SECURITIES AND EXCHANGE COMMISSION
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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:
The Annual Meeting of Stockholders of Westmoreland Coal Company will be held at our corporate officesThe Crowne Plaza Hotel located at 227 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 8090327th Street, Billings, Montana 59101 on Thursday,Tuesday, May 20, 201022, 2012 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;
| 1. | The election of six directors to the Board of Directors to serve for a one-year term; |
2.
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;
| 2. | Advisory approval of Westmoreland Coal Company’s executive compensation; |
3.
The ratification of the appointment by the Audit Committee of Ernst & Young LLP as principal independent auditor for fiscal year 2010; and
| 3. | To approve the amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors; |
4.
To transact such other business as may properly come before the meeting or any postponement or adjournment thereof.
| 4. | The ratification of the appointment of Ernst & Young LLP as principal independent auditor for fiscal year 2012; and |
| 5. | 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,
20102012 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. This proxy statement, the annual report to stockholders and the proxy voter card are being mailed on or about March 29, 2010April 9, 2012. By Order of the Board of Directors, /s/ Jennifer S. Grafton
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.
22, 2012. This notice, the accompanying proxy statement and Westmoreland Coal Company’s Annual Reportannual report to stockholders for the fiscal year ended December 31, 20092011 are available atwww.proxyvote.com.
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Table of Contents
WESTMORELAND COAL COMPANY
2 North Cascade Avenue, 2nd Floor
9540 S. Maroon Circle, Suite 200
Englewood, Colorado
Springs, Colorado 80903
80112
ANNUAL MEETING OF STOCKHOLDERS
To be held May 22, 2012
GENERAL INFORMATION ABOUT THE 2012 ANNUAL MEETING OF STOCKHOLDERSTo be held May 20, 2010
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 to be held at our corporate officesThe Crowne Plaza Hotel located at 227 North Cascade Avenue, 227thnd Floor, Colorado Springs, Colorado, 80903 Street, Billings, Montana 59101 on Thursday,Tuesday, May 20, 201022, 2012 at 8:30 a.m. Mountain Daylight Time, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders (the “Annual Meeting”) 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 9, 2012. As of March 26,
2010,2012, the record date, members of
Westmoreland Coalthe Company’s
senior management and directors are the record and beneficial owners of a total of
267,853316,444 shares (approximately
2.5%2.3%) of
Westmoreland Coalthe Company’s outstanding common stock and
7,850 (approximately 1.2%) of Westmoreland Coalhave no ownership in the Company’s outstanding depositary shares. It is management’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 20102012 ANNUAL MEETING OF STOCKHOLDERS 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,
20102012 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
10,619,30913,899,965 shares of common stock and
640,515639,840 depositary shares outstanding on March 26,
2010.2012.
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;
·
By phone at 1-800-690-6903; or
·
By completing and mailing in a paper proxy card.
| ● | Via the Internet at www.proxyvote.com; |
| ● | By phone at 1-800-690-6903; or |
| ● | 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. 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 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,Annual Meeting, you may also submit your vote in person 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
meetingAnnual 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’s name and must be received prior to the
meetingAnnual Meeting to be effective.
What vote is required to approve each item?
The election of
Our directors
(Proposals 1 and 2) requires that each director receive the affirmativeare elected by plurality vote,
of a plurality of the votes cast with respect to that director at the annual meeting. Thiswhich means that, with respect to
each Proposal
1, the nominees who receive the largest number of “FOR” votes cast will be elected. Neither broker non-votes nor abstentions will have any effect on the election of directors.
TheApproval of Proposals 2, 3 and 4 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
Annual Meeting. Broker non-votes will have no effect with respect to any non-routine matter
are necessaryfor which a broker does not have authority to
ratify the appointment of Ernst & Young LLP (Proposal 3).vote. 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.other than Proposal 1.
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.
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“non-routine”?
The ratification of the appointment of ourErnst & Young LLP as the Company’s independent registered public acc ountingaccounting firm for 2012 (Proposal 4) 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 4.
The election of directors (Proposal 1), advisory approval of the Company’s executive compensation (Proposal 2), and the approval of the amendments to the Company’s Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors (Proposal 3)
. 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, 2 and 3.
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’ 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?2013 Annual Meeting?
Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement and proxy card for the
20112013 Annual Meeting of Stockholders (the
“2011“2013 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 28, 2012. 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
20112013 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, 201122, 2013 and no later than February
20, 2011,21, 2013, 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.Youaccount. You may sign up for electronic delivery in two ways: ·
If you vote online, you may sign up for electronic delivery at that time; or
·
You may sign up at any time by visitinghttp://enroll.icsdelivery.com/wlb.
| ● | If you vote online, you may sign up for electronic delivery at that time; or |
| ● | 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 20092011 Annual Report are available atwww.proxyvote.com.; reference your ballot materials for access 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.
| | | |
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 |
| Name | Age | Director/ Executive Officer Since | Position |
| Keith E. Alessi | 57 | 2007 | Director; Chief Executive Officer |
| Michael R. D’Appolonia | 63 | 2008 | Director – Independent |
| Gail E. Hamilton | 62 | 2011 | Director – Independent |
| Richard M. Klingaman | 76 | 2006 | Director – Independent; Chairman of the Board |
| Jan B. Packwood | 68 | 2011 | Director – Independent |
| Robert C. Scharp | 65 | 2011 | Director – Independent |
| Jennifer S. Grafton | 36 | 2011 | General Counsel and Secretary |
| Douglas P. Kathol | 59 | 2010 | Executive Vice President |
| Robert P. King | 59 | 2012 | President and Chief Operating Officer |
| Joseph E. Micheletti | 46 | 2011 | Senior Vice President – Coal Operations |
| Kevin A. Paprzycki | 41 | 2008 | Chief Financial Officer and Treasurer |
The Board has fixed the number of directors following the Annual Meeting at six. All our directors bring to our Board a wealth of leadership experience derived from their service as executives of corporations. Certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.
Keith E. Alessi currently serves as a directorDirector and our President and Chief Executive Officer. 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 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 lead
us during this integral transition period. In addition, Mr. Alessi has 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 company and a Partner with a Big 4 accounting firm. His extensive experience is invaluable to our Board’s responsibility for financial and accounting issues.
Company.
Michael R. D’Appolonia is most recently served as President and Chief Executive Officer of Kinetic Systems, Inc., a global provider of process and mechanical solutions to the electronics, solar and biopharmaceutical industries. From 1986 to 2006, Mr. D’Appolonia was Presidentan executive and Principal of Nightingale & Associates, LLC, and its predecessor company Nightingale & Associates, Inc., a global management consulting firm providing financial and operational restructuring services.services to mid-market companies in the US and overseas. From January 2002 through June 2006, Mr. D’Appolonia served as Nightingale’s President. Mr. D’Appolonia is a member of the board of directors of Exide Technologies, Inc. In addition, he was a member of the board of directors of The Washington Group International, Inc. from 2001 to 2007. Mr. D’Appolonia’s experience as a Chief Executive Officer of a large global organization, along with his public company board experience, brings to our Board the perspective of a leader facing the samea similar set of current external economic, social and governance issues.
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. D’Appolonia bringsMs. Hamilton’s extensive public and private board experience will bring further professionalism and insight to the Board an extensive knowledgeboard room.
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 ofextensive 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
Jan B. Packwood was the 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
coal by-productsour and
non-aqueous coal beneficiation techniques.
William M. Sternhas beenour 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 Stern Brothers & Company,Bucyrus International from 2005 to 2011 and was a broker-dealer since 1999, and has been employed in various capacities,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
as a seniorinvaluable chief executive
in 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 andoperational oversight of coal mine operations. Mr. Scharp’s vast industry experience will assist the Company’s capitalBoard in driving future operational mining excellence 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.evaluating potential growth and F. Vicino and Co. Inc., contracting and construction companies located in South Florida.
expansion opportunities.
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, 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 joined Westmoreland in March 2012 as President and Chief Operating 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.
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
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.
CORPORATE GOVERNANCE
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 this 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 Oversight
The Board separated the positions 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 allows 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. The Board recognizes the time, effort, and energy that the CEO is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the Board’s oversight responsibilities continue to grow.
WhileThe Board believes this leadership structure has enhanced the Board’s oversight of risk and independence from our
Bylaws and corporate governance guidelines do not require that our Chairman and CEO positions be separate,management, the ability of the Board
believes that having separate positionsto carry out its roles and
having an independent outside director serve as Chairman is the appr opriate leadership structure for us at this timeresponsibilities on behalf of our stockholders, and
demonstrates our
commitment to goodoverall corporate governance.
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. Our Chairman talks regularly with our CEO to discuss strategy and the risks
facing us. Seniorwe face. 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 overseeing 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.
Committees of the Board of Directors
As of the date of this proxy statement, our Board has fiveseven directors and the following five standingfour committees: (1) Audit; (2) Compensation and Benefits; (3) Nominating and Corporate Governance; and (4) Pricing; and (5) Executive. From time-to-time, the Board will form a Pricing Committee to address specific transactions such as debt or equity issuances. The Board has set the number of directors following the Annual Meeting at six. The current committee membership, the number of meetings during the last fiscal year2011 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. Allof the committee charters are available on our website at www.westmoreland.com. During fiscal year 2009,2011, the Board held eight meetings.nine meetings plus a two-day strategic planning session. Each director serving during fiscal year 20092011 attended at least 75%100% 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.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)The Pricing Committee acted only by unanimous written consent in fiscal year 2009.
| Name of Director | | Audit | | Compensation and Benefits | | Nominating and Corporate Governance | | Executive | |
| Non-Employee Directors: | | | | | | | | | |
| Thomas J. Coffey | | Chair | | Member | | | | | |
| Michael R. D’Appolonia | | | | Chair | | Member | | Member | |
| Gail E. Hamilton | | Member | | Member | | | | | |
| Richard M. Klingaman | | | | | | | | Member | |
| Jan B. Packwood | | Member | | | | Chair | | | |
| Robert C. Scharp | | Member | | | | Member | | | |
| Employee Director: | | | | | | | | | |
| Keith E. Alessi | | | | | | | | Chair | |
| Number of Meetings in 2011 | | 5 | | 4 | | 3 | | 2 | |
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 D’Appolonia, Jan Packwood and Bob Scharp qualify as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
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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 2011 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,
2009.2011. The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for fiscal year
2010.2012.
Thomas J. Coffey, Chairman
Richard M. Klingaman
William M. Stern
Gail E. Hamilton
Jan B. Packwood
Robert C. Scharp
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
2010,2011 to continue its relationship with Buck Consulting,
which began in February 2010, and meets regularly with
managem entmanagement to understand the financial, human resources and
shareholderstockholder implications of compensation decisions being made.
Compensation and Benefits Committee Risk Assessment
On an annual basis, the committee reviews and discusses the structure of our compensation program to assess 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 condition or impact long-term stockholder value. To assist the committee in their review in February 2012, the committee engaged Buck Consulting to conduct a risk assessment of our incentive-based compensation plans (including the annual and long-term incentive programs) and our compensation practices.
Based on the findings of Buck Consulting, 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 equity 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 receives compensation that is primarily derived from 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 equity-based component of the executive compensation program consists of grants of time-vested and performance-based restricted stock units. The use of both time-based and performance-based restricted stock units for fiscal 2012 balances our desire to drive long-term stock price 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 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
2009,2011, each of Messrs.
Klingaman, Coffey and D’Appolonia
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
2009,2011, 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.
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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, be included in this proxy statement.
Michael R. D’Appolonia, Chairman
Thomas J. Coffey
Richard M. Klingaman
Gail E. Hamilton
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 late 2010, we utilized the services of the National Association of Corporate Directors to help identify potential director candidates for election 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’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’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’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’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
willcould be presented by the nominating stockholder from the floor of the annual meeting, but would not be included in our proxy statement for the next annual
meeting.meeting, unless the Board made its own determination to include such candidate.
During
2009,2011, the Board had two other
standing committees in addition to the committees set forth above: the Executive Committee and the Pricing Committee.
ThePursuant to its charter adopted by the Board in February 2012, the Executive Committee is authorized to act on behalf of the Board during periods between Board meetings. During
2009,2011, the Executive Committee held
notwo meetings. The Pricing Committee acts in the event of offerings of the Company’s securities with respect to matters such as determining the price and terms at which such securities shall be sold to underwriters and the public. During
2009,2011, the Pricing Committee held no meetings, but acted by unanimous written consent on several occasions with respect to the contribution of shares to our pension
plans.plans and with respect to the issuance of debt in February 2011.
