December 23, 2020 – The Debtors filed a pair of motions seeking approval of (i) a proposed key employee retention program (the “KERP”) that would cover (42) KERP Participants at a maximum aggregate cost of $259k and (ii) a proposed key employee incentive program (the “KEIP”) that would cover (5) KEIP Participants at a maximum aggregate cost of $645k [Docket Nos. 110 and 111, respectively].

The KERP motion [Docket No. 110] explains, “The Debtors commenced these Chapter 11 Cases to maximize the value of the Debtors’ estates for their stakeholders through sales of certain estate assets and confirmation of a Plan that will provide for the orderly reclamation of the Decker Mine…Recognizing that retention of the Debtors’ current employees at Lighthouse and Decker Coal will play a critical role in generating the cash to fund this case and achieve the objectives of these Chapter 11 Cases, the Debtors, with the assistance of their restructuring advisors, undertook a deliberative process to design effective and appropriate compensation programs…The KERP aligns the interests of the Debtors’ employee participants with those of the Debtors’ stakeholders — to maximize the value of the Debtors’ estates by selling certain estate assets and obtaining confirmation of a Plan that will achieve the orderly reclamation of the Decker Mine.”

Key Terms of KERP

The Debtors will pay KERP Payments up to an aggregate amount of $259,189, excluding employer-paid taxes. These amounts generally reflect the following:

• Certain critical key employees will receive an allocated portion of a $120,000 payment to ensure that these key employees remain with the Debtors and focus their efforts on maximizing estate value (the “Retention Bonuses”).
• All KERP Participants that remain employed with the Debtors until the Effective Date will receive a bonus payment equal to the amount of prepetition paid time off (“PTO”) that they had accrued during their service to the Debtors but that the Debtors could not continue to honor in the ordinary course postpetition (the “PTO Reimbursement” and with the Retention Bonuses, the “KERP Payments”).
• KERP Payments will not be made until the earlier of (i) the Debtors either emerging from Chapter 11, closing a sale transaction of all assets of the Debtors estates or conversion of these Chapter 11 Cases to Chapter 7; or (ii) June 1, 2021 (“Effective Date”), and the payments shall be specifically conditioned upon each KERP Participant’s employment through the Effective Date.
• KERP Participants shall retain and continue to accrue PTO pursuant to existing employment policies and to the extent permitted by the Bankruptcy Code. For the avoidance of doubt, no KERP Participant (or other employee of the Debtors) may retain pre-petition paid time off except those amounts earned within the one hundred eighty (180) days prior to December 3, 2020 (the “Petition Date”) in an amount not to exceed $13,650 except through award of the PTO Reimbursement provided for in this KERP.

A breakdown of eligible KERP employees and the payments that would be awarded to those KERP participants can be found in the KERP motion.

 KEIP Motion

The KEIP motion [Docket No. 111] explains, “The Debtors, with the assistance of Robert Novak, Debtors’ Chief Restructuring Officer (“CRO”), BDO Consulting Group, LLC (“BDO Consulting”), and BDO USA, LLP ('BDO USA,' together with BDO Consulting, 'BDO'), identified five senior management employees (the 'KEIP Participants'), each of whom are critical to ensuring that the Debtors achieve their overall performance goals, including operating within the cash collateral budget applicable to the Debtors under that Interim Order… 

The titles of the KEIP Participants are, as follows: (a) Chief Operating Officer (Lighthouse), (b) Vice President, Finance (Lighthouse), (c) Maintenance Manager, Head of Procurement (Decker Coal), (d) Chief Engineer (Decker Coal) and (e) General Counsel (Lighthouse). The KEIP Participants are tasked with, among other things, leading the Debtors’ strategic business direction, managing the Debtors’ cash budget and compliance with the budget, completing schedules and various financial reporting required in these Chapter 11 Cases and pursuant to the Cash Collateral Order, managing operations that generate the cash collateral needed to fund this case, managing expenses and preserving and maintaining the Debtors’ assets, including ensuring that the Debtors remain in compliance with environmental laws. the Decker Mine….

