PRE 14A 1 a15-1708_1pre14a.htm PRE 14A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

x

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material under §240.14a-12

 

Cloud Peak Energy Inc.

(Name of Registrant as Specified In Its Charter)

 

 

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

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 



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CLOUD PEAK ENERGY INC.

505 South Gillette Avenue

Gillette, Wyoming 82716

 

March 30, 2015

 

Dear Fellow Stockholder:

 

It is our pleasure to invite you to attend Cloud Peak Energy Inc.’s 2015 Annual Meeting of Stockholders. The 2015 Annual Meeting of Stockholders will be held on Wednesday, May 13, 2015 at 9:00 a.m. Mountain Time, at the Gillette College Technical Center, 3251 South 4-J Road, Gillette, Wyoming 82718.

 

In connection with the 2015 Annual Meeting of Stockholders, the attached Notice of Annual Meeting and Proxy Statement describe the business items we plan to address at the meeting. We also will present a brief report on our business and respond to your questions at the meeting.

 

In accordance with the Securities and Exchange Commission’s “notice and access” model, we are providing our Notice of Annual Meeting, Proxy Statement and annual report on Form 10-K for the year ended December 31, 2014 to you online with paper copies available, free of charge, upon request. On or about March 30, 2015, we began mailing a Notice of Internet Availability of Proxy Materials detailing how to access the proxy materials electronically and how to submit your proxy via the Internet. The Notice of Internet Availability of Proxy Materials also provides instructions on how to request and obtain paper copies of the proxy materials and proxy card or voting instruction form, as applicable. We believe this process provides our stockholders with a convenient way to access the proxy materials and submit their proxies online, while allowing us to reduce our environmental impact as well as the costs of printing and distribution.

 

Your vote is very important so we encourage you to review the information contained in the proxy materials and submit your proxy, regardless of the number of shares you own. It is important that beneficial owners instruct their brokers on how they want to vote their shares. Please note that you will need the control number provided on your Notice of Internet Availability of Proxy Materials in order to submit your proxy online.

 

We look forward to seeing you on May 13th.

 

Sincerely,

 

 

 

 

 

 

 

 

 

Keith Bailey

Chairman of the Board

 

Colin Marshall

President, Chief Executive Officer and Director

 



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CLOUD PEAK ENERGY INC.

505 South Gillette Avenue, Gillette, Wyoming 82716

 

March 30, 2015

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 13, 2015

 

As a stockholder of Cloud Peak Energy Inc., a Delaware corporation, you are hereby given notice of, and invited to attend in person or by proxy, Cloud Peak Energy Inc.’s 2015 Annual Meeting of Stockholders. The 2015 Annual Meeting of Stockholders will be held at the Gillette College Technical Center, 3251 South 4-J Road, Gillette, Wyoming 82718, on Wednesday, May 13, 2015, at 9:00 a.m. Mountain Time, for the following purposes:

 

Cloud Peak Energy Proposals:

 

1.              To elect two Class III members of the Board of Directors of Cloud Peak Energy Inc. (the “Board”) named in the Proxy Statement, each for a term of three years;

 

2.              To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2015 fiscal year;

 

3.              To approve, on an advisory basis, the compensation of the company’s named executive officers, as disclosed in the Proxy Statement pursuant to Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission (the “SEC”);

 

4.              To approve an amendment to the Cloud Peak Energy Inc. Amended and Restated Bylaws (the “Bylaws”) regarding proxy access;

 

Stockholder Proposal:

 

5.              If properly presented at the meeting, to consider and vote on a stockholder proposal regarding proxy access; and

 

Other, If Applicable:

 

6.              To transact other such business as may properly come before the meeting and any adjournment or postponement thereof.

 

The Board has fixed the close of business on March 20, 2015 as the record date for the determination of stockholders entitled to notice of and to vote at the 2015 Annual Meeting of Stockholders and any adjournment or postponement thereof.

 

Pursuant to rules adopted by the SEC, we are providing access to our proxy materials primarily via the Internet, rather than mailing paper copies of these materials to each stockholder. On or about March 30, 2015, we began mailing a Notice of Internet Availability of Proxy Materials which contains instructions on how to access the proxy materials, submit your proxy, and request paper copies of the proxy materials. We believe this process expedites stockholders’ receipt of the proxy materials, lowers the cost of our Annual Meeting through lower printing and distribution costs, and reduces the environmental impact associated with printing a large volume of proxy materials. Your vote is important. We urge you to review the Proxy Statement carefully and to submit your proxy or voting instructions as soon as possible so that your shares will be represented at the meeting.

 

Thank you for your continued interest and support.

 

 

By Order of the Board of Directors,

 

 

 

 

 

 

Bryan Pechersky
Executive Vice President, General Counsel,
and Corporate Secretary

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 13, 2015

 

This Notice of Annual Meeting, the Proxy Statement and our annual report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) (which we are distributing in lieu of a separate annual report to stockholders), are available on our website at www.cloudpeakenergy.com, in the “SEC Filings” subsection of the “Investor Relations” section. Additionally, you may access the Notice of Annual Meeting, the Proxy Statement and the Form 10-K at www.proxyvote.com.

 



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PROXY STATEMENT TABLE OF CONTENTS

 

GENERAL INFORMATION

1

2015 Annual Meeting Date and Location

1

Delivery of Proxy Materials

1

Mailing Date and Delivery of Proxy Materials

1

Stockholders Sharing an Address

1

Voting

2

Stockholders Entitled to Vote

2

Voting of Proxies by Management Proxy Holders

2

Quorum; Required Votes; Majority Voting Policy for Directors

2

Voting Procedures

4

Revoking Your Proxy

5

Annual Meeting Admission

5

Solicitation Expenses

5

Copies of the Annual Report

5

Section 16(a) Beneficial Ownership Reporting Compliance

5

PROPOSAL I - ELECTION OF DIRECTORS

6

Election of Class III Directors

6

Board Recommendation on Proposal

8

EXECUTIVE OFFICERS

8

CORPORATE GOVERNANCE

10

Board Leadership Structure; Separate Chairman and CEO Positions

10

Board’s Role in Risk Oversight

11

Diversity of Board Members

11

Board of Directors and Board Committees

11

Audit Committee

12

Compensation Committee

13

Nominating and Corporate Governance Committee

14

Health, Safety, Environment and Communities Committee

14

Director Nomination Process

14

Director Retirement Policy

15

Independence of Directors

15

Executive Sessions

16

Audit Committee Financial Experts and Financial Literacy

16

Communications with Non-Management Directors and Other Board Communications

16

Director Attendance at Annual Meetings

16

Certain Relationships and Related Party Transactions

16

Policies and Procedures for Review and Approval of Related Party Transactions

16

Management Services Agreement

17

Policies on Business Conduct and Ethics

17

Indemnification of Officers and Directors

17

Management Certifications

17

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS

18

EXECUTIVE COMPENSATION

20

Compensation Committee Report

20

Compensation Discussion and Analysis

20

Executive Summary

20

Executive Compensation Philosophy and Objectives

25

Annual Say on Pay Stockholder Vote

25

Setting Executive Compensation for 2014

25

 

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Key Elements of Our 2014 Executive Compensation Program

27

Changes in Executive Compensation Program for 2015

33

Tax Deductibility of Executive Compensation

34

Compensation Risk Assessment

35

Review of and Conclusion Regarding All Components of Executive Compensation

35

Important Note Regarding Compensation Tables

35

Executive Compensation Tables

36

2014 Summary Compensation Table

36

All Other Compensation

36

2014 Grants of Plan Based Awards

37

2014 Outstanding Equity Awards at Year End

38

2014 Option Exercises and Stock Vested

39

No Pension Benefits

40

Nonqualified Deferred Compensation

40

Potential Payments Upon Termination or Change in Control; Double-Trigger Change In Control Requirements

41

Compensation Committee Interlocks and Insider Participation

45

DIRECTOR COMPENSATION

45

Key Elements of Our 2014 Director Compensation Program

45

Setting Director Compensation

45

Director Stock Ownership Guidelines

46

Equity Awards Outstanding at Year End

46

Changes to the Directors’ Compensation Program for 2015

47

AUDIT COMMITTEE AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

47

Report of the Audit Committee

47

Independent Auditor Fees and Services

48

Pre-Approval for Audit and Non-Audit Services

48

PROPOSAL II — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS

49

Description of Proposal

49

Board Recommendation on Proposal

49

PROPOSAL III — ADVISORY VOTE TO APPROVE THE COMPENSATION OF NAMED EXECUTIVE OFFICERS

49

Description of Proposal

49

Board Recommendation on Proposal

50

PROPOSAL IV — PROXY ACCESS BYLAW AMENDMENT RECOMMENDED BY CLOUD PEAK ENERGY

50

Description of Proposal

50

Terms of Proposed Proxy Access Bylaw

50

Rationale for the Proposal and Recommended Thresholds; Our Small Market Capitalization and Potential Abuse by Opponents of Our Industry

52

Effects of Approval or Disapproval of the Proposal

53

Board Recommendation on Proposal

53

STATEMENT REGARDING STOCKHOLDER PROPOSAL

53

PROPOSAL V — STOCKHOLDER PROPOSAL REGARDING PROXY ACCESS

54

The Systems’ Proposal Language and Their Supporting Statement

54

Board Statement in Opposition to the Systems’ “One Size Fits All” Approach to Proxy Access

55

Board Recommendation on Proposal

57

OTHER BUSINESS

57

PROPOSALS FOR 2016 ANNUAL MEETING OF STOCKHOLDERS

57

Proposals for Inclusion in Our Proxy Statement

57

Proposals Not for Inclusion in Our Proxy Statement

58

DIRECTIONS TO ANNUAL MEETING LOCATION

58

APPENDIX A — Amendment No. 1 to the Amended and Restated Bylaws of Cloud Peak Energy Inc. (PROPOSAL IV)

A-1

 

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CLOUD PEAK ENERGY INC.

 

505 South Gillette Avenue

Gillette, Wyoming 82716

 

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 13, 2015

 

This Proxy Statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors of Cloud Peak Energy Inc. (the “Board”) for use at Cloud Peak Energy Inc.’s 2015 Annual Meeting of Stockholders. In this Proxy Statement, references to “Cloud Peak Energy,” the “company,” “we,” “us,” “our” and similar expressions refer to Cloud Peak Energy Inc., unless the context of a particular reference provides otherwise. Although we refer to our website and other websites in this Proxy Statement, the information contained on our website or other websites is not a part of this Proxy Statement.

 

GENERAL INFORMATION

 

2015 Annual Meeting Date and Location

 

Our 2015 Annual Meeting of Stockholders will be held on Wednesday, May 13, 2015, at 9:00 a.m. Mountain Time at the Gillette College Technical Center, 3251 South 4-J Road, Gillette, Wyoming 82718, or at such other time and place to which the meeting may be adjourned or postponed. References in this Proxy Statement to the 2015 Annual Meeting of Stockholders also refer to any adjournments, postponements or changes in location of the meeting, to the extent applicable.

 

Delivery of Proxy Materials

 

Mailing Date and Delivery of Proxy Materials

 

On or about March 30, 2015, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice of Availability”) to our stockholders containing instructions on how to access the proxy materials and submit your proxy online. We have made these proxy materials available to you over the Internet or, upon your request, have delivered paper copies of these materials to you by mail, in connection with the solicitation of proxies by the Board for the Annual Meeting.

 

Stockholders Sharing an Address

 

Registered Stockholders—Each registered stockholder (meaning you own shares in your own name on the books of our transfer agent, Computershare Trust Company, N.A.) will receive one Notice of Availability, regardless of whether you have the same address as another registered stockholder.

 

Street Name Stockholders—If your shares are held in “street name” (that is, in the name of a bank, broker or other holder of record) and you are not participating in electronic delivery, applicable rules permit brokerage firms and our company, under certain circumstances, to send one Notice of Availability to multiple stockholders who share the same address. This practice is known as “householding.” Householding saves printing and postage costs by reducing duplicate mailings. If you hold your shares through a broker, you may have consented to reducing the number of copies of materials delivered to your address. In the event that you wish to revoke a “householding” consent you previously provided to a broker, you must contact that broker to revoke your consent. If your household is receiving multiple copies of the Notice of Availability and you wish to request delivery of a single copy, you should contact your broker directly.

 

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Voting

 

Stockholders Entitled to Vote

 

The record date for determining the common stockholders entitled to notice of and to vote at the meeting and any adjournment or postponement thereof was the close of business on March 20, 2015, at which time we had issued and outstanding [           ] shares of common stock, which were held by [           ] holders of record. Please refer to “Security Ownership of Management and Principal Stockholders” for information about common stock beneficially owned by our directors, executive officers and principal stockholders as of the date indicated in such section. Stockholders of record are entitled to one vote for each share of common stock owned as of the record date. The officer of the company who is in charge of the stock ledger of Cloud Peak Energy will prepare, at least ten days prior to the 2015 Annual Meeting of Stockholders, a complete list of the stockholders entitled to vote at the meeting. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting during ordinary business hours at our principal executive offices located at 505 South Gillette Avenue, Gillette, Wyoming 82716. The list will also be available at the 2015 Annual Meeting of Stockholders for inspection by any stockholder who is present.

 

Voting of Proxies by Management Proxy Holders

 

The Board has appointed Mr. Bryan Pechersky, our Executive Vice President, General Counsel and Corporate Secretary, and Mr. Heath Hill, our Executive Vice President and Chief Financial Officer, as the management proxy holders for the 2015 Annual Meeting of Stockholders. Your shares will be voted by the management proxy holders in accordance with your properly submitted instructions. For stockholders who submit a proxy without indicating how to vote their shares, the proxy will be voted as the Board recommends, which is:

 

Cloud Peak Energy Proposals:

 

·                  Proposal I (Election of Directors)FOR the election of each of the persons named under “PROPOSAL I—ELECTION OF DIRECTORS” as nominees for election as Class III directors;

·                  Proposal II (Ratification of the Appointment of Independent Auditors)FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm (independent auditors) for fiscal year 2015;

·                  Proposal III (Advisory Vote to Approve the Compensation of Named Executive Officers)FOR the approval, on an advisory basis, of the compensation of the company’s named executive officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K promulgated by the SEC;

·                  Proposal IV (Proxy Access Bylaw Amendment Recommended by Cloud Peak Energy)FOR the approval of an amendment to our Bylaws regarding proxy access; and

 

Stockholder Proposal:

 

·                  Proposal V (Stockholder Proposal Regarding Proxy Access)AGAINST the stockholder proposal regarding proxy access.

 

As of the date of this Proxy Statement, the Board is not aware of any other business or nominee to be presented or voted upon at the 2015 Annual Meeting of Stockholders. Should any other matter requiring a vote of stockholders properly arise, the proxies confer upon the management proxy holders discretionary authority to vote the proxies in accordance with their best judgment in the interest of the company.

 

Quorum; Required Votes; Majority Voting Policy for Directors

 

Quorum — The holders of a majority of the voting power of the issued and outstanding stock of the company entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at the 2015 Annual Meeting of Stockholders. Each vote represented at the meeting in person or by proxy will be counted toward a quorum. Abstentions and “broker non-votes” are counted as present at the annual meeting for purposes of determining whether a quorum is present. If a quorum is not present, the meeting may be adjourned or postponed from time to time until a quorum is obtained.

 

Broker Non-Votes — Under the rules of the New York Stock Exchange (“NYSE”), brokers holding shares of record for a customer have the discretionary authority to vote on certain proposals if the brokers do not receive timely instructions from the customer regarding how the customer wants the shares voted. However, there are also certain proposals for which brokers do not have discretionary authority to vote if they do not receive timely instructions from the customer. When a broker does not have discretion to vote on a particular matter and the customer has not given timely instructions on how the

 

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broker should vote, a “broker non-vote” results. The impact of broker non-votes on the proposals to be voted on at the 2015 Annual Meeting of Stockholders is set forth in the table below. It is important that beneficial owners instruct their brokers on how they want to vote their shares.

 

Majority Voting Policy for Directors — We have adopted a majority voting policy with respect to the election of directors to the Board. In accordance with our Bylaws, in order for a nominee to be elected as a director, a director nominee must receive more votes cast for than against his or her election. This policy does not apply if we have received a stockholder nominee for director or notice of an intention to nominate a competing candidate, and such stockholder nomination has not been withdrawn by the tenth day before we mail our notice of meeting to stockholders. The Board shall nominate for election as director only a candidate who agrees to tender promptly following the annual meeting at which he or she is elected an irrevocable resignation that will become effective upon (i) the failure to receive the required vote at the annual meeting at which the director faces election, and (ii) Board acceptance of such resignation based on any factors deemed relevant by the Board. Our nominees for director have each signed such a resignation letter. The foregoing summary is qualified by the terms of our majority voting policy, which are included in our Bylaws.