The NYSE Amex listing standards generally define an “independent director” as
NASDAQ Marketplace Rules require that a
non-employee director who is affirmatively determined bymajority of the Board
not to have a materialbe independent. No director qualifies as independent unless the Board determines that the director has no direct or indirect relationship with the
listed companyCompany that would interfere with the exercise of independent
judgment. Ourjudgment 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 its members and discussions regarding the facts and circumstances pertaining to each member, considered in the context of applicable NASDAQ Marketplace Rules, the Board has determined that
eachall of
ourthe directors
with the exception of our Chief Executive Officer, is independent as defined by the NYSE Amex.nominated for election, other than Mr. Alessi, are independent. 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, in addition to the
independenc eindependence requirements of the
NYSE Amex,NASDAQ Marketplace Rules, meet the heightened independence standards required for audit committee members under the
NYSE AmexNASDAQ Marketplace Rules listing standards, Section 10A of the Securities Exchange Act of 1934, and Rule 10A-3 thereunder. The Board
has determined that Messrs. Coffey,
KlingamanPackwood and
SternScharp and Ms. Hamilton, the 2011 Audit Committee members, each
meetmet 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,9540 S. Maroon Circle, Suite 200 Englewood, Colorado
Springs, Colorado 80903.80112. 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
failfails to identify the author.
The elements of our 2012 director compensation are reflected in the table below. We believe that it is important to attract and retain outstanding non-employee directors and target compensation at the median of our peer group. In February 2012, the Compensation and Benefits Committee recommended and the Board approved the below compensation structure for fiscal year 2012. All non-employee directors receive the “Annual Cash Retainer” in addition to any other retainers they may be entitled for service as the Chairman or as the Chair of a committee.
| | | |
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 |
| Type of Compensation | | Amount |
(1)
Annual Cash Retainer | | $35,000 |
Annual Stock Award Retainer (restricted stock units with one-year vest) | | $70,000 valued at fair market value on date of grant |
| Annual Retainer for Chairman | | $35,000 |
| Annual Retainer for Committee Chair: | | |
| Audit Committee | | $7,000 |
| Compensation and Benefits Committee | | $5,000 |
| 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) | | $1,000 per meeting |
2011 Non-Employee Director Compensation
| | | | | | | | | | |
Name(1) | | Fees Earned Or Paid In Cash($) | | | Grant Date Fair Value of Stock Awards($)(2) | | | Total Compensation ($) | |
| Thomas J. Coffey | | | 75,500 | | | | 50,009 | | | | 125,509 | |
| Michael R. D’Appolonia | | | 73,500 | | | | 50,009 | | | | 123,509 | |
| Gail E. Hamilton | | | 61,375 | | | | 50,009 | | | | 111,384 | |
| Richard M. Klingaman | | | 85,000 | | | | 50,009 | | | | 135,009 | |
| Jan B. Packwood | | | 65,067 | | | | 50,009 | | | | 115,076 | |
| Robert C. Scharp | | | 63,375 | | | | 50,009 | | | | 113,384 | |
| Former Directors(3) | | | | | | | | | | | | |
| William M. Stern | | | 5,667 | | | | — | | | | 5,667 | |
| Frank T. Vicino, Jr. | | | 4,889 | | | | — | | | | 4,889 | |
__________
| (1) | Mr. Alessi, who is our Chief Executive Officer, and a director, does not receive any additional compensation for his services as a director. |
(2) | 3,631 shares of common
2,940 restricted stock units were awarded to each non-employee director re-electedelected to the Board in May 2009. Sale of the shares is2011. The restricted untilstock units vest on May 2010.24, 2012. The grant date fair value of these awards was $8.26$17.01 per share.share. |
| (3) | Messrs. Stern and Vicino were serving as our preferred directors in early 2011. Upon the repayment of the outstanding preferred dividends in early February 2011, the preferred director positions were eliminated. |
The compensation of our directors is recommended by
Non-Employee Director Stock Ownership Guidelines
In March 2011, 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.
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Table of Contents
Annual Retainer and Meeting Fees
OurBoard adopted stock ownership guidelines for non-employee directors except for our Chairman ofunder which the Board and our Chairman ofdirectors are expected to own Westmoreland equity equal in value to three times 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.
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 equalfive-year timetable to $60,000 in value. However, in 2010, the Board amended the 2007 plan to eliminate the initial equity award as peer and survey data did not demonstrate comparable initial director grants and the Board did not feel that such an initial grant was necessary to incentivize new directors.
comply.
2011 Outstanding Equity Awards at Fiscal Year-End for Directors
| | | | | | |
| Option Awards | Stock Awards |
Name | Securities Underlying Unexercised Options (#) Exercisable | Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | 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 $8.91 on December 31, 2009 by the number of shares.
|
10
| Option Awards | |
| Name | | Securities Underlying Unexercised Options (#) Exercisable | | | Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | |
| Thomas J. Coffey | | | 5,000 | | | | 0 | | | | 15.31 | | | | 5/24/12 | |
| | | 1,762 | | | | 0 | | | | 25.14 | | | | 6/23/16 | |
| Richard M. Klingaman | | | 3,733 | | | | 0 | | | | 23.99 | | | | 2/2716 | |
The following table sets forth information, as of March 1, 2010,2012, 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, 20102012 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 10,541,55613,879,458 shares of common stock outstanding and 640,516639,840 depositary shares outstanding on March 1, 2010.2012.
| | | | |
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% |
Name of Beneficial Owner | | Common Stock | | | % of Common | | | Depositary Shares | | | % of Depositary Shares | |
| |
| 5% or Greater Equity Holders | | | | | | | | | | | | |
| Jeffrey L. Gendell (1) | | | 3,071,144 | | | | 22.12 | % | | | 3,700 | | | | * | |
| Frank Vicino, Jr. (2) | | | 188,574 | | | | 1.34 | % | | | 108,730 | | | | 16.99 | % |
| Stephen D. Rosenbaum (3) | | | 131,404 | | | | * | | | | 60,000 | | | | 9.38 | % |
| T. Rowe Price (4) | | | 774,320 | | | | 5.58 | % | | | — | | | | — | |
| Officers and Directors | |
| Thomas J. Coffey (5) | | | 41,696 | | | | * | | | | — | | | | — | |
| Michael R. D’Appolonia | | | 9,448 | | | | * | | | | — | | | | — | |
| Gail E. Hamilton | | | 0 | | | | * | | | | — | | | | — | |
| Richard M. Klingaman | | | 10,343 | | | | * | | | | — | | | | — | |
| Jan B. Packwood | | | 0 | | | | * | | | | — | | | | — | |
| Robert C. Scharp | | | 0 | | | | * | | | | — | | | | — | |
| Keith E. Alessi (6) | | | 153,895 | | | | 1.10 | % | | | — | | | | — | |
| Kevin A. Paprzycki (7) | | | 17,953 | | | | * | | | | — | | | | — | |
| Douglas P. Kathol (8) | | | 42,067 | | | | * | | | | | | | | | |
| Joseph E. Micheletti (9) | | | 8,232 | | | | * | | | | — | | | | — | |
| Morris W. Kegley (10) | | | 17,255 | | | | * | | | | — | | | | — | |
| John V. O’Laughlin (11) | | | 42,884 | | | | * | | | | — | | | | — | |
| Directors and Executive Officers as a Group (11 persons) | | | 287,984 | | | | 2.05 | % | | | — | | | | — | |
_________
| * 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 6, 2012, 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 998,2042,515,826 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) | 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 102,480 shares of common stock. The address for Mr. Rosenbaum is 817 N. Calvert Street, Baltimore, MD 21202.
|
(3)
| According to a Schedule 13G/A filed on February 11, 2010, 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. serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of SEC reporting requirements, T. Rowe Price Associates is deemed beneficial owner of such securities; however, it expressly disclaims that it is, in fact, beneficial owner. The principal business address of T. Rowe Price is 100 East Pratt St., Baltimore, Maryland 21289.
|
(4)
| According to a report 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.
|
(5)
| According to a Schedule 13D/A filed on February 19, 2010, Mr. Frank Vicino Jr., a director nominee, beneficially owns 108,730 depositary 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 184,857185,673 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 102,459 shares of common stock. The address for Mr. Rosenbaum is 817 N. Calvert Street, Baltimore, MD 21202. |
(6)
(4) | According to a Schedule 13G/A filed on February 13, 2012, these securities are owned by various individual and institutional investors, 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 the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The principal business address of T. Rowe Price is 100 East Pratt St., Baltimore, Maryland 21202. |
| (5) | Includes 10,0005,000 common shares that may be purchased upon exercise of options under the 2000 Directors’ Plan, 3,631Non Employee Director Stock Incentive Plan. |
| (6) | Includes 5,959 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 2,050of the Westmoreland’s 401(k) plan, 30,556 shares held in trust as to which Mr. Stern is sole trustee and beneficiary. |
(7)
| Includes 15,000of common sharesstock 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 3,63110,027 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.
|
| (7) | Includes 4,419 shares of 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 sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 50,5557,000 shares of common sharesstock that may be purchased upon exercise of options under equity plans.
our 2007 Plan and 1,911 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012. |
(11)
(8) | Includes 3,8345,215 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 39,2997,500 shares of common sharesstock that may be purchased upon exercise of options under equity plans. |
(12)
| Includes 3,678our 2002 Plan, 7,000 shares of common shares held through the 401(k) plan and 25,633 common shares thatstock which may be purchased upon the exercise of options.
options under our 2007 Plan and 2,500 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012. 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. |
(13)
(9) | Includes 1,430953 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 2,3335,000 shares of common sharesstock that may be purchased upon exercise of options under theour 2007 plan. Plan and 670 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012. |
(14)
(10) | Includes 1,3244,671 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 2,3337,000 shares of common sharesstock that may be purchased upon exercise of options under our 2007 Plan and 1,500 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012. |
| (11) | Includes 6,828 shares of common stock held by Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, 12,000 shares of common stock that may be purchased upon exercise of options under our 2002 Plan, 15,000 shares of common stock which may be purchased upon exercise of options under our 2007 plan.Plan and 1,508 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012. |
11
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,
2009,2011, 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 late Form 4 filings for Messrs. Alessi, Kegley, Myers, O’Laughlin and Paprzycki relating to a July 2009 grant of restricted stock units and late Form 4 filings, made on a Form 5, by Mr. Vicino.year.
EQUITY COMPENSATION PLAN INFORMATION At December 31,
2009,2011, 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’ 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’ 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 | | | 199,606 | (1) | | $ | 20.98 | | | | 80,566 | (3) |
| Equity plans not approved by security holders | | | 30,000 | (2) | | $ | 15.31 | | | | 0 | |
| Total | | | 229,606 | | | $ | 20.24 | | | | 80,566 | |
__________
| (1) | |
(1)
| Excludes SARs to acquire 139,267100,100 shares of common stock with exercise prices above $8.91,$12.75, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock Market on December 31, 2009.30, 2011. At December 31, 2009, 139,2672011, 100,100 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,$12.75, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock market on December 31, 2009.30, 2011. At December 31, 2009,2011, 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 95,100302,033 shares for issuance to certain employees upon the completion of certain time-based vesting restrictions related to restricted stock units issued on July 1, 2009.2009, July 1, 2010, and April 1, 2011. |
Throughout its history, including over recent years, Westmoreland Coal Company has experienced
dramaticmajor changes,
since its inception in 1854.requiring redefinition of our business model. Originally focused on underground mining in the Appalachian Basin, we have since divested ourselves of all eastern mining properties and assets, moved our headquarters to
the WestColorado and purchased
fivesix surface coal mining operations. Since 2001, we have
dramatically refocused our energies on becoming an energy company focused on niche coal markets where we
can take advantage of long-term coal contracts and rail transportation advantages. To understand our company and the way in which we compensate our executives, it is important to understand
ourthe business environment
we have operated in over the
lastpast several years,
and the
recent struggleschallenges that we have
faced. We believe that fully understanding who we are as a companyfaced, and the
stepsprogress we have
taken overmade towards returning the
last several yearscompany to
position ourselves to forge ahead into the next decadeprofitability. This understanding will provide insight into our past compensation practices and the steps we
intend to take in the futureare taking to align the pay of our executives with creating long-term stockholder value.