The Debtors’ business performance remains a critically important factor to the Debtors’ ability to remain in these Chapter 11 Cases and achieve Plan confirmation, particularly since this case is funded solely by cash collateral generated through operations and asset sales. Thus, the Debtors believe that creating proper incentives for KEIP Participants to achieve the goals of these Chapter 11 Cases is necessary to ensure they are achieved."

Key Terms of KEIP

The KEIP is intended to align the interests of five management employees with those of the stakeholders, including the Unsecured Creditors, Senior Secured Lenders and Sureties (as these terms are defined in the proposed Chapter 11 Plan), to maximize the value achieved through these Chapter 11 Cases, including through various sales of the Debtors’ assets and timely confirmation of the Debtors’ proposed Plan.

• The Performance Incentive Pool (“PIP”) will be a percentage laid out below of the greater of (1) $0 and (2) the amount of cash plus accounts receivable less administrative expenses that are payable as of the Effective Date (as defined below), less $1.64MM of cash plus accounts receivable projected in the cash collateral budget. Net proceeds received from any sale of real assets of Columbia Land and Barlow Point will be excluded from the cash balance. Net proceeds from the sale of the Big Horn properties, less priority tax claims will be included as cash for the purposes of calculating the PIP.
• Debtors are authorized to pay (i) up to an aggregate amount of $144,546, not including employer-paid taxes, from funds in the Cash Collateral Budget (“Base Incentive”) and (ii) up to an aggregate amount of $500,000, excluding employer-paid taxes, from the PIP (“Performance Incentive”). The total maximum incentive amount is $644,546.
• The Base Incentive payments will not be made until the earlier of (i) the Debtors emerging from Chapter 11, closing a sale transaction of all assets of the Debtors estates or conversion of these Chapter 11 Cases to Chapter 7; or (ii) June 1, 2021 (the “Effective Date”), and the payments shall be specifically conditioned upon each KEIP Participant’s employment through the Effective Date.
• Subject to the foregoing conditions, each KEIP Participant will be entitled to the Base Incentive as set forth in the table below.

• In addition to the Base Incentive and subject to the foregoing conditions, each KEIP Participant will be entitled to the Performance Incentive payment based upon and paid directly from the Performance Incentive Pool and subject to the maximum payment amounts as indicated in Table 2. The Performance Incentive is calculated based on a percentage (shown in Table 2) multiplied by the total of the Performance Incentive Pool.
• KEIP Participants shall retain and continue to accrue paid time off pursuant to existing employment policies and to the extent permitted by the Bankruptcy Code. For the avoidance of doubt, no KEIP Participant (or other employee of the Debtors) may retain pre-petition paid time off except those amounts earned within the one hundred eighty (180) days prior to December 3, 2020 (the “Petition Date”) in an amount not to exceed $13,650, except to the extent the KEIP Participant is compensated through the Base Incentive payment.

The Court scheduled a hearing on the both motion for January 15, 2021, with objections due by January 6, 2021.

About the Debtors

According to the Debtors: “Lighthouse Resources Inc. is an infrastructure and resource management company, integrating resource assets, export channels and marketing expertise to serve domestic customers and Asian trade allies. The company owns and operates thermal coal mines in and around the Powder River Basin and is developing port export infrastructure in the US Pacific Northwest.

The company is privately held and headquartered in Salt Lake City, Utah.”

The Declaration adds: “…the coal-side Debtors, LHR Coal and its subsidiaries, operate the Decker Mine in Montana, and LHR Coal subsidiary, KCP, is a fifty percent (50%) owner of the Black Butte joint venture that mines coal in Wyoming. The Debtors produce subbituminous thermal coal with low sulfur content, which they sell to domestic and foreign markets, with a foreign focus on Asia. Thermal coal is primarily consumed by electric utilities and industrial companies as fuel for electricity generation.

The non-coal Debtors, LHR Infrastructure and its subsidiaries, also operate the Millennium Facility in Washington State.”

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