 

Cloud Peak Energy Proposals:

 

Proposal

 

Required Vote

 

Impact of Broker
Non-Votes

 

Impact of
Abstentions

Proposal I

 

(Election of Directors)

 

See “Majority Voting Policy for Directors” above.

 

Brokers do not have discretionary authority in the absence of timely instructions from their customers to vote on this proposal.

 

Broker non-votes are not considered votes cast and do not affect the outcome.

 

Abstentions are not considered votes cast and do not affect the outcome.

 

 

 

 

 

 

 

Proposal II

 

(Ratification of the Appointment of Independent Auditors)

 

In accordance with our Bylaws, to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditors for fiscal year 2015, the holders of a majority of the voting power of the issued and outstanding stock of Cloud Peak Energy present in person or represented by proxy and entitled to vote must vote for the ratification.

 

Brokers have discretionary authority in the absence of timely instructions from their customers to vote on this proposal.

 

Abstentions are treated as present or represented and voting and will have the same effect as a vote against this proposal.

 

 

 

 

 

 

 

Proposal III

 

(Advisory Vote to Approve the Compensation of Named Executive Officers)

 

To approve, on an advisory basis, the compensation of the company’s named executive officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K promulgated by the SEC, the holders of a majority of the voting power of the issued and outstanding stock of Cloud Peak Energy present in person or represented by proxy and entitled to vote must vote for such approval.

 

This advisory vote on executive compensation is not binding on the company, the Compensation Committee or the Board. However, the Compensation Committee and the Board will take into account the result of the vote when determining future executive compensation programs.

 

Brokers do not have discretionary authority in the absence of timely instructions from their customers to vote on this proposal.

 

Broker non-votes are not considered to be entitled to vote and do not affect the outcome.

 

Abstentions are treated as present or represented and voting and will have the same effect as a vote against this proposal.

 

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Proposal IV

 

(Proxy Access Bylaw Amendment Recommended by Cloud Peak Energy)

 

To approve the recommended amendment to our Bylaws regarding proxy access, the holders of at least two-thirds of the voting power of the issued and outstanding stock of Cloud Peak Energy entitled to vote must vote for such approval.

 

If this proposal is approved by stockholders, the proposed bylaw amendment discussed therein will go into effect, even if Proposal V below is also approved. The amendment will not go into effect if this Proposal IV is not approved by stockholders, unless the Board independently elects to implement a Board-approved proxy access bylaw amendment, which the Board may elect to do even if Proposal V below is approved.

 

Brokers do not have discretionary authority in the absence of timely instructions from their customers to vote on this proposal.

 

Broker non-votes will have the same effect as a vote against this proposal.

 

Abstentions will have the same effect as a vote against this proposal.

 

Stockholder Proposal:

 

Proposal

 

Required Vote

 

Impact of Broker
Non-Votes

 

Impact of
Abstentions

Proposal V

 

(Stockholder Proposal Regarding Proxy Access)

 

To approve the stockholder proposal regarding proxy access, the holders of a majority of the voting power of the issued and outstanding stock of Cloud Peak Energy present in person or represented by proxy and entitled to vote must vote for such proposal.

 

As discussed above, if Proposal IV is approved, the proposed bylaw amendment discussed therein will go into effect, regardless of whether Proposal V is also approved.

 

Even if Proposal V is approved, the outcome is not binding on Cloud Peak Energy and the Board may elect to implement a different version of proxy access or no version of proxy access.

 

Brokers do not have discretionary authority in the absence of timely instructions from their customers to vote on this proposal.

 

Broker non-votes are not considered to be entitled to vote and do not affect the outcome.

 

Abstentions are treated as present or represented and voting and will have the same effect as a vote against this proposal.

 

A representative of Broadridge Financial Services, Inc. will tabulate the votes and act as inspector of elections.

 

Voting Procedures

 

Registered Stockholders—If you are a registered stockholder, you may vote your shares or submit a proxy to have your shares voted by one of the following methods:

 

·                  By Internet. You may submit a proxy electronically via the Internet at www.proxyvote.com. Please have your Notice of Availability, which includes your personal control number, in hand when you log onto the website. Internet voting facilities will close and no longer be available on the date and time specified on the proxy card.

·                  By Telephone. If you request paper copies of the proxy materials by mail, you may submit a proxy by telephone using the toll-free number listed on the proxy card. Please have your proxy card in hand when you call. Telephone voting facilities will close and no longer be available on the date and time specified on the proxy card.

·                  By Mail. If you request paper copies of the proxy materials by mail, you may submit a proxy by signing, dating and returning your proxy card in the pre-addressed envelope provided.

·                  In Person. You may vote in person at the 2015 Annual Meeting of Stockholders by completing a ballot; however, attending the meeting without completing a ballot will not count as a vote. Directions to the meeting are provided at the back of this Proxy Statement.

 

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Street Name Stockholders—If your shares are held in street name, you will receive instructions from your bank, broker or other holder of record that you must follow in order for your shares to be voted. Internet and/or telephone voting will be offered to street name stockholders. You may also vote in person at the 2015 Annual Meeting of Stockholders if you obtain a legal proxy from your bank, broker or other holder of record. Please consult the voting instruction form or other information sent to you by your bank, broker or other holder of record to determine how to obtain a legal proxy in order to vote in person at the Annual Meeting.

 

Revoking Your Proxy

 

If you are a registered stockholder, you may revoke your proxy or change your vote at any time before the shares are voted at the 2015 Annual Meeting of Stockholders by:

 

·                  Timely delivering a valid, later-dated executed proxy card;

·                  Timely submitting a proxy with new voting instructions using the Internet or telephone voting system;

·                  Voting in person at the meeting by completing a ballot (attending the meeting without completing a ballot will not revoke any previously submitted proxy); or

·                  Filing a written notice of revocation received by the General Counsel of Cloud Peak Energy Inc. at 505 South Gillette Avenue, Gillette, Wyoming 82716, by 5:00 p.m., Mountain Time, on Tuesday, May 12, 2015.

 

If you are a street name stockholder and you submit a voting instruction form, you may change your vote by submitting new voting instructions to your bank, broker or other holder of record in accordance with such bank’s, broker’s or other holder of record’s procedures.

 

Annual Meeting Admission

 

If you wish to attend the 2015 Annual Meeting of Stockholders in person, you must present a form of personal identification. If you are a beneficial owner of Cloud Peak Energy common stock that is held of record by a bank, broker or other holder of record, you will also need to provide proof of ownership as of the record date to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.

 

Solicitation Expenses

 

We will bear all costs incurred in the solicitation of proxies, including the preparation, printing and mailing of the Notice of Availability and related proxy materials. In addition to solicitation by mail, our directors, officers and employees may solicit proxies personally or by telephone, e-mail, facsimile or other means, without additional compensation. We have also retained MacKenzie Partners Inc. for proxy solicitation and related services in connection with our 2015 Annual Meeting of Stockholders. Under our agreement with MacKenzie Partners, MacKenzie Partners will receive a fee of $25,000 and we will reimburse MacKenzie Partners for reasonable and customary out-of-pocket expenses incurred in performing such services. We may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of shares of common stock held by such persons, and we may reimburse these brokerage houses and other custodians, nominees and fiduciaries for reasonable expenses incurred in connection therewith.

 

Copies of the Annual Report

 

Upon written request, we will provide any stockholder, without charge, a copy of our annual report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”), but without exhibits. Stockholders should direct requests to Cloud Peak Energy Inc., Attn: General Counsel, 505 South Gillette Avenue, Gillette, Wyoming 82716. The Form 10-K and the exhibits filed with it are available on our website, www.cloudpeakenergy.com in the “SEC Filings” subsection of the “Investor Relations” section. The Form 10-K does not constitute a part of the proxy solicitation materials.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and related rules of the Securities and Exchange Commission (the “SEC”) require our directors and Section 16 officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports that they file. We assist

 

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our directors and Section 16 officers in making their Section 16(a) filings pursuant to powers of attorney granted by our directors and Section 16 officers on the basis of information obtained from them and our records.

 

Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to Cloud Peak Energy during and with respect to 2014, including those reports that we have filed on behalf of our directors and Section 16 officers pursuant to powers of attorney, no director, Section 16 officer, beneficial owner of more than 10% of the outstanding common stock of the company, or any other person subject to Section 16 of the Exchange Act, failed to file on a timely basis during 2014.

 

PROPOSAL I

ELECTION OF DIRECTORS

 

Election of Class III Directors

 

As of the date of mailing the Notice of Availability, we have six members on our Board. Pursuant to our amended and restated certificate of incorporation and our Bylaws, our Board is divided into three classes, each of which serves for a three-year term. One class of directors is elected each year at the annual meeting of stockholders. The current terms of our three classes of directors are:

 

Class

 

Expiration of Current Three-Year Term

III

 

2015 Annual Meeting of Stockholders

I

 

2016 Annual Meeting of Stockholders

II

 

2017 Annual Meeting of Stockholders

 

The Class III directors elected at the 2015 Annual Meeting of Stockholders will serve for a term of three years, which expires at the annual meeting of stockholders in 2018 or when their successors are duly elected and qualified. Our current Corporate Governance Guidelines state that a director who has attained the age of 72 prior to the annual meeting of stockholders in any year shall retire from office at such annual meeting unless the Board, in its discretion, approves an exception, as was done for Mr. Bailey who turned 72 on April 5, 2014. Please see “Director Retirement Policy” below for additional information.

 

The nominees for Class III directors are (1) Colin Marshall and (2) Steven Nance, each of whom is a current member of our Board and was recommended for election by our Nominating and Corporate Governance Committee (“Governance Committee”). Each of the nominees has indicated his willingness to serve as a member of the Board if elected. If, however, a nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board may recommend, or the Board may reduce the number of directors to eliminate the vacancy, and if any director is unable to serve his or her full term, the Board may by resolution reduce the number of directors or by a majority vote of the directors then in office may designate a substitute to serve until the annual meeting of stockholders in 2018.

 

The following table sets forth, as of the annual meeting date, certain information about our current directors and nominees:

 

Name

 

Age

 

Position

 

Class

Keith Bailey

 

73

 

Chairman of the Board and Director

 

I

Patrick Condon

 

66

 

Director

 

I

William Owens

 

64

 

Director

 

I

William Fox III

 

69

 

Director

 

II

Colin Marshall

 

51

 

President, Chief Executive Officer and Director Nominee

 

III

Steven Nance

 

58

 

Director Nominee

 

III

 

Below are summaries of the background, business experience, attributes, qualifications and skills of the current directors of the company and director nominees.

 

Keith Bailey has served as Chairman of our Board since September 2009. From 1994 until his retirement from full time employment in 2002, Mr. Bailey served as chief executive officer and chairman of the board of directors of The Williams Companies, Inc., an energy and communications company. Mr. Bailey also served as The Williams Companies, Inc.’s president from 1992 to 2001 and chief financial officer from 1986 to 1992. From 2005 to 2013, Mr. Bailey served on the board of directors of Integrys Energy Group, Inc., a natural gas and electric utility company, as the chairman of its finance committee and on its audit committee. Mr. Bailey served on the board of directors of APCO Oil & Gas

 

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International, Inc. from 1988 through January 2015, as chair of its nominating committee and on its audit committee. Mr. Bailey has served on the board of directors of Aegis Insurance Services Ltd., an insurance company, since 2002 and currently serves on its investment committee. Mr. Bailey served on the board of directors of Markwest Energy Partners, L.P., a natural gas gathering and processing company, from 2005 until June 2014. Mr. Bailey holds a Bachelor of Science degree in mechanical engineering from the Missouri School of Mines and Metallurgy.

 

Qualifications of Mr. Bailey:  Mr. Bailey has over fifty years’ executive experience in the energy business, particularly with respect to oil and gas and coal, and over twenty-eight years’ experience as a public company director. Mr. Bailey offers extensive senior leadership and energy industry expertise to our Board, as well as significant corporate governance experience with his years in leadership and board positions with other public companies, public and private universities and both local and national boards of major national charities.

 

Patrick Condon has served as director since March 2012. He is also an independent director and chair of the audit committee of Roundy’s, Inc., a leading Midwest grocery company located in Milwaukee, Wisconsin, and he serves on the board of Entergy Corporation, an energy company based in Louisiana. In addition, he serves on the board of Urban Gateways, a Chicago-based 501(c)(3) organization whose mission is to educate and inspire young people by delivering high-quality, accessible arts experiences that advance their personal and academic growth. Mr. Condon joined Deloitte & Touche in 2002, where he provided various consulting and attest services to clients until his retirement as partner in 2011. Mr. Condon also held a number of regional and national leadership roles within Deloitte & Touche. Mr. Condon worked for Arthur Andersen LLP from 1970 to 2002, providing various consulting and attest services. Mr. Condon earned a Bachelor of Science in business administration degree in accounting from John Carroll University and is a certified public accountant.

 

Qualifications of Mr. Condon:  Mr. Condon has over forty years’ experience in accounting and finance, with a focus in leadership and strategy, as well as auditing. His qualifications as a financial expert provide an essential skill set to the Board and the Audit Committee.

 

William Owens has served as a director since January 2010. Mr. Owens served as Governor of Colorado from 1999-2007, and as Colorado State Treasurer from 1995-1999. Mr. Owens has served on the board of directors and audit committee of Key Energy Services, an oilfield services company, since 2007; on the board of directors, compensation and corporate governance committees of Bill Barrett Corporation since 2010; and on the board of directors, compensation and corporate governance committees of Federal Signal Corporation, an industrial products company, since 2011. Mr. Owens also served on the board of directors and audit committee of Vision Logistics, a private transportation company, from 2008-2013. Mr. Owens earned a Bachelor of Science degree from Stephen F. Austin State University and a Master’s degree in public affairs from the University of Texas.

 

Qualifications of Mr. Owens:  Mr. Owens’ experience in managing in both the public and private sectors makes him well suited to provide advice to the Board, including regarding the political environment that has increasingly impacted our industry in recent years. He also has extensive experience in both the energy and natural resources sectors. Mr. Owens’ breadth of public and private experience, including service on other public and private boards, brings valuable expertise to the Board.

 

William Fox III has served as a director since October 2009. Mr. Fox was with Citigroup Inc., a global financial services company, and its predecessors for 36 years engaged in corporate lending, and served as a senior credit officer from 1978 until his retirement in 2003. From 1989 until his retirement in 2003, Mr. Fox served as Managing Director, Global Industry Head, Global Energy and Mining of Citigroup. Prior to that, Mr. Fox was Citigroup’s Managing Director, North American Energy and Vice President, Petroleum Department. Mr. Fox has served on the board of directors of Rowan Companies, Inc., a provider of international and domestic contract drilling services, since 2001 and currently serves as the chairman of its audit committee and as a member of its nominating and corporate governance committee. Mr. Fox holds a Bachelor of Arts degree in economics from Trinity College.

 

Qualifications of Mr. Fox:  Mr. Fox has over thirty years’ experience in commercial banking with a focus in lending to energy companies. In addition, his qualifications as a financial expert and experience as an audit committee chairman on another board provide essential skill sets to the Board and the Audit Committee.

 

Colin Marshall has served as our President, Chief Executive Officer and a director since July 2008. Previously, he served as the President and Chief Executive Officer of Rio Tinto Energy America Inc. (“RTEA”), an indirect subsidiary of Rio Tinto plc and the former parent company of Cloud Peak Energy Resources LLC (“CPE Resources”), the company’s wholly-owned subsidiary, from June 2006 until November 2009. In this Proxy Statement, references to “Rio Tinto” refer to Rio Tinto plc and Rio Tinto Limited and their subsidiaries, collectively. Rio Tinto plc is the ultimate parent company of

 

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RTEA. From March 2004 to May 2006, Mr. Marshall served as General Manager of Rio Tinto’s Pilbara Iron’s west Pilbara iron ore operations in Tom Price, West Australia, from June 2001 to March 2004, he served as General Manager of RTEA’s Cordero Rojo mine in Wyoming, and from August 2000 to June 2001, he served as Operations Manager of RTEA’s Cordero Rojo mine. Mr. Marshall worked for Rio Tinto plc in London as an analyst in the Business Evaluation Department from 1992 to 1996. From 1996 to 2000, he was Finance Director of the Rio Tinto Pacific Coal business unit based in Brisbane Australia. Mr. Marshall holds a Bachelor of Engineering degree and a Master’s degree in mechanical engineering from Brunel University and a Master of Business Administration from the London Business School.

 

Qualifications of Mr. Marshall:  In his position as President and Chief Executive Officer, making him the senior most executive of the company, Mr. Marshall provides the Board with a key perspective into the operations of the business, including the operations and marketing challenges it faces. Mr. Marshall has over twenty years’ financial and operational experience in the mining industry.