Historical Business Environment
Our business
is unusual in thathas a high proportion of
our revenues, and therefore cash flows,
are contractually set or limited by
contractual relationships. For example,long-term supply contracts with a small number of customers. While these contracts provide certain long term visibility and stability, their exclusivity and terms significantly restrict our
ROVA power facilityability to react financially if there is
under contractan event which negatively impacts our customers’ ability to
provide electricity to its sole customer under contracts that run through 2019. Under the terms of the contract, the rate at which we are paid is setbuy coal. We also have ongoing responsibility 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
12
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 enoughassociated with our discontinued Appalachian Basin underground mining operations. We had been challenged during recent history with generating sufficient cash at our operating subsidiaries to fund both the costincreasing costs 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 (“CEO”) 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 chargedhistory. Since 2007, Mr. Alessi with standardizinghas led efforts which have successfully standardized our operations, implementing procedures and controls, reducingreduced corporate overhead stabilizingand post retirement costs, stabilized cash flow, provided meaningful liquidity to our balance sheet and settingset a new, focused strategic vision. From 2007 throughThis new vision led to 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.
The Compensation and Benefits Committee (the “Committee”) recognized the unique difficulties presented by our business model 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 difficultyacquisition of the tasks that management would face. The Committee did not feel that traditional incentive measurements, such as earnings or cash flow, were appropriate driversKemmerer mine in January of incentive compensation, as these measurements could not be realistically improved in the short term. Therefore, individual project-based accountabilities for senior managers were set and up to 45% of their incentive bonuses were tied to achievement of these goals.
2012.
Fiscal
20092011 – The Year in Review
Fiscal year 2011 was a year in which we improved liquidity, successfully weathered several external challenges that impacted our customers, relocated our corporate offices and ultimately announced a major acquisition. Our business model relies primarily upon long term, cost plus contracts, with a small number of severe and adverse business conditions aroselarge customers. During 2011, the Pacific Northwest experienced unprecedented amounts of snow that could not have been anticipated when we set our fiscal year 2009 budgets. First, there wasled to a catastrophic failure atprolonged hydroelectric power season. This negatively impacted our largest customer’s power plant thatcustomer well into the summer period. In addition, flooding associated with the high snow pack disrupted rail transportation and mining production, which 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, resultingfurther reduction 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 violationsacross our northern tier mining operations. Lastly, an explosion and fire at one of our major debt instrumentscustomers in 2009, which required the paym ent of penalties andNovember resulted in further loss of revenue. Despite these large interruptions in our operations in 2011, we ended the year within 10% of our record adjusted EBITDA from fiscal year 2010 due to timely reaction and stringent cost management.
In February, we issued $150 million in senior secured bonds in order to refinance existing debt and to provide ourselves additional liquidity. This, combined with favorable financial results from 2010, led to the elimination of a going-concern audit opinion in our financial statements. In December, we bolstered our reserves through the acquisition of 158 million tons of coal at our Absaloka mine. This acquisition was in line with our strategic objective of increasing coal reserves and extending mine lives at all of our outstanding debt being reclassified to current. Despite these adverse conditions, ouroperations.
In November 2011, the management team
wassuccessfully relocated the corporate offices from Colorado Springs to south Denver. This move not only cut overhead costs through a reduction in office rent, lowered travel expenses and decreased consulting costs, but broadened the available pool of talent from which to draw new employees and executives and brought us geographically closer to our key business partners. By designing an office from scratch, we were able
to:
·
Mitigate potential debt-related issuesto build a new environment that reflects the core values of the company, with all offices identical in size, including the executive officers’ offices, and no executive has a corner office. The new office atmosphere supports our overall compensation philosophy of limited perquisites and encourages a team environment.
Finally, we moved to diversify and grow the business through the
negotiationexecution of
reasonable covenant waiversa Purchase and Sale Agreement with
our WML lenders andChevron Mining Inc. for 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 effectspurchase of the pension freeze;
·
Achieve significant cost containmentKemmerer mine in Kemmerer, Wyoming. Both of our post-retirement medical obligations through successful negotiations withthese activities demonstrated the United Mine Workersmanagement team’s keen attention to fulfilling the strategic plan and growth model set out by the Board of America;
·
Implement administrativeDirectors in early 2011. We announced this transaction in December 2011 and healthcare network improvements for our retiree population resultingwas successfully closed in substantial cost savingsJanuary 2012.
General Compensation Practices and
reduced retiree medical liabilities;·
Successfully implementing the Indian Coal Production Tax Credit transaction;Philosophy
Based on a holistic review 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 overhaul 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 our executive compensation program for 2011. The Committee intends to reviewin 2010, our current peer group, compensation components, including executive incentives, the needphilosophy for additional policies, such as a clawback, and the overall manner in which we attract and retain our key executives to ensure that our compensation philosophy and programs are properly aligned with our strategic business objectives and do not incentivize imprudent risk-taking behavior. In addition, due to the pension freeze implemented in July 2009, the Company intends to review total compensation packages for executivesfiscal year 2012 is consistent with fiscal year 2011, but significantly different than in lightprior periods. Our prior approach was reflective of the changes instate of the executive’s retirement benefits.
13
Tablecompany and the need to incent management to bring the company through the difficult period of Contents
General Compensation Practices and Philosophy
Our currentturning around its financial performance. The new compensation philosophy is forward-looking in nature and is intended to compensate executives with competitivemore closely align the performance of the company to that of enhancing stockholder value.
Westmoreland now bases its total compensation strategy on a moderate growth model. As a moderate growth company, Westmoreland seeks to maintain salaries andat or near peer group medians, shifts a portion of short-term incentive to long-term incentive programs that link theirand increases the percentage of long-term incentives as a percentage of total pay with our performance.compensation. Our named executive officers areremain at-will employees and do not have employment agreements.agreements, including the CEO.
The Westmoreland benefits philosophy is to provide executive officers with protection and security through health and welfare, retirement, disability insurance and life insurance programs. During fiscal year 2011, the CEO and other executive officers were eligible to receive the same benefits that are generally available to other Westmoreland employees. In addition to the company-wide benefits, the Board elected to provide executive physical examinations to executive officers starting in fiscal year 2012, for which we docover the costs that are not provide any perquisitesotherwise 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 executives. The executive physical benefit is a benefit generally provided by our peer companies and is available at a reasonable cost to Westmoreland.
Our compensation program is intended to
attract, retain
reward, and
motivatereward our executives and is guided by several key principles:
| ● | Design a program that aligns with long-term stockholder interests through 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 as they continue to gain experience; |
| ● | Link pay to performance by making a substantial portion of total executive compensation variable or “at risk” over the long-term; and |
| ● | Provide a compensation program that emphasizes direct compensation as opposed to perquisites and other benefits. |
Stock Ownership Guidelines and Clawback Policies
In order to better align the interests of our executive management team with the interests of our stockholders and to promote our commitment to sound corporate governance, the Compensation and Benefits Committee approved stock ownership guidelines in 2011. The executive management team is expected to be in compliance with these guidelines within five years of becoming subject to the policy. The ownership requirement for our executive officers is calculated as a programmultiple of base salary as follows:
| Executive Level | | Multiple of Base Salary | |
| CEO | | | 3.0 | x |
| COO | | | 2.0 | x |
| CFO, EVP and SVP | | | 1.5 | x |
| Other executive officers | | | 1.0 | x |
At this time, the Committee has not adopted a clawback policy for the executive management team. While in full support of such a policy, the Compensation and Benefits Committee is waiting for more formal guidance from the Securities and Exchange Commission in response to the recent Dodd Frank legislation before adoption and implementation of a formal policy.
Compensation Methodology
Peer Comparisons and Survey Data
Our peer group is based on criteria that
is simple, easy to understand, incents performance and aligns with long-term stockholder interests by using equity awards;·
Target compensation levelsrepresent the characteristics that are competitive with our industry anddefine the markets in which we compete for executive talent;
·
Structure compensation to reflect our business situation;
·
Link pay to performance by making a substantial percentage of total executive compensation variable or “at risk”; and
·
Provide a compensation program that emphasizes direct compensation as opposed to perquisites and other benefits.
The Committee is responsibletalent, rather than simply the markets in which we compete for setting the total mix of components that encompass our compensation program, which currently includes base salary, annual incentive and long-term compensation. As has been our historical practice, in general, our compensation components are targeted as follows: 60% base salary, 25% incentive compensation and 15% long-term compensation in the form of equity. This compensation mix has been appropriate due to our past economic hardships and the transitional nature of the business. 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. Due to the methodologies for evaluating equity and the poor performance of our stock, we were unable to perform a solid analysis of the available data, which might have resulted in an adjustment of our long - -term equity compensation component. While we feel that the components are the proper mix of compensation for attracting and retaining key executives, increasing our long-term profitability and building stockholder value, the Committee, with the assistance of Buck Consultants, will be analyzing our compensation components to determine if our current allocation of components is the most appropriate for meeting our objectives and business strategy.
Compensation Methodology
Peer Comparisons and Survey Data
In 2009, compensation was evaluated using national, broad-based industry survey data, internal equity for similar positions and proxy data of a meaningful peer group for benchmark analysis. In creating our peer group, we noted that there are very few comparably-sized publicly-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 twoand other factors in mind, we benchmarked ourselves relativeidentified two characteristics that we believe would have the greatest influence on how we perform, as well as on the leadership talent that we need to adrive outstanding
performance. First, we are capital-intensive and second, we maintain long-term contracts as part of the business relationship that is established with customers. Based on such characteristics, we identified the below peer group of companiesfor 2011 with similar revenue and employee base. Revenue and employee base are used as reference points to determine the compositionassistance of the peer group because they provide a reasonable basis for comparing like positionscompensation consultant engaged by the Compensation and scopes of responsibilities.Benefits Committee. 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 20092011 Annual Report to Stockholders. We feltbelieve that t he companiesthe peer group listed below, when used in conjunction with third-party compensation survey information, enables us to provide an accurate assessment of market practices for the compensation peer group more closely represent the employment markets in which we compete forof our executive talent. management team.
| Name | | FY 2010 Net Income in Millions ($) | | | FY 2010 Revenues in Millions ($) | |
| Atwood Oceanics | | | 272 | | | | 645 | |
| Calgon Carbon Corp. | | | 35 | | | | 482 | |
| Drew Industries Inc. | | | 28 | | | | 573 | |
| Dril-Quip Inc. | | | 102 | | | | 566 | |
| Forward Air Corp. | | | 32 | | | | 484 | |
| Genessee & Wyoming Inc. | | | 79 | | | | 630 | |
| Gulf Island Fabrication Inc. | | | 13 | | | | 248 | |
| Hecla Mining Co. | | | 49 | | | | 419 | |
| Heico Corp. | | | 55 | | | | 617 | |
| Hornbeck Offshore Services Inc. | | | 36 | | | | 421 | |
| Horsehead Holding Corp. | | | 25 | | | | 382 | |
| James River Coal Co. | | | 78 | | | | 701 | |
| Pioneer Drilling Co. | | | -33 | | | | 487 | |
| Stillwater Mining Co. | | | 50 | | | | 556 | |
| Superior Well Services Inc. | | | -80 | | | | 399 | |
| Union Drilling Inc. | | | -16 | | | | 193 | |
| Unit Corp. | | | 146 | | | | 872 | |
| | |
| Westmoreland Coal Company | | | 0 | | | | 506 | |
In
2009, our peer group consisted of the following companies, as compared to our coal segment:
| | | |
Name | Business | Revenues in Millions ($) | 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 |
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Table of Contents
In 2009,2011, 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’s current salary divided by the reference point of the market data. For example, if an individual’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 Committee considers internal pay equity when making compensation
decisions.decisions for the executive management team. However, the Committee 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’s total cash compensation was
4.523.5 times greater than the average of our four other named executive officers
which differential includes his 2009 special discretionary bonus.in 2011. We feel that Mr. Alessi’s cash compensation for
20092011 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 2011. Our next highest paid named executive officer makes
1.291.45 times our lowest paid named executive officer. We believe such internal pay equity highlights the reasonableness of the dispersion of pay to our named executive officers.
Compensation Administration and the Role of Management in Determining Executive Compensation
The Compensation and Benefits Committee establishes our overall compensation strategy to ensure that our executives are rewarded appropriately 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 team and by the Compensation and Benefits Committee for the CEO, targeted to positively influence stockholder’sstockholder 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’sestablished goals and individual accomplishments during the year. The Compensation and Benefits Committee reviews and approves the compensation, including base salaries, annual incentives, long-term incentives, and other benefits, of our named executive officers. The Compensation and Benefits Committee also reviews and approves the compensation for other key executives who are not identified in this report. Generally, theThe 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
equity incentives, which are based on management tiers,
are typicallywere awarded on
July 1st of each year.April 1, 2011.
