UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Westmoreland Coal Company
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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WESTMORELAND COAL COMPANY
14th Floor

2 North Cascade Avenue,
2nd Floor
Colorado Springs, Colorado 80903
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
To Thethe Stockholders:
 
The Annual Meeting of Stockholders of Westmoreland Coal Company will be held at the Corporate Offices of Westmoreland Coal Company,our corporate offices located at 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 80903 on Thursday, August 16, 2007May 14, 2009 at 8:30 a.m. Mountain Daylight Time, for the following purposes:
 
1. The election by the holders of Common Stock of three directors to the Board of Directors to serve for a one-year term;
 
2. The election by the holders of Series A Convertible Exchangeable Preferred Stock, each share of which is represented by four Depositary Shares, of two additional directors to the Board of Directors to serve for a one-year term; and
 
3. To approve a rights offering of at least $85,000,000 to the holders of Common Stock, pursuant to which each holder will be issued one right for each share of Common Stock, which right will entitle the holder to purchase a fraction of a share of Common Stock at a subscription price of $18.00 per share;
4. To approve the Standby Purchase Agreement dated May 2, 2007 between the Company and Tontine Capital Partners, L.P., as amended by the Amended and Restated First Amendment to Standby Purchase Agreement dated as of July 3, 2007 among the Company, Tontine Capital Partners, L.P., and Silverhawk Capital Partners GP, LLC, and the transactions contemplated thereby, including, subject to the limits contained in the Standby Purchase Agreement, (A) the sale of any Common Stock not subscribed for in the rights offering to Tontine and Silverhawk and (B) the possible sale of additional shares of Common Stock to Tontine and Silverhawk;
5. To approve adoption of the 2007 Equity Incentive Plan for Employees and Non-Employee Directors;
6. To amend our Certificate of Incorporation to increase the number of shares of Common Stock that we are authorized to issue from 20,000,000 to 30,000,000 and the total number of shares of capital stock that we are authorized to issue from 25,000,000 to 35,000,000; and
7. To transact such other business as may properly come before the meeting or any postponement or adjournment thereof.
 
Only stockholders of record at the close of business on July 3, 2007April 1, 2009 will be entitled to notice of and to vote at the meeting and any postponement or adjournment of the meeting. The proxy statement that follows contains more detailed information as to the actions proposed to be taken.thereof.
 
 
YOUR VOTE IS IMPORTANT.
 
PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON.
By Order of the Board of Directors,
 
-s- Roger D. Wiegley-s- Diane S. Jones
Roger D. WiegleyDiane S. Jones
Vice President, Corporate Relations
General Counsel and Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 14, 2009.
The proxy statement and Westmoreland Coal Company’s 2008 Annual Report
are available at www.edocumentview.com/WLB.
 
July 19, 2007April 14, 2009www.westmoreland.com

 

PROXY STATEMENT
 
Table of Contents
   
  Page
 
General Information
 1
Questions and Answers about the 2009 Annual Meeting of Stockholders
1
Proposal 1 — Election of Directors by the Holders of Common Stock
 3
Proposal 2 — Election of Directors by the Holders of Series A Preferred Stock
 5
Proposal 3 — Approval of the Rights Offering
 6
Proposal 4 — Approval of the Standby Purchase Agreement, as amended, and Related Matters
11
Proposal 5 — Approval of 2007 Equity Incentive Plan for Employees and Non-Employee Directors
17
Proposal 6 — Approval of an Amendment to our Certificate of Incorporation
24
Corporate Governance
 266
Beneficial Ownership of Securities
 3110
Section 16(a) Beneficial Ownership Reporting Compliance
 3413
Equity Compensation Plan Information
 3414
Executive Officers
 3615
Compensation Discussion and Analysis
 39
Executive Compensation
16		 47
Director Compensation
59
Compensation and Benefits Committee Report
 6021
Executive Compensation
22
Director Compensation
29
Certain Related Party Transactions
 6031
Audit Committee Report
 6334
Auditors
 6435
Proposals of Stockholders for 20082010 Annual Meeting
 65
Appendices
37
Appendix A: Standby Purchase Agreement dated May 2, 2007 between Westmoreland Coal Company and Tontine Capital Partners, L.P., including the term sheet and the form of registration rights agreement attached thereto as Annexes A and B, respectively
 
Appendix B: 
Other Business
Amended and Restated First Amendment to Standby Purchase Agreement dated as of July 3, 2007 among Westmoreland Coal Company, Tontine Capital Partners, L.P., and Silverhawk Capital Partners GP, LLC
37 
Appendix C: 2007 Equity Incentive Plan for Employees and Non-Employee Directors
Appendix D: Form of Certificate of Amendment to Certificate of Incorporation

WESTMORELAND COAL COMPANY
14th Floor
2 North Cascade Avenue, 2nd Floor
Colorado Springs, Colorado 80903
 
July 19, 2007
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held May 14, 2009
GENERAL INFORMATION
 
GENERAL INFORMATION
The enclosedThis proxy statement is solicitedfurnished in connection with the solicitation of proxies by and on behalf of the Board of Directors (the “Board”) of Westmoreland Coal Company, a Delaware corporation (“Westmoreland”we,” “us,” or the “Company”), for use at theour Annual Meeting of Stockholders to be held at our corporate offices located at 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, on August 16, 2007.Thursday, May 14, 2009 at 8:30 a.m., Mountain Daylight Time (MDT), and at any and all postponements or adjournments thereof (collectively referred to herein as the “Meeting”). This proxy statement, the accompanying form of proxy and the Notice of the Annual Meeting will be first mailed or given to our stockholders on or about April 14, 2009.
QUESTIONS AND ANSWERS ABOUT THE 2009 ANNUAL MEETING OF STOCKHOLDERS
What is being voted on at the Meeting?
The Board is asking stockholders to vote on the election of directors to serve for a one-year term.
Who can vote at the Meeting?
The Board set the close of business on April 1, 2009 as the record date for the Meeting. Only persons holding shares of record of our common stock, $2.50 par value (“common stock”), and our depositary shares, each of which represents one quarter of a share of Series A stockholder mayConvertible Exchangeable Preferred Stock, $1.00 par value (“depositary shares”), at the close of business on April 1, 2009 are entitled to receive notice of and to vote at the Meeting. Under the Certificate of Designation governing the Series A Preferred Stock, the holders of the Series A Preferred Stock are entitled to vote on any matter on which the holders of common stock are entitled to vote. However, when six or more quarterly dividends are accumulated and unpaid, as is presently the case, the holders of the Series A Preferred Stock vote separately from the common stockholders to elect two directors. As such, only common stockholders will vote on Proposal 1 and only Series A Preferred Stockholders will vote on Proposal 2. At the close of business on April 1, 2009, there were 9,641,773 shares of common stock outstanding and entitled to vote on Proposal 1 and 640,515 depositary shares outstanding and entitled to vote on Proposal 2.
What constitutes a quorum for the Meeting?
The holders of a majority of the aggregate voting power of the common stock and depositary shares outstanding on the record date, present in person or by proxy at the Meeting, shall constitute a quorum to conduct business at the Meeting. Abstentions and broker non-votes will be treated as present for purposes of determining the presence of a quorum.
How do I vote?
If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct, unless you later revoke the proxy.Unless instructions to the contrary are marked, or if no instructions are specified, shares represented by a proxy card will be voted in favor of the proposals set forth on the proxy card , and in the discretion of the persons named as proxies on such other matters as may properly come before the Meeting. If you hold shares in your name in the records of our transfer agent, and you attend the Meeting, you may deliver your completed proxy card in person. If you hold your shares in