 

Steven Nance has served as a director since January 2010. Mr. Nance has been the president and manager of Steele Creek Energy, LLC, a company dealing primarily in oil and gas investments, since 2010. Mr. Nance was appointed to the board of directors of The Williams Companies, Inc. in January 2012 and currently serves on its compensation committee and chairs its special safety committee. Mr. Nance was appointed to the board of directors of Newfield Exploration Company in June 2013 and currently serves on its compensation and operations and reserves committees. Mr. Nance served as president and sole director of Steele Creek Investment Company, the predecessor entity which held Mr. Nance’s oil and gas ownership, from 1997 to November 2013 providing, from time to time, consulting services on matters such as oil and gas investments, succession planning, coaching and leadership development. From 2000 until 2007, Mr. Nance served as the president of Peoples Energy Production Company, an oil and gas exploration and production company. Mr. Nance holds a Bachelor of Science degree in petroleum engineering from Texas Tech University and is a registered professional engineer (inactive status).

 

Qualifications of Mr. Nance:  Mr. Nance has over thirty years’ experience in the oil and gas industry and has significant experience in senior executive positions, as well as merger and acquisition activities in these industries. Mr. Nance has experience in risk management and, along with his perspective as a former executive, brings a wealth of broad corporate knowledge to the Board.

 

Board Recommendation on Proposal

 

The Board unanimously recommends a vote FOR the election of each of the Class III director nominees named above. The management proxy holders will vote all properly submitted proxies FOR election unless properly instructed otherwise.

 

EXECUTIVE OFFICERS

 

This section provides information regarding the background, business experience, attributes, qualifications and skills of our current executive officers, other than Mr. Colin Marshall, President, Chief Executive Officer and Director. Refer to the table and disclosure above under “PROPOSAL I—ELECTION OF DIRECTORS” for biographical and related information regarding Mr. Marshall.

 

Name

 

Age*

 

Position(s)

Heath Hill

 

44

 

Executive Vice President and Chief Financial Officer

Gary Rivenes

 

45

 

Executive Vice President and Chief Operating Officer

Bryan Pechersky

 

44

 

Executive Vice President, General Counsel and Corporate Secretary

Bruce Jones

 

57

 

Senior Vice President, Technical Services

Cary Martin

 

63

 

Senior Vice President, Human Resources

Todd Myers

 

51

 

Senior Vice President, Business Development

James Orchard

 

54

 

Senior Vice President, Marketing and Government Affairs

Kendall Carbone

 

49

 

Vice President and Chief Accounting Officer

 


*                                         As of the annual meeting date.

 

Heath Hill has served as our Executive Vice President and Chief Financial Officer since March 2015 and prior to that he served as our Vice President and Chief Accounting Officer since September 2010. Previously, Mr. Hill served in various capacities with PricewaterhouseCoopers LLP, our independent public accountants, from September 1998 to September 2010, including Senior Manager from September 2006 to September 2010, and Manager from September 2003 to

 

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September 2006. While with PricewaterhouseCoopers LLP, Mr. Hill’s responsibilities included assurance services primarily related to SEC registrants, including annual audits of financial statements and internal controls, public debt offerings and IPO transactions. From June 2003 to June 2005 he held a position with PricewaterhouseCoopers in Germany serving U.S. registrants throughout Europe. Mr. Hill never worked on any engagements or projects for Cloud Peak Energy Inc. or its predecessor, Rio Tinto, while he was with PricewaterhouseCoopers LLP. Mr. Hill earned his Bachelor’s degree in accounting from the University of Northern Colorado and is an active certified public accountant.

 

Gary Rivenes has served as our Executive Vice President and Chief Operating Officer since October 2009. Previously, he served as Vice President, Operations, of RTEA from December 2008 until November 2009, and as Acting Vice President, Operations, of RTEA from January 2008 to November 2008. From September 2007 to December 2007, Mr. Rivenes served as General Manager for RTEA’s Jacobs Ranch mine, from October 2006 to September 2007, he served as General Manager for RTEA’s Antelope mine and from November 2003 to September 2006, he served as Manager, Mine Operations for RTEA’s Antelope mine. Prior to that, he worked for RTEA in a variety of operational and technical positions for RTEA’s Antelope, Colowyo and Jacobs Ranch mines since 1992. Mr. Rivenes holds a Bachelor of Science in mining engineering from Montana College of Mineral, Science & Technology.

 

Bryan Pechersky has served as our Executive Vice President since January 2015, our General Counsel since January 2010 and our Corporate Secretary since March 2013. Prior to his promotion to Executive Vice President, he served as Senior Vice President beginning in 2010. Previously, Mr. Pechersky was Senior Vice President, General Counsel and Secretary for Harte-Hanks, Inc., a worldwide, direct and targeted marketing company from March 2007 to January 2010. Prior to that, he also served as Senior Vice President, Secretary and Senior Corporate Counsel for Blockbuster Inc., a global movie and game entertainment retailer from October 2005 to March 2007, and was Deputy General Counsel and Secretary for Unocal Corporation, an international energy company acquired by Chevron Corporation in 2005, from March 2004 until October 2005. While in these capacities, Mr. Pechersky’s responsibilities included advising on various legal, regulatory and compliance matters, transactions and other responsibilities that are common for a general counsel and corporate secretary. Mr. Pechersky was in private practice for approximately seven years with the international law firm Vinson & Elkins L.L.P. before joining Unocal Corporation. Mr. Pechersky also served as a Law Clerk to the Hon. Loretta A. Preska, Chief Judge of the U.S. District Court for the Southern District of New York in 1995 and 1996. Mr. Pechersky earned his Bachelor’s degree and Juris Doctorate from the University of Texas, Austin, Texas.

 

Bruce Jones has served as our Senior Vice President, Technical Services since July 2013, with responsibilities in strategic and long-term mine planning, geological services, land management and environmental affairs. Prior to his appointment as Senior Vice President, Mr. Jones was General Manager of our Spring Creek Mine from March 2007 to July 2013. Before joining the Spring Creek Mine, Mr. Jones was the Operations Manager for Kennecott Utah Copper at the Bingham Canyon Mine in Bingham Canyon, Utah. Mr. Jones began his career as a mining engineer for Inspiration Coal, Inc. in 1982 and has worked in several sectors of the mining industry. During his career, Mr. Jones has held engineering and operations management positions at gold, copper and coal mining operations. Mr. Jones holds a Bachelor of Science degree in mining engineering from the University of Wisconsin-Platteville and a Master of Business Administration from the University of Utah. Mr. Jones is a registered professional engineer in Kentucky and Utah.

 

Cary Martin has served as our Senior Vice President, Human Resources since October 2009. Previously, he served as Vice President / Corporate Officer of Human Resources for OGE Energy Corp., an electric utility and natural gas processing holding company from September 2006 until March 2008, and as a Segment Vice President for several different divisions of SPX Corporation, an international multi-industry manufacturing and services company from December 1999 until May 2006. In these capacities, Mr. Martin’s responsibilities included oversight of employee and labor relations, workforce planning, employee development, compensation administration, policies and procedures and other responsibilities that are common for a human resources executive. From 1982 until 1999, Mr. Martin served in various management and officer positions for industries ranging from medical facilities to cable manufacturers. Mr. Martin received his Bachelor’s degree in business administration from the University of Missouri and his Master’s degree in management science from St. Louis University.

 

Todd Myers has served as our Senior Vice President, Business Development since July 2010. Previously, he served as President of Westmoreland Coal Sales Company. Prior to that, Mr. Myers served in other senior leadership positions with Westmoreland Coal in marketing and business development during two periods dating to 1989. In his various capacities with Westmoreland Coal, Mr. Myers’s responsibilities included developing and implementing corporate merger and acquisition strategies, divesting coal related assets, negotiating complex transactions and other responsibilities generally attributable to the management of coal businesses. Mr. Myers also spent five years with RDI Consulting, a leading consulting firm in the energy industry, where he led the energy and environment consulting practice. In 1987, Mr. Myers served as a staff assistant in the U.S. House of Representatives. Mr. Myers earned his Bachelor of Arts in political science from Pennsylvania State

 

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University in University Park, Pennsylvania, and a Master of International Management from the Thunderbird Graduate School of Global Management in Glendale, Arizona.

 

James Orchard has served as our Senior Vice President, Marketing and Government Affairs since October 2009. Previously, he served as Vice President, Marketing and Sustainable Development for RTEA from March 2008 until November 2009. From January 2005 to March 2008, Mr. Orchard was Director of Customer Service for RTEA. Prior to that he worked for Rio Tinto’s Aluminum division in Australia and New Zealand for over 17 years, where he held a number of technical, operating, process improvement and marketing positions, including as manager of Metal Products from January 2001 to January 2005. Mr. Orchard graduated from the University of New South Wales with a Bachelor of Science and a PhD in industrial chemistry.

 

Kendall Carbone has served as our Vice President and Chief Accounting Officer since March 2015 and previously as our Assistant Chief Accounting Officer since January 2015. Prior to joining Cloud Peak Energy, Ms. Carbone served as Vice President, Controller and Chief Accounting Officer for both Cool Planet Energy Systems, Inc. from 2013 to 2014 and QEP Resources, Inc. from 2010 to 2013. Ms. Carbone has extensive experience in the energy industry including bio-fuel, natural gas and oil refining as well as previous experience in mining. Ms. Carbone is a CPA and holds a Master’s Degree in accounting from New York University and a Bachelor’s degree in economics from Dartmouth College.

 

CORPORATE GOVERNANCE

 

We believe strong corporate governance helps to ensure our company is managed for the long-term benefit of our stockholders. As part of our commitment to corporate governance leadership and our compliance with the listing standards of the NYSE and SEC regulations, we have adopted various charters, policies and procedures. You can access and print, free of charge, the charters of our Audit Committee, Compensation Committee, Governance Committee, and Health, Safety, Environment and Communities Committee (“HSEC Committee”), as well as our Corporate Governance Guidelines, Code of Conduct, Code of Ethics for Principal Executive and Senior Financial Officers, Clawback Policy and certain other policies and procedures from our website at www.cloudpeakenergy.com in the “Corporate Governance and Committee Charters” subsection of the “Investor Relations” section. Additionally, stockholders can request copies of any of these documents free of charge by submitting a written request to Cloud Peak Energy Inc., Attn: General Counsel, 505 South Gillette Avenue, Gillette, Wyoming 82716.

 

The Board reviews these materials annually and updates them based on changes in Delaware corporate law, the rules and listing standards of the NYSE and SEC regulations, as well as best practices suggested by recognized governance authorities. From time to time, we expect these materials will be modified in response to changing regulatory requirements, evolving practices, concerns of our stockholders and other stakeholders and otherwise as circumstances warrant. We encourage you to check our website periodically for the most recent versions of our governance materials.

 

Board Leadership Structure; Separate Chairman and CEO Positions

 

Cloud Peak Energy’s Chairman of the Board and Chief Executive Officer positions are separate. Our Board is composed of a majority of independent directors. The only member of our Board who is not considered independent is Mr. Marshall, our President and Chief Executive Officer. In addition, our Audit, Compensation and Governance Committees, each as described below, are composed of entirely independent directors, including the chairman of each committee. The Board believes that the HSEC Committee is best served by including Mr. Marshall as a member and has appointed an independent director as the chairman of that committee.

 

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. The Board understands that there is no single, generally accepted approach to providing Board leadership and that given the dynamic and competitive environment in which we operate, the right Board leadership structure may vary as circumstances warrant. We believe the number of independent directors that make up our Board, along with the oversight provided by our independent Chairman of the Board, benefits both the company and our stockholders. The Board and independent directors consider the Board’s leadership structure on a regular basis.

 

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Board’s Role in Risk Oversight

 

Generally speaking, the Board executes oversight responsibility for risk management directly and through its committees, as follows:

 

·                  The Audit Committee has primary responsibility for overseeing and discussing with management the process for identifying and classifying the company’s principal risks and identifying appropriate steps to monitor and control such exposures. The company’s Internal Auditor, who reports directly to the Audit Committee and administratively to our Executive Vice President, General Counsel and Corporate Secretary, performs risk assessments and conducts audits of high risk areas accordingly. The Audit Committee’s meeting agendas are planned to include discussions of significant individual risk areas throughout the year. In addition, the Audit Committee has certain oversight responsibilities with respect to our overall legal compliance program.

·                  The Board’s other committees (Compensation Committee, Governance Committee, and HSEC Committee) oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks associated with our compensation policies and practices, with respect to both executive compensation and compensation generally.

·                  The Board is kept abreast of its committees’ risk oversight and other activities via reports of the committee chairmen to the full Board. These reports are presented at regular Board meetings and include discussions of committee agenda topics, including matters involving risk oversight. In addition, Board members frequently attend committee meetings regardless of membership on that committee and the full Board is provided with Board and all standing committee meeting materials. For additional information about the activities and responsibilities of the Board’s committees and the scope of the Board’s delegation to its committees, refer to the committees’ charters, which are available on our website at www.cloudpeakenergy.com in the “Corporate Governance and Committee Charters” subsection of the “Investor Relations” section.

·                  The Board’s meetings are also planned to consider specific risk topics, including risks associated with our strategic plan, our capital structure and our significant business activities, and an overall risk review presented by management. In addition, the Board receives detailed regular reports from members of our executive management team, which include discussions of the risks and exposures involved in their respective areas of responsibility. These reports are provided in connection with regular Board meetings and are discussed, as necessary, at Board meetings. Further, the Board’s fulfillment of its oversight responsibility for risk management includes being informed between regular meetings of significant developments, including those that could affect our risk profile or other aspects of our business.

 

Diversity of Board Members

 

We do not maintain a separate policy regarding the diversity of our Board members. However, the charter of the Governance Committee provides that in recommending potential nominees to the Board, the Committee will take diversity into account with the intent of creating a Board that consists of members with a broad spectrum of experience and expertise and with a reputation for integrity. Consistent with its charter, the Governance Committee and ultimately the Board seek nominees with distinct professional backgrounds, experience and perspectives so that the Board as a whole has the appropriate mix of skills, perspectives, personal and professional experiences and backgrounds necessary to fulfill the needs of the company with respect to the current issues it faces. Recommendations include consideration by the Governance Committee of the contribution of fellow directors, as well as the qualifications of new nominees.

 

Board of Directors and Board Committees

 

Our business is managed under the direction of our Board. The Board appoints the Chief Executive Officer (“CEO”), approves and monitors the fundamental financial and business strategies of our company, and provides a source of advice and counsel to management. The Board also oversees CEO succession planning and is responsible for ensuring that succession planning for other members of senior management is ongoing. In addition, the Board’s responsibilities include reviewing and approving major corporate actions, working with management to identify the principal risks of the company’s businesses and overseeing the implementation of appropriate risk management systems, as well as evaluating, through the Compensation Committee and the independent directors, the compensation of the CEO and other executive officers.

 

The Board meets on a regularly scheduled basis to review significant developments affecting our company, to act on matters requiring approval by the Board and to otherwise fulfill its responsibilities. It also holds special meetings when an important matter requires action or review by the Board between regularly scheduled meetings. The Board has separately designated standing committees: (1) Audit, (2) Compensation, (3) Governance and (4) HSEC.

 

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The following table provides membership and meeting information for the Board and each of the Board’s standing committees during 2014 and also describes changes to the Board and its committees as of the date of this Proxy Statement:

 

Director

 

Independent (1)

 

Audit 
Committee

 

Compensation
Committee

 

Nominating and
Corporate
Governance
Committee

 

Health, Safety,
Environment and
Communities
Committee

Keith Bailey

 

Yes

 

 

 

 

Member

Patrick Condon

 

Yes

 

Chair (2)

 

 

Member

 

William Fox III

 

Yes

 

Member (2)

 

Chair

 

Member (3)

 

Colin Marshall

 

No

 

 

 

 

Member

Steven Nance

 

Yes

 

Member

 

Member (4)

 

 

Chair

William Owens

 

Yes

 

 

Member

 

Chair

 

James Voorhees (5)

 

Yes

 

 

Former Member (5)

 

Former Member (5)

 

Former Member (5)

Number of In-Person and Telephonic Committee Meetings in 2014 (6) (7)

 

 

 

9

 

7

 

5

 

5

Number of In-Person and Telephonic Board Meetings in 2014 (6)

 

 

 

8

 

 

 

 

 

 

 


(1)                                 The Board has determined that the director is independent as described below under “Independence of Directors.”

(2)                                 The Board has determined that the director is an audit committee financial expert as described below under “Audit Committee Financial Experts and Financial Literacy.”

(3)                                 Mr. Fox was appointed to the Governance Committee, effective January 8, 2015, following Mr. Voorhees’ resignation.