While the
Compensation and Benefits 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
Compensation and Benefits Committee’s request, management recommends appropriate company-wide and mine
and power financial and non-financial performance goals.
After review and discussion, the Compensation and Benefits Committee adopts performance goals for the coming year. Management works with the
Compensation and Benefits Committee to establish the agenda and prepare
meeting information for each
Compensation and Benefits Committee meeting. In addition, the CEO assists the
Compensation and Benefits Committee by providing his evaluation of the performance of the executive officers who report directly to him, and
recommendsrecommending compensation levels for such officers. The
Compensation and Benefits Committee also has a process for soliciting from the CEO
a candid and critical self-assessmentan assessment of his own performance, which
in conjunction with each director’s independent analysis of the CEO’s performance, is used to assist the
Compensation and Benefits Committee and the Board in their evaluation of the CEO’s performance. The CEO is not present during the
Committee’s evaluationCompensation and
each director provides an independent analysisBenefits Committee and Board review and assessment of the CEO’s
performance.performance evaluation.
Role of Compensation Consultants
The
Compensation and Benefits Committee
has the authority to retain consultants directly; however, the Committee did not retain a consultant for fiscal year 2009. For 2009, the Committee, through management, obtained survey information from an executive compensation consulting firm, the Hay Group, for executivesoriginally retained Buck Consulting in
the mining industry. This survey data, together with proxy data from companies in similar industries and/or 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
Compensation and Benefits Committee’s compensation consultant to assist the
Compensation and Benefits Committee in thoroughly reviewing our executive compensation program for future periods.
Buck Consulting continued to provide guidance to the Compensation and Benefits Committee in 2011 and early 2012 in determining the total compensation packages for executive management.
Components of the Executive Compensation
ProgramsProgram for 2011
Throughout this Compensation Discussion and Analysis, the individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2011, as well as the other individuals included in the “Summary Compensation Table” on page 27 of this proxy statement, are referred to as the “named executive officers.” They are (i) Keith Alessi, our President and Chief Executive Officer, (ii) Kevin Paprzycki, our Chief Financial Officer and Treasurer, (iii) Doug Kathol, our Executive Vice President, (iv) Joseph Micheletti, our Senior Vice President – Coal Operations, (v) Mike Kegley, our General Counsel – Mining and Operations, and (vi) John O’Laughlin, our former Senior Vice President – Coal Operations. Effective as of February 21, 2011, John O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management. This new role is not an executive officer position.
Our executive compensation program consists of three main elements:
In determining base salaries, each executive’s role and responsibility, applicable experience, unique skills, past performance, future potential with us,
and peer group data are considered. In addition, the Compensation and Benefits Committee considers compra-ratios, which are salary
levelsdata for similar positions
(compa-ratios),in the same pay grade, allowing the Compensation and
Benefits Committee to evaluate 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. Thisequity. A matrix, which
wasis utilized for all employees
includingand includes our named executive officers,
allowedallows the
Compensation and Benefits Committee to approve recommended base pay increases out of the available merit pool, which was set at
2.5%3.0% for
2010.2012. For example, an outstanding performing executive who has a low
compa-ratio,compra-ratio, such as
80%75%, would be eligible for a
4%4.5% merit increase, while, conversely, a lower performing executive with a high
compa-ratio,compra-ratio, such as
120%125%, would
generally not be eligible for a merit increase.
15
The Compensation and Benefits Committee has the discretion to grant salary adjustments above the percentage recommended by the matrix to take into account external peer group data. Individual increases to base salary are not guaranteed for our named executive officers and are provided only at the discretion of the Compensation and Benefits Committee after a review of an individual’s performance and relevant market data. | | 2011 Base Salaries for Named Executive Officers | | |
| | | | |
| Name | | Position | | Base Salary |
| Keith E. Alessi | | CEO and President | | $600,000 |
| Douglas P. Kathol | | Executive Vice President | | $280,500 |
| Kevin A. Paprzycki | | Chief Financial Officer and Treasurer | | $245,000 |
| Joseph E. Micheletti(1) | | Senior Vice President – Coal Operations | | $145,583/ $225,000 |
| Morris W. Kegley | | General Counsel – Mining and Operations | | $224,298 |
| John V. O’Laughlin(2) | | Senior Vice President – Coal Operations | | $225,508 |
__________
| (1) | Mr. Micheletti’s base salary was set at $145,583 through May of 2011 in his role as General Manager of the Jewett mine. In May of 2011, Mr. Micheletti’s base salary was increased to $225,000 to reflect his promotion to Senior Vice President – Coal Operations. |
| (2) | John O’Laughlin served as our Senior Vice President – Coal Operations through February 21, 2011. Effective as of February 21, 2011, Mr. O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management. |
Annual Incentive Compensation
The annual incentive plan is intended to provide variable compensation awarded 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. The annual incentive plan goals for fiscal year
20092011 were set by the
Compensation and Benefits Committee in
March 2009February 2011 and encompassed the following:
| GOAL | | COMPONENTS | | PERCENT OF TOTAL |
GOAL
Financial | COMPONENTS
| PERCENT OF
TOTAL BONUS
|
| | |
Financial
| Threshold = Annual
Goal: Depending on the executive, annual budgeted operating income and free cash flow of the mine/ division1·
Westmoreland Coal Company and/or maximizing contract incentives of certain mines ● 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 operational executives·
55%
● 60% 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% for mine operational executives·
● Not applicable for corporate 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’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. For example, for 2011 AIP payout, the Board took into account exemplary work on the Kemmerer transaction that was not part of the individual goals that were set in early 2011. | ·
| ● 30% for mine operational executives·
45%
● 40% for corporate office executives |
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 |
16
Target vs. Actual Annual Incentive Bonuses Paid for 2011 Performance for Named Executive Officers | |
| | |
| Name | | Percentage of Base Salary Earned in 2011 | | | Target Total Cash Incentive Bonus | | | 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 | % | | $ | 588,460 | | | | 134 | % | | | 100 | % | | NA | | | $ | 668,460 | |
| Douglas Kathol | | | 40 | % | | $ | 109,577 | | | | 214 | % | | | 100 | % | | NA | | | $ | 159,577 | |
| Kevin A. Paprzycki | | | 35 | % | | $ | 83,202 | | | | 250 | % | | | 100 | % | | NA | | | $ | 133,202 | |
| Joseph E. Micheletti(1) | | | 30%/ 35 | % | | $ | 63,578 | | | | 362 | % | | | 116 | % | | 94%/ 189% | | | $ | 128,546 | |
| Morris W. Kegley | | | 30 | % | | $ | 65,448 | | | | 151 | % | | | 113 | % | | NA | | | $ | 81,425 | |
| John V. O’Laughlin(4) | | | 30 | % | | $ | 66,351 | | | | 85 | % | | | 113 | % | | NA | | | $ | 64,524 | |
__________
| (1) | In May of 2011, Mr. Micheletti was promoted to Senior Vice President – Coal Operations. As such, his percentage of AIP payout was increased from 30% to 35%. |
| (2) | In 2011, the annual budgeted operating income goal and free cash flow goal for Westmoreland Coal Company was $27.510 million and $20.487 million, respectively. The 2011 actual operating income and free cash flow was $16.067 million and $26.789, respectively. The weighted actual performance for corporate financial was 100% of goal, resulting in 100% financial payout. The mine level financial goal was based on maximizing contract incentives. The consolidated performance of the mines for Mr. Kegley equated to a 123% payout and the consolidated performance of the mines for Mr. Micheletti was 124% payout. Messrs. Alessi, Kathol, Paprzycki and Micheletti had the entirety of their financial goal based on the corporate operating income and free cash flow measures. However, Mr. Kegley’s financial portion of the AIP was based 30% on corporate financial and 40% on certain mines maximizing contract incentives. |
| (3) | In 2011, the average national reportable incident rate was 1.95, which is a calculation based on total hours worked and reportable incidents. In 2010, the average reportable incident rate for Texas was 1.52 and for the mines Mr. Micheletti oversaw as Senior Vice President – Coal Operations was 1.03. |
| (4) | Mr. O’Laughlin’s Target Total Cash Incentive Bonus is based on both actual earnings and earnings through our short-term disability program. |
Long-term incentive awards are designed to align the interests of our executives with those of our stockholders.
In 2009,On April 1, 2011, 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 madeand performance-based restricted stock units with a three-year cliff vest on
JulyApril 1,
20092011. The performance-based restricted stock units vest upon the achievement of a preset three-year cumulative free cash flow measure. The number of shares issued was based on a
tiered system that provides an identical numberpercentage of
restricted stock units to executives in that tier, which awards are between approximately 20% and 40% of suchthe executive’s base salary
compensation. To determine the number of restricted stock units awarded to 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
price on the
grant date
to determine the number of
restricted stock units granted to such tier, rounded for ease of administration.grant.
| | | |
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 2011 | |
| | |
| 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 | % | | | 30,081 | | | | 30,080 | | | $ | 900,009 | |
| Douglas P. Kathol | | | 80 | % | | | 7,500 | | | | 7,500 | | | $ | 224,400 | |
| Kevin A. Paprzycki | | | 70 | % | | | 5,733 | | | | 5,732 | | | $ | 171,516 | |
| Joseph E. Micheletti | | | 40 | %(1) | | | 2,010 | | | | 2,010 | | | $ | 60,139 | |
| Morris W. Kegley | | | 60 | % | | | 4,500 | | | | 4,498 | | | $ | 134,610 | |
| John V. O’Laughlin | | | 60 | % | | | 4,524 | | | | 4,522 | | | $ | 135,328 | |
__________
| (1) | Mr. Micheletti’s long-term incentive award was based on his role as mine manager of the Jewett mine. In 2012, his long-term incentive award will be based on this current position as Senior Vice President – Coal Operations and will represent 70% of his base salary. |
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; andor a position being relocated by 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-Potential2011-Potential Payments upon Termination or Change-in-Control”below. Federal Income Tax and Other Consequences
Under Section 162(m) of the Internal Revenue Code, we may not be able to deduct certain forms of compensation in excess of $1,000,000 paid per year to our named executive officers who are employed by us at year-end. The Compensation and 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.
2012 Compensation Program
As illustrated in the graph below, we believe that performance and equity-based compensation should increase as a percentage of total direct compensation as salary grade levels and responsibility increases. As such, for 2012, the CEO and the COO have the highest percentage of total compensation at risk through both the annual and long-term incentive opportunities.
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 2012.
| Name | | Position | | Base Salary | | | Targeted AIP | | | Targeted LTIP | | | Targeted Total Compensation | |
| Keith E. Alessi | | CEO | | $ | 700,000 | | | | 100 | % | | | 150 | % | | $ | 2,450,000 | |
| Robert P. King | | President and COO | | $ | 425,000 | | | | 100 | % | | | 100 | % | | $ | 1,275,00 | |
| Douglas P. Kathol | | Executive Vice President | | $ | 287,513 | | | | 40 | % | | | 80 | % | | $ | 632,528 | |
| Kevin A. Paprzycki | | CFO and Treasurer | | $ | 260,000 | | | | 35 | % | | | 70 | % | | $ | 533,000 | |
| Joseph E. Micheletti | | SVP – Coal Operations | | $ | 231,750 | | | | 35 | % | | | 70 | % | | $ | 475,088 | |
Summary of Named Executive Officer Compensation
for 2011
| | | | | |
| | |
| 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: President and Chief Executive Officer
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $1,256,920 | | $600,000 | | $668,460 | | 60,161 RSUs/ $900,009 |
For 2012, the Board increased Mr. Alessi’s base salary at $600,000 for 2010,to $700,000, which puts 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 feels that this new base salary is appropriate given Mr. Alessi’s experience and past performance meeting strategic goals.
Annual Incentive Compensation
Financial Component: The financial component was based on budgeted operating income and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 100%, resulting in 100% financial payout.
Individual Component: The Compensation and Benefits Committee recommended and the Board approved a 134% individual performance payout for Mr. Alessi is receiving not only the proper amount of compensation, but the proper mix of compensation components.
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. 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; and
·
Standardize the Information Technology function.