“street name,” that is, if you hold your shares through a broker or other nominee and you wish to vote in person at the Meeting, you will need to obtain a proxy card from the institution that holds your shares. Separate proxy cards are being sent to common stockholders and to holders of depositary shares. If you hold only shares of common stock or only depositary shares, you will be sent only the proxy card relevant to your type of equity ownership. However, if you own both common stock and depositary shares, you will be sent both proxy cards and you should complete both proxy cards if you wish to vote your respective interests on Proposals 1 and 2.
With respect to Proposal 2, the depositary shareholders will instruct the depositary to either vote the Series A Preferred Stock for director nominees or to withhold votes from director nominees. Because each share of Series A Preferred Stock is entitled to four votes, and because each share of Series A Preferred Stock is represented by four depositary shares, in theory, each depositary share represents one vote.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy card, you may change your vote at any time before its exercisethe proxy is exercised by written notice toeither filing with the Secretary of the Company by executing and delivering a written notice of revocation or a duly executed proxy withcard bearing a later date or by voting in person at the meeting.Meeting. The Companypowers of the proxy holders will paybe suspended if you attend the expenseMeeting in person and so request. However, attendance at the Meeting will not, by itself, revoke a previously granted proxy. If you want to change or revoke your proxy and you hold your shares in “street name,” contact your broker or the nominee that holds your shares. Any written notice of this solicitation. This proxy statement and the enclosed proxy were firstrevocation sent to stockholdersus must include the stockholder’s name and must be received prior to the Meeting to be effective.
What vote is required to approve each item?
The affirmative vote of a plurality of the Companyvotes cast is required for the election of directors. Cumulative voting is not permitted in the election of directors. As a result, withholding authority to vote for a director nominee with respect to the election of directors will not affect the outcome of the election of directors.
How are broker non-votes and abstentions treated?
Under the rules applicable to broker-dealers, the proposal for the election of a director is considered to be a routine matter upon which brokerage firms may vote in their discretion on or about July 24, 2007.behalf of their clients if such clients have not furnished voting instructions. A “broker non-vote” occurs when a broker’s customer does not provide the broker with voting instructions on non-routine matters for shares owned by the customer, but held in the name of the broker. For such non-routine matters, the broker cannot vote either way and reports the number of such shares as “non-votes.” Because all matters to be voted upon at the Meeting are routine matters and give brokers discretionary voting powers, there will not be any broker non-votes.
Abstentions are counted in tabulations of the votes cast on proposals presented to stockholders. However, for the election of directors, abstentions will not affect the outcome.
How are you handling solicitation of votes?
The accompanying proxy is solicited on behalf of our Board. In addition to solicitations by mail, the Company’s directors, officers, and employees may solicit proxies by telephone,e-mail, facsimile, and personal interview, but will receive no additional compensation for doing so. The Company will also request brokerage houses, custodians, nominees, and fiduciaries to forward copies of the proxy material to those persons for whom they hold shares and request instructions for voting the proxies. The Company will reimburse those brokerage houses and other persons for their reasonable expenses for such services.
 
StockholdersDo I have any rights of record at the close of business on July 3, 2007 (“record date”) will be entitled to vote at the meeting and any postponement or adjournment of the meeting. On the record date, the Company had outstanding 9,119,705 shares of Common Stock with a par value of $2.50 per share and 640,515 Depositary Shares (each of which represents one quarter of a share of Series A Convertible Exchangeable Preferred Stock with a par value of $1.00 per share).appraisal?
 
The Common Stock and the Series A Preferred Stock constitute all of the Company’s voting securities. Under the Certificate of Designation governing the Series A Preferred Stock, the holders of the Series A Preferred Stock are entitled to vote on any matter on which the holders of Common Stock are entitled to vote, except that, when six or more quarterly dividends are accumulated and unpaid — as is presently the case — the holders of the Series A Preferred Stock do not vote with the holders of Common Stock for the election of directors and instead vote separately to elect two directors.FOR THIS REASON, ONLY HOLDERS OF COMMON STOCK WILL BE PERMITTED TO VOTE ON PROPOSAL 1 AND ONLY HOLDERS OF SERIES A PREFERRED STOCK WILL BE PERMITTED TO VOTE ON PROPOSAL 2.We refer to the candidates nominated for election by the holders of our Common Stock as the Common Stockholder Nominees and the candidates nominated for election by the holders of our Series A Preferred Stock as the Depositary Stockholder Nominees.
Holders of Depositary Shares vote with respect to Proposal 2 by instructing the depositary either to vote the Series A Preferred Stock for director nominees or to withhold votes from director nominees, and, with respect to Proposals 3, 4, 5, and 6, by instructing the depositary to vote the Series A Preferred Stock for or against the relevant proposal or abstain from voting on that proposal. Because each share of Series A Preferred Stock is entitled to four votes, and because each share of Series A Preferred Stock is represented by four Depositary Shares, we occasionally speak in this proxy statement as if each Depositary Share voted directly and had one vote.
Separate proxy cards are being sent to holders of Common Stock and to holders of Depositary Shares. If you hold only shares of Common Stock, you will be sent only the proxy card for holders of Common Stock. If you hold only Depositary Shares, you will be sent only the proxy card for holders of Depositary Shares. If you own both Common Stock and Depositary Shares, you will be sent both proxy cards and you should complete both proxy cards if you wish to vote your respective interests in both the Common Stock and Depositary Shares.