(4)                                 Mr. Nance was appointed to the Compensation Committee, effective January 8, 2015, following Mr. Voorhees’ resignation.

(5)                                 Mr. Voorhees resigned from the Board, effective December 31, 2014.

(6)                                 During 2014, each director participated in all of the Board meetings that were held and all meetings of each committee of which the director was a member that were held.

(7)                                 The Pricing Committee of the Board also met 3 times in 2014 in connection with various capital markets transactions.

 

A brief description of the principal functions of each of the Board’s four standing committees follows. Each committee also has certain oversight responsibilities for risk management as described above. The Board retains the right to exercise the powers of any committee to the extent consistent with applicable rules and regulations, and may do so from time to time. For additional information, please refer to the Audit Committee Charter, the Compensation Committee Charter, the Governance Committee Charter, and the HSEC Committee Charter, which are available on our website at www.cloudpeakenergy.com in the “Corporate Governance and Committee Charters” subsection of the “Investor Relations” section.

 

Audit Committee

 

The primary function of the Audit Committee is to assist the Board in fulfilling its responsibility to our stockholders, the investment community and governmental agencies that regulate our activities in its oversight of:

 

·                  The integrity of our financial statements, financial reports and other financial information filed with the SEC;

·                  The integrity and adequacy of our auditing, accounting and financial reporting processes and systems of internal control over financial reporting;

·                  Our compliance with legal and regulatory requirements, including internal controls designed for that purpose;

·                  The independence, qualifications and performance of our independent registered public accounting firm; and

·                  The performance of our internal audit function.

 

The Audit Committee provides an avenue of free, open and clear communication among the auditors, the internal audit function, management, the Audit Committee and the Board. The Audit Committee is also responsible for preparing the Audit Committee Report that SEC rules require be included in our annual proxy statement. The Audit Committee meets regularly in executive session with the Chief Financial Officer, internal auditor, General Counsel and external auditors, and as a committee. These executive sessions may include other non-employee directors.

 

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Compensation Committee

 

General

 

The Compensation Committee determines and oversees the execution of the company’s compensation philosophy and oversees the administration of the company’s executive compensation program. The primary functions of the Compensation Committee are to:

 

·                  Review, evaluate and approve, or recommend to the Board or other independent directors of the Board, our agreements, plans, policies and programs to compensate our executive officers and directors;

·                  Oversee our plans, policies and programs to compensate our non-executive employees;

·                  Review and discuss with our management the Compensation Discussion and Analysis (“CD&A”) included in our annual proxy statement, and determine whether to recommend to the Board that the CD&A be included in our annual proxy statement, in accordance with applicable rules and regulations;

·                  Produce the Compensation Committee Report as required by Item 407(e)(5) of Regulation S-K for inclusion in our annual proxy statement, in accordance with applicable rules and regulations; and

·                  Otherwise discharge the Board’s responsibilities relating to compensation of our executive officers and directors.

 

The Compensation Committee may, in its discretion and as appropriate, delegate duties and responsibilities to a member or to a subcommittee of the Compensation Committee. However, no subcommittee may be delegated any power or authority required by any law, regulation or listing standard to be exercised by the Compensation Committee as a whole. No subcommittees were formed or met in 2014.

 

The Compensation Committee meets in executive session as it deems appropriate to review and consider executive compensation matters without the presence of our executive officers. These executive sessions may include other non-employee directors.

 

Other Participants in the Executive Compensation Process

 

In addition to the members of the Compensation Committee and members of the Board who may also be in attendance at the Compensation Committee’s meetings, our CEO, Senior Vice President, Human Resources and the Compensation Committee’s independent compensation consultant, Aon Hewitt, also participated in and contributed to our executive compensation process during 2014. Ultimately, the Compensation Committee exercises its independent business judgment with respect to recommendations and opinions of these other participants and the Compensation Committee (or our independent directors as a group) makes final determinations about our executive officer compensation.

 

CEO—During its meetings throughout 2014, the Compensation Committee invited input from our CEO on executive compensation for 2014. In particular, Mr. Marshall provided the perspective of management to the Compensation Committee regarding executive compensation matters generally and the performance of the executive officers reporting to him. Mr. Marshall provided input on the company targets, and, for the executive officers reporting to him, the personal performance measurements related to our Annual Incentive Plan for 2014, base salary levels and other compensation matters. Mr. Marshall did not provide recommendations with respect to his own compensation amounts.

 

Compensation Consultants—As in prior years, the Compensation Committee retained Aon Hewitt to assist with the evaluation and determinations for our executive compensation program and other executive and director compensation matters. Under the terms of the engagement, Aon Hewitt reports directly to the Compensation Committee. Although Aon Hewitt also works in cooperation with management as required to gather information necessary to carry out its obligations to the Compensation Committee, Aon Hewitt does not have a separate engagement with our management.

 

For 2014, as a result of challenging industry conditions and our company’s cost management initiatives, the Compensation Committee determined there would be no adjustments to the executive compensation program for any of its executive officers. Accordingly, executive officer base salaries, target annual cash bonus opportunities (as a percentage of base salary) and target equity award values (as a percentage of base salary), as well as the overall structure and components of the executive compensation program, remained the same as in 2013. Because there were no adjustments for 2014, Aon Hewitt did not conduct a comprehensive market review for purposes of 2014 executive compensation determinations. Aon Hewitt’s engagement for 2014 included the following, at the Compensation Committee’s request:

 

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·                  Assist the Compensation Committee in staying abreast of industry, governance and regulatory developments impacting executive and director compensation;

·                  Participate in Compensation Committee meetings as requested and provide the views of Aon Hewitt with regard to various agenda items considered by the Compensation Committee throughout 2014;

·                  Assist the Compensation Committee in reviewing and updating the company’s Performance Peer Group, which is used for purposes of total shareholder return (“TSR”) comparisons and vesting requirements in the company’s performance share unit awards;

·                  In connection with the company’s previously announced Chief Financial Officer transition that was effective in March 2015, provide peer company data to assist the Compensation Committee in its compensation determinations for the promotion of Mr. Heath Hill from Vice President and Chief Accounting Officer to Executive Vice President and Chief Financial Officer, upon the March 2015 resignation of the company’s former Chief Financial Officer, Mr. Michael Barrett; and

·                  Assist with the Compensation Committee’s periodic compensation program risk assessment.

 

In connection with its engagement of Aon Hewitt, the Compensation Committee assessed the independence of Aon Hewitt pursuant to applicable SEC and NYSE rules and concluded that Aon Hewitt’s work for the Compensation Committee does not raise any conflict of interest.

 

Nominating and Corporate Governance Committee

 

The primary functions of the Governance Committee are to:

 

·                  Advise the Board and make recommendations regarding appropriate corporate governance practices and assist the Board in implementing those practices;

·                  Assist the Board by identifying individuals qualified to become members of the Board, consistent with the criteria approved by the Board, and recommending director nominees to the Board for election at the annual meetings of stockholders or for appointment to fill vacancies on the Board;

·                  Advise the Board about the appropriate composition of the Board and its committees;

·                  Lead the Board in the annual performance evaluation of the Board, its committees and of management; and

·                  Direct all matters relating to the succession of our CEO.

 

Health, Safety, Environment and Communities Committee

 

The primary functions of the HSEC Committee are to oversee:

 

·                  Our compliance with safety, health, environmental and sustainability-related laws and other regulatory requirements applicable to our business;

·                  Our initiatives to enhance sustainable business practices and our reputation as a responsible corporate citizen, including the promulgation and enforcement of policies, procedures and practices which promote the protection of the safety and health of our employees, contractors, customers, the public and the environment;

·                  The plans, programs and processes established by us to evaluate and manage safety, health, environmental and sustainability risks to our business, operations, products and reputation generally; and

·                  Our response to significant safety, health, environmental and sustainability-related public policy, legislative, regulatory, political and social issues, trends or incidents that may affect our business operations, financial performance or public image or the industry in which we operate.

 

Director Nomination Process

 

The Governance Committee identifies and recommends to the Board the candidates for nomination as directors. Stockholders may propose nominees for consideration by our Governance Committee by submitting names and supporting information to Cloud Peak Energy Inc., Attn: Corporate Secretary, 505 South Gillette Avenue, Gillette, Wyoming, 82716 in accordance with our Bylaws and applicable law. The Board approves the final choice of candidates for nomination and recommendation for election to our stockholders.

 

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The Governance Committee selects nominees for the Board, including any nominees proposed for consideration by our stockholders, in accordance with the procedures and criteria set forth in the Corporate Governance Guidelines and the Governance Committee’s charter. The Board seeks a diverse group of candidates who possess the background, skills and expertise necessary to make a significant contribution to the Board and the company. In reviewing director candidates, the Governance Committee reviews each candidate’s qualifications for membership on the Board and takes into account the qualities required to add value to the company and to the functioning of the Board and its committees such as independence, financial expertise, diversity, experience with businesses and other organizations of comparable size, the interplay of the candidate’s experience with the experience of other Board members, the candidate’s personal and professional integrity and business judgment, and the candidate’s willingness to commit the required time to serve as a Board member.

 

As provided by our Corporate Governance Guidelines, a Board member is expected to demonstrate high ethical standards and integrity in his or her personal and professional dealings, act honestly and in good faith with a view to the best interest of the company, devote sufficient time to the affairs of the company and exercise care, diligence and skill in fulfilling his or her responsibilities, both as a Board member and as a member of any of its standing committees. A Board member is also expected to provide independent judgment on a broad range of issues, understand and challenge the key business plans of the company, be willing to work in a team and be open to opinions of others, and raise the appropriate difficult questions and issues to facilitate active and effective participation in the deliberation of the Board and of each committee on which he or she serves. Further, each of the Board members should make all reasonable efforts to attend all Board and committee meetings, review the materials provided by management in advance of the Board and committee meetings, and inform the Chairman of the Board before accepting membership on any other board of directors or audit committees. A Board member should also inform the Chairman of the Board of any change in the director’s interests that could affect the director’s relationship to the company.

 

The Governance Committee and the Board may take into account the nature of and time involved in a director’s service on other boards in evaluating the suitability of individual directors and making its recommendations to the Board or the company’s stockholders, as applicable.

 

Director Retirement Policy

 

In accordance with our Corporate Governance Guidelines, a director who has attained the age of 72 prior to the annual meeting of stockholders in any year shall retire from office at such annual meeting unless the Board, in its discretion, approves an exception as was done for Mr. Bailey who turned 72 on April 5, 2014. Based on his significant and continuing contributions, the Board, excluding Mr. Bailey, unanimously determined that it is in the best interest of the company for Mr. Bailey to continue to serve the remainder of his current term, which will expire at the annual meeting of stockholders in 2016.

 

Independence of Directors

 

Pursuant to our Corporate Governance Guidelines and the rules of the NYSE, our Board is comprised of a majority of directors who satisfy the criteria for “independent directors.”

 

Annual questionnaires are used to gather input to assist the Governance Committee and the Board in their determinations of the independence of the non-employee directors. Based on the foregoing and on such other due consideration and diligence as it deemed appropriate, the Governance Committee presented its findings to the Board on the independence of (1) Keith Bailey, (2) Patrick Condon, (3) William Fox III, (4) William Owens, (5) Steven Nance and (6) former director James Voorhees, in each case in accordance with the applicable federal securities laws, the SEC rules promulgated thereunder, and the applicable rules of the NYSE and our Guidelines on the Independence of the Directors (which may be found in Annex A to our Corporate Governance Guidelines).

 

The Board concluded that, other than in their capacity as directors, none of the non-employee directors had a material relationship with Cloud Peak Energy, either directly or as a partner, stockholder or officer of an organization that has a relationship with Cloud Peak Energy. The Board further determined that, (1) each director serving on the Audit Committee, Compensation Committee and Governance Committee is otherwise independent under applicable NYSE listing standards and our Guidelines on the Independence of the Directors for purposes of serving on the Board, the Audit Committee, the Compensation Committee and the Governance Committee, as applicable, (2) each such non-employee director satisfies the additional audit committee independence standards under Rule 10A-3 of the Exchange Act and the additional independence requirements applicable specifically to Compensation Committee members under the NYSE’s listing standards, and (3) each director serving on the Compensation Committee qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code (the “Code”) and a “non-employee director” under Rule 16b-3 of the Exchange Act.

 

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Executive Sessions

 

Our Corporate Governance Guidelines provide that every regular meeting of the Board will include one or more executive sessions at which no employee directors or other members of senior management are present in order to promote free and open discussion and communication among the non-executive directors. At least one executive session per year includes only independent directors. Our Chairman of the Board, Keith Bailey, who is an independent director, presides over all executive sessions of the Board. If, in the future, our Chairman of the Board were to be a person who is an executive of the company, in accordance with our Corporate Governance Guidelines, our Board would appoint a lead director from among the non-executive directors to preside over the executive sessions of the Board.

 

Audit Committee Financial Experts and Financial Literacy

 

The Board has determined that Messrs. Condon, Fox and Nance, the current members of the Audit Committee, are each financially literate as interpreted by the Board in its business judgment based on applicable NYSE rules, and that Messrs. Condon and Fox each further qualify as an audit committee financial expert, as such term is defined in applicable SEC rules.

 

Communications with Non-Management Directors and Other Board Communications

 

The Board provides a process, pursuant to its Policy Regarding Communications from Stockholders, to enhance the ability of stockholders and other interested parties to communicate directly with the non-management directors as a group, the entire Board, Board committees or individual directors.

 

Stockholders and other interested parties may communicate by writing to: Cloud Peak Energy Inc., 505 South Gillette Avenue, Gillette, Wyoming 82716, Attn: Corporate Secretary; or via Internet at www.cloudpeakenergy.com by clicking on “Contact the Board” in the “Corporate Governance and Committee Charters” subsection of the “Investor Relations” section. Stockholders may submit their communications to the Board or individual directors on a confidential or anonymous basis by sending the communication in a sealed envelope marked “Confidential—To be opened only by the Secretary of the Company.” The Secretary of the Company will compile all communications submitted using the process described herein and forward such communications to such director or group of directors he deems necessary or appropriate. The Secretary is not required to forward certain communications if it is determined that the communication is (1) unrelated to the duties and responsibilities of the Board, (2) unduly hostile, threatening or illegal, or (3) obscene or otherwise deemed to be inappropriate.

 

Stockholder communications that relate to accounting, internal accounting controls or auditing matters will be processed in accordance with our Accounting Complaints Policy. Concerns about accounting or auditing matters may be forwarded on a confidential or anonymous basis to the Audit Committee by writing to: Cloud Peak Energy Inc., 505 South Gillette Avenue, Gillette, Wyoming 82716 Attn: General Counsel, as well as through the Ethics Hotline at (866) 528-0054.

 

Director Attendance at Annual Meetings

 

The Corporate Governance Guidelines provide that directors are expected to attend our annual meeting of stockholders. All of our directors at the time of the 2014 annual meeting of stockholders attended that meeting.

 

Certain Relationships and Related Party Transactions

 

Policies and Procedures for Review and Approval of Related Party Transactions

 

Pursuant to our Related Party Transactions Policy, our Audit Committee reviews and approves or ratifies transactions in excess of $100,000 of value in which we participate and in which a director, nominee for director, executive officer of the company or any immediate family member thereof, or beneficial holder of more than 5% of any class of our voting securities has or will have a direct or indirect material interest. Under this policy, the Audit Committee is to obtain all information it believes to be relevant to a review and approval or ratification of these transactions. After appropriate review (which includes consideration of the financial terms of the transaction), the Audit Committee is to approve only those related party transactions that are consistent with our Related Party Transactions Policy and on terms, taken as a whole, which the Audit Committee believes are no less favorable to us than could be obtained in an arms-length transaction with an unrelated third party, unless the Audit Committee determines that the transactions are not inconsistent with the best interests of the company.

 

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Management Services Agreement

 

In connection with our 2009 initial public offering and related corporate structuring transactions, Cloud Peak Energy Inc. entered into the Management Services Agreement with its wholly-owned subsidiary CPE Resources pursuant to which we provide certain management services to CPE Resources. In exchange for the services, CPE Resources reimburses us for compensation and other expenses of certain of our officers and for reasonable out-of-pocket costs and expenses incurred by us for providing the management services, including legal, accounting and other third-party advisors and consultants, certain insurance costs and other items of corporate overhead and costs associated with our maintenance of our corporate existence and status as a reporting company under the federal securities laws. CPE Resources also provides reasonable administrative and support services to us, such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The Management Services Agreement also provides that our employees may participate in CPE Resources’ benefit plans, and that CPE Resources employees may participate in our equity incentive plan. CPE Resources has agreed to indemnify us for any losses arising from our performance under the Management Services Agreement, except that we have agreed to indemnify CPE Resources for any losses caused by our willful misconduct or gross negligence. In the event we cease to serve as manager of CPE Resources, the Management Services Agreement will automatically terminate. In 2014, CPE Resources paid us approximately $8.8 million for services rendered under this agreement.