17
Table of Contents
The Committee felt Mr. Alessi did an excellent job in all functional areas in fiscal year 2009 and expressed their pleasure with his overall performance navigating the difficulties that arose throughout the year. As such, the Committee awarded 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 job 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 closing2011. The non-employee directors of the Indian Coal Production Tax Credit transaction;Board reviewed and excellent progressprovided feedback on Mr. Alessi’s strategic effectiveness, business management, talent management and personal effectiveness. Mr. Alessi was provided above average ratings in all categories by the developmentdirectors. The Board made particular note of staffhis major accomplishments in 2011, including exemplary leadership of the $150.0 million note issuance, successful reserve acquisition, relocation of the corporate office, successful Kemmerer bid and succession planning.
management of the extended hydro electric power season, subsequent floods and customer plant outage.
Safety Component: Not applicable. Discretionary Bonus
The Committee awarded Mr. Alessi 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 strides 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 of 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.
Long-Term Incentive Compensation
For fiscal year 2011, Mr. Alessi was awarded long-term equity at a targeted
40%150% of base salary, which is
at a
substantially higher tier than the other named executive officers. The
CommitteeBoard felt such
higher tier levelgrant was warranted due to Mr. Alessi’s direct responsibility for overseeing the entire organization, as well as direct responsibility for our company’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. | |
| | |
| Douglas Kathol: Executive Vice President |
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $433,519 | | $280,500 | | $159,577 | | 15,000 RSUs/ $224,400 |
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 operating income and free cash flow at the consolidated corporate level. The weighted actual performance for these corporate financial goals was 100%, resulting in 100% financial payout.
Individual Component: Management proposed and the Committee approved a 214% individual performance payout for Mr. Kathol due to efforts in meeting our strategic goal of growth through acquisition. Mr. Kathol played a key role in our successful bid for the Kemmerer Mine. In addition, Mr. Kathol helped grow the business through the acquisition of additional reserves and the execution of new coal sales contracts.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2011, the Compensation and Benefits Committee awarded Mr. Paprzycki a 2.5% merit increase toKathol 15,000 restricted stock units representing 80% 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. Kathol’s direct operational responsibilities and to incentivize Mr. Kathol to make decisions that will create and sustain stockholder value.
Relocation
Mr. Kathol was offered a relocation package when the corporate office relocated from Colorado Springs to South Denver due to the distance from his house to the new office location. The Company paid $59,943 in 2011 primarily towards final moving expenses, transportation of household goods, temporary living expenses, and a miscellaneous allowance of one-month’s salary.
Kevin A. Paprzycki: Chief Financial Officer and Treasurer
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $370,922 | | $245,000 | | $133,202 | | 11,465 RSUs/ $171,516 |
Base Salary
The Compensation and Benefits Committee approved Mr. Paprzycki’s new base salary for 2010,2012 in line with peer group data, bringing his base salary to $212,175$260,000 effective as of April 1, 2010. Mr. Paprzycki’s 2.5% merit2012. 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 a commendablebudgeted operating income and free cash flow at the consolidated corporate level. The weighted actual performance rating 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 chieffor these corporate financial officersgoals was 100%, resulting in 100% financial payout.
Individual Component: Management proposed 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.
TheBenefits 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.
18
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%250% individual performance payout for Mr. Kegley duePaprzycki. Mr. Paprzycki made significant strides in enhancing the Treasury function and implemented new financial reporting systems to his exemplary negotiation work withgreatly simplify and expedite forecast measures. The Compensation and Benefits Committee also recognized Mr. Paprzycki in providing critical modeling and financial data for 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.
successful Kemmerer Mine bid.
Safety Component: Not applicable. Long-Term Incentive Compensation
For fiscal year 2011, the Compensation and Benefits Committee awarded Mr. Kegley 5,400Paprzycki 11,465 restricted stock units, based onwhich reflected the target percentage award from his placementset tier.
Joseph E. Micheletti: Senior Vice President – Coal Operations
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $320,282 | | $145,583/$225,000(1) | | $128,546 | | 4,020 RSUs/ $60,139 |
__________
| (1) | Mr. Micheletti’s base salary was set at $145,583 through May of 2011 while in his role as President and General Manager of the Jewett Mine. In May of 2011, Mr. Micheletti’s base salary was increased to $225,000 to reflect his promotion to Senior Vice President – Coal Operations. |
Base Salary
For 2012, 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
TheCompensation and Benefits Committee awardedincreased Mr. Myers a 3.0% merit increase to his base salary for 2010, bringing hisMicheletti’s base salary to $233,432$231,750 effective as of April 1, 2010.2012, 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: Mr. Myer’s 3.0% merit increaseMicheletti’s financial component was based partially on his time as President and General Manager of the Jewett Mine and partially on his time as Senior Vice President – Coal Operations. The portion of his financial component tied to his role as President and General Manager was based on a commendable performance ratingthe Jewett mine maximizing contract incentives and a compa-ratiowas paid out at 100%. The portion of 95% of peer and survey data. The Committee feels Mr. Myers’ base salary is appropriate given his institutional knowledgefinancial component tied to his role as Senior Vice President – Coal Operations was based on the weighting of the businessfive mine’s performance relative to maximizing contract incentives and/or operating income and our customer basewas paid out at 124%.
Individual Component: Management proposed and his leadership in strategic effortsthe Compensation 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.
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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.
TheBenefits Committee approved a 200%362% individual performance payout for Mr. Myers dueMicheletti. The Committee recognized Mr. Micheletti’s key role in the assisting the team in putting together a successful bid for the Kemmerer Mine. Additionally, Mr. Micheletti successfully assisted mine-level management in maximizing contract incentives and in replacing bonding collateral at the Jewett Mine.
Safety Component: Mr. Micheletti’s safety component was based partially on his time as President and General Manager of the Jewett Mine and partially on his time as Senior Vice President – Coal Operations. The portion of his safety component tied to his continued workrole as President 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 increaseGeneral Manager 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’Laughlin as he met his goals for 2009, which included an improved safety record at all minesJewett mine’s reportable incident rate relative to the national average continued training for corporatesurface mines and salaried personnel and production and maintenance training to craft employees throughout the year.
Safety Component: Mr. O’Laughlin was paid 184% of his safety component due to above average industry safety recordsout at all, but one, of our mines.94%. 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 2009,2011, the average national reportable incident rate was 2.11,1.95, which is a calculation based on total hours worked and reportable incidents. In 2009,2011, the average reportable incident rate for the mines Mr. O’LaughlinMicheletti oversaw was 1.38,1.03, which is significantly less than the national average.
This phenomenal safety record correlated into a 189% safety component payout.
Long-Term Incentive Compensation
For fiscal year 2011, Mr.
O’LaughlinMicheletti was awarded
long-term equity at a targeted 30% of base salary,4,020 restricted stock units, which is a higher tier
award than other
named executive officers.vice presidents. 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’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. The Company paid $27,122 in 2011 primarily towards a home finding trip (up to a maximum of six days), temporary living expenses, and a miscellaneous allowance of one-month’s salary. Mr. Micheletti will incur additional expenses in 2012 to include his final moving expenses, transportation of household goods, and home purchase closing costs.
Morris W. Kegley: General Counsel – Mining and Operations
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $299,585 | | $224,298 | | $81,425 | | 8,998 RSUs/ $134,610 |
Change in Role
On February 29, 2012, the Board determined that the roles and responsibilities of Mr. Kegley no longer require that he be considered an executive officer of the Company for reporting purposes under the rules and regulations of the Securities and Exchange Commission.
Annual Incentive Compensation
Financial Component: The financial component for Mr. Kegley was based 30% on budgeted operating income and free cash flow at the consolidated corporate level and 40% on the four major mines maximizing contract incentives and/or operating income. The weighted actual performance for the corporate financial goals was 100%, resulting in 100% financial payout for that portion, while the mine-level goal paid out at 123%.
Individual Component: Management proposed and the Compensation and Benefits Committee approved a 151% individual performance payout for Mr. Kegley. Mr. Kegley provided invaluable assistance in the review of land and coal supply agreements in anticipation of the Kemmerer Mine bid. Additionally, Mr. Kegley played an integral role in the acquisition of new reserves at our Absaloka Mine.
Safety Component: Not applicable.
Long-Term Incentive Compensation
For fiscal year 2011, the Committee awarded Mr. Kegley 8,998 restricted stock units based on his placement in the 60% long-term incentive tier, as discussed above.
John V. O’Laughlin: Former Senior Vice President – Coal Operations
Total Cash Received for 2011 | | 2011 Base Salary | | Bonus for 2011 | | # of RSUs / Grant Date Fair Value of 2011 RSUs |
| $285,695 | | $225,508 | | $64,524 | | 9,046 RSUs/ $135,328 |
Change in Role
On February 21, 2011, Mr. O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management. The Board determined that the roles and responsibilities of Mr. O’Laughlin in this new position no longer require that he be considered an executive officer of the Company for reporting purposes under the rules and regulations of the Securities and Exchange Commission.
Annual Incentive Compensation
Financial Component: The financial component for Mr. O’Laughlin was based 30% on budgeted operating income and free cash flow at the consolidated corporate level and 40% on the four major mines maximizing contract incentives and/or operating income. The weighted actual performance for the corporate financial goals was 100%, resulting in 100% financial payout for that portion, while the mine-level goal paid out at 123%.
Individual Component: Management proposed and the Compensation and Benefits Committee approved a 85% individual performance payout for Mr. O’Laughlin.
Long-Term Incentive Compensation
For fiscal year 2011, the Committee awarded Mr. O’Laughlin 9,046 restricted stock units based on his placement in the 60% long-term incentive tier, as discussed above.
Summary Compensation Table
The following
table summarizestables set forth information regarding the
fiscal 2011 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 2011, and one additional individual for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of fiscal 2011 (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 2009 and/or fiscal 2010 compensation for those individuals
as ourwho were also named executive
officers.officers in fiscal 2009 and/or fiscal 2010.
| | | | | | | | | |
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 Compensation ($)(2) | | Change in Pension Value Earnings ($) | | All Other Compenation ($)(3)(5) | | Total ($) |
Keith E. Alessi(6) CEO and President | | 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 |
| | 2009 | | 588,461 | | 350,000 | | 245,100 | | 370,731 | | 20,044 | | 16,643 | | 1,590,979 |
Kevin A. Paprzycki CFO and Treasurer | | 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 |
| | 2009 | | 213,077 | | — | | 45,752 | | 38,354 | | 3,599 | | 12,467 | | 313,249 |
Douglas P. Kathol Executive Vice President | | 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 | | 2011 | | 191,736 | | — | | 60,139 | | 128,546 | | 57,061 | | 53,194 | | 483,826 |
Morris W. Kegley General Counsel | | 2011 | | 218,160 | | — | | 134,610 | | 81,425 | | 23,535 | | 16,231 | | 473,961 |
| | 2010 | | 196,752 | | — | | 53,283 | | 93,779 | | 13,398 | | 16,199 | | 373,411 |
| | 2009 | | 213,463 | | — | | 45,752 | | 76,847 | | 38,224 | | 12,472 | | 386,758 |
| Former Named Executive Officers | | | | | | | | | | | | | | | | |
John V. O’Laughlin(4) VP – Coal Operations | | 2011 | | 221,171 | | — | | 135,238 | | 64,524 | | 54,827 | | 16,283 | | 492,043 |
| | 2010 | | 224,239 | | — | | 79,900 | | 66,465 | | 28,987 | | 16,274 | | 415,865 |
| | 2009 | | 225,222 | | — | | 68,628 | | 80,535 | | (5,611) | | 12,552 | | 381,326 |
__________
| (1) | |
(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, 20082011, 2010 and 20072009 stock awards that are outstanding as of December 31, 20092011 may be found in the “2009��2011 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 20092011 may be found in Note 13 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended Dec emberDecember 31, 2009. 2011. |
(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 20092011 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$14,700 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. Our 401(k) match program provided for a match of total cash compensation earned in 20092011 up to a maximum allowable cash compensation of $245,000 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$1,872, $1,669, $1,872, $1,346, $1,531 and $1,248$1,583 during 20092011 for Messrs. Alessi, Paprzycki, Kathol, Micheletti, Kegley, Myers,and O’Laughlin and Lobb, respectively. For Messrs. Alessi and Lobb, |
| (4) | Mr. O’Laughlin served as our SVP – Coal Operations through the amount shownend of February 2011. |
| (5) | “All Other Compensation” for 2011 also includes $3,727$59,943 and $3,675$27,122 for Messrs. Kathol and Micheletti, respectively, for relocation of a sp ecial contributiontheir home. Mr. Kathol was eligible for relocation under our Relocation Policy upon the move of the office from Colorado Springs to Englewood, Colorado. Upon Mr. Micheletti accepting the 401(k) Plan made during 2009. position of Senior Vice President – Coal Operations, he was eligible for relocation under the Relocation Policy for his move from Texas to Montana. |
(4)
(6) | Mr. Lobb resigned effective January 27, 2009. Mr. Lobb forfeited all stock and option awards at the time ofAlessi does not receive any additional compensation for his resignation. He was not vested in the pension plan. services as a 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 2011” in the Compensation Discussion and Analysis section above.