A stockholder may, with respect to the election of directors for which such stockholder is entitled to vote: (i) vote for the election of all named director nominees, (ii) withhold authority to vote for all named director nominees, or (iii) vote for the election of all named director nominees other than any nominee(s) with respect to whom the stockholder withholds authority to vote by so indicating in the appropriate space on the proxy card. Duly executed and un-revoked proxies received by the Company prior to the Annual Meeting will be voted in accordance with the stockholders’ specifications marked thereon. In the absence of a specific direction from the stockholder, the proxies will be voted for the election of all named director nominees, for Proposal 3 (the approval of the rights offering), for Proposal 4 (the approval of the standby purchase agreement, as amended, and related matters), for Proposal 5 (the adoption of the 2007 Equity Incentive Plan for Employees and Non-Employee Directors), and for Proposal 6 (the amendment of our certificate of incorporation).
A quorum is necessary to hold a valid meeting of stockholders. If stockholders entitled to cast at least a majority in voting power of the shares entitled to vote at the Annual Meeting are present in person or by proxy, a quorum will exist for purposes of electing the nominees for the Board of Directors. Shares owned by the Company are not voted at the Annual Meeting and are not counted in determining whether a quorum is present. Shares that abstain from voting on any matter (“abstentions”) and shares held in “street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter (“broker non-votes”) will be counted as shares present for determining whether a quorum is present. In order to assure the presence of a quorum at the Annual Meeting, please complete, sign, and date the enclosed proxy card and return it promptly in the enclosed postage-paid envelope, even if you plan to attend the Annual Meeting in person.
The Company’s bylaws provide that directors shall be elected by the affirmative votes of a plurality of the votes of the shares present in person or by proxy at a meeting of stockholders at which a quorum is present and entitled to vote on the election of directors. As a result, withholding authority to vote for a director nominee and broker non-votes with respect to the election of directors will not affect the outcome of the election of directors.
With respect to Proposal 3 (the approval of the rights offering), Proposal 4 (the approval of the standby purchase agreement, as amended, and related matters), Proposal 5 (the adoption of the 2007 Equity Incentive Plan for Employees and Non-Employee Directors), and any other matter to come before the meeting, the Company’s bylaws provide that the affirmative vote of the majority of shares present in person or by proxy at a meeting of stockholders at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders. (For this purpose, each share of Series A Preferred Stock present at the meeting is treated as if it were 4 shares.) As a result, an abstention on Proposal 3, Proposal 4, Proposal 5, or any such other matter that may come before the meeting will have the same effect as a vote against it, while broker non-votes will have no effect since under Delaware law they are not considered shares entitled to vote on that matter.
Proposal 6 involves an amendment to our certificate of incorporation. Under Delaware law, stockholders are not entitled to dissenters’ rights on any proposal referred to herein.
How can I get electronic access to the affirmative vote of a majority in voting power of (i) the shares of Common Stockproxy materials and the Series A Preferred Stock (each of which is represented by four Depositary Shares) outstanding on the record date for the annual meeting, voting together as a single class,report?
This proxy statement and (ii) the shares of Common Stock outstanding on the record date for the annual meeting, voting as a separate class, is required to approve this proposal. As a result, abstentions and broker non-votes on Proposal 6 will have the same effect as votes against it.our 2008 Annual Report are available at www.edocumentview.com/WLB.


2

 
PROPOSAL 1
 
ELECTION OF DIRECTORS BY THE HOLDERS OF COMMON STOCK
 
The Nominating and Corporate Governance Committee of the Board of Directors has recommended that the three individuals named below be nominated for election as directors.directors (the “Common Stockholder Nominees”). The Board of Directors has approved such recommendation and directed that the three individuals named below be designated as nominees for the Board of Directors. Messrs. Coffey and Klingaman are currently directorsBoard. Each of the Company. Mr. Alessinominees is currently serving as interim President and interim Chief Executive Officernow a director of the Company. Each person elected at the annual meetingMeeting shall hold office until the next annual meeting of stockholders, or until his death, resignation, or removal, if earlier.
 
Richard M. Klingaman became a directorIn March 2008, we sold $15 million of Senior Secured Convertible Notes (the “Senior Notes”) to Tontine Capital Partners, L.P. and Tontine Partners, L.P. (together with their affiliates, “Tontine”). Pursuant to the Senior Secured Convertible Note Purchase Agreement dated March 4, 2008, as long as Tontine owns at least 10% of the Company on February 24, 2006. Mr. Klingaman was identified as a candidate by Mr. Killen, a directoroutstanding shares of Common Stock (including the shares issuable upon conversion of the Company, and Christopher K. Seglem,Senior Notes on an as-converted basis), Tontine has the right to designate two individuals for election to our Board who was Chairman, Chief Executive Officer and Presidentare reasonably acceptable to the Board. As of the Company at the timedate of the nomination. Mr. Klingamanthis proxy statement, Tontine has significant knowledge of the Company’s business, having served from 1980not designated any individuals to 1993 as a director of Westmoreland Resources, Inc., which is now 80%-owned by the Company. Mr. Klingaman was a Senior Vice President of Penn Virginia Corporation, a natural resources company that owned 39.6% of the Company’s common stock as of December 31, 1991. Mr. Klingaman retired from Penn Virginia Corporation in 1992.serve on our Board.
 
The persons named inon the proxy card intend to vote for the election of thesethe Common Stockholder Nominees.Nominees named below. Each Common Stockholder Nominee has consented to being named and to serve if elected. If any Common Stockholder Nominee should decline or be unable to serve, the persons named inon the proxy card will vote for the election of such substitute nominee as shall have been recommended by the Nominating and Corporate Governance Committee and designated by the Board of Directors.Board. The Company has no reason to believe that any Common Stockholder Nominee will decline or be unable to serve. In addition, two Depositary Stockholder Nominees
The size of the Board is fixed at six directors, although only five director nominees have been recommended for election by the Nominating and Corporate Governance Committee and designated byBoard. The vacancy occurred when Delbert L. Lobb resigned from the Board in January 2009. The Board is considering its options for addressing the vacancy, including the nomination of Directorsadditional directors at such time as qualified candidates are identified, or reducing the Depositarysize of the Board to five. The proxies cannot be voted for a greater number of nominees than the number of nominees named.


3

Information about the Common Stockholder Nominees for election to the Board of Directors for a one-year term. The Depositary Stockholder Nominees will be submitted to a vote of the holders of the Depositary Shares. See “Proposal 2 — Election of Directors by the Holders of Series A Preferred Stock” below. The holders of the Company’s Depositary Shares are not entitled to vote for the election of Common Stockholder Nominees.follows:
             
  Business Experience During Past Five Years and
   Director
  
Name
 
Other Directorships
 Age Since 
Current Committees
 
Keith E. Alessi Executive Chairman of the Company (May 2008 to present); President and Chief Executive Officer of the Company (August 2007 to April 2008 and January 2009 to present); Interim President and Interim Chief Executive Office of the Company (May 2007 to August 2007); Adjunct lecturer at the Ross School of Business at the University of Michigan (March 2002 to present); Chief Executive Officer of Lifestyle Improvement Centers, LLC (April 2003 to May 2006); and member of the Board of Directors of Town Sports International Holdings, Inc. (April 1997 to present), H&E Equipment Services, Inc. (November 2002 to present) and MWI Veterinary Supply, Inc. (2003 to present).  54   2007  Executive (Chairman)
Thomas J. Coffey Partner, B2B CFO Partners, LLC, a professional services organization (December 2005 to present); Vice President-Finance, Global Infrastructure Services (July 1999 to May 2005) and Vice President-Operations Analysis (April 1998 to July 1999) of Unisys Corporation, a technology services company; Senior Vice President, Chief Financial Officer and Treasurer of Intelligent Electronics, Inc., a technology distribution company (1995 to September 1997); and Partner of KPMG (1985 to 1995).  56   2000  Audit (Chairman), Compensation and Benefits, Nominating and Corporate Governance
Michael R. D’Appolonia President and Chief Executive Officer, Kinetic Systems, Inc., a global provider of process and mechanical solutions to the electronics, solar and biopharmaceutical industries (April 2006 to present); President of Nightingale & Associates, LLC, a global management consulting firm providing financial and operational restructuring services (July 1986 to April 2006); Former executive officer of Cone Mills Corporation, Moll Industries, Inc., McCulloch Corporation, Ametech, Inc., Halston Borghese, Inc. and Simmons Upholstered Furniture Inc.; Member of the Board of Directors of Kinetic Systems Inc. (April 2006 to present); Member of the Board of Directors of The Washington Group International, Inc. (May 2001 to November 2007), and Exide Technologies, Inc. (April 2005 to present).  60   2008  Executive, Compensation and Benefits
 
The Board of Directors recommends that holders of Common Stock vote “FOR”
the election of the Common Stockholder Nominees.


