price greater than $8.91$9.34 have zero intrinsic value. The value of vested equity was determined by multiplying the number of vested shares times $9.34, the closing stock price on December 30, 2012. |
(2) | We recently awarded long-term equity to the named executive officers in the form of restricted stock units with a grant datedates of July 1, 2009,2010, April 1, 2011 and June 1, 2012, vesting in thirds on an annual basis. Pursuant to the restricted stock unit agreements, the units automatically vest immediately prior to a change-in-control, death, disability or qualified retirement of the recipient. No named executive officer met the qualifications for a “qualified retirement” as of December 31, 2009. 2012. |
| (3) | The performance-based restricted stock units vest pro rata upon death of disability. For valuation purposes, we assume the triggering event (death) occurred on December 31, 2012 resulting in the vesting of a third of the award. |
Executive Transition Agreement
In connection with Mr. Alessi's previously announced retirement as our CEO on April 5, 2013 and expected transition to the role of ContentsExecutive Chairman of the Board, the Company and Mr. Alessi have entered into an executive transition agreement (the “Transition Agreement”). Pursuant to the Transition Agreement, Mr. Alessi will serve as our Executive Chairman for a period of approximately two years. In consideration for serving as Executive Chairman, Mr. Alessi will receive an annual cash retainer of $240,000 and equity compensation consistent with the Company's standard awards for non-executive directors. The Transition Agreement also restricts Mr. Alessi's ability to compete with the Company in the future and provides that the outstanding, unvested restricted stock units awarded to Mr. Alessi prior to his retirement as CEO will continue to vest while he is serving as Executive Chairman.
Policies and Procedures for Related Person Transactions
Our Board has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which
Westmoreland Coalthe Company is a participant
the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest.
If a related person proposes to enter into a related person transaction, the related person must report the proposed related person transaction to our general counsel. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our Audit Committee. Whenever practicable, the reporting, review, and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the Chairman of the Audit Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the Audit Committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
As appropriate for the circumstances, the Audit Committee will review and consider:·
the related person’s interest in the related person transaction;
·
the approximate dollar value of the amount involved in the related person transaction;
·
whether the terms of the transaction are no less favorable to us than could have been reached with an unrelated third party; and
·
the purpose of, and the potential benefits to us of, the transaction.
The Board has determined that certain transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of the policy, such as compensation to an executive officer if the compensation has been approved, or recommended to the Board for approval by the Compensation and Benefits Committee or an arrangement that is specifically contemplated by provisions of our certificate of incorporation or bylaws, such as the exculpation, indemnification, and
directors’directors' and
officers’officers' insurance arrangements contemplated by the certificate of incorporation and bylaws.
Based on a review of the questionnaires that our directors, director nominee and
Related Transactions
On March 4, 2008,executive officers completed and a review of our internal records on any related person that was identified in such questionnaires, we completedhave determined that there are no related party transactions in excess of $120,000, since the salebeginning of $15 million2012 or currently proposed, involving the Company.
OVERVIEW OF PROPOSALS
This proxy statement contains three proposals requiring stockholder action. Proposal No. 1 requests the election of senior secured convertible noteseight directors to the Board, Proposal No. 2 requests advisory approval of the Company's executive compensation and Proposal No. 3 requests the ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for 2013. Each of the proposals is discussed in more detail below.
Proposal 1 - Election of Directors
The Board has nominated directors Alessi, Hamilton, Hutchinson, King, Klingaman, Packwood and Scharp to be elected to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. The Board has also nominated a new individual for election, Mr. Craig Mackus. While Tontine Capital Partners, L.P. and Tontine Capital Partners, L.P. have the right to designate two individuals for election to our Board as directors pursuant to a Seniorthe Secured Convertible Note Purchase Agreement dated as of March 4, 2008, among us, the Tontine partnerships, and Tontine Capital Associates, L.P., as collateral agent. Mr. Jeffrey Gendell, who is eitherthey have not so designated any directors at this time.
Vote Required
Each director will be elected by a managing member of, or a managing membervote of the general partnermajority of the Tontine partnershipsvotes cast, meaning the number of shares cast “for” a director exceeds the number of votes cast “against” that director. Each director elected will serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.