Non-Equity Incentive Plan Compensation
Non-equity incentive plan compensationamountscompensation amounts 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, annual budgeted free cash flow, maximizing contract incentives at specific mines, 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
JulyApril 1,
20092011 vest over three years beginning 12 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. Full vesting occurs on the third anniversary of the grant date.
Performance-based restricted stock units, representing 50% of the total award, were also granted on April 1, 2011 and will cliff vest on April 1, 2014 upon achievement of a three-year cumulative free cash flow amount that was set by the Compensation and Benefits Committee in early 2011. Awards not yet released are forfeited upon separation.
2011 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 Equity Incentive Plan Awards(1) | | | | | | | |
| Name | | Grant Date | | Approval Date by Committee/ Board | | Threshold (#) | | | Target (#) | | | Maximum (#) | | | All Other Stock Awards(#)(1) | | | Grant Date Fair Value of Stock Awards($)(1) | |
Keith E. Alessi | | 4/01/2011 | | 3/09/2011 | | | 15,040 | | | | 30,080 | | | | 45,120 | | | | 30,081 | | | | 900,009 | |
Kevin A. Paprzycki | | 4/01/2011 | | 2/08/2011 | | | 2,866 | | | | 5,732 | | | | 8,598 | | | | 5,733 | | | | 171,516 | |
Douglas P. Kathol | | 4/01/2011 | | 2/08/2011 | | | 3,750 | | | | 7,500 | | | | 11,250 | | | | 7,500 | | | | 224,400 | |
Joseph Micheletti | | 4/01/2011 | | 2/08/2011 | | | 1,005 | | | | 2,010 | | | | 3,015 | | | | 2,010 | | | | 60,139 | |
Morris W. Kegley | | 4/01/2011 | | 2/08/2011 | | | 2,249 | | | | 4,498 | | | | 6,747 | | | | 4,500 | | | | 134,610 | |
John V. O’Laughlin | | 4/01/2011 | | 2/08/2011 | | | 2,261 | | | | 4,522 | | | | 6,783 | | | | 4,524 | | | | 135,238 | |
__________
| (1) | |
(1)
| The 20092011 LTIP award granted by the Compensation and Benefits Committee on June 17, 2009February 8, 2011 to all named executive officers, except Mr. Alessi, whose grant was approved by the Board on March 9, 2011, and 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 JulyApril 1, 2009.2011. The grant date fair value on JulyApril 1, 20092011 was $8.17$14.96 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. The grant date fair value on June 3, 2009 was $9.52 per share.
|
| |
2011 Outstanding Equity Awards at Fiscal Year-End
| | | | | | |
| Option Awards | Stock Awards |
Name | Securities Underlying Unexercised Options (#) Exercisable | Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | 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 12/30/11($)(2) | | | Unearned units that have not vested (#)(3) | | | Market value of unearned units that have not vested as of 12/30/11($)(2) | |
| Keith E. Alessi | | | 30,556 | | | | 24.12 | | 5/02/17 | | | | | | | | | | | | |
| | | | 60,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | |
| | | | | | | | | | | | | 10,000 | | | | 127,500 | | | | | | | |
| | | | | | | | | | | | | 39,850 | | | | 508,088 | | | | | | | |
| | | | | | | | | | | | | 30,081 | | | | 383,533 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 30,080 | | | | 383,520 | |
| Kevin A. Paprzycki | | | 2,500 | | | | 29.48 | | 6/05/16 | | | | | | | | | | | | | | | | |
| | | | 1,900 | | | | 24.41 | | 7/01/16 | | | | | | | | | | | | | | | | |
| | | | 7,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,867 | | | | 23,804 | | | | | | | | | |
| | | | | | | | | | | | | 5,944 | | | | 75,786 | | | | | | | | | |
| | | | | | | | | | | | | 5,733 | | | | 73,096 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 5,732 | | | | 73,083 | |
Douglas P. Kathol | | | 7,500 | | | | 16.17 | | 8/18/13 | | | | | | | | | | | | | | | | |
| | | | 6,700 | | | | 19.37 | | 7/01/14 | | | | | | | | | | | | | | | | |
| | | | 6,700 | | | | 20.98 | | 7/01/15 | | | | | | | | | | | | | | | | |
| | | | 4,300 | | | | 24.41 | | 7/01/16 | | | | | | | | | | | | | | | | |
| | | | 7,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,867 | | | | 23,804 | | | | | | | | | |
| | | | | | | | | | | | | 9,864 | | | | 125,766 | | | | | | | | | |
| | | | | | | | | | | | | 7,500 | | | | 95,625 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 7,500 | | | | 95,625 | |
Joseph E. Micheletti | | | 5,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,067 | | | | 13,604 | | | | | | | | | |
| | | | | | | | | | | | | 2,504 | | | | 31,926 | | | | | | | | | |
| | | | | | | | | | | | | 2,010 | | | | 25,628 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 2,010 | | | | 25,628 | |
Morris W. Kegley | | | 1,900 | | | | 24.41 | | 7/01/16 | | | | | | | | | | | | | | | | |
| | | | 7,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 1,867 | | | | 23,804 | | | | | | | | | |
| | | | | | | | | | | | | 4,380 | | | | 55,845 | | | | | | | | | |
| | | | | | | | | | | | | 4,500 | | | | 57,375 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 4,498 | | | | 57,350 | |
John V. O’Laughlin | | | 4,700 | | | | 12.86 | | 6/24/12 | | | | | | | | | | | | | | | | |
| | | | 3,650 | | | | 18.08 | | 6/30/13 | | | | | | | | | | | | | | | | |
| | | | 3,650 | | | | 17.80 | | 12/31/13 | | | | | | | | | | | | | | | | |
| | | | 9,800 | | | | 19.37 | | 7/01/14 | | | | | | | | | | | | | | | | |
| | | | 14,600 | | | | 20.98 | | 7/01/15 | | | | | | | | | | | | | | | | |
| | | | 9,900 | | | | 24.41 | | 7/01/16 | | | | | | | | | | | | | | | | |
| | | | 15,000 | | | | 21.40 | | 7/01/18 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 2,800 | | | | 35,700 | | | | | | | | | |
| | | | | | | | | | | | | 6,568 | | | | 83,742 | | | | | | | | | |
| | | | | | | | | | | | | 4,524 | | | | 57,681 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 4,522 | | | | 57,656 | |
__________
| (1) | |
(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.for both 2009 and 2010 and April 1, 2011. 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 2011” 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, 2011 ($8.91)12.75) by the number of shares. |
| (3) | Awards in this column consist of performance-based restricted stock units with a grant date of April 1, 2011. These awards pay out at Threshold, Target and Maximum depending on the achievement of a free cash flow metric designated by the Compensation and Benefits Committee in 2011. Upon achievement of the performance goal on April 1, 2014, these awards cliff vest. If performance is not achieved, all awards will forfeit. |
| | |
Name | Shares Acquired on Vesting(#) | Stock Value Realized on Vesting($) |
Todd A. Myers | 5,000 | 47,600 |
| Name | | Shares Acquired on Vesting(#) | | | Stock Value Realized on Vesting($)(1) | |
| Keith E. Alessi | | | 10,000 | | | | 179,800 | |
| | | | 19,925 | | | | 358,251 | |
| Kevin A. Paprzycki | | | 1,867 | | | | 33,567 | |
| | | | 2,972 | | | | 53,437 | |
| Douglas P. Kathol | | | 1,867 | | | | 33,567 | |
| | | | 4,932 | | | | 88,677 | |
| Joseph E. Micheletti | | | 1,067 | | | | 19,185 | |
| | | | 1,252 | | | | 22,511 | |
| Morris W. Kegley | | | 1,867 | | | | 33,567 | |
| | | | 2,190 | | | | 39,376 | |
| John V. O’Laughlin | | | 2,800 | | | | 50,344 | |
| | | | 3,284 | | | | 59,046 | |
__________
| (1) | The market value of the awards was determined by multiplying the closing price of a share of common stock on July 1, 2011 ($17.98) by the number of shares. |
2011 Pension Benefits
| | | | |
Name(1) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit as of December 31, 2009 ($)(2) | Payments During LastFiscal Year ($) |
Keith E. Alessi | Westmoreland Retirement Plan (WCC) | 2.08 | 23,819 | — |
Kevin A. Paprzycki | Westmoreland Retirement Plan (WCC) | 3.0 | 21,241 | — |
Morris W. Kegley | Westmoreland Retirement Plan (WCC) | 3.67 | 111,217 | — |
Todd A. Myers | Westmoreland Retirement Plan (WCC) | 9.5 | 102,631 | — |
John V. O’Laughlin | Westmoreland Retirement Plan (BSS) | 9.0 | 200,250 | — |
| Name | | Plan Name | | Number of Years Credited Service (#) | | | Present Value of Accumulated Benefit as of December 31, 2011 ($)(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 | | | | — | |
Morris W. Kegley | | Westmoreland Retirement Plan (WCC) | | | 3.67 | | | | 148,150 | | | | — | |
John V. O’Laughlin | | Westmoreland Retirement Plan (BSS) | | | 9.0 | | | | 248,063 | | | | — | |
__________
| (1) | |
(1)
| Mr. Lobb was not vested in the pension plan at the time he ceased employment.
|
(2)
| Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2009.2011. 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. 2011. |
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, 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 ofMr. O’Laughlin is the
only named
executives covered under this plan areexecutive eligible to retire as of December 31,
2009.2011. 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
2011 Pension Benefits Upon
Retirement/Retirement, Termination, Disability or Death
Messrs. Paprzycki, Kathol, Micheletti, Kegley and O’Laughlin and Mr. Myers 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. O’Laughlin is vested in the pension plan and entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). Mr. Alessi is not vested in the pension plan. Benefits shown for Mr. O’Laughlin and Mr. Myers assume that the event entitling themthe individual to benefits occurred on December 31, 2009.2011.
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). 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
|
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
|
| 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 |
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
Contentsthe 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 |
Mr. Kegley 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. Kegley are first payable on July 1, 2012. Mr. Kegley currently is not eligible for early retirement benefits.
| Name | | Type of Termination | | Plan | | Benefit Amount | | Form of Payment | | Time or Period of Payment |
Morris W. Kegley | | Termination | | Pension Plan | | $ | 993 | | Monthly Annuity | | Life |
| | | Death | | Pension Plan | | $ | 758 | | Monthly Annuity | | Life of Spouse |
Mr. O’Laughlin 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).