 

Policies on Business Conduct and Ethics

 

We have established a corporate compliance program as part of our commitment to responsible business practices in all of the communities in which we operate. The Board has adopted a Code of Conduct that applies to all of our directors, officers and employees, which, although not intended to cover every situation or circumstance that may arise, is designed to (1) provide basic principles and guidelines to assist directors, officers and employees in complying with the legal and ethical requirements governing the company’s business conduct and (2) cover a wide range of business practices and procedures. In addition, we have adopted a Code of Ethics for Principal Executive and Senior Financial Officers mandating a commitment to financial integrity and to full and accurate financial disclosure in compliance with applicable accounting policies, laws and regulations. These two policies form the foundation of a compliance program that includes policies and procedures covering a variety of specific areas of professional conduct, including compliance with laws, conflicts of interest, confidentiality, public corporate disclosures, insider trading, anti-bribery, trade practices, protection and proper use of company assets, intellectual property, financial accounting, employment practices, health, safety and environment, and political contributions and payments.

 

Both our Code of Conduct and our Code of Ethics for Principal Executive and Senior Financial Officers are available on our website at www.cloudpeakenergy.com in the “Corporate Governance and Committee Charters” subsection of the “Investor Relations” section. In accordance with NYSE and SEC rules, we will disclose any future amendments to or waivers from our Code of Ethics for our Principal Executive and Senior Financial Officers as well as any waivers from our Code of Conduct for directors and executive officers by posting such information on our website within the time period required by applicable SEC and NYSE rules.

 

Indemnification of Officers and Directors

 

Our Bylaws require us to indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law. Our Bylaws also state that Cloud Peak Energy has the power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer employee or agent of the company, or is or was serving at the request of the company as a director, officer employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise (including, without limitation, with respect to an employee benefit plan), against any liability asserted against the person and incurred by the person or on the person’s behalf in any such capacity, or arising out of the person’s status as such, whether or not the company would have the power to indemnify the person against such liability under our Bylaws or the Delaware General Corporation Law; provided, however, that such insurance is available on acceptable terms, which determination will be by a vote of a majority of the Board.

 

Management Certifications

 

In accordance with the Sarbanes-Oxley Act of 2002 and SEC rules thereunder, our Chief Executive Officer and Chief Financial Officer have signed certifications under Sarbanes-Oxley Section 302, which have been filed as exhibits to the Form 10-K. In addition, our Chief Executive Officer submitted our most recent certification to the NYSE under Section 303A.12(a) of the NYSE listing standards on May 20, 2014.

 

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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS

 

The following table sets forth information with respect to the number of shares of common stock beneficially owned by each person known by Cloud Peak Energy to beneficially own more than 5% of the outstanding shares of our common stock. Except as otherwise noted, (A) the persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, and (B) ownership is as of the dates noted below. As of February 27, 2015, there were 61,021,242 shares of our common stock outstanding.

 

Name and Address of Beneficial Owner

 

Number of
Shares of
Common Stock

 

Percent of
Class

 

BlackRock, Inc. (1)

 

5,286,146

 

8.66

%

40 East 52nd Street

 

 

 

 

 

New York, NY 10022

 

 

 

 

 

Dimensional Fund Advisors LP (2)

 

3,953,433

 

6.48

%

6300 Bee Cave Road

 

 

 

 

 

Austin, TX 78746

 

 

 

 

 

The Vanguard Group, Inc. (3)

 

3,934,715

 

6.45

%

100 Vanguard Blvd.

 

 

 

 

 

Malvern, PA 19355

 

 

 

 

 

 


(1)                           This information is based on a Schedule 13G/A filed with the SEC on January 22, 2015, by BlackRock, Inc., in which it reported sole voting power as to 5,110,058 shares and sole dispositive power as to all shares.

(2)                           This information is based on a Schedule 13G filed with the SEC on February 5, 2015, by Dimensional Fund Advisors LP (“Dimensional”), in which it reported sole voting power as to 3,782,866 shares and sole dispositive power as to all shares. Dimensional furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional or its subsidiaries may possess voting and/or investment power over the securities that are owned by the Funds, and may be deemed to be the beneficial owner of the shares held by the Funds. However, all securities are owned by the Funds. Dimensional disclaims beneficial ownership of such securities.

(3)                           This information is based on a Schedule 13G/A filed with the SEC on February 11, 2015, by The Vanguard Group, Inc., in which it reported sole voting power as to 88,142 shares, sole dispositive power as to 3,850,273 shares and shared dispositive power as to 84,442 shares.

 

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The following table sets forth information with respect to the number of shares of our common stock beneficially owned by (1) our “named executive officers,” which, for purposes of this Proxy Statement, refers to the five current and former executive officers included in the Summary Compensation Table below in this Proxy Statement, (2) each current Cloud Peak Energy director and each nominee for director, and (3) all current Cloud Peak Energy directors and executive officers as a group. Except as otherwise noted, (1) the persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, and (2) ownership is as of February 27, 2015.

 

Name and Address (1) of Beneficial Owner

 

Number of
Shares of
Common Stock (2)

 

Percent
Of Class

 

Colin Marshall

 

627,288

 

1.02

%

Gary Rivenes

 

134,621

 

*

 

Michael Barrett (3)

 

149,345

 

*

 

James Orchard

 

86,619

 

*

 

Bryan Pechersky

 

89,995

 

*

 

Keith Bailey

 

83,962

 

*

 

William Fox III

 

33,843

 

*

 

William Owens

 

33,030

 

*

 

Steven Nance

 

32,530

 

*

 

Patrick Condon

 

26,993

 

*

 

All Current Executive Officers and Directors as a Group (14 persons)

 

1,292,955

 

2.11

%

 


*                                         Less than 1%.

(1)                                 Address for beneficial owners shown in the table is: c/o Cloud Peak Energy, 505 South Gillette Avenue, Gillette, Wyoming 82716.

(2)                                 Includes the following: (a) shares of unvested restricted stock, (b) common stock underlying restricted stock units that may vest within 60 days of February 27, 2015, and (c) shares issuable upon the exercise of outstanding stock options that are exercisable within 60 days of February 27, 2015, as follows:

 

Name

 

Unvested
Restricted
Stock Awards

 

Common Stock
Underlying
Restricted Stock Units

 

Shares
Issuable Upon
Exercise of Options (4)

 

Colin Marshall

 

30,882

 

 

 468,036

 

Gary Rivenes

 

12,500

 

 

66,652

 

Michael Barrett (3)

 

11,323

 

 

92,438

 

James Orchard

 

7,500

 

 

54,712

 

Bryan Pechersky

 

4,779

 

 

68,409

 

Keith Bailey

 

 

33,549

 

 

William Fox III

 

 

25,156

 

 

William Owens

 

 

25,156

 

 

Steven Nance

 

 

25,156

 

 

Patrick Condon

 

 

26,188

 

 

 

(3)                                 Mr. Barrett resigned from the company, effective March 16, 2015 and, as a result, forfeited all of his unvested equity awards.

(4)                                 As of February 27, 2015, all exercisable stock options had an exercise price greater than the market price of the underlying stock.

 

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EXECUTIVE COMPENSATION

 

Compensation Committee Report

 

The material in this Report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.

 

The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and contained in this Proxy Statement. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

Compensation Committee

 

William Fox III, Chair

 

Steven Nance

 

William Owens

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) provides a discussion of the compensation philosophy and objectives that underlie our executive compensation program and how we evaluated and set our executives’ compensation for 2014. This CD&A is intended to provide qualitative information concerning how 2014 compensation was earned and awarded to our named executive officers. Further, it identifies the most significant factors relevant to our 2014 executive compensation decisions as well as any significant changes to our executive compensation program that have been implemented prior to filing this Proxy Statement for 2015 and gives context to the data presented in the compensation tables included below in this Proxy Statement. The term “executive officers” means our senior executives who are all listed above under the heading “Executive Officers” and also includes Mr. Marshall (who is listed further above under the heading “Proposal I—Election of Directors” and is also an executive officer). The term “named executive officers” means the five current and former executive officers identified in the table below, each of whom were considered “executive officers” as of December 31, 2014.

 

Our Named Executive Officers

 

Named Executive Officer

 

Title

Colin Marshall

 

President, Chief Executive Officer and Director

Gary Rivenes

 

Executive Vice President and Chief Operating Officer

Michael Barrett (1)

 

Former Executive Vice President and Chief Financial Officer

James Orchard

 

Senior Vice President, Marketing and Government Affairs

Bryan Pechersky

 

Executive Vice President, General Counsel and Corporate Secretary

 


(1)                                 Mr. Barrett resigned from the company, effective March 16, 2015.

 

Executive Summary

 

Our executive compensation program is designed to attract and retain highly competent, motivated executives and reward them for superior performance, consistent with creating long-term stockholder value. It consists of a mix of three primary components, which we believe appropriately reward our executive officers for their overall contribution to company performance, while also aligning their interests with those of our stockholders with the ultimate objective of increasing long-term stockholder value:

 

·                  A competitive base salary;

·                  The potential for an annual cash incentive depending on company Adjusted EBITDA and safety performance and on individual performance; and

·                  An equity-based long-term incentive program that is tied to the performance of our share price, including relative and absolute TSR over a three-year period, and requires executives to maintain substantial ownership in accordance with our stock ownership guidelines.

 

In addition to these three primary components of executive compensation, our executive compensation program includes other features that we believe are consistent with strong governance practices, including:

 

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·                  Annual say on pay stockholder vote regarding our executive compensation program;

·                  Annual compensation program risk assessment;

·                  Engagement by the Compensation Committee of an independent compensation consultant;

·                  Executive stock ownership guidelines and holding requirements;

·                  Clawback Policy for incentive compensation;

·                  Insider Trading Policy that prohibits, among other things, hedging transactions relating to our stock;

·                  Double-trigger, rather than single-trigger, change in control vesting acceleration provisions for awards under our Cloud Peak Energy Inc. 2009 Long Term Incentive Plan (the “LTIP”); and

·                  No repricing of stock options without stockholder approval.

 

These components and other features of our overall executive compensation program are discussed in more detail below in this Proxy Statement.

 

For 2014, as a result of challenging industry conditions and our company’s cost management initiatives, the Compensation Committee determined there would be no adjustments to the executive compensation program for any of our executive officers. Accordingly, executive officer base salaries, target annual cash bonus opportunities (as a percentage of base salary) and target equity award values (as a percentage of base salary), as well as the overall structure and components of the executive compensation program, remained the same as in 2013. We believe our total compensation for 2014 appropriately reflects our performance for the year and the performance of our executive team.

 

As described in our year-end 2014 earnings announcement, our company and industry again faced a challenging external environment and weak coal pricing. Global economic growth remained sluggish, rail constraints reduced our shipments, there were abundant supplies of low priced natural gas, federal regulatory actions continued to negatively impact coal-fueled electricity generation in the United States, and there were low international coal prices, which were exacerbated by the strong U.S. dollar benefiting non-U.S. coal producers. Despite the external environment, our mines effectively reduced costs and controlled capital expenditures and we delivered Adjusted EBITDA (defined below) of over $200 million and finished the year with a strong cash position. We ended 2014 with available liquidity of $721 million, including cash and investments of $168.7 million at December 31, 2014.

 

In addition, we completed a number of important transactions in 2014 to strengthen our balance sheet, improve our long-term cash flow and enhance our export opportunities:

 

·                  Reduced long-term debt by $100 million, refinanced $200 million of senior notes at favorable interest rates and extended the maturity from 2017 to 2024;

·                  Entered into a new five year $500 million revolving credit facility that matures in February 2019. Subsequently, we amended the revolving credit facility to further relax certain financial covenants, including the net secured leverage ratio and net cash interest expense coverage ratio;

·                  Secured approval from the Wyoming Department of Environmental Quality to release and self-bond $200 million of reclamation surety bonds;

·                  Terminated the Tax Receivable Agreement (“TRA”) with Rio Tinto and extinguished the undiscounted liability of $103.6 million for a payment of $45.0 million;

·                  Divested our 50% share of the Decker Mine, reducing asset retirement liabilities by $72.2 million and receiving an option for up to 7.7 million tons of export capacity at the proposed Millennium Bulk Terminal; and

·                  Increased our committed export capacity at the fully-utilized Westshore Terminal, the lowest cost of the two existing cape-size ports in the Pacific Northwest for Powder River Basin exports to Asia.

 

The following table highlights our 2014 financial performance:

 

 

 

Year Ended

 

(in millions, except per ton amounts)

 

12/31/2014

 

12/31/2013

 

Adjusted EBITDA (1)

 

$

201.9

 

$

218.6

 

Net income

 

$

79.0

 

$

52.0

 

Average cost per ton sold

 

$

10.19

 

$

10.23

 

Shipments — owned and operated mines (tons)

 

85.9

 

86.0

 

Asian exports (tons)

 

4.0

 

4.7

 

 


(1)                                 Non-GAAP financial measure; please refer to Part II, Item 6 “Selected Financial Data,” Footnote 4 in our Form 10-K filed on February 18, 2015 for additional information regarding and a reconciliation of Adjusted EBITDA.

 

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During 2014, our nearly 1,400  full-time mine site employees suffered 12 reportable injuries resulting in a 2014 Mine Safety and Health Administration (“MSHA”) All Injury Frequency Rate (“AIFR”) of 0.79, an increase from the full year 2013 rate of 0.59. As discussed in more detail below, our MSHA AIFR number is usually different than our safety performance number we use for our annual cash bonus plan. As a result of the differences between our AIFR calculation for our bonus plan and the MSHA calculation, for 2014, we calculated an AIFR of 0.55 for our cash bonus plan safety performance and thereby achieved 129% of the target safety performance.

 

From the end of 2013 to the end of 2014, our TSR (calculated using the same methodology as for our performance share units) relative to our Performance Peer Group (defined below) was at the 52nd percentile. Our absolute TSR in 2014 (calculated on the same basis) was negative 45%. This performance reflects the continued challenging external environment facing our industry. Our TSR in 2014 impacts the three-year performance period for performance unit awards granted in 2014 and in certain prior years, in addition to the overall impact that our stock price has on the value associated with restricted stock and stock option awards.

 

For our CEO and other named executive officers, the three primary components of our executive compensation program discussed above represent the following percentages of their 2014 total targeted direct compensation:

 

2014 Direct Compensation Components—CEO

(80% performance-based)

 

2014 Direct Compensation Components—Average Other NEOs

(70% performance-based)

 

 

 

 

 

Base salaries are generally reviewed annually based upon a detailed review of the compensation for comparable positions of our Compensation Peer Group (defined below) and other market data provided from time to time by Aon Hewitt, the Compensation Committee’s independent compensation consultant. In addition, the Compensation Committee assesses individual performance, experience, responsibilities and time in position. For 2014, no changes were made to executive officer base salaries and, therefore, the Compensation Committee did not conduct a market comparison for base salaries. The following chart shows the annual adjustments, if any, to base salaries from 2012 through 2015 for the CEO and our other named executive officers:

 

2012-2015 NEO Base Salaries

 

 

The various adjustments that were made to base salaries over this multi-year period brought these salaries into better alignment with the base salaries for the respective positions of our Compensation Peer Group, and also were intended to reflect the contribution and performance of the individuals. For a discussion regarding 2015 base salaries, please see “—Changes in Executive Compensation Program for 2015” below.

 

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Our Annual Incentive Plan (“AIP”), approved at the 2013 annual meeting of stockholders, is an annual cash incentive plan designed to reward executives for the achievement of certain annual company performance targets that are approved by the Compensation Committee. Under the AIP, each executive has the potential to earn an annual cash incentive based upon a percentage of the executive’s base salary. As in prior years, the 2014 AIP performance targets consisted of three components:

 

·                  Adjusted EBITDA (weighted 60%);

·                  Safety (weighted 20%); and

·                  A discretionary component for personal performance (weighted 20%).

 

If performance targets were exceeded, maximum payouts of up to two times target were possible.

 

For 2014, we were above the target for safety as well as the Adjusted EBITDA target of $195 million. The Adjusted EBITDA component was awarded at 110% of target and the safety performance component was awarded at 129% of target. The personal performance components of the AIP were made at levels ranging between 150% and 185%, depending on the assessment of each individual’s performance during the year. Although personal performance was discretionary at the sole determination of the Compensation Committee, with respect to the senior executive officers other than himself, our CEO provided his recommendations for these amounts to the Compensation Committee for its consideration. As a result, the AIP payouts for our named executive officers for 2014 ranged between 122% and 129% of target. As shown in the charts below, our AIP payouts have reflected the different performance levels for Adjusted EBITDA, safety and personal performance over time.