Recommendation of the Board
The Board of Directors recommends you vote “FOR” the election of directors Alessi, Hamilton, Hutchinson, King, Klingaman, Mackus, Packwood and Scharp.
Proposal 2 - Advisory Approval of the Company's Executive Compensation
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders to vote to approve, on an advisory or nonbinding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC's rules. As background to compensation paid to our named executive officers in 2012 is deemedthe following business highlights:
Our total operating income increased 172%, up to beneficially own$28.9 million in 2012 from $10.6 million in 2011;
We achieved 44% growth in Adjusted EBITDA in 2012, up $30 million from 2011;
We lowered our net debt in 2012 through 28% growth in operating cash flow and the extinguishment of $44.8 million in debt;
We received an S&P credit rating upgrade to B-, the only coal company to receive an upgrade in 2012;
We acquired and integrated the Kemmerer Mine, which created additional revenue, cash flow and operating income;
We entered into a $20.0 million revolving credit facility with The Private Bank, increasing the Company's liquidity;
We had a commendable safety year achieving a reportable incident rate 32% below the national average, which included safety award recognition for our mines and our power facility;
We forged good working relationships with our union workforces, highlighted by a new six-year agreement with the UMWA at our Kemmerer Mine, a four-year agreement with the IUOE at our Savage Mine and a six-year agreement with the IUOE at our Colstrip Mine; and
We formally announced our succession plan for our CEO role in October, the transition of Keith Alessi from CEO to Executive Chairman in April 2013 and Bob King from COO to CEO at the same time.
In addition, compensation and governance practices implemented in recent years include the following:
Neither the CEO nor any other executive officer has an employment contract, other than Mr. Alessi's Transition Agreement;
We have eliminated all tax gross-ups and executive supplemental retirement policies, froze pension plans and terminated retiree health care;
The Compensation and Benefits Committee engaged Pay Governance, an independent compensation consultant to advise them, who does no other work for us;
Approximately 70% of the CEO's total compensation package is at-risk compensation;
We have minimal executive perquisites;
The named executive officers receive annual long-term equity awards in the form of restricted stock units with half of the shares vesting at the end of a three-year period upon the attainment of a three-year free cash flow goal. Restricted stock units represent a significantly larger percentage of each officer's total compensation opportunity as compared to short term annual incentive opportunities. We believe this alignment ensures that a significant portion of our officer's compensation is tied to long-term stock price performance;
The Board implemented stock ownership guidelines at three times salary for the CEO and between two and one times salary for other members of the management team; and
The Board approved stock ownership guidelines for directors of 15,000 shares of common stock.
Compensation Philosophy and Approach
As described in greater detail in the CD&A above, Westmoreland's compensation philosophy for its named executive officers is designed to achieve several key objectives, including: focusing decision-making and behavior on goals that are consistent with the overall business strategy; creating a pay-for-performance culture, and allowing us to attract and retain employees with the skills critical to our long-term success. To achieve these objectives, Westmoreland uses a mix of base pay and incentive opportunities (short and long-term), while concentrating a majority of the executives' reward opportunities in at-risk incentive pay. The design of the compensation program is intended to support our overall business objectives and to increase long-term stockholder value. In 2012, greater than 20%50% of target total compensation for each named executive officer was at-risk based on our performance and the named executive officer.
We considered the most recent stockholder advisory vote on executive compensation required by the proxy rules in reassessing these compensation policies and our compensation decisions and, based on the 97% favorable vote cast in 2012, believe stockholders support our approach and actions. The Compensation and Benefits Committee made no material changes to 2012 compensation packages given the overwhelming stockholder support. We intend to continue to seek stockholder guidance on executive compensation through an annual say-on-pay vote. To the extent there is any significant vote against our named executive officers' compensation as disclosed in this Proxy Statement, we will consider our stockholders' concerns and the Compensation and Benefits Committee will evaluate whether any actions are necessary to address the concerns.