3

Information about the Common Stockholder Nominees follows:
             
  Business Experience During Past Five Years and
   Director
 Current
Name
 
Other Directorships
 
Age
 
Since
 
Committees(1)
 
Keith E. Alessi Interim President and interim Chief Executive Officer of the Company (May 2007 to present); member of the Board of Directors and Chairman of the audit committee of Town Sports International Holdings, Inc. (April 1997 to present); member of the Board of Directors and Chairman of the audit committee of H&E Equipment Services, Inc. (November 2002 to present); member of the Board of Directors of MWI Veterinary Supply, Inc. (2003 to present); adjunct professor of law at the Ross School of Business at the University of Michigan (March 2002 to present); adjunct professor of law at Washington and Lee University School of Law (January 2000 to December 2006); Chief Executive Officer of Lifestyle Improvement Centers, LLC (April 2003 to May 2006). 52 N/A None
Thomas J. Coffey Partner, B2BCFO/CIO, LLP, a professional services organization (December 2005 to present); Vice President-Finance, Global Infrastructure Services (July 1999 to May 2005) and Vice President-Operations Analysis (April 1998 to July 1999) of Unisys Corporation, a technology services company; Senior Vice President, Chief Financial Officer and Treasurer of Intelligent Electronics, Inc., a technology distribution company (1995 to September 1997); and Partner of KPMG (1985 to 1995). 54 2000 Audit (Chairman)
Richard M. Klingaman Consultant, natural resources and energy (May 1992 to present); Retired Senior Vice President, Penn Virginia Corporation, a natural resources company specializing in coal, oil, natural gas, timber, lime and limestone (1977 to 1992); Director of Westmoreland Resources, Inc. (1980 to 1993). 72 2006 Compensation and Benefits
(1)See “Corporate Governance — Information about the Board and Committees” below.
As a condition to the closing of the transactions contemplated by the Standby Purchase Agreement described below, we are required to appoint to our Board of Directors two designees of Tontine Capital Partners, L.P. who are reasonably acceptable to our Board. We anticipate that Tontine and our Board will agree on the individuals to be appointed to our Board prior to the completion of the rights offering, and that, on the date the rights offering closes, these two individuals will join our Board as directors.


4

 
PROPOSAL 2
 
ELECTION OF DIRECTORS BY THE HOLDERS OF SERIES A PREFERRED STOCK
 
For the reasons described above, theThe holders of the Company’s Series A Preferred Stock are entitled to elect two members of the Company’s Board of Directors.Board. The Nominating and Corporate Governance Committee of the Board of Directors has recommended that the individuals named below (the “Depositary Stockholder Nominees”) be nominated for election as directors. The Board of Directors has approved such recommendation and directed that the individuals named below be designated as nominees for the Board of Directors. Each of the nominees is now a director of the Company and has served as a director for more than six years.Board.
 
Each person elected at the annual meetingMeeting shall hold office until the next annual meeting of stockholders, or until his death, resignation, or removal, if earlier. In addition, if the special voting rights of the Series A Preferred Stock terminate, the terms of office of the directors elected by the holders of the Series A Preferred Stock will immediately terminate. The special voting rights of the Series A Preferred Stock would terminate if, for example, the Company were to redeem all of the outstanding Series A Preferred Stock.
 
Robert E. Killen has served as a director since 1996. He has expressed a willingness, if re-elected to the Board at the 2007 annual meeting, to serve on our Board through the completion of the rights offering described below (assuming that the rights offering is approved by stockholders) and thereafter for a period sufficient to provide an orderly transition for a new director. He has also expressed a desire to resign from the Board at the end of this transition period and the hope that he could resign before the 2008 annual meeting.
The persons named inon the proxy card intend to vote for the election of thesethe Depositary Stockholder Nominees.Nominees named below. Each Depositary Stockholder Nominee has consented to being named and to serve if elected. If any Depositary Stockholder Nominee should decline or be unable to serve, the persons named inon the proxy card will vote for the election of such substitute nominee as shall have been recommended by the Nominating and Corporate Governance Committee and designated by the Board of Directors.Board. The Company has no reason to believe that any Depositary Stockholder NomineesNominee will decline or be unable to serve. The holders of the Company’s Common Stock are not entitled to vote for the election of Depositary Stockholder Nominees.
 
Information about the Depositary Stockholder Nominees follows:
 
                
 Business Experience During Past Five Years and
   Director
 Current
 Business Experience During Past Five Years and
   Director
  
Name
 
Other Directorships
 
Age
 
Since
 
Committees(1)
 
Other Directorships
 Age Since 
Current Committees
Robert E. Killen Interim, non-executive Chairman of the Board of Westmoreland Coal Company (May 2007 to present); Vice Chairman of Westmoreland Coal Company (May 2006 to May 2007); Chairman of the Board and Chief Executive Officer of The Killen Group, Inc., an investment advisory firm (April 1996 to present); Chairman of the Board of Berwyn Financial Services, an institutional and retail brokerage company (October 1991 to present). 66 1996 Nominating and Corporate Governance (Chairman); Executive
Richard M. Klingaman Consultant, natural resources and energy (May 1992 to present); Senior Vice President, Penn Virginia Corporation, a natural resources company specializing in coal, oil, natural gas, timber, lime and limestone (1977 to 1992); and Director of Westmoreland Resources, Inc. (1980 to 1993). 74 2006 Executive, Audit Compensation and Benefits (Chairman)
William M. Stern Executive Vice President, Stern Brothers & Company, a broker-dealer (1999 to present); Vice President, Mercantile Bank Capital Markets Group, a banking company (1998 to 1999); Senior Vice President, Mark Twain Capital Markets Group, a banking company (1983 to 1998). 62 2000 Audit Executive Vice President, Stern Brothers & Company, a broker-dealer (1999 to present); Vice President, Mercantile Bank Capital Markets Group, a banking company (1998 to 1999); and Senior Vice President, Mark Twain Capital Markets Group, a banking company (1983 to 1998). 63 2000 Audit, Nominating and Corporate Governance (Chairman)
 
(1)See “Corporate Governance — Information about the Board and Committees” below.
The Board of Directors recommends that holders of Depositary Shares vote “FOR”
the election of the Depositary Stockholder Nominees.