 

AIP Payout—CEO

Average AIP Payout—Other NEOs

 

 

 

AIP Results as % of Target

 

 

 

Adjusted
EBITDA (%)

 

Safety (%)

 

Personal Performance Range
for CEO and Other

Then-Applicable NEOs (%)

2010

 

179

 

164

 

120 – 140

2011

 

100

 

0

 

120 – 190

2012

 

87

 

90

 

110 – 175

2013

 

84

 

167

 

100 – 160

2014

 

110

 

129

 

150 – 185

 

The LTIP is an equity-based plan designed to align the long-term interests of our executive officers with those of our stockholders. Under the LTIP, each executive is awarded an annual award value based upon a multiple of the executive’s base salary. As in prior years, the 2014 award consisted of three components:

 

·                  Restricted stock awards or units (25%);

·                  Nonqualified stock options (25%); and

·                  Performance share units (50%).

 

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The long term value of the LTIP is a function of our stock price performance over time: if our stock price increases, the value of awards made under the LTIP increases and our executives benefit; if our stock price decreases, the value of awards made under the LTIP decreases and our executives do not achieve some or any of the potential value of the awards.

 

The following tables provide a comparison of the 2011 through 2014 target LTIP award values at grant date versus actual values or estimated values at year-end 2014 for our CEO and other named executive officers. Grant date targeted value reflects the base salary multiplied by the target LTIP award percentage of the base salary. The year-end 2014 value is calculated as of December 31, 2014 based on our closing stock price of $9.18. As shown below, the realized or estimated year-end 2014 values are significantly below the targeted award values for our executives.

 

LTIP Awards — Grant Date Targeted Value vs Year-End 2014 Value

 

GRAPHIC

GRAPHIC

 

 

GRAPHIC

GRAPHIC

 


(1)         All 2011 LTIP awards were subject to a three-year vesting schedule, in addition to satisfaction of TSR performance criteria over the three-year period for our performance share units (“PSUs”). 2011 award values at year-end 2014 were calculated as follows:  (1) PSUs reflect the actual 0% vesting of those awards; (2) nonqualified stock options (“NQ”) were valued at $0 because the exercise price was in excess of the closing stock price at year-end 2014; and (3) restricted stock awards (“RSAs”) were valued based on the gross, pre-tax number of vested RSAs multiplied by our closing stock price of $9.18 on December 31, 2014.

(2)         All 2012 LTIP awards were subject to a three-year vesting schedule, in addition to satisfaction of TSR performance criteria over the three-year period for our PSUs. 2012 award values at year-end 2014 were calculated as follows:  (1) PSUs reflect the actual 48% vesting of those awards; (2) NQ were valued at $0 because the exercise price was in excess of the closing stock price at year-end 2014; and (3) RSAs were valued based on the number of unvested RSAs at year-end 2014 multiplied by our closing stock price of $9.18 on December 31, 2014.

(3)         All 2013 LTIP awards are subject to a three-year vesting schedule, in addition to satisfaction of TSR performance criteria over the three-year period for our PSUs. 2013 award values at year-end 2014 were calculated as follows:  (1) PSUs reflect the estimated 50% vesting of those awards based on TSR performance through year-end 2014; (2) NQ were valued at $0 because the exercise price was in excess of the closing stock price at year-end 2014; and (3) restricted stock units (“RSUs”) were valued based on the number of unvested RSUs multiplied by our closing stock price of $9.18 on December 31, 2014.

(4)         All 2014 LTIP awards are subject to a three-year vesting schedule, in addition to satisfaction of TSR performance criteria over the three-year period for our PSUs. 2014 award values at year-end 2014 were calculated as follows:  (1) PSUs reflect the estimated 50% vesting of those awards based on TSR performance through year-end 2014; (2) NQ were valued at $0 because the exercise price was in excess of the closing stock price at year-end 2014; and (3) RSUs were valued based on the number of unvested RSUs multiplied by our closing stock price of $9.18 on December 31, 2014.

 

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Additional details of our executive compensation program are included in the following sections of our CD&A. Please read them to develop a full understanding of our program. We firmly believe our executive compensation program is in the best interest of our stockholders, is performance based, and is consistent with creating long-term stockholder value.

 

Executive Compensation Philosophy and Objectives

 

Our executive compensation program is designed to reward our executive officers for their overall contribution to company performance, including the achievement of specific annual, long-term and strategic goals. The executive compensation program also seeks to align executive officers’ interest with those of our stockholders by rewarding performance that meets or exceeds established goals, with the ultimate objective of increasing long-term stockholder value. Specifically, the program is designed to:

 

·                  Retain and attract a highly competent, motivated team of employees appropriately aligned with the long-term interest of our stockholders;

·                  Encompass safety and environmental stewardship as core elements of our compensation program;

·                  Encourage behavior that will enhance both current year performance and long-term growth of stockholder value;

·                  Target total compensation to be in a range around the 50th percentile of our peer group with the opportunity for enhanced compensation for superior company and individual performance;

·                  Provide as part of our total compensation base salary, the opportunity for a cash incentive and, as appropriate, the opportunity for equity, linked to the long-term growth in TSR;

·                  Achieve minimum performance thresholds prior to any incentive compensation being earned;

·                  Provide market competitive programs of health, welfare and retirement benefits to all employees on an equivalent basis; and

·                  Make equity ownership and retention guidelines for executives and directors a key component to ensure alignment with long-term stockholder interests.

 

The Compensation Committee reviews the compensation philosophy annually to review whether the goals and objectives are being met, and what, if any, changes may be needed to the philosophy.

 

Annual Say on Pay Stockholder Vote

 

As recommended by our Board in 2011, a majority of stockholders in 2011 expressed their preference for an advisory vote on executive compensation occurring every year, and we have implemented that recommendation. The following table shows the results of our annual say on pay vote in 2014 and going back to 2011:

 

Annual
Stockholders Meeting

 

Say on Pay
Vote Approvals

 

2014

 

91

%

2013

 

96

%

2012

 

98

%

2011

 

99

%

 

The Compensation Committee evaluates the results of each year’s advisory vote on executive compensation and the support expressed by stockholders, and the Compensation Committee also considers many other factors in evaluating our executive compensation programs as discussed in this CD&A, including the Compensation Committee’s assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by the Committee’s independent compensation consultant, and review of data relating to pay practices of our Compensation Peer Group.

 

For 2014, the Compensation Committee did not make any changes to our compensation programs as a result of the “say on pay” vote, given the strong support stockholders expressed for our executive compensation programs.

 

Setting Executive Compensation for 2014

 

The Compensation Committee typically has engaged Aon Hewitt, its independent compensation consultant (which is also discussed above under “Corporate Governance” within the subsection titled “Compensation Committee”), to conduct a review of Cloud Peak Energy’s executive officer compensation program in order to assist the Compensation Committee in determining whether any elements or amounts of the existing compensation program should be modified.

 

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For 2014, executive officer base salaries, target annual cash bonus opportunities (as a percentage of base salary) and target equity award values (as a percentage of base salary), as well as the overall structure and components of the executive compensation program, remained the same as in 2013. Aon Hewitt’s engagement for 2014 included the following, at the Compensation Committee’s request:

 

·                  Assist the Compensation Committee in staying abreast of industry, governance and regulatory developments impacting executive and director compensation;

·                  Participate in Compensation Committee meetings as requested and provide the views of Aon Hewitt with regard to various agenda items considered by the Compensation Committee throughout 2014;

·                  Assist the Compensation Committee in reviewing and updating the company’s Performance Peer Group (defined below), which is used for purposes of TSR comparisons and vesting requirements in the company’s performance share unit awards;

·                  In connection with the company’s previously announced Chief Financial Officer transition that was effective in March 2015, provide peer data to assist the Compensation Committee in its compensation determinations for the promotion of Mr. Heath Hill from Vice President and Chief Accounting Officer to Executive Vice President and Chief Financial Officer, upon the March 2015 resignation of the company’s former Chief Financial Officer, Mr. Michael Barrett; and

·                  Assist with the Compensation Committee’s periodic compensation program risk assessment.

 

Because the 2014 executive compensation program remained the same as in 2013, there were no updates to the Compensation Peer Group companies. The Compensation Peer Group is used for the purpose of establishing the comparison targets for and annual review of the company’s executive compensation program. As discussed below, we have a separate Performance Peer Group for purposes of the TSR performance metrics used in our performance share units. Our Compensation Peer Group is designed to focus on coal industry peers and competitors for executive talent. Our Performance Peer Group is a broader group that reflects the equity performance of coal producers and also includes oil and gas companies because of the impact natural gas has on demand for domestic coal supplies. For reference, below are the Compensation Peer Group companies:

 

 

 

 

 

 

 

2013 / 2014 Compensation Peer Group

 

 

 

 

 

 

1)             Alpha Natural Resources

2)             Arch Coal

3)             Consol Energy

4)             James River Coal

5)             Oxford Resource Partners

6)             Patriot Coal

7)             Peabody Energy

8)             Rhino Resource Partners

9)             Suncoke Energy

10)      Walter Energy

11)      Westmoreland Coal

 

 

 

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Table of Contents

 

Key Elements of Our 2014 Executive Compensation Program

 

The following table highlights the key elements of our 2014 executive compensation program and the primary purpose of each element. Each element set forth in the table below is discussed in further detail below in this CD&A.

 

Element

 

Objectives and Basis

 

Key Features

Base Salary

 

·                  Provide base compensation that is competitive for each position to reward and motivate individual performance.

 

·                  Targeted to be in a range around the 50th percentile of our Compensation Peer Group, with the opportunity for enhanced compensation for superior company and individual performance.

 

·                  Varies by executive based upon individual skills, experience, responsibilities of the position, performance and other factors.

 

 

 

 

 

Annual Incentive Compensation (Cash)

 

·                  Provide short term rewards for achieving annual operating, financial and personal performance objectives.

 

·                  Align executive officers’ interests with those of our stockholders by promoting strong annual results through maximizing revenue and operating efficiency.

 

·                  Retain executive officers by providing market-competitive compensation.

 

·                  Cash incentive based on achievement of company financial and safety targets.

 

·                  A portion of the cash incentive is based on individual performance at the discretion of the Compensation Committee.

 

·                  Actual payout can vary from 0% to 200% of the target amount.

 

 

 

 

 

Long-Term Incentive Awards (Equity)

 

·                  Align executives’ interests with stockholders’ interests by linking part of each executive officer’s compensation to long-term corporate performance.

 

·                  Provide ownership opportunities which promote retention and enable us to attract and motivate our executive officers.

 

·                  Retain executive officers through multi-year vesting of equity grants.

 

·                  Targeted at a level that will provide total direct compensation opportunities (base + annual incentive + equity awards) in a range around the 50th percentile of our Compensation Peer Group’s total direct compensation.

 

·                  Utilizes different equity types, historically including stock options, restricted stock and performance share units to balance multiple objectives. Stock options were eliminated from the 2015 equity award mix, as discussed below.

 

·                  Long-term equity awards generally vest 100% at the end of a three-year period. Performance share units also incorporate relative and absolute TSR requirements for any vesting.

 

Base Salary

 

Base salaries are generally reviewed annually based upon a detailed review of the compensation for comparable positions of our Compensation Peer Group and other market data provided from time to time by the Compensation Committee’s independent compensation consultant. In addition, the Compensation Committee assesses individual performance, experience, responsibilities and time in position. For 2014, no changes were made to executive officer base salaries and, therefore, the Compensation Committee did not conduct a market comparison for base salaries.

 

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Annual Incentive Compensation

 

Our AIP is our cash incentive plan, which has a one-year performance period. Awards under the plan are paid based on actual performance against pre-established company targets that are approved in advance by the Compensation Committee and also include a discretionary personal performance component. In accordance with the plan, annual incentive compensation is determined after the completion of each fiscal year.

 

As in prior years, the target bonus percentage amounts (“target”) under the AIP for 2014 awards were based on a multiple of each executive’s base salary for 2014. Target bonuses are generally reviewed annually based upon a detailed review of the compensation for comparable positions of our Compensation Peer Group and other market data provided from time to time by Aon Hewitt. For 2014, no changes were made to executive officer target bonus percentage amounts and, therefore, the Compensation Committee did not conduct a market comparison for target bonuses.

 

The following table provides the 2014 target multiple, as well as potential payments which could have been made upon the achievement of a threshold, target or maximum level of performance.

 

Name

 

2014 Target Award
(% of Base Salary)

 

2014 Threshold:
50% of Target
Award ($)

 

2014 Target:
100% of Target
Award ($)

 

2014 Maximum:
200% of Target
Award ($)

 

Colin Marshall

 

100

 

370,000

 

740,000

 

1,480,000

 

Gary Rivenes

 

75

 

168,750

 

337,500

 

675,000

 

Michael Barrett

 

75

 

150,000

 

300,000

 

600,000

 

James Orchard

 

60

 

105,000

 

210,000

 

420,000

 

Bryan Pechersky

 

60

 

105,000

 

210,000

 

420,000

 

 

The measurement objectives for the plan were established at the beginning of 2014 by the Compensation Committee. There are three components that determined 2014 awards under the AIP: (1) Adjusted EBITDA (weighted 60%), (2) safety (weighted 20%) and (3) a discretionary component for personal performance (weighted 20%).

 

Although personal performance is discretionary at the sole determination of the Compensation Committee, with respect to the senior executive officers other than himself, our CEO provided his recommendations for these amounts to the Compensation Committee for its consideration. The personal performance component is evaluated against the designated responsibilities of each executive’s position, achievement of annual departmental goals, feedback from peers and other co-workers, assessments of our independent directors, annual performance ratings and the executive’s contributions to significant corporate transactions and initiatives during the year. For 2014, those transactions and initiatives included the previously referenced debt refinancing activities, termination of the TRA, divestment of our 50% share of the Decker Mine, increased long-term capacity at the Westshore Terminal and our ongoing cost management efforts. As a result of this evaluation by the Compensation Committee and other independent directors, and taking into account the recommendations of our CEO for the other executive officers, our named executive officers received amounts ranging from 150% to 185% of their targeted amounts for their personal performance components.

 

The threshold, target and maximum for the Adjusted EBITDA and safety components, including actual results achieved for each component for 2014, are shown in the following table:

 

Metric

 

Threshold

 

Target

 

Maximum

 

Actual 2014
Result

 

Adjusted EBITDA (in millions) (1)

 

$

131

 

$

195

 

$

262

 

$

202

 

Safety (AIFR) (2)

 

0.73

 

0.59

 

0.44

 

0.55

 

 


(1)                                 Refer to Part II, Item 6 “Selected Financial Data,” Footnote 4 in our Form 10-K filed on February 18, 2015 for additional information regarding and a reconciliation of Adjusted EBITDA.

(2)                                 See below for a discussion of the differences between our all injury frequency rate (AIFR) calculation for the AIP compared to the Mine Safety and Health Administration (MSHA) methodology.

 

In setting the performance objectives for 2014, the Compensation Committee considered a variety of factors, including (i) the continued importance of safety in the company’s culture and the desire to continuously improve the company’s safety record, (ii) setting financial performance targets at a level which reflected our outlook for the business and would appropriately incentivize and compensate executive officers, and (iii) the importance of holding each executive accountable for his or her individual contribution to our success.

 

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In establishing Adjusted EBITDA targets for 2014, the Compensation Committee reviewed a sensitivity analysis to the key business drivers of Adjusted EBITDA. This sensitivity analysis sought to identify opportunities and risks for each of the key business drivers to establish the threshold, target, and maximum Adjusted EBITDA targets. Key business drivers included sales volumes, coal prices and operating costs, including diesel fuel, labor and explosives costs, logistics revenues and transportation costs.

 

Taking into account the recommendation of management, the Compensation Committee again used a rolling three-year average of our AIFR to establish the safety threshold. Target and maximum levels were established by reducing the threshold number by 20% and 40%, respectively. In general, we calculate our AIFR using the same methodology used to report monthly to MSHA, which is calculated by multiplying the number of reportable injuries times 200,000, divided by the total number of hours of employee exposure. The number we report to MSHA is required to include only the employees at our three mines and does not include contractors, visitors or employees at our non-mine sites. However, the safety number we use for our AIP is based on all our employees and includes contractors and all other visitors to all our sites to better reflect our core values and commitment to the safety of everyone involved in our business. As such, our number for purposes of our AIP target is usually different than the MSHA number we report publicly.