We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers' compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our outstanding common stocknamed executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we ask our stockholders to vote “FOR” Proposal 2 approving, on an as-converted basis. advisory basis, the compensation of the named executive officers, as disclosed in this proxy statement.
The senior notes bear interest atsay-on-pay vote is advisory, and therefore not binding on us. Our Board of Directors and our Compensation and Benefits Committee value the opinions of our stockholders and to the extent there is any significant vote against the named executive officer compensation, we will consider our stockholders' concerns and the Compensation and Benefits Committee will evaluate whether any actions are necessary to address those concerns. The Board has adopted a rate of 9% per annum, payable in cash or in kindpolicy providing for annual say-on-pay advisory votes. Unless the Board modifies this policy, the next say-on-pay advisory vote will be held at our option, and are payable in full on March 4, 2013. In 2009, we paid2014 Annual Meeting.
Vote Required
Approval of Proposal 2 requires the
Tontine entities $1,469,641affirmative vote of
in kind interest.
AUDITORS
Change in Independent Public Accounting Firm
On January 6, 2009, we notified KPMG LLP that, upon completiona majority of the 2008 audit engagementshares present or represented by proxy and voting at the filingAnnual Meeting.
Recommendation of the Form 10-K forBoard
The Board of Directors recommends a vote FOR Proposal 2.
Proposal 3 - Ratification of Principal Independent Auditor
The Audit Committee has appointed Ernst & Young LLP as the
year ending December 31, 2008, it would be dismissed as our independent registered public accounting firm. The decision to change accounting firms was approved by our Audit Committee. On March 13, 2009, KPMG completed its audit services for the Company for the fiscal year ended December 31, 2008.
During the years ended December 31, 2008 and 2007 and the subsequent period through the date of the filing of the Form 8-K/A on March 23, 2009, we had no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to KPMG’s satisfaction, would have caused KPMG to make reference in connection with their opinion to the subject matter of the disagreement; or (2) reportable events, except as described below. Our management has authorized KPMG to respond fully to the inquiries of the newCompany's independent registered public accounting firm regarding all matters.
KPMG’s reports onand as auditors of our consolidated financial statements as of and for the years ended December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit report of KPMG on the consolidated financial statements of Westmoreland and subsidiaries for the year ended December 31, 2008 expressed the opinion that various factors raised substantial doubt about our ability to continue as a going concern. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2008 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
25
Table of Contents
accounting principles. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2007 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicated that we did not maintain effective internal control over financial reporting as of December 31, 2007 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contained an explanatory paragraph that stated that: “Management identified and included in its assessment material weaknesses related to electronic spreadsheets that impact the Company’s financial reporting, census data used to calculate postretirement medical benefit obligations, and the accounting for one of the Company’s stock based compensation plans.”
We requested and obtained from KPMG a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the above statements. A copy of KPMG’s letter, dated March 16, 2009, is filed as Exhibit 16.1 to our Current Report on Form 8-K/A filed March 23, 2009.
Engagement of Ernst & Young LLP
On January 8, 2009, our Audit Committee approved the engagement of Ernst & Young LLP as our new independent registered public accounting firm beginning with fiscal year 2009, and to perform procedures related to the financial statements to be included in our quarterly report on Form 10-Q, beginning with, and including, the quarter ending March 31, 2009. We did not consult with Ernst & Young during the fiscal years ended December 31, 2007 and December 31, 2008, or during any subsequent period prior to its appointment as our auditor with respect to any of the matters or events listed in Regulations S-K 304(a)(2)(i) and (ii).
2013.