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PROPOSAL 3
APPROVAL OF THE RIGHTS OFFERING
We currently project that we have sufficient capital resources and committed financing arrangements to provide us with adequate liquidity through early in the fourth quarter of 2007. However, based on our most recent internal calculations, we do not believe that we have capital resources or committed financing arrangements in place to provide adequate liquidity to meet the cash requirements that we currently project towards the end of 2007. The major demands on our liquidity are the payments on the indebtedness we incurred in 2001 to acquire the Rosebud, Jewett, Beulah, and Savage mines and other assets from The Montana Power Company and Knife River Corporation; the payments on the indebtedness we incurred in 2006 to acquire the 50% interest in the Roanoke Valley independent power project, or ROVA, that we did not previously own, and the payments on the indebtedness incurred to finance ROVA’s construction; capital expenditures we expect to make following our assumption of the contract to operate the Absaloka Mine; cash collateral requirements for additional reclamation bonds as we obtain mining permits for new areas; payments of heritage health benefit costs; and the ongoing costs of operating our business. Our Board of Directors also believes that the Company has growth and development opportunities available to it that could not be pursued without additional liquidity.
Our Board has frequently considered how the Company could best finance its growth and development, while providing adequate capital to address the Company’s obligations. The Board considered selling a significant asset but concluded that an asset sale on the terms that were likely to be reasonably achievable would not be more favorable to the Company or its stockholders than a rights offering. The Board also concluded that, if the Company were required to generate capital solely from operations, it would not be able to address the liquidity shortfall currently projected for late 2007. In considering how best to finance the Company’s continued growth and the satisfaction of its obligations, our Board of Directors determined that raising additional equity capital is the best course available.
Subject to the receipt of stockholder approval and other conditions described below, the Company will distribute rights to all holders of our Common Stock of record on the record date for the distribution. These rights will permit the holders to purchase shares of our Common Stock at a price of $18.00 per share. We call this price the Subscription Price and this transaction the Rights Offering.
The minimum size of the Rights Offering is $85,000,000. We intend to seek $85,000,000 plus the amount necessary to redeem all of the Series A Preferred Stock that is outstanding at the completion of the Rights Offering. The number of rights to be issued, and the size of the Rights Offering, will depend in part on how we elect to address the outstanding shares of our Series A Preferred Stock, each of which is represented by four Depositary Shares. We are currently evaluating an exchange offer in which we would offer to exchange shares of our Common Stock for Depositary Shares. We have not decided whether to conduct such an exchange offer. Two factors that will influence our decision are the price of our Common Stock and legal considerations relating to an exchange offer. We intend to use a portion of the proceeds of the Rights Offering to redeem in cash all of the shares of Series A Preferred Stock that are outstanding at the completion of the Rights Offering. If we choose not to conduct an exchange offer, if the redemption date is December 3, 2007, and if none of the outstanding Depositary Shares voluntarily convert into shares of Common Stock prior to the redemption date, the amount required to redeem all of the Depositary Shares that are currently outstanding would be approximately $31,764,000.
Tontine Capital Partners, L.P. and its affiliates (collectively, “Tontine”) currently own 17.0% of our Common Stock. Subject to the satisfaction of the conditions to its obligations, Tontine has agreed to subscribe for and purchase its pro rata portion of the shares offered in the Rights Offering. As more fully described below in Proposal 4, Tontine has also agreed to act as a “Standby Purchaser” to purchase any shares not subscribed for by other stockholders in the Rights Offering. Tontine’s commitments are contained in the Standby Purchase Agreement, which is attached to this proxy statement as Appendix A. In the circumstances described in the Standby Purchase Agreement, Tontine will also have the option to purchase additional shares of Common Stock at the Subscription Price. There is a limit to the number of shares that Tontine may acquire in these transactions. That limit is described in more detail in Proposal 4. We have agreed to register the


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shares of Common Stock owned by Tontine pursuant to a Registration Rights Agreement, which is attached as Annex B to the Standby Agreement attached as Appendix A to this proxy statement.
As noted in the preceding paragraph, there is a limit to the number of shares that Tontine may acquire in these transactions. As more fully described in Proposal 4, we, Tontine, and Silverhawk Capital Partners GP, LLC, or Silverhawk, have executed the Amended and Restated First Amendment to the Standby Purchase Agreement, or First Amendment. This will have the effect of increasing the amount of capital that we are assured of raising in the Rights Offering (assuming the satisfaction of the conditions in the Standby Agreement). The First Amendment is attached to this proxy statement as Appendix B. In the First Amendment, Silverhawk agreed, subject to the satisfaction of the conditions to its obligations, to act as an additional standby purchaser to purchase up to 566,667 shares that were offered to but not purchased by our stockholders in the Rights Offering. We also agreed that if, following the purchase of those shares, Silverhawk had acquired fewer than 566,667 shares, Silverhawk will have the option to purchase enough shares so that, following its purchases, Silverhawk will own 566,667 shares of Common Stock. The sales of Common Stock to Silverhawk are being conducted at the same $18.00 per share price as the sales to stockholders in the Rights Offering. We also agreed that Silverhawk would be a party to the Registration Rights Agreement. In this proxy statement, we use the terms “Standby Agreement” and “Standby Purchase Agreement, as amended,” to refer to the Standby Purchase Agreement, as amended by the Amended and Restated First Amendment to Standby Purchase Agreement. The descriptions of the Standby Agreement and the Registration Rights Agreement in this proxy statement are not complete and are qualified in their entirety by reference to the texts of the agreements attached. The matters described above, including the Rights Offering and the Standby Agreement, are referred to collectively as the “Share Transaction” in this proxy statement.
Our Board of Directors considered the potential dilution of the ownership percentage of our current holders of Common Stock that could be caused by the issuance of additional shares pursuant to the Share Transaction. While the ownership percentage of our current stockholders (other than Tontine) could decrease, the Board of Directors considered that the magnitude of this dilution would depend in part on the decision of each holder of Common Stock whether to subscribe for additional shares in the Rights Offering. In addition, the Board of Directors considered that the Share Transaction would only occur if our stockholders approve both the Rights Offering and the Standby Agreement. After weighing these factors and the importance of raising additional equity capital for the Company, and after considering that the Rights Offering would give each holder of our Common Stock the opportunity to purchase additional shares of Common Stock at the same price, the Board of Directors concluded that the Rights Offering, the Standby Agreement, and the Share Transaction are in the best interests of our Company and our stockholders.
This proxy statement is not an offer to sell or the solicitation of an offer to buy shares of Common Stock or any other securities, whether under the terms of the Rights Offering, the Standby Agreement, or otherwise. Offers and sales of Common Stock issuable in the Rights Offering will only be made by means of a prospectus meeting the requirements of the Securities Act of 1933, as amended, and applicable state securities laws, on the terms and subject to the conditions set forth in such prospectus. Offers and sales of shares of Common Stock pursuant to the Standby Agreement will only be made in private placement transactions exempt from the registration requirements of the Securities Act and applicable state securities laws on the terms and subject to the conditions of the Standby Agreement.
The Rights Offering
We intend to distribute, to the record holders of our Common Stock on the record date for the Rights Offering, non-transferable subscription rights. These rights will permit the holders to subscribe for and purchase shares of our Common Stock. The purchase price for such shares will be $18.00 per share. The rights will entitle the holders of Common Stock to purchase shares of Common Stock for an aggregate purchase price of $85,000,000, plus the amount necessary to redeem the shares of Series A Preferred Stock that are outstanding at the closing of the Rights Offering.
Each holder of record of our Common Stock will receive one subscription right for each share of our Common Stock held by such holder on the record date for the Rights Offering. Each right will entitle the