| Name | | Type of Termination | | Plan | | Benefit Amount | | Form of Payment | | Time or Period of Payment |
John V. O’Laughlin | | Retirement/Termination | | Pension Plan | | $ | 2,139 | | Monthly Annuity | | Life |
| | | Disability | | Pension Plan | | $ | 2,139 | | Monthly Annuity | | Life |
| | | Death | | Pension Plan | | $ | 974 | | Monthly Annuity | | Life of Spouse |
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, 2009.2011. The following tables do not include amounts payable upon termination for pension benefits, as those benefits are described above in the “2009“2011 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 | | $ | 0 | | | $ | 600,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 1,019,120 | | | $ | 0 | | | $ | 1,115,438 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 23,622 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 623,622 | | | $ | 1,019,120 | | | $ | 0 | | | $ | 1,115,438 | |
| Name | | Type of Compensation | | Termination for Cause/ Voluntary Termination | | | Involuntary Not for Cause | | | Termination upon Change-in-Control | | | Retirement | | | Death(3) | |
| Kevin Paprzycki | | Salary | | $ | 0 | | | $ | 245,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 172,686 | | | $ | 0 | | | $ | 191,040 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 15,122 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 260,122 | | | $ | 172,686 | | | $ | 0 | | | $ | 191,040 | |
| | | | | | |
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(3) | |
| Douglas Kathol | | Salary | | $ | 0 | | | $ | 280,500 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 245,195 | | | $ | 0 | | | $ | 269,211 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 5,445 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 285,945 | | | $ | 245,195 | | | $ | 0 | | | $ | 269,211 | |
| | | | | | |
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(3) | |
| Joseph Micheletti | | Salary | | $ | 0 | | | $ | 225,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 71,158 | | | $ | 0 | | | $ | 77,594 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 14,433 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 239,433 | | | $ | 71,158 | | | $ | 0 | | | $ | 77,594 | |
| | | | | | |
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 |
| Name | | Type of Compensation | | Termination for Cause/ Voluntary Termination | | | Involuntary Not for Cause | | | Termination upon Change-in-Control | | | Retirement | | | Death(3) | |
| Morris Kegley | | Salary | | $ | 0 | | | $ | 224,298 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 137,024 | | | $ | 0 | | | $ | 151,427 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 10,227 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 234,525 | | | $ | 137,024 | | | $ | 0 | | | $ | 151,427 | |
| Name | | Type of Compensation | | Termination for Cause/ Voluntary Termination | | | Involuntary Not for Cause | | | Termination upon Change-in-Control | | | Retirement | | | Death(3) | |
| John O'Laughlin | | Salary | | $ | 0 | | | $ | 225,508 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | Vested Equity(1)(2) | | $ | 0 | | | $ | 0 | | | $ | 177,123 | | | $ | 0 | | | $ | 191,603 | |
| | | Outplacement services and health benefits | | $ | 0 | | | $ | 9,027 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | TOTAL | | $ | 0 | | | $ | 234,535 | | | $ | 177,123 | | | $ | 0 | | | $ | 191,603 | |
________
| (1) | |
(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,$12.75, the closing price of our stock on December 31, 2009.30, 2011. There is no intrinsic value in any accelerated options or vested stock options because options with an exercise price greater than $8.91$12.75 have zero intrinsic value. The value of vested equity was determined by multiplying the number of vested shares times $12.75, the closing stock price on December 30, 2011 |
(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, July 1, 2010, and April 1, 2011, 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. 2011. |
| (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, 2011 resulting in the vesting of a third of the award. |
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 Coal 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 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’ and officers’ insurance arrangements contemplated by the certificate of incorporation and bylaws.
Certain Relationships and Related Transactions
Tontine Note Transaction
On March 4, 2008, we completed the sale of $15 million of senior secured convertible notes to Tontine Partners, L.P. and Tontine Capital Partners, L.P. pursuant to a Senior 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. The senior notes bore interest at a rate of 9% (which increased to 10% per annum in July 2010), payable in cash or in kind at our option, and were payable in full on March 4, 2013. In 2010, we paid the Tontine entities $1,236,438 of in kind interest and $462,363 in cash. On February 4, 2011, at the closing of a note transaction, Tontine Partners L.P. and Tontine Capital Partners, L.P. each converted $15,962,541 in principal amount of the senior secured convertible notes into common stock of Westmoreland at a conversion price of $8.50 per share. This conversion, coupled with the cash payment made on the closing date of the note transaction, resulted in full satisfaction of these senior secured convertible notes. Mr. Jeffrey Gendell, who is either a managing member of, or a managing member of the general partner of, the Tontine partnerships is deemed to beneficially own greater than 20% of our outstanding common stock.
Diane Kathol Severance Payout
Doug Kathol, our Executive Vice President and a named executive officer, is married to Diane Kathol who served as our Vice President – Mining and Power during all of fiscal year 2010. Ms. Kathol retired from Westmoreland on December 31, 2010. During 2011, Ms. Kathol received a severance payout of $166,525, paid throughout the year in the normal payroll cycles.
This proxy statement contains four proposals requiring stockholder action. Proposal No. 1 requests the election of six directors to the Board, Proposal No. 2 requests advisory approval of the Company’s executive compensation, Proposal No. 3 requests the approval of amendments to the Amended and Restated 2007 Equity Incentive Plan, and Proposal No. 4 requests the ratification of the
appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2012. Each of the proposals is discussed in more detail below.
Proposal 1 – Election of Directors
The Board has nominated directors Alessi, D’Appolonia, Hamilton, 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. On March 12, 2012, Mr. Coffey notified us that he will retire from the Board effective at the Annual Meeting after 12 years of dedicated service. As such, the Board decreased the size of the Board to six directors effective as of the Annual Meeting. While Tontine Capital Partners, L.P. and Tontine Partners, L.P. have the right to designate two individuals for election to our Board as directors pursuant to the Secured Convertible Note Purchase Agreement dated March 4, 2008, they have not so designated any directors at this time.
At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the six nominees named in this Proxy Statement. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board’s six nominees.
Vote Required
The six nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the six directors to be elected by those shares, will be elected as directors to 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, D’Appolonia, Hamilton, Klingaman, 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 2011 are the following business highlights:
| ● | During 2011, the Pacific Northwest experienced unprecedented amounts of snow that led to a prolonged hydroelectric power season. This negatively impacted our largest customer well into the summer period. In addition, flooding associated with the high snow pack disrupted rail transportation and mining production, which resulted in a further reduction in coal sales across our northern tier mining operations. Lastly, an explosion and fire at one of our major customers in November resulted in further loss of revenue. Despite these large interruptions in our operations in 2011, we ended the year within 10% of our record adjusted EBITDA from fiscal year 2010 due to timely reaction and stringent cost management; |
| ● | To mitigate the effect of future events like those that occurred in 2011, among other reasons, we entered into an agreement for the acquisition of the Kemmerer Mine, which will diversify the business and diminish the impact of uncontrollable events; and |
| ● | Under management’s leadership, the Company improved liquidity through the $150.0 million debt issuance in February 2011, expanded our reserve base through a major acquisition at our Absaloka Mine and relocated the corporate office to the Denver area resulting in lowered costs and a platform for future growth. |
In addition, compensation and governance practices implemented in recent years include the following:
| ● | The CEO nor any other executive officer has an employment contract; |
| ● | We have eliminated all tax gross-ups, executive supplemental retirement policies, frozen pension plans and terminated retiree health care; |
| ● | The Compensation and Benefits Committee engaged Buck Consulting, an independent consultant who does no other work for us; |
| ● | Approximately 70% of both the CEO’s and the President and COO’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 officer 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 three times their annual cash retainer fee. |
Compensation Philosophy and Approach
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 2011, greater than 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 99.2% favorable vote cast in 2011, 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.
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 named 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 advisory basis, the compensation of the named executive officers, as disclosed in this proxy statement.
The say-on-pay vote is advisory, and therefore not binding on us, the Compensation and Benefits Committee or our Board of Directors. 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 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 those concerns. The Board has adopted a policy 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 2013 Annual Meeting.
Vote Required
Approval of Proposal 2 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.
Recommendation of the Board
The Board of Directors recommends a vote FOR Proposal 2.
Proposal 3 – Amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors
Reason for the Proposed Amendments
The Board of Directors approved the 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “2007 Plan”) on March 9, 2007, and established the number of shares to be reserved for issuance under this plan at 700,000. On August 16, 2007, the Company’s stockholders approved the 2007 Plan. Currently, the 2007 Plan has only 55,655 shares available for issuance to
employees and directors. After the issuance of approximately 35,000 shares to the director at the Annual Meeting, we will have 20,655 shares available for issuance. On February 29, 2012, the Board approved the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Amended 2007 Plan”), which increases the share reserve by 700,000 shares. After giving effect to grants previously made under the 2007 Plan, the aggregate number of shares that would be available for issuance under the Amended 2007 Plan, assuming stockholder approval of the amendment to add an additional 700,000 shares for issuance thereunder, would be approximately 720,655 shares as of the date of this proxy statement. This number does not include the effect of forfeitures, if any, of outstanding awards. The Board believes that this amendment is in our best interests and our stockholders and is consistent with the compensation philosophy described in this proxy statement.
Summary of Proposed Amendments
In addition to the increased share reserve, the Board is also asking stockholders to approve additional amendments to the 2007 Plan, which include the following:
| ● | Update Section 4(a) to prohibit broad recycling of shares; |
| ● | Update Section 4(a) to provide more detail on the treatment of shares that are repurchased by us to cover tax obligations; |
| ● | Reorder the document to put all potential award sections together (Options, SARs, Restricted Stock, RSUs, etc.) and move the director award section to after these sections for better flow; |
| ● | Broaden the current language in Section 3 to allow the Board and the Compensation and Benefits Committee to delegate administrative authority under the plan to executives; |
| ● | Update the Option and SAR sections to prohibit both repricing and cash buyouts without express stockholder approval; |
| ● | Amend the director award section to fix the dollar value of the award at $70,000; |
| ● | Permit amendment of awards to comply with Section 954 of the Dodd Frank Act (the “clawback” requirements) without participant consent; |
| ● | Update the Restricted Stock Unit section to provide for a minimum vesting period of 3 years; and |
| ● | Update the 2007 Plan to provide for double trigger vesting in the event of Change of Control. |
Amended and Restated 2007 Plan Summary
The following is a brief summary description of the Amended 2007 Plan, which is qualified in its entirety by reference to the provisions of the Amended 2007 Plan itself, which is attached as Appendix A to this Proxy Statement.
The Amended 2007 Plan provides for the grant of incentive stock options intended to qualify under Internal Revenue Code Section 422, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards as described below (collectively, “Awards”).
| ● | Incentive Stock Options and Non-statutory Stock Options. |
Optionees receive the right to purchase a specified number of shares of common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. Options may not be granted at an exercise price less than 100% of the fair market value of the common stock on the date of grant or for a term in excess of ten years. The Amended 2007 Plan permits the following forms of payment of the exercise price of options: (i) payment by cash, check or in connection with a “cashless exercise” through a broker, (ii) subject to certain conditions, surrender to the Company of shares of common stock, (iii) by means of a “net exercise” procedure; (iv) any other lawful means, or (v) any combination of these forms of payment.
Unless approved by the Company’s stockholders, (i) no outstanding option may be amended to provide an as-converted basis. The senior notes bear interestexercise price less than the then-current exercise price of such option, and (ii) no option may be issued under the 2007 Plan in substitution for any outstanding option to purchase shares of common stock if the exercise price of such option is less than the then-current exercise price of the cancelled option.
| ● | Stock Appreciation Rights. |
A stock appreciation right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in common stock or cash or a combination thereof determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of common stock. SARs may be granted independently or in tandem with an option. SARs may not be granted at a base price less than 100% of the fair market value of the common stock on the date of grant.
| ● | Restricted Stock Awards. |
Restricted stock awards entitle recipients to acquire shares of common stock, subject to the right of the Company to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.
| ● | Restricted Stock Unit Awards. |
Restricted stock unit awards entitle the recipient to receive shares of common stock to be delivered at the time such shares vest pursuant to the terms and conditions established by the Board of Directors.
| ● | Other Stock-Based Awards. |
Under the Amended 2007 Plan, the Board of Directors has the right to grant other Awards based upon the common stock having such terms and conditions as the Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in whole or in part by reference to, or otherwise based on, shares of common stock, and the grant of Awards entitling recipients to receive shares of common stock to be delivered in the future.
The Compensation and Benefits Committee may determine, at the time of grant, that a restricted stock award, restricted stock unit award or other stock-based award granted to an employee will vest solely upon the achievement of specified performance criteria designed to qualify for deduction under Section 162(m) of the Code. The performance criteria for each such Award will be based on one or more of the following measures: (a) earnings before interest, taxes, depreciation and/or amortization, (b) earnings before operating income or profit, (c) operating efficiencies, (d) return on equity, assets, capital, capital employed, or investment, (e) after tax operating income, (f) net income, (g) earnings or book value per share, (h) cash flow(s), (i) total sales or revenues or sales or revenues per employee, (j) production, (k) stock price or total stockholder return, (l) dividends, (m) strategic business objectives consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures, or (n) except in the case of individuals who are “covered employees” under Section 162(m) of the Code, any other performance criteria established by the Compensation and Benefits Committee. These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance goals (i) may vary by employee and may be different for different Awards; (ii) may be particular to a employee or the department, branch, line of business, subsidiary, division or other unit in which the employee works and may cover such period as may be specified by the Compensation and Benefits Committee; and (iii) will be set by the Compensation and Benefits Committee within the time period prescribed by, and will otherwise comply with the requirements of, Section 162(m) of the Code.