The following table summarizes the fees of
KPMG, our independent registered public accounting firm for fiscal year 2008, and Ernst & Young
LLP for fiscal
year 2009.years 2011 and 2012. For
2009,2012, audit fees include an estimate of amounts not yet billed.
| | | | | |
Fee Category(1) | | | 2009 | | 2008 |
Audit Fees(2) | $ | 856,000 | $ | 1,136,000 |
Total Fees | $ | 856,000 | $ | 1,136,000 |
|
| | | | | | |
| Fee Category(1) | 2012 | 2011 |
| Audit Fees(2) | $ | 883,000 |
| $ | 855,000 |
|
| Audit Related Fees (3) | $ | 234,807 |
| $ | 120,321 |
|
| Total Fees | $ | 1,117,807 |
| $ | 975,321 |
|
__________
|
| |
(1) | We did not pay any “Audit Related Fees,” “Tax Fees” or “All Other Fees” to either KPMG or Ernst & Young in fiscal years 20082011 or 2009. 2012. |
(2) | Audit fees consist of fees for the audit of our financial statements, including fees related to the audit of our internal controls over financial reporting, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings. |
| (3) | Audit Related Fees in 2011 consist of fees we paid to Ernst & Young as part of the high-yield note financing in February 2011, as well as $43,321 in out-of-pocket expenses incurred as part of the audit largely related to travel to our mines. Audit Related Fees in 2012 consist of fees we paid to Ernst & Young in connection with Kemmerer Mine acquisition and the high-yield note financing in January 2012, as well as $30,107 in out-of-pocket expenses incurred as part of the audit largely related to travel to our mines. |
Pre-Approval Policy and Procedures
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting firm. This policy generally provides that we will not engage our registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures. From time-to-time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. The Audit Committee has delegated to the Chairman of the Audit Committee the authority to approve any audit or non-audit services to be provided to us by our registered public accounting firm. Any approval of services by the Chairman of the Audit Committee pursuant to this delegated authority is reported on at the next meeting of the Audit Committee. All fees paid to
KPMG in 2008 and all fees paid to Ernst & Young in
20092011 and 2012 were pre-approved by the Audit Committee.
26
Table of Contents
PROPOSAL 1
ELECTION OF DIRECTORS BY THE HOLDERS OF COMMON STOCK
Each of our common stock director nominees is currently a member of
At the
Board. Each director elected atAnnual Meeting, the
annual meeting shall hold office untilstockholders are being asked to ratify the
next annual meeting of stockholders, or until his death, resignation, or removal, if earlier. While Tontine Capital Partners, L.P. and Tontine Partners, L.P. have the right to designate two individuals for election to our Board as common stock directors pursuant to a Secured Convertible Note Purchase Agreement dated March 4, 2008, they have not so designated any directors at this time.
The Board of Directors recommends that holders of Common Stock vote “FOR” the election of the following nominees whose biographical information can be found above on pages 4 and 5:
·
Keith E. Alessi;
·
Thomas J. Coffey;
·
Michael R. D’Appolonia; and
·
Richard M. Klingaman.
PROPOSAL 2
ELECTION OF DIRECTORS BY THE HOLDERS OF SERIES A PREFERRED STOCK
The holders of our Series A Preferred Stock are entitled to elect two members to the Board. Each person elected at the meeting shall hold office until the next annual meeting of stockholders, or until his death, resignation, or removal, if earlier. In addition, if the special voting rights of the Series A Preferred Stock terminate, the terms of office of the directors elected by the holders of the Series A Preferred Stock will immediately terminate.
The Board recommends that holders of Depositary Shares vote “FOR” the election of the following nominees whose biographical information can be found above on page 5:
·
William M. Stern; and
·
Frank T. Vicino, Jr.
PROPOSAL 3
RATIFICATION OF PRINCIPAL INDEPENDENT AUDITOR
The Audit Committee appointed the firmappointment of Ernst & Young LLP as our principal independent auditorregistered public accounting firm for fiscal year 2010. Ernst & Young LLP served as2013. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection but is not obligated to appoint a different independent registered public accounting firm. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in our principal independent auditor in fiscal year 2009.best interest. Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have the opportunityAnnual Meeting in order to respond to questions and may make a statement if they desire to do soso.
Vote Required
Approval of Proposal 3 requires the affirmative vote of a majority of the shares present or represented by proxy and
will be available to respond to questions.voting at the Annual Meeting.
Recommendation of the Board
The Board of Directors recommends that you vote FOR ratifying“FOR” Proposal 3.