 

In addition, the Compensation Committee excluded the June 2014 single haul truck incident at our Spring Creek Mine for purposes of the company’s safety performance for the 2014 cash bonus plan and for the three-year average used to calculate future safety targets. This determination was made after considering the circumstances of the fatality of the haul truck operator, the final report and findings of MSHA and the intended purposes achieved by including the safety component in the company’s bonus program, and it took into consideration the Compensation Committee’s discussions with our HSEC Committee and the independent directors of the Board. In December 2014, MSHA issued its final report after a thorough investigation of this single haul truck incident. The investigation did not result in any findings or citations against the company for operational, management or mechanical issues or for our safety training programs and systems. Following its investigation, MSHA determined that a contributing factor in the fatality was that the victim, despite our seat belt policy, did not wear his seat belt. MSHA could not determine why the haul truck travelled through the berm. MSHA issued the company a citation of $3,996 as a result of the deceased operator not wearing his seat belt.

 

As a result of these differences between our AIFR calculation and the MSHA calculation, for 2014, we calculated an AIFR of 0.55, compared to a 0.79 reported by MSHA.

 

The following table provides a quantitative supplemental breakdown of the three components that make up the named executive officers’ actual 2014 award under our AIP. Both the dollar amount of the award and the award as a percentage of each named executive officer’s target are displayed for each component.

 

 

 

ADJUSTED EBITDA
Weighting: 60%
Result as % of
Target: 110%

 

SAFETY
Weighting: 20%
Result as % of
Target: 129%

 

PERSONAL
PERFORMANCE
Weighting: 20%

 

 

 

Total 2014 Award

 

 

 

Dollar
Amount
of Award

 

Dollar
Amount
of Award

 

Result as %
of Target

 

Dollar
Amount
of Award

 

Total
Performance
Score

 

($)

 

As a % of
Base
Salary

 

Colin Marshall

 

$

489,931

 

$

190,940

 

185

%

$

273,829

 

129

%

954,700

 

129

%

Gary Rivenes

 

$

223,438

 

$

87 080

 

185

%

$

124,882

 

129

%

435,400

 

97

%

Michael Barrett

 

$

198,651

 

$

77,420

 

185

%

$

111,029

 

129

%

387,100

 

97

%

James Orchard

 

$

139,074

 

$

54,201

 

150

%

$

63,025

 

122

%

256,300

 

73

%

Bryan Pechersky

 

$

139,072

 

$

54,200

 

180

%

$

75,628

 

128

%

268,900

 

77

%

 

Long-Term Equity-Based Awards

 

The LTIP provides for the grant of a variety of equity-based awards, including share based awards and options, and awards contingent on TSR performance. The LTIP is intended to promote our long-term success and increase long-term stockholder value by attracting, motivating and retaining our non-employee directors, officers and employees. Additionally, to better align our executive officers’ long-term interests with those of our stockholders, the LTIP does not allow for the repricing of stock options once they are awarded unless approved by our stockholders.

 

We intend for a significant portion of our total compensation provided to our executive officers to consist of equity-based compensation. For 2014, the Compensation Committee awarded a mix of non-qualified stock options, restricted stock units and performance share units to accomplish several objectives, including:

 

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·                  Providing an incentive for our executive officers to grow long-term stockholder value;

·                  Providing an incentive for our executive officers to preserve long-term stockholder value and avoid excessive risks; and

·                  Positively impacting executive officer retention.

 

Equity Award Material Terms—We grant equity awards to our executives and certain other employees annually, generally in March of each year following our year-end earnings announcement. As determined by the Compensation Committee, stock options have a fixed term (subject to a 10 year maximum) after which they will not be exercisable. Stock options and restricted stock units vest on the basis of time as determined by the Compensation Committee, which is three years in the case of all awards granted to date. All outstanding equity awards vest on an accelerated basis in connection with certain types of terminations of employment following a change in control. For information regarding the terms of this accelerated vesting, please see “—Potential Payments Upon Termination or Change in Control—LTIP Awards.”

 

A named executive officer will not receive dividends, if any, on restricted stock until the shares have fully vested and, upon the vesting date, the officer will be paid any dividends that may have accrued on the restricted shares in the form of additional shares of unrestricted stock. The named executive officers will earn dividend equivalents, if any, on the performance share units, which will be reinvested into additional performance share units.

 

Our performance share units require a minimum relative stock performance compared to our Performance Peer Group. Payouts also depend on whether the company has a positive TSR for the performance period. Performance share units are intended to provide market-competitive compensation to our executive officers. The performance conditions are established by the Compensation Committee at the outset of the performance period, which is currently three years. The performance condition that the Compensation Committee determined to use in order to more closely align this element of the named executive officers’ compensation with our stockholders’ interests is relative total shareholder return (“RTSR”), which is calculated by comparing our TSR to the TSR of our Performance Peer Group over the performance period. TSR is calculated as follows:

 

TSR(1)  =

End of Period Share Price – Beginning of Period Share Price + Dividends(2)

Beginning of Period Share Price


 

(1)                                 Share prices are calculated based on a multi-day average, as provided by the relevant award agreement.

 

(2)                                 Assumes the reinvestment of dividends paid in the applicable shares during the performance period, as provided by the relevant award agreement.

 

Performance share unit awards will vest at target if the company’s RTSR for the three year performance period is at least at the median level of the Performance Peer Group TSR, assuming a positive TSR. Awards can vest at an enhanced percentage of the target award in the case of an RTSR level above targeted levels (up to 200%). Likewise, no award would be earned if RTSR is below a threshold level. Award payouts also depend on whether the company has a positive TSR for the performance period. As a result of this absolute TSR requirement, none of the PSU awards granted in 2011 vested, and only 48% of the target PSU awards granted in 2012 vested after the three-year performance period ended in 2014.

 

Performance Peer Group—In connection with the award of performance share units in 2014, the Compensation Committee reviewed and updated the performance peer group against which the company’s TSR is measured. The Compensation Committee asked Aon Hewitt to assist in reviewing the performance peer group. The Compensation Committee considered the relative size of the included companies, as well as the overall mix of coal and oil and gas companies in the performance peer group. In 2014, the Compensation Committee approved the following Performance Peer Group:

 

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2014 PSU Performance Peer Group

 

1)                   Alliance Resource Partners

2)                   Alpha Natural Resources

3)                   Arch Coal

4)                   Cabot Oil & Gas

5)                   Consol Energy

6)                   EQT Corp.

7)                   Forest Oil Corp.

8)                   James River Coal

9)                   Newfield Exploration Co.

10)            Noble Energy

11)            Oxford Resource Partners

12)            Peabody Energy

13)            Penn Virginia Corporation

14)            Rhino Resource Partners

15)            Sandridge Energy

16)            SM Energy

17)            Suncoke Energy

18)            Walter Energy

19)            Westmoreland Coal

20)            Whiting Petroleum Corp.

 


*                                         Italics denote companies that are common as between the Performance and Compensation Peer Groups.

 

Equity Awards for 2014—Our equity program is based on the award of equity targeted at the time of grant to be equal to a certain percentage of the executive’s base salary, or “target multiple.” In 2014, equity awards were in the form of (1) restricted stock units (25%), (2) nonqualified stock options (25%) and (3) performance share units (50%). The Compensation Committee made no changes to the 2014 target multiples for any of the named executive officers.

 

The following table provides the LTIP target multiples for 2014 for each of the named executive officers:

 

Name

 

2014 Target
as % of
Base Salary

 

% of Target:
Restricted
Stock Units

 

% of Target:
Nonqualified
Stock Options

 

% of Target:
Performance
Share Units
(at Target)

 

% of Target:
Performance
Share Units
(at Maximum)

 

Colin Marshall

 

300

 

25

 

25

 

50

 

100

 

Gary Rivenes

 

200

 

25

 

25

 

50

 

100

 

Michael Barrett (1)

 

200

 

25

 

25

 

50

 

100

 

James Orchard

 

150

 

25

 

25

 

50

 

100

 

Bryan Pechersky

 

100

 

25

 

25

 

50

 

100

 

 


(1)                                 Mr. Barrett resigned from the company, effective March 16, 2015 and, as a result, he forfeited all of his unvested equity awards.

 

Stock Ownership Guidelines and Holding Requirements—In January 2011, the Compensation Committee established stock ownership guidelines for our executive officers and certain other employees. These guidelines reinforce the importance of aligning the interests of our executive officers with the interests of our stockholders. The guidelines are expressed in terms of the value of their equity holdings as a multiple of each named executive officer’s base salary, as follows:

 

Name

 

Stock Ownership Guideline

Colin Marshall

 

5X Base Salary

Gary Rivenes

 

3X Base Salary

Michael Barrett

 

3X Base Salary

James Orchard

 

2X Base Salary

Bryan Pechersky

 

3X Base Salary

 

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Equity interests that count toward the satisfaction of the ownership guidelines include stock owned outright by the employee or jointly owned, unvested restricted stock or stock units, and, to the extent provided, stock owned in a company-sponsored retirement plan. Although the employees are not subject to a minimum number of years in which to achieve their ownership goals, they are generally prohibited from selling or transferring any stock granted by the company other than to pay the exercise price of stock options or to pay taxes owed as a result of vesting or settlement of an award prior to the time that they meet the ownership guidelines. Per our Stock Ownership Guidelines, ownership is calculated based on an individual’s annual base salary and the average share price of the seven trading days immediately prior to the date of the planned sale transaction. After they have met the ownership guidelines, they are also generally prohibited from selling or transferring stock granted by the company that would cause them to drop below their ownership guideline level unless the transaction was also related to the payment of exercise prices or taxes on equity awards.

 

Additionally, we have stock ownership guidelines for our non-employee directors. For information regarding these guidelines, please see “Director Compensation” below.

 

Clawback Policy

 

Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires the SEC to direct national securities exchanges to prohibit the listing of any security of an issuer that fails to develop and implement a clawback policy to recover certain incentive-based compensation in the event of a financial restatement due to material non-compliance with any financial reporting requirement. Although these rules have not been finalized, in April 2013, the Board approved and adopted the Cloud Peak Energy Inc. Clawback Policy (the “Clawback Policy”). Under the Clawback Policy, if the Board determines, after conducting a reasonable investigation, any wrongful conduct such as fraud, gross negligence, or intentional misconduct was committed by, or attributable to, any current or former senior executive officer or employee who received an award or payout under the LTIP or AIP was a significant contributing factor to the company having to restate all or a portion of its publicly reported financial statements due to material non-compliance with any financial reporting requirement under the U.S. federal securities laws (which shall exclude any restatement caused by a change in applicable accounting rules or interpretations), then the Board shall have the right to take, or cause to be taken, in its sole discretion, such action as it deems necessary to remedy the wrongful conduct and seek to prevent its recurrence. Remedies may result in the reduction, cancellation, forfeiture or recoupment of such grants if certain specified events occur, including, but not limited to, an accounting restatement due to the company’s material non-compliance with financial reporting regulations.

 

Insider Trading Policy; Prohibitions Against Hedging and Pledging

 

In addition to addressing other customary topics, our Insider Trading Policy prohibits company employees, directors and officers from engaging in certain transactions, including transactions in company or subsidiary debt securities, short sales of company securities, publicly-traded options, any hedging transactions and margin accounts and pledged securities.

 

Other Benefits

 

Retirement and Health and Welfare—We offer the same types of retirement, health and welfare benefits to all of our employees, including to our executive officers, as part of our total executive compensation package. Our programs are designed to be competitive and cost-effective. It is our objective to provide core benefits, including medical, retirement, life insurance, and paid time off to all our employees and executive officers. Benefits programs are reviewed on a periodic basis by comparing against companies with which we directly compete, reviewing published survey information, and obtaining advice from various third party benefits consultants.

 

Our executive officers and other employees participate in our tax-qualified defined contribution savings plan, which we refer to as the Profit Sharing Plan. The Profit Sharing Plan is designed to attract and retain key talent by providing our executive officers and other employees with a competitive retirement program. We also offer a retiree medical plan that is designed to provide retiree medical benefits for our executive officers and other employees once they reach age 55 and have 10 years of continuous service combined with our predecessor, Rio Tinto, and us or age 65. We provide a company match for 401(k) participants of up to the first 6% of the individual’s contributions, and we currently provide a profit sharing contribution of 4% of base salary and a portion of the annual cash incentive for each of our employees, including our named executive officers. The profit sharing contribution was previously 6% but was reduced to 4% in 2015 in response to current industry conditions.

 

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We also offer a non-qualified deferred compensation program (“NQDC Plan”) to the executive officers and select other high-level employees. The NQDC Plan was put in place to continue our efforts to remain competitive with our benefit programs and is designed to allow the deferral of pre-tax compensation in excess of the limits imposed by the Internal Revenue Service under our 401(k) and profit sharing plans. Participants are eligible to defer up to 80% of their base salary and 100% of their AIP bonus award earned during the year. Similar to our 401(k) plan, participants are eligible to receive a dollar-for-dollar company match of up to 6% of their deferrals. The NQDC Plan also provides a company contribution consistent with the design of our Profit Sharing Plan. Additional information regarding the material terms of the NQDC Plan is set forth under “—Executive Compensation Tables—Nonqualified Deferred Compensation.”

 

Employment Agreements—We have entered into employment agreements with all our named executive officers and other executive officers who report directly to our CEO. These employment agreements provide assurances as to position, responsibility, location of employment and certain compensation terms, which, if breached, would constitute “good reason” to terminate employment with us. Each agreement currently has a one-year term that will extend automatically for one year unless advance written notice by either party is provided. In addition, the agreements provide for:

 

·                  Specified minimum base salaries;

·                  Participation in all of our employee benefit plans on the same basis as our other senior management;

·                  Termination benefits, including, in specified circumstances, severance payments; and

·                  Annual bonuses pursuant to our AIP and grants pursuant to our LTIP.

 

We have not entered into separate severance agreements with our executive officers and instead rely on the terms of the executive’s employment agreement and LTIP award agreements to dictate the terms of any severance and change in control arrangements. Our employment agreements do not provide for accelerated or enhanced cash payments or health and welfare benefits upon a change in control, but do provide for such payments upon the termination of the executive’s position for “good reason” or “without cause,” which are defined in the employment agreement and described in more detail in “—Potential Payments Upon Termination or Change in Control” below. Each of the executive officer’s LTIP award agreements set forth acceleration terms in the event of a termination within two years of a change in control or termination of the executive’s position by the executive for good reason or by us without cause. Additional information regarding these severance terms is set forth below under “—Potential Termination and Change in Control Benefits Table.”

 

Perquisites—It is our policy to not grant perquisites to our named executive officers as a matter of good practice, although the Compensation Committee reserves the right to grant perquisites in the future if it finds that doing so furthers its compensation goals and objectives.

 

Changes in Executive Compensation Program for 2015

 

In light of Cloud Peak Energy’s approximately five-year tenure as a public company, the Compensation Committee conducted a historical review of the overall executive compensation program in anticipation of making its 2015 determinations. The Compensation Committee’s review was intended to ensure continuing alignment of the program with the increasingly challenging and volatile industry conditions for U.S. coal producers, including the compensation philosophy objective of retaining and attracting a highly competent, motivated team of employees appropriately aligned with the long-term interests of the company’s stockholders. Specifically, the  primary purposes of the review were to evaluate whether (1) the executive compensation philosophy remained appropriate, as set forth in the company’s annual proxy statement, (2) the overall executive compensation program and its various components have functioned as intended over time, in accordance with the compensation philosophy and taking into account the changed industry conditions for U.S. coal producers since the company’s 2009 initial public offering, and (3) there are any compensation program components that should be considered for modification.

 

The Compensation Committee reviewed and discussed various matters, including industry trends in executive compensation, the company’s compensation philosophy and our goal of aligning the executive compensation program with industry conditions to achieve the objectives of the compensation philosophy, the current Compensation Peer Group and whether any potential changes to the peer group were necessary at this time, and the primary elements of the company’s executive compensation program, including base salary, annual cash bonus opportunity and equity awards. The Compensation Committee also reviewed the current long-term incentive plan structure, including historical equity vestings relative to target values and expectations at the time of those previous grants, equity vesting schedules, whether stock options remained an appropriate equity compensation tool, and the impact of the absolute TSR vesting requirements for performance share units which reduces vested shares regardless of relative TSR performance compared to the Performance Peer Group.

 

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Following the Compensation Committee’s review and discussions, the Compensation Committee reaffirmed many elements of our executive compensation program and determined to modify other elements. The Compensation Committee reaffirmed the company’s compensation philosophy and objectives, the company’s annual cash bonus plan structure and metrics, the Compensation Peer Group (other than necessary adjustments as described below), and the three-year cliff vesting structure of equity awards. The Compensation Committee evaluated the intended motivational and alignment purposes of stock options in light of ongoing depressed equity values in our industry and the dilutive impact of options, and decided to eliminate stock options as a component of the equity program for 2015. Instead, the Compensation Committee re-directed that targeted long-term equity value towards a combination of restricted stock units (40%) and performance share units (60%). The Compensation Committee also adjusted the vesting provision applicable to a negative absolute TSR in the performance share units, by replacing the previous 50% reduction with an alternative to better reflect the intention of the performance share units and the Company’s compensation philosophy and objectives, by capping the performance share award at the target level if there is a negative absolute TSR over the three-year performance period.