The Amended 2007 Plan provides for the automatic grant of Awards to members of the Board of Directors who are not employees of the Company (“Non-Employee Directors”). On the commencement of service on the Board, each Non-Employee Director will receive an Award with a value determined in a manner deemed appropriate by the Board, in an amount determined in the
Board’s discretion. In addition, on the date of each annual meeting of stockholders, each Non-Employee Director who is both serving as a director immediately before and immediately after such meeting will receive an Award with a value determined in a manner deemed appropriate by the Board, which may include Black-Scholes modeling, equal to $70,000 (rounded up to the nearest whole share). The Board retains the specific authority from time to time to increase or decrease the dollar values of Awards granted to Non-Employee Directors under the Amended 2007 Plan. Awards automatically granted to Non-Employee Directors will (i) have an exercise or base price equal to 100% of the fair market value of the common stock on the date of grant, (ii) vest according to the schedule specified in the Award, (iii) expire at the time specified in the Award, which in the case of Options will be the earlier of 10 years from the date of grant or three months following cessation of service on the Board, and (iv) contain such other terms and conditions as the Board determines. If a Non-Employee Director’s service terminates for any reason other than a Reorganization Event or Change in Control Event, then all of such Non-Employee Director’s Awards will automatically vest and become fully exercisable on the date such individual ceases to be a director, provided that the individual has served as a director for three years or more. If the individual has served as a director for less than three years, all of the Non-Employee Director’s Awards will expire on the date such individual ceases to be a director. Notwithstanding the foregoing vesting provisions, (i) a Non-Employee Director’s Awards may vest automatically upon the occurrence of a Reorganization Event or Change in Control Event as described below, and (ii) the Board may provide for accelerated vesting in the case of the death or disability of a director.
| ● | Transferability of Awards |
Except as the Board of Directors may otherwise determine or provide in an Award, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order, and during the life of the grantee, will be exercisable only by the grantee.
| ● | Eligibility to Receive Awards |
Employees, officers, and directors of the Company and its subsidiaries and of other business ventures in which the Company has a controlling interest are eligible to be granted Awards under the Amended 2007 Plan. Under present law, however, incentive stock options may only be granted to employees of the Company and its subsidiaries.
All of the Company’s employees, officers and directors are eligible to receive Awards under the Amended 2007 Plan.
Key Corporate Governance Practices in the Stock Plan
The Amended 2007 Plan includes a number of provisions that we believe promote good corporate governance practices and reinforce the alignment between our equity compensation arrangements and the interests of our stockholders, including:
| ● | Administration. The Amended 2007 Plan is administered by the Compensation and Benefits Committee of the Board, which is comprised entirely of non-employee directors. |
| ● | Minimum Vesting Requirements. All equity awards, except for awards of stock options and/or stock appreciation rights and the automatic, non-discretionary awards to our non-employee directors, made under the Amended 2007 Plan are required to meet minimum three year vesting requirements, subject to certain limited exceptions. |
| ● | Shares Returning from Past Awards and Other Limitations. If the Amended 2007 Plan is approved, shares used to pay the exercise price of an award or withholding taxes in connection with an award, and unissued shares resulting from the settlement of stock appreciation rights in shares, will not become available for future issuance under the Amended 2007 Plan. Shares tendered in payment of an option for a cashless, net or similar exercise, shares withheld for taxes, and shares attributable to cash-settled awards shall not be again available for the grant of awards under the Amended 2007 Plan. |
| ● | Limited Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation and Benefits Committee. |
| ● | No Evergreen Provision. There is no “evergreen” feature pursuant to which the shares authorized for issuance under the Amended 2007 Plan can be increased automatically without stockholder approval. |
| ● | No Discounted Options or SARs. Stock options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date, except as permitted under the Internal Revenue Code. |
| ● | No Repricing Without Stockholder Approval. We cannot, without stockholder approval, reprice awards, such as stock options or stock appreciation rights, by reducing the exercise price of such awards, or exchange such awards for cash, other awards or new stock options or new stock appreciation rights that have a reduced exercise price. |
Key Information
If stockholders approve the Amended 2007 Plan, the total number of shares available for issuance will be approximately 720,655. If stockholders do not approve the Amended 2007 Plan, we will not have an adequate number of shares available for future equity awards and may not be able to effectively recruit new employees, motivate current employees or operate our equity compensation program.
We manage our use of equity incentive awards carefully and maintained a reasonable “burn rate,” which we define as the number of shares subject to equity awards issued in a fiscal year, with double weighting put on full value restricted stock awards, as a percentage of our weighted average shares outstanding. Westmoreland’s three-year average burn rate of 9% per annum, payable2.67% is lower than the 4.02% burn rate used by Institutional Shareholders Services (ISS) to assess companies like ours in cash or in kind atthe energy industry. The ISS burn rate calculation is similar but not identical to our option,burn rate calculation.
The following table shows the number of outstanding and
available shares, by plan, before and after stockholder approval (assuming a total of 720,655 shares are
payable in full on March 4, 2013. In 2009, we paidavailable for issuance after approval, which reflects the
Tontine entities $1,469,641 of in kind interest.
AUDITORS
Change in Independent Public Accounting Firm
On January 6, 2009, we notified KPMG LLP that, upon completion30,000 share issuance to the non-employee directors) and the total overhang as of the 2008 audit engagementrecord date:
| | | Issued Awards | | | Available Shares | | | Total | |
| Before Stockholder Approval | | | | | | | | | | | | |
| Stock Plan | | | 433,783 | | | | 50,655 | | | | 484,438 | |
| Other Plans | | | 194,307 | | | | 0 | | | | 194,307 | |
| | | | | | | | | | | | | |
| Total | | | 628,045 | | | | 50,655 | | | | 678,745 | |
| Total Overhang (%) | | | | | | | | | | | 4.9 | % |
| | | | |
| After Stockholder Approval | | | | | | | | | | | | |
| Amended and Restated 2007 Plan | | | 433,783 | | | | 750,655 | | | | 1,184,438 | |
| Other Plans | | | 194,307 | | | | 0 | | | | 194,307 | |
| | | | | | | | | | | | | |
| Total | | | 628,045 | | | | 750,655 | | | | 1,378,745 | |
| Total Overhang (%) | | | | | | | | | | | 10 | % |
Federal Income Tax Consequences
The following tax discussion is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences to the Company and the filingparticipants in the Amended 2007 Plan. The discussion is intended solely for general information of stockholders considering how to vote with respect to this proposal and not as tax guidance to participants in the Amended 2007 Plan. The discussion does not address state, local or foreign income tax rules or other U.S. tax provisions, such as estate or gift taxes. Different tax rules may apply to specific participants and transactions under the 2007 Plan, particularly in jurisdictions outside the United States. In addition, the federal income tax laws and regulations frequently have been revised and may be changed again at any time. Therefore, each recipient is urged to consult a tax advisor before exercising any award or before disposing of any shares acquired under the 2007 Plan both with respect to federal income tax consequences as well as any foreign, state or local tax consequences.
The grant of an option or restricted stock unit will create no tax consequences for the participant or the Company. A participant will have no taxable income upon exercise of an incentive stock option, except that the alternative minimum tax may apply. Upon exercise of an option other than an incentive stock option, a participant generally must recognize ordinary income equal to the fair market value of the Form 10-Kshares acquired minus the exercise price. Upon a disposition of shares acquired by exercise of an
incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must recognize ordinary income equal to the lesser of (1) the fair market value of the shares at the date of exercise minus the exercise price or (2) the amount realized upon the disposition of the incentive stock option shares minus the exercise price. Otherwise, a participant’s disposition of shares acquired upon the exercise of an option (including an incentive stock option for which the incentive stock option holding periods are met) generally will result in only capital gain or loss. Other awards under the 2007 Plan (including restricted stock units, both time-based and performance-based) generally will result in ordinary income to the participant at the later of the time of delivery of cash, shares, or other awards, or the time that either the risk of forfeiture or restriction on transferability lapses on previously delivered cash, shares, or other awards. Except as discussed below, the Company generally will be entitled to a tax deduction equal to the amount recognized as ordinary income by the participant in connection with an option, restricted stock unit award, or other awards, but will be entitled to no tax deduction relating to amounts that represent a capital gain to a participant. Thus, the Company will not be entitled to any tax deduction with respect to an incentive stock option if the participant holds the shares for the incentive stock option holding periods.
Section 162(m) generally allows the Company to obtain tax deductions without limit for performance-based compensation. The Company intends that options and performance-based restricted stock unit awards granted under the 2007 Plan will continue to qualify as performance-based compensation not subject to Section 162(m)’s $1 million deductibility cap. A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no assurance that such compensation under the 2007 Plan will be fully deductible under all circumstances. In addition, other awards under the 2007 Plan may not qualify as performance-based compensation under Section 162(m), and therefore compensation paid to executive officers in connection with such awards may not be deductible.
Vote Required
Approval of Proposal 4 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting. If stockholders approve the Amended 2007 Plan, it will replace the existing 2007 Plan.
Recommendation of the Board
The Board of Directors recommends a vote FOR Proposal 4.
Proposal 4 – Ratification of Principal Independent Auditor
The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm and as auditors of our consolidated financial statements for fiscal year
ending December 31, 2008, it would be dismissed2012. In January 2009, E&Y began serving as our independent registered public accounting firm.
The decisionPrior to
change accounting firms was approved bythat, KPMG LLP served as 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 new independent registered public accounting firm regarding all matters.
firm.
KPMG’s reports on 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
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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).
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 2010 and 2011. For
2009,2011, 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) | | 2011 | | | 2010 | |
Audit Fees(2) | | $ | 855,000 | | | $ | 911,000 | |
| Audit Related Fees (3) | | $ | 77,000 | | | $ | 0 | |
Total Fees | | $ | 932,000 | | | $ | 911,000 | |
__________
| (1) | |
(1)
| We did not pay any “Audit Related Fees,” “Tax Fees” or “All Other Fees” to either KPMG or Ernst & Young in fiscal years 20082010 or 2009. 2011. |
(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 consist of fees we paid to Ernst & Young as part of the high-yield note financing in February 2011. |
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-approvepre-
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
20092010 and 2011 were pre-approved by the Audit Committee.
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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 as2012. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. 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 opportunity to make a statement if they desire to do soAnnual Meeting and will be available to respond to questions.
Vote Required
Approval of Proposal 4 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.
Recommendation of the Board
The Board
of Directors recommends
that you vote
FOR ratifying the appointment of Ernst & Young LLP as principal independent auditor for 2010.“FOR” Proposal 4.
Upon the written request of any person who on the record date was a record owner of
our 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 2009,2011, 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.
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![[proxycard002.gif]](https://capedge.com/proxy/DEF 14A/0001447572-10-000007/proxycard002.gif)
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.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
instruction form. |
| WESTMORELAND COAL COMPANY | | |
9540 SOUTH MAROON CIR., SUITE 200 ENGLEWOOD, CO 80112 ATTN: JENNIFER S. GRAFTON | | 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
access proxy materials electronically in future years. |
| | |
| | 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.
|
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| | 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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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |
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| 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 | |
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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 | | | |
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
Combined Document is available at
www.proxyvote.com.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | |
| | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
| | 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: | m | m | m | | | | | |
| | | | | |
| 1. Election of Directors Nominees | | | | |
| | | | | |
| 01 Keith E. Alessi | 02 Michael R. D'Appolonia | 03 Gail E. Hamilton | 04 Richard M. Klingaman | 05 Jan B. Packwood | |
| 06 Robert C. Scharp | | | | |
| | | | | |
| The Board of Directors recommends you vote FOR proposals 2, 3 and 4. | | | | For | Against | Abstain | |
| | | | | | | | |
| 2. Advisory approval of Westmoreland Coal Company's executive compensation. | | | | m | m | m | |
| | | | | | | | |
| 3. To approve the amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors. | | | m | m | m | |
| | | | | | | | |
| 4. Ratification of the appointment of Ernst & Young LLP as principal independent auditor for fiscal year 2012. | | | | m | m | m | |
| | | | | | | | |
| NOTE: Such other business as may properly come before the meeting or any adjournment thereof. | | | | |
| | | | | |
| | | | | |
| 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] | | | Signature (Joint Owners) | Date | | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Combined Document is/are available at www.proxyvote.com . |
| WESTMORELAND COAL COMPANY Annual Meeting of Stockholders May 20, 201022, 2012 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 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 at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903,The Crowne Plaza Hotel located at 27 North 27th Street, Billings, Montana 59101, on Thursday,Tuesday, May, 20, 2010,22, 2012, 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 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 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. | |
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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 theyour shares unless you sign and return this card. | |
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| Continued and to be signed on reverse side | |
Appendix A
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