ADDITIONAL INFORMATION
Explanation of Non-GAAP Financial Measures
The Company's fiscal 2012 Form 10-K includes a reconciliation of Adjusted EBITDA and EBITDA to net loss on a GAAP basis and a discussion of why we believe these non-GAAP financial measures are useful to investors. A copy of our fiscal 2012 Form 10-K is being provided with our proxy statement to our stockholders. As discussed in the
appointmentCompensation Discussion and Analysis, one of
Ernst & Young LLPthe performance targets for the Company's AIP and LTIP awards is free cash flow. Free cash flow is defined as
principal independent auditorAdjusted EBITDA modified for
2010.book to cash differences in pension, postretirement medical, reclamation liabilities and deferred revenue, less expenditures for capital investments, reserve acquisition and bonding requirements.
Upon the written request of any person who on the record date was a record owner ofour stock, or who represents in good faith that he or she was on such date abeneficial owner of such stock entitled to vote at the annual meeting,Annual Meeting, wewill send such person, without charge, a copy of our Annual Report onForm 10-K for 2009,2012, as filed with the Securities and Exchange Commission.Requests for this report should be directed to Corporate Secretary, Westmoreland Coal Company, 2nd Floor, 2 NorthCascade Avenue,9540 S. Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903.80112.
The Board has no present intention of bringing any other business before the
meetingAnnual Meeting and has not been informed of any other matters that are to be presented to the
Annual meeting. If any other matters properly come before the
meeting,Annual Meeting, however, the persons named in the enclosed proxy will vote in accordance with their best judgment.
27
Table of Contents
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![[proxycard002.gif]](https://capedge.com/proxy/DEF 14A/0001447572-10-000007/proxycard002.gif)
 Westmoreland Coal Company
| VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com |
WESTMORELAND COAL COMPANY 2 N. CASCADE AVE., 2ND FLOOR
COLORADO SPRINGS,
9540 SOUTH MAROON CIR. SUITE 200 ATTN: JENNIFER S. GRAFTON | | VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m.P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like instruction form.
During The Meeting - Go to reducewww.virtualshareholdermeeting.com/WLB2013You may attend the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronicallyMeeting via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and when prompted, indicatevote during the Meeting. Have the information that you agree to receive or
is printed in the box marked by the arrow available and follow the instructions. |
| VOTE BY PHONE - 1-800-690-6903 |
| Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m.P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
|
| VOTE BY MAIL |
| Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
| | M22366-P91502
| | KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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| WESTMORELAND COAL COMPANY | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. | |
| The Board of Directors recommends you vote FOR
the following: | | | | |
| 1. Election of Directors | | ¨ | ¨ | ¨ | | |
| Nominees | | | | | | | | |
| 01) Keith E. Alessi | 05) Richard M. Klingaman | | | | | | | |
| 02) Gail E. Hamilton | 06) Craig R. Mackus | | | | | | | |
| 03) Michael G. Hutchinson | 07) Jan B. Packwood | | | | | | | |
| 04) Robert P. King | 08) Robert C. Scharp | | | | | | | |
| The Board of Directors recommends you vote FOR proposals 2 and 3. | | | |
| | | | | | | For | Against | Abstain |
| 2) Advisory approval of Westmoreland Coal Company's executive compensation. | | ¨ | ¨ | ¨ |
| 3) Ratification of the appointment of Ernst & Young LLP as principal independent auditor for fiscal year 2013. | ¨ | ¨ | ¨ |
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| NOTE: Such other business as may properly come before the meeting or any adjournment thereof. | | | |
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| | | | | | | | | |
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | |
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| Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |
| | | | |
| WESTMORELAND COAL COMPANY | | For | Withhold | For All | | To withhold authority to vote for any individual nominee(s), mark “ For All Except ” and write the number(s) of the nominee(s) on the line below. | | | | |
All | All | Except |
| | The Board of Directors recommends that holders of Common Stock vote "FOR" the election of the following nominees. | | | | | | | |
| | | 0 | 0 | 0 | | | | | |
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| | 1. | ELECTION OF DIRECTORS | | | | |
| | | Nominees: | | | | |
| | | 01) | Keith E. Alessi; | | | | |
| | | 02) | Thomas J. Coffey; | | | | |
| | | 03) | Michael R. D’Appolonia; and | | | | |
| | | 04) | Richard M. Klingaman. | | | | |
| | | | | | | |
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| | The Board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal independent auditor for 2010. | | | |
| | | | For | Against | Abstain | |
| | 2. | Ratification of the appointment of Ernst & Young LLP as our principal independent auditor for fiscal year 2010. | 0 | 0 | 0 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer | | | | |
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| | Signature [PLEASE SIGN WITHIN BOX] | Date | | | Signature (Joint Owners) | Date | | | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Combined Document is available atwww.proxyvote.com.