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holder to purchase a fraction of a share of Common Stock, subject to adjustment to eliminate fractional shares. The fraction will depend on the number of shares of Common Stock and Series A Preferred Stock that are outstanding on the record date for the Rights Offering and the amount required to redeem the outstanding shares of Series A Preferred Stock. We estimate that the range of amounts that we might seek in the Rights Offering could be between $85 million and $117 million (assuming that the outstanding Series A Preferred Stock will be redeemed on December 3, 2007, when the redemption price is $198.3639 per share of Series A Preferred Stock, equivalent to $49.5910 per Depositary Share). We estimate that the likely range of shares of Common Stock purchasable with all subscription rights could be between 4.7 million and 6.5 million (subject to the assumptions in the preceding sentence). We estimate that the likely range of fractions of a share that might be purchasable with each subscription right could be between 0.45 and 0.72, depending on the number of shares of Common Stock and Series A Preferred Stock that are outstanding on the record date for the Rights Offering. The preceding ranges are based on the assumptions described and are intended solely to illustrate possible numbers of shares of Common Stock that might be purchasable with all subscription rights, and possible fractions of a share of Common Stock that might be purchasable with each subscription right, in the specific circumstances described. The actual number of shares of Common Stock that will ultimately be purchasable with all subscription rights, and the actual fraction of a share that will ultimately be purchasable with each subscription right, will not be determined until the record date for the Rights Offering and will be based on the facts existing at that time.
We anticipate that we will set the record date for the Rights Offering shortly before the commencement of that offering. Record holders of our Common Stock will receive subscription rights that will permit them to purchase a whole number of shares, with fractional shares rounded down.
Each subscription right will entitle the holder thereof to purchase at the Subscription Price, on or prior to the expiration time of the Rights Offering, a fraction of a share of our Common Stock. The privilege described in this paragraph is the basic subscription privilege.
Holders of Common Stock will also have an over-subscription privilege. We do not expect that all recipients of rights will exercise all of their basic subscription privileges. By extending over-subscription privileges to recipients of rights, we are providing stockholders that exercise all of their basic subscription privileges with the opportunity to purchase up to their pro rata portion of the shares that are not purchased by other stockholders through the exercise of their basic subscription privileges. For example, if a stockholder owns 0.01% of the total number of shares of Common Stock outstanding on the record date, and if that stockholder exercises his basic subscription privilege in full, the over-subscription privilege will permit the stockholder to subscribe for and purchase up to 0.01% of the shares not purchased by other stockholders through the exercise of their basic subscription privileges.
In connection with the Rights Offering, we will file a registration statement with the Securities and Exchange Commission. Once the registration statement becomes effective, we will commence the Rights Offering and mail the rights offering prospectus to holders of our Common Stock. The prospectus will contain important information about the Rights Offering. You should not make a decision to participate in the Rights Offering until you read the prospectus.
We are asking our stockholders, at the annual meeting, to approve the Rights Offering. A vote in favor of the Rights Offering will not obligate any stockholder to purchase shares in the Rights Offering.
Certain Effects of the Share Transaction
To the extent that holders of our Common Stock do not exercise their rights and shares of our Common Stock are purchased by Tontine and Silverhawk, such non-exercising holders’ proportionate equity and voting interest in our company will be reduced. Both Tontine and Silverhawk have options to acquire shares in addition to the shares being offered in the Rights Offering. If Tontine elects to exercise its option to increase the interest it owns in the Company to 25%, and if Silverhawk elects to exercise its option and acquire up to 566,667 shares, those purchases will reduce the proportionate equity and voting interests of the other holders of Common Stock.


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We anticipate that we will have three types of securities outstanding on the record date for the Rights Offering that are convertible or exercisable into Common Stock: a warrant, options, and our Series A Preferred Stock. The Share Transaction will affect each of these:
• We borrowed $30,000,000 from SOF Investments, L.P. in June 2006 to finance the acquisition of the 50% interest in ROVA that we did not previously own. As of April 30, 2007, the principal amount of that indebtedness was $25,700,000. Because of the liquidity constraints discussed above, we have, pursuant to our agreement with SOF Investments, extended the maturity of that indebtedness to 2010. We will be required to issue to SOF Investments a warrant to purchase 150,000 shares of our Common Stock at an exercise price equal to 115% of the closing price of the Common Stock on June 28, 2007. The warrant contains customary anti-dilution provisions. If the Subscription Price is less than the greater of the exercise price or the fair market value of a share of our Common Stock in effect immediately prior to the issuance or deemed issuance of Additional Shares of Common Stock (a term defined in the warrant), these anti-dilution provisions will reduce the exercise price of the warrant and permit SOF Investments to acquire a greater number of shares if it exercises the warrant. The components of the anti-dilution calculation are such that we will not be able to calculate the revised exercise price or number of shares that SOF Investments may purchase until after the Rights Offering is completed.
• If the Subscription Price is less than the “current market price” of a share of our Common Stock (as that term is defined in the Certificate of Designation establishing the Series A Preferred Stock), the conversion ratio of the Series A Preferred Stock will be adjusted in accordance with the formula set forth in the Certificate of Designation. A holder of Depository Shares can currently convert each Depository Share into 1.708 shares of Common Stock. Because two of the components of the formula are the number of shares outstanding on the record date and the number of shares offered in the Rights Offering, it will not be possible to determine the adjustment of the conversion ratio until the record date for the Rights Offering.
• On July 3, 2007 there were 600,200 options to purchase shares outstanding and 528,034 stock appreciation rights, or SARs, outstanding. SARs entitle the holder to receive upon exercise of the SARs the number of shares of Common Stock equal in value, using the then current market price, to the difference between the issue price of the SARs (which was the market price of the Common Stock at the time of issuance of the SARs) and the market price of the Common Stock on the date of exercise of the SARs. All outstanding options and SARS will be adjusted on the record date for the Rights Offering in number and in exercise price to offset the dilutive effect of issuing shares at a discount in the Rights Offering. The adjustment formula has not yet been determined, but the effect of the formula will be consistent with the adjustment to the conversion rate for the Series A Preferred Stock discussed above.
The Share Transaction may also result in a decrease in the market value of our Common Stock. This decrease in market value may continue after the completion of the Share Transaction.
Even if stockholders other than Tontine exercise their subscription rights, Tontine will have a substantial ownership interest in our Company after the Share Transaction. As a result, Tontine will have the voting power to significantly influence the election of our Board of Directors and the approval of other matters presented for consideration by the stockholders, which could include mergers, acquisitions, amendments to our charter, and various corporate governance actions.
We currently have in effect a stockholder rights plan, which is governed by the Amended and Restated Rights Agreement between Westmoreland and Computershare Trust Company, N.A., as rights agent. Each share of our Common Stock has associated with it one preferred stock purchase right. Each preferred stock purchase right entitles the holder to purchase one one-hundredth of a share of our Series B Junior Participating Preferred Stock in the circumstances specified in the Amended and Restated Rights Agreement. On May 2, 2007, our Board adopted an amendment to our Amended and Restated Rights Agreement to permit Tontine to acquire the shares contemplated by the Standby Agreement.