 

In addition to conducting this executive compensation program review, the Compensation Committee engaged Aon Hewitt to provide market data for each executive officer position from our Compensation Peer Group and secondary source data from the mining industry and general industry, and the Compensation Committee considered the individual performance, experience, responsibilities and time in position of the CEO and each other senior executive officer, our company performance, our compensation philosophy and the fact  that the last adjustments to the executive compensation program were made in 2013.

 

As a result, the Compensation Committee made the following primary changes as part of its 2015 annual executive compensation determinations, compared to 2014:

 

·                  Updated the Compensation Peer Group to remove James River Coal and Patriot Coal as a result of their previous bankruptcy filings;

 

·                  Adjusted individual executive officer base salaries to better reflect updated market data since the 2013 adjustments, individual executive performance and responsibilities and the promotion of our current Chief Financial Officer; below are the 2015 annual base salaries for our current named executive officers (other than Mr. Barrett, who resigned in March 2015) and current Executive Vice President and Chief Financial Officer;

 

Name

 

2015 Annual
Base Salary

 

2014 Annual
Base Salary

 

Colin Marshall

 

$

765,000

 

$

740,000

 

Gary Rivenes

 

$

470,000

 

$

450,000

 

Heath Hill (1)

 

$

350,000

 

$

223,600

 

Bryan Pechersky

 

$

360,000

 

$

350,000

 

James Orchard

 

$

360,000

 

$

350,000

 

 


(1)                     Mr. Hill was promoted from Vice President and Chief Accounting Officer to Executive Vice President and Chief Financial Officer in March 2015.

 

·                  As noted above, modified the equity compensation program by (1) eliminating stock options and re-directing that targeted long-term equity value towards a combination of restricted stock units (40%) and performance share units (60%), and (2) replacing the previous 50% absolute TSR reduction in performance share units with an alternative to cap the performance share award vesting to the target level if there is a negative absolute TSR over the three-year performance period; and

 

·                  Promoted the company’s Senior Vice President, General Counsel and Corporate Secretary to Executive Vice President, General Counsel and Corporate Secretary, which increased his stock ownership holding requirement from 2X to 3X his base salary, and increased his targeted annual LTIP award value to 150% of his base salary, compared to the previous targeted award value of 100%.

 

Tax Deductibility of Executive Compensation

 

Pursuant to Section 162(m) of the Code (“Section 162(m)”), certain compensation paid to our chief executive officer and our three most highly compensated executive officers (other than our chief financial officer) in excess of $1 million is not tax deductible, except to the extent it constitutes performance-based compensation. We have designed certain elements of compensation for our executive officers to be performance-based compensation under Section 162(m) in order to maintain the deductibility of that compensation when we determined that performance-based compensation was appropriate for those executive officers. To this end, we previously requested that our stockholders

 

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approve the material terms of our LTIP at the 2011 annual meeting of stockholders and the AIP at the 2013 annual meeting of stockholders for purposes of Section 162(m), as stockholder approval of the material terms of these two plans is necessary for us to design awards as performance-based compensation for our covered executive officers, if our Compensation Committee determines in its discretion that particular awards under those plans should qualify for Section 162(m) tax deductibility.

 

The Compensation Committee considers its primary goal to design compensation strategies that further the best interests of our stockholders. In certain cases, it may determine that the amount of tax deductions lost is not significant when compared to the potential opportunity a compensation program provides for creating long-term stockholder value. The Compensation Committee therefore retains the ability to evaluate the performance of our executive officers and to pay appropriate compensation, even if some or all of it may be non-deductible. For example, the Compensation Committee has retained the 20% personal performance component of the AIP awards even though that portion is not deductible as performance-based compensation under Section 162(m). The Compensation Committee may similarly decide to award compensation or make other compensation determinations, including making awards under our LTIP and AIP, that do not meet the deductibility requirements for performance-based compensation under Section 162(m).

 

Compensation Risk Assessment

 

In accordance with the requirements of Item 402(s) of Regulation S-K, to the extent that risks may arise from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on us, we are required to discuss our policies and practices for compensating our employees (including our employees that are not named executive officers) as they relate to our risk management practices and risk-taking incentives. We have determined that our compensation policies and practices for our employees, including our named executive officers, are not reasonably likely to have a material adverse effect on us. Our Compensation Committee routinely assesses our compensation policies and practices and takes this consideration into account as part of its review.

 

Review of and Conclusion Regarding All Components of Executive Compensation

 

Overall, the Compensation Committee finds the named executive officers’ total compensation to be fair, reasonable and consistent with the company’s executive compensation philosophy.

 

Important Note Regarding Compensation Tables

 

The following compensation tables in this Proxy Statement have been prepared pursuant to SEC rules. Although some amounts (e.g., salary and non-equity incentive plan compensation) represent actual dollars paid to an executive, other amounts are estimates based on certain assumptions about future circumstances (e.g., payments upon termination of an executive’s employment) or they may represent dollar amounts recognized for financial statement reporting purposes in accordance with accounting rules, but do not represent actual dollars received by the executive (e.g., dollar values of stock awards and option awards). The footnotes and other explanations to the Summary Compensation table and the other tables herein contain important estimates, assumptions and other information regarding the amounts set forth in the tables and should be considered together with the quantitative information in the tables. In addition, please refer to the table above “LTIP Awards — Grant Date Targeted Value vs Year-End 2014 Value” for information regarding actual realized or estimated year-end LTIP values compared to the targeted grant date values.

 

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Executive Compensation Tables

 

2014 Summary Compensation Table

 

The following table sets forth information regarding compensation for each of our named executive officers for fiscal years 2012 through 2014.

 

Name and Principal Position

 

Year

 

Salary ($)

 

Stock
Awards
($) (1)

 

Option
Awards
($) (2)

 

Non-Equity
Incentive Plan
Compensation
($) (3)

 

All Other
Compensation
($) (4)

 

Total ($)

 

Colin Marshall (5)

 

2014

 

740,002

 

1,664,990

 

554,994

 

954,700

 

163,573

 

4,078,258

 

President and Chief

 

2013

 

740,002

 

1,838,778

 

554,994

 

814,100

 

150,215

 

4,098,089

 

Executive Officer

 

2012

 

700,000

 

1,612,658

 

524,792

 

735,000

 

136,986

 

3,709,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gary Rivenes

 

2014

 

450,008

 

675,005

 

224,998

 

435,400

 

88,012

 

1,873,423

 

Executive Vice

 

2013

 

450,008

 

745,449

 

225,003

 

361,200

 

85,271

 

1,866,930

 

President and Chief

 

2012

 

425,001

 

652,750

 

212,410

 

331,500

 

77,685

 

1,699,345

 

Operating Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Barrett (6)

 

2014

 

400,005

 

600,005

 

199,996

 

387,100

 

80,833

 

1,667,939

 

Former Executive Vice

 

2013

 

400,005

 

662,616

 

199,997

 

348,100

 

75,977

 

1,686,695

 

President and Chief

 

2012

 

384,810

 

591,305

 

192,417

 

294,600

 

70,192

 

1,533,324

 

Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James Orchard

 

2014

 

350,002

 

393,714

 

131,246

 

256,300

 

65,398

 

1,196,660

 

Senior Vice President,

 

2013

 

350,002

 

434,850

 

131,249

 

243,700

 

62,128

 

1,221,928

 

Marketing and

 

2012

 

339,235

 

391,650

 

127,446

 

208,100

 

58,544

 

1,124,975

 

Government Affairs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bryan Pechersky

 

2014

 

350,002

 

262,463

 

87,497

 

268,900

 

65,120

 

1,033,882

 

Executive Vice President,

 

2013

 

350,002

 

289,900

 

87,496

 

239,500

 

62,155

 

1,029,053

 

General Counsel and

 

2012

 

324,519

 

249,559

 

81,210

 

210,600

 

55,294

 

921,182

 

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)                                  The amounts reported in the “Stock Awards” column for 2014 reflect the aggregate grant date fair value of the restricted stock and performance share unit awards granted under the LTIP during fiscal 2014, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. Further details of the methods and assumptions used for purposes of valuing these awards are included in Note 20 of the Notes to Consolidated Financial Statements included in our Form 10-K for fiscal 2014.

(2)                                  The amounts reported in the “Option Awards” column for 2014 reflect the aggregate grant date fair value of the stock option awards granted under the LTIP during fiscal 2014, computed in accordance with FASB ASC Topic 718. Further details of the methods and assumptions used for these awards are included in Note 20 of the Notes to Consolidated Financial Statements included in our Form 10-K for fiscal 2014.

(3)                                  For 2014, the amounts shown represent payments earned by each named executive officer under our AIP for performance during that year.

(4)                                  The amounts shown in the “All Other Compensation” column with respect to 2014 are more fully described in the All Other Compensation table included below.

(5)                                  Mr. Marshall does not receive compensation for his service on the Board.

(6)                                  Mr. Barrett resigned from the company, effective March 16, 2015 and, as a result, he forfeited all of his unvested equity awards.

 

All Other Compensation

 

Name

 

Company
Contrib.
to 401(k)
Plan ($)

 

Company
Contrib. to
Profit Sharing
Plan ($)

 

Company
Contrib. to
NQDC
Plan ($)

 

Company
Profit Sharing
Contrib. Under

NQDC Plan ($)

 

Other (a) ($)

 

Total ($)

 

Colin Marshall

 

15,600

 

15,600

 

77,646

 

53,223

 

1,504

 

163,573

 

Gary Rivenes

 

15,600

 

15,600

 

33,072

 

22,236

 

1,504

 

88,012

 

Michael Barrett

 

15,600

 

15,600

 

29,286

 

18,843

 

1,504

 

80,833

 

James Orchard

 

15,600

 

15,600

 

20,022

 

12,711

 

1,465

 

65,398

 

Bryan Pechersky

 

15,600

 

15,600

 

19,770

 

12,585

 

1,565

 

65,120

 

 


(a)                                 Includes the following amounts for the annual safety award for not having any individual workplace injuries: Mr. Marshall, $100; Mr. Rivenes, $100; Mr. Barrett, $100; Mr. Orchard, $100; and Mr. Pechersky, $200. Also includes the following long-term disability premiums paid by us on behalf of the individual: Mr. Marshall, $1,404; Mr. Rivenes, $1,404; Mr. Barrett, $1,404; Mr. Orchard, $1,365; and Mr. Pechersky, $1,365.

 

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2014 Grants of Plan Based Awards

 

The following table reflects AIP awards, performance share unit awards, stock options and restricted stock unit awards granted to each of our named executive officers in 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Other

 

All Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

Option

 

 

 

Grant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards:

 

Awards:

 

Exercise

 

Date Fair

 

 

 

 

 

 

 

Estimated Future Payouts

 

Estimated Future Payouts

 

Number of

 

Number of

 

or Base

 

Value of

 

 

 

Type

 

 

 

Under Non-Equity Incentive

 

Under Equity Incentive Plan

 

Shares of

 

Securities

 

Price of

 

Stock and

 

 

 

of

 

Grant

 

Plan Awards (2)

 

Awards (3)

 

Stock or

 

Underlying

 

Option

 

Option

 

 

 

Award

 

Date

 

Threshold

 

Target

 

Maximum

 

Threshold

 

Target

 

Maximum

 

Units

 

Options

 

Awards

 

Awards

 

Name (a)

 

(1)

 

(b)

 

($) (c)

 

($) (d)

 

($) (e)

 

(#) (f)

 

(#) (g)

 

(#) (h)

 

(#) (i) (4)

 

(#) (j) (5)

 

($/Sh) (k)

 

($) (l) (6)

 

Colin Marshall

 

AIP

 

 

 

370,000

 

740,000

 

1,480,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSU

 

3/14/2014

 

 

 

 

 

 

 

28,682

 

57,364

 

114,728

 

 

 

 

 

 

 

1,109,993

 

 

 

NQ

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,377

 

19.35

 

554,994

 

 

 

RSU

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

28,682

 

 

 

 

 

554,997

 

Gary Rivenes

 

AIP

 

 

 

168,750

 

337,500

 

675,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSU

 

3/14/2014

 

 

 

 

 

 

 

11,628

 

23,256

 

46,512

 

 

 

 

 

 

 

450,004

 

 

 

NQ

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,288

 

19.35

 

224,998

 

 

 

RSU

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

11,628

 

 

 

 

 

225,002

 

Michael Barrett (7)

 

AIP

 

 

 

150,000

 

300,000

 

600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSU

 

3/14/2014

 

 

 

 

 

 

 

10,336

 

20,672

 

41,344

 

 

 

 

 

 

 

400,003

 

 

 

NQ

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,478

 

19.35

 

199,996

 

 

 

RSU

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

10,336

 

 

 

 

 

200,002

 

James Orchard

 

AIP

 

 

 

105,000

 

210,000

 

420,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSU

 

3/14/2014

 

 

 

 

 

 

 

6,782

 

13,565

 

27,130

 

 

 

 

 

 

 

262,483

 

 

 

NQ

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,751

 

19.35

 

131,246

 

 

 

RSU

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

6,782

 

 

 

 

 

131,232

 

Bryan Pechersky

 

AIP

 

 

 

105,000

 

210,000

 

420,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PSU

 

3/14/2014

 

 

 

 

 

 

 

4,521

 

9,043

 

18,086

 

 

 

 

 

 

 

174,982

 

 

 

NQ

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,834

 

19.35

 

87,497

 

 

 

RSU

 

3/14/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

4,521

 

 

 

 

 

87,481

 

 


(1)

Type of Award:

 

AIP = Cash payment under the Annual Incentive Plan

 

PSU = Performance share units granted under the Long-Term Incentive Plan

 

NQ = Non-qualified stock options granted under the Long-Term Incentive Plan

 

RSU = Restricted stock units granted under the Long-Term Incentive Plan

(2)

The amounts in columns (c), (d), and (e) represent the threshold, target and maximum payment levels with respect to the 2014 annual cash incentive awards under our AIP. Actual bonus payouts for 2014, which were made in March 2015, are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

(3)

The amounts in columns (f), (g), and (h) represent the threshold, target and maximum number of shares of our common stock that may be earned with respect to grants of performance share units in 2014 under our LTIP.

(4)

The amounts reported in column (i) are the number of restricted share units granted to each named executive officer in 2014 under our LTIP.

(5)

The amounts reported in column (j) are the number of stock options granted to each named executive officer in 2014 under our LTIP. The exercise price of stock options is equal to the closing market price of our common stock on the date of grant of the option ($19.35).

(6)

Amounts for restricted stock unit, performance share unit and stock option awards represent each award’s grant date fair value computed in accordance with FASB ASC Topic 718, based on the closing price of our stock on the date of grant ($19.35). The value of performance share units is based upon the estimated outcome of the market condition applicable to the awards as required by FASB ASC Topic 718. See footnotes (1) and (2) to the Summary Compensation Table for additional information about the assumptions used in calculating these amounts.

(7)

Mr. Barrett resigned from the company, effective March 16, 2015 and, as a result, forfeited all of his unvested equity awards.

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

We have entered into employment agreements with each of our named executive officers. For a discussion regarding the material terms, please refer to “—Potential Payments Upon Termination or Change in Control” below.

 

With respect to our AIP and LTIP, the treatment of awards granted under each, in the event of certain terminations of employment and/or upon the occurrence of a change in control, is described below under “—Potential Payments Upon Termination or Change in Control.”

 

37



Table of Contents

 

2014 Outstanding Equity Awards at Year End

 

The table below sets forth information regarding outstanding equity awards held at the end of 2014 by our named executive officers. Refer to “Security Ownership of Management and Principal Stockholders” for additional information regarding beneficial ownership of our named executive officers.

 

 

 

Option Awards(1)

 

Stock Awards

 

Name

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

(1)

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)

 

Option
Exercise
Price

($)

 

Option
Expiration
Date

 

Number of
Shares or
Units of Stock
That Have Not
Vested

(#) (2)

 

Market Value
of
Shares or
Units of Stock
That Have Not
Vested

($) (3)

 

Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights That
Have Not Vested

(#) (4)

 

Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested

($) (3) (4)

 

Colin Marshall

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009 NQ

 

367,924

 

0

 

15.00

 

11/20/2019

 

 

 

 

 

 

 

 

 

2011 NQ

 

42,101

 

0

 

20.99

 

3/8/2021

 

 

 

 

 

 

 

 

 

2012 NQ (5)

 

0

 

58,011

 

17.00

 

3/15/2022

 

 

 

 

 

 

 

 

 

2012 RSA (5)