www.proxyvote.com.
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| WESTMORELAND COAL COMPANY |
| Annual Meeting of Stockholders |
May 20, 201021, 2013 8:30 AM |
| This proxy is solicited by the Board of Directors | |
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| The undersigned hereby constitutes and appoints Morris W. Kegley and Jennifer S.S. Grafton and each of them, as true and lawful agentsagent and proxiesproxy with power of substitution, to represent the undersigned and to vote all shares of Common Stock held by the undersigned at the Annual Meeting of Stockholders to be held via live webcast at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903,www.virtualshareholdermeeting.com/WLB2013 on Thursday,Tuesday, May 20, 2010,21, 2013, at 8:30 a.m. (mountain daylight time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of thisthe card. | |
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| This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted FORin accordance with the electionBoard of directors and FOR the ratification of auditors.Directors' recommendations. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY AND PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF. | THEREOF. |
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| You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. The proxies cannot vote the shares unless youthey sign and return this card. | |
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| Continued and to be signed on reverse side | |
Table of Contents
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WESTMORELAND COAL COMPANY
2 N. CASCADE AVE., 2ND FLOOR
COLORADO SPRINGS, CO 80903
ATTN: JENNIFER S. GRAFTON
| | VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
|
|
|
| | | | |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| | M22368-P91502
| | KEEP THIS PORTION FOR YOUR RECORDS
|
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | | | | | | | | | | | | | | | |
| | | |
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |
| | | | |
| WESTMORELAND COAL COMPANY | | For | Withhold | For All | | To withhold authority to vote for any individual nominee(s), mark “ For All Except ” and write the number(s) of the nominee(s) on the line below. | | | | |
All | All | Except |
| | The Board recommends that holders of Depository Shares vote "FOR" the election of the following nominees. | | | | | | | |
| | | 0 | 0 | 0 | | | | | |
| | | | | |
| | | | | | | |
| | 1. | ELECTION OF DIRECTORS BY THE HOLDERS OF SERIES A PREFERRED STOCK | | | | |
| | | Nominees: | | | | |
| | | 01) | William M. Stern; and | | | | |
| | | 02) | Frank T. Vicino, Jr. | | | | |
| | | | | | | |
| | | | | | | |
| | The Board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal independent auditor for 2010. | | | |
| | | | For | Against | Abstain | |
| | 2. | Ratification of the appointment of Ernst & Young LLP as our principal independent auditor for fiscal year 2010. | 0 | 0 | 0 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer | | | | |
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| | | | | | | | | | |
| | | | | | ; | | | | |
| | Signature [PLEASE SIGN WITHIN BOX] | Date | | | Signature (Joint Owners) | Date | | | |
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
Combined Document is available at
www.proxyvote.com.
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| WESTMORELAND COAL COMPANY
Annual Meeting of Stockholders
May 20, 2010 8:30 AM
This proxy is solicited by the Board of Directors
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| The undersigned hereby constitutes and appoints Morris W. Kegley and Jennifer S. Grafton and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all shares of Common Stock held by the undersigned at the Annual Meeting of Stockholders to be held at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903, on Thursday, May 20, 2010, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
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| This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted FOR the election of directors and FOR the ratification of auditors. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
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| You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. The proxies cannot vote the shares unless you sign and return this card.
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| Continued and to be signed on reverse side
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![[i10835002.gif]](https://capedge.com/proxy/DEF 14A/0001447572-10-000007/i10835002.gif)