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Reasons for Soliciting Stockholder Approval
We are seeking stockholder approval of the Rights Offering because we are required to do so under the terms of the Standby Agreement.
Consequences if the Rights Offering is Not Approved by the Stockholders
If the Rights Offering is not approved by the requisite vote of our stockholders, we could not conduct the Rights Offering. In such event, we would be required to seek alternative sources of liquidity to satisfy our existing obligations and to finance our growth and development. We may not be able to obtain such alternative source of liquidity on commercially reasonable terms, if at all. If we were unable to generate such additional liquidity, it would have a material adverse impact on our financial condition and would adversely affect the price of our Common Stock.
In order for the Share Transaction to take place, stockholders must approve both Proposal 3 (the approval of the rights offering) and Proposal 4 (the approval of the standby purchase agreement, as amended, and related matters).
Required Vote
The affirmative vote of a majority in voting power of the outstanding shares of Common Stock and the Series A Preferred Stock (each of which is represented by four Depositary Shares), voting together as a single class, present in person or represented by proxy at the annual meeting and entitled to vote on this proposal, is required to approve this proposal.
The Board of Directors recommends a vote “FOR”
the proposal to approve the Rights Offering.


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PROPOSAL 4
APPROVAL OF THE STANDBY PURCHASE AGREEMENT,
AS AMENDED, AND RELATED MATTERS
In connection with the Rights Offering described in Proposal 3 above, we entered into the Standby Agreement with Tontine. The Standby Agreement obligates us to sell, and requires Tontine to subscribe for and purchase from us, its pro rata portion of the shares offered in the Rights Offering. In addition, Tontine has agreed to purchase any and all shares that are offered in the Rights Offering if those shares are not purchased by the other holders of our Common Stock. This is Tontine’s “Standby Commitment.” If, after giving effect to the purchase of Common Stock described above, Tontine owns less than 25% of the fully diluted issued and outstanding Common Stock (exclusive of stock options and unexchanged shares of Series A Preferred Stock), Tontine will have the option to purchase an additional number of shares of Common Stock at the Subscription Price, up to such amount that will result in Tontine’s owning not more than 25% of the fully diluted issued and outstanding shares of Common Stock (after giving effect to the shares issued in the rights offering and pursuant to this option but exclusive of stock options and unexchanged shares of Series A Preferred Stock). The matters described herein, including the Rights Offering and the Standby Agreement, are referred to collectively as the “Share Transaction” in this proxy statement.
The Standby Agreement limits the number of shares that Tontine may acquire in the Share Transaction. Under the Standby Agreement, Tontine has agreed that it will not purchase shares of Common Stock that would result in it or any “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of which it is a member owning 30% or more of the issued and outstanding shares of our Common Stock on a fully diluted basis (after giving effect to the shares issued in the Rights Offering but exclusive of stock options and unexchanged shares of Series A Preferred Stock).
As noted in the preceding paragraph, there is a limit to the number of shares that Tontine may acquire in these transactions. We, Tontine, and Silverhawk Capital Partners GP, LLC, or Silverhawk, have executed the Amended and Restated First Amendment to Standby Purchase Agreement, or First Amendment. This will have the effect of increasing the amount of capital that we are assured of raising in the Rights Offering (assuming the satisfaction of the conditions in the Standby Agreement). In the First Amendment, Silverhawk agreed to act as an additional standby purchaser to purchase up to 566,667 shares that were offered to but not purchased by our stockholders in the Rights Offering. We also agreed that if, following the purchase of those shares, Silverhawk had acquired fewer than 566,667 shares, Silverhawk will have the option to purchase enough shares so that, following its purchases, Silverhawk will own 566,667 shares of Common Stock. The sales of Common Stock to Silverhawk are being conducted at the same $18.00 per share price as the sales to stockholders in the Rights Offering.
Tontine’s obligation to fulfill the Standby Commitment and Silverhawk’s obligation to purchase shares are each subject to:
• customary closing conditions, including: (i) that our representations and warranties in the Standby Agreement are true and correct in all material respects, (ii) that we deliver a duly executed copy of the Registration Rights Agreement, (iii) that subsequent to the execution of the Standby Agreement and prior to the closing of the Share Transaction, except for matters disclosed prior to July 3, 2007, in our public filings pursuant to the Securities Exchange Act of 1934, there has not been a material adverse effect on our financial condition, earnings, financial position, operations, assets, results of operation, business or prospects, or any event or circumstance that is reasonably likely to result in a material adverse effect on our financial condition, earnings, financial position, operations, assets, results of operation, business or prospects, and (iv) that no market adverse effect (including (A) the suspension by the SEC or the American Stock Exchange of trading in our Common Stock, the suspension or limitation of trading in securities generally on the American or New York Stock Exchanges or NASDAQ Global Market, or the establishment of minimum prices on any of these markets, (B) the declaration of a banking moratorium by United States federal or New York State authorities, or (C) any material new outbreak or material escalation of hostilities or any declaration by the United States of a


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national emergency or war or other calamity or crisis which has a material adverse effect on the U.S. financial markets) has occurred and is continuing;
• obtaining the approval by our stockholders of the transactions contemplated by the Standby Agreement;
• the absence of a judgment or other legal restraint that prohibits or renders unachievable the completion of the Rights Offering or the transactions contemplated by the Standby Agreement;
• the SEC shall have declared the registration statement for the Rights Offering effective, we shall have complied with any request of the SEC to include additional information in the registration statement, no stop order suspending the effectiveness of the registration statement shall have been issued, and the SEC shall not have initiated a proceeding seeking such an order; and
• the shares of Common Stock to be issued in the Share Transaction shall have been authorized for listing on the American Stock Exchange.
We refer to the condition in clause (iii) above as a Material Adverse Effect and the condition in clause (iv) above as a Market Adverse Effect. Tontine’s obligation to fulfill the Standby Commitment is also subject to the appointment, to our Board of Directors, of two individuals designated by Tontine and reasonably acceptable to our Board. Silverhawk’s obligation to purchase shares is also subject to Tontine’s purchase of all the shares that Tontine is required to purchase under the Standby Agreement and no termination of Tontine’s obligations under the Standby Agreement having occurred.
The Standby Agreement contains covenants that are customary for a transaction of this type. We have agreed, except as otherwise contemplated by the Standby Agreement:
• to seek stockholder approval for the Share Transaction;
• to file this proxy statement and the registration statement for the Rights Offering, and to use reasonable best efforts to have the SEC declare the registration statement effective;
• to operate our business in the ordinary course, consistent with past practices;
• not to issue shares of our capital stock, or securities convertible into or exchangeable for shares of our capital stock, except for (A) shares of Common Stock issuable in connection with a possible exchange offer with the holders of our Series A Preferred Stock, (B) shares of Common Stock issuable upon the exercise of stock options, (C) the conversion of Series A Preferred Stock, (D) the warrant issuable to SOF Investments, L.P., and the Common Stock issuable upon exercise of that warrant, (E) equity awards to our employees and directors consistent with past practices and covering not more than 185,000 shares of Common Stock, and (F) equity awards in connection with the hiring of new personnel and covering not more than 100,000 shares of Common Stock;
• not to authorize any stock split, stock dividend, stock combination, or other similar transaction affecting the number of issued and outstanding shares of Common Stock;
• not to declare or pay any dividends or repurchase any of our Common Stock or Series A Preferred Stock (except pursuant to a possible exchange offer with the holders of our Series A Preferred Stock); and
• not to incur any indebtedness or guarantees thereof, other than borrowings in the ordinary course of business and consistent with past practice.
The Standby Agreement also limits our ability, subject to the fiduciary duties of our Board of Directors, to directly or indirectly discuss, negotiate, recommend, propose, or enter into any alternative transaction to the Share Transaction, or otherwise cooperate with, assist, or participate in or facilitate any such alternative transaction.
If our Board changes its recommendation of the Standby Agreement and Tontine subsequently terminates the Standby Agreement under certain circumstances, or if Tontine terminates the Standby Agreement because we have materially breached that Agreement, then we may be obligated to sell Tontine a number of shares


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equal to up to 19.9% of the outstanding shares of our Common Stock, at the Subscription Price, but not to exceed that number of shares that would result in Tontine’s owning more than 25% of the fully diluted outstanding shares of Common Stock. If Tontine exercises its option to purchase those shares of Common Stock and we have received an Acquisition Proposal (a term defined in the Standby Agreement), we may elect to pay Tontine a fee of $10,000,000 instead of selling Tontine those shares of Common Stock. We refer below to the stock sale or payment described in this paragraph as the Termination Fee.
Each of Tontine and Silverhawk may terminate its rights and obligations under the Standby Agreement if there is a Material Adverse Effect or Market Adverse Effect that is not cured within 21 days after the occurrence thereof. If we materially breach the Standby Agreement, either or both of Tontine and Silverhawk may terminate its rights and obligations under the Standby Agreement if we do not cure the breach within 15 days after receipt of a written notice. If Tontine or Silverhawk materially breaches the Standby Agreement, we can terminate the Standby Agreement with respect to the breaching party if the breaching party does not cure the breach within 15 days after receipt of a written notice. We can terminate the Standby Agreement, and Tontine and Silverhawk can each terminate its rights and obligations under the Standby Agreement, if the closing of the Rights Offering has not occurred by November 15, 2007. A termination by Silverhawk will not, by itself, affect the rights and obligations of Tontine under the Standby Agreement.
For information regarding the effects of the Share Transaction, see the information disclosed under “Certain Effects of the Share Transaction” in Proposal 3 above.
Registration Rights Agreement
In connection with the Standby Agreement, we agreed that upon the closing of the Share Transaction, we will enter into the Registration Rights Agreement with Tontine and Silverhawk. Pursuant to the Registration Rights Agreement, we will register the resale of (a) the Common Stock that Tontine is acquiring in the Rights Offering in its capacity as a stockholder of the Company to the extent such shares are not freely tradeable, (b) the Common Stock that is purchased by Tontine and Silverhawk pursuant to the terms of the Standby Agreement, and (c) any other Common Stock owned by Tontine and Silverhawk. As a result, once a registration statement with respect to such shares is declared effective by the SEC, such shares would be eligible for resale in the public market without restriction to the extent not already so eligible for resale.
Although Silverhawk will be a party to the Registration Rights Agreement, Silverhawk has agreed that, if the last reported sale price of the Common Stock on the trading date immediately preceding the closing of its purchase is at least $22.00 per share, it will not sell any of the Common Stock it owns for a period of one year following the closing. In addition, if the last reported sale price of the Common Stock on the trading date immediately preceding the closing is less than $22.00 per share, Silverhawk will not sell any of the Common Stock that it owns for a period of six months following the closing for more than $18.00 per share. The six month and one yearlock-ups are subject to exceptions, specified in the Standby Agreement, pursuant to which Silverhawk may sell shares of Common Stock.
Relationships with Tontine
As of May 2, 2007, Tontine owned 1,543,600 shares of our Common Stock and 4,300 Depositary Shares.
We are not aware of any current plans or proposals by Tontine with respect to any extraordinary corporate transactions involving us or any sale of our assets or change in our management, capitalization, dividend policy, charter or Bylaws (except for the amendment to our Certificate of Incorporation described in this proxy statement), or any other change in our business or corporate structure or with respect to the delisting or deregistration of any of our securities. However, any determination by Tontine to retain its interest in our Company will likely be subject to the continuing evaluation of pertinent factors related to its investment in us. We are not aware of any current plans by Tontine to resell any shares of Common Stock, including any shares acquired in the Share Transaction. Depending upon the continuing assessment of these factors from time to time, Tontine may change its present intentions and may dispose of some or all of the shares of Common Stock it owns. We are also not aware of any current plans by Tontine to acquire additional shares of our Common Stock. Any such acquisition would be subject to our Amended and Restated Rights Agreement.


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That agreement, which is colloquially referred to as a “stockholder rights plan” or “poison pill,” may have the effect of deterring acquisitions of our stock or assets, mergers and tender offers, and proposals for the foregoing that have not been approved by our Board of Directors. We amended that agreement to permit Tontine to acquire the shares of Common Stock contemplated by the Standby Agreement. The acquisition of additional shares by Tontine would require an additional amendment to the Amended and Restated Rights Agreement. The Board of Directors can amend that agreement, subject to the limitations contained therein.
As noted above, it is a condition to Tontine’s Standby Commitment that we appoint to our Board two designees of Tontine reasonably acceptable to our Board. We have agreed that, from and after Tontine’s purchase of shares pursuant to its Standby Commitment, so long as Tontine owns at least 10% of our outstanding Common Stock, Tontine will have the right to designate two persons for election to the Board who are reasonably acceptable to the Board, and that, after the redemption of all outstanding Series A Preferred Stock, our Board will consist of no more than seven individuals. In addition, from and after Tontine’s purchase of shares pursuant to its Standby Commitment, so long as Tontine owns at least 10% of our outstanding Common Stock, it will have the right to designate one person who is either a Tontine employee or otherwise reasonably acceptable to the Board to act as an observer to the Board. This observer will receive all materials provided to directors in connection with their service on the Board and will be permitted to attend all meetings of the Board and its Committees (other than the portions of meetings that are potentially adverse to Tontine, the portions of meetings attended only by directors in executive session, and the portions of meetings if the observer’s attendance would jeopardize any legal privilege). As a condition to the appointment of the observer, Tontine and the observer must execute a confidentiality agreement reasonably satisfactory to the Company.
Relationships with Silverhawk
As noted above, Tontine’s obligation to fulfill the Standby Commitment is subject to the appointment, to our Board of Directors, of two individuals designated by Tontine and reasonably acceptable to our Board. We and Tontine are discussing the designation of Ted A. Gardner, a Managing Member of Silverhawk Capital Partners GP, LLC, the additional standby purchaser, as one of these two directors. Mr. Gardner is 49 years old and has been a Managing Partner of Silverhawk Capital Partners, LLC (a private equity investment group and an affiliate of Silverhawk Capital Partners GP, LLC), since June 2005. From June 2003 to June 2005, Mr. Gardner was an independent investor. Mr. Gardner was a Managing Partner of Wachovia Capital Partners (a private equity investment group) and a Senior Vice President of Wachovia Corporation (a provider of commercial and retail banking and trust services) from 1990 until 2003. Mr. Gardner received a Bachelor of Arts degree in Economics from Duke University and a J.D. and Masters of Business Administration from the University of Virginia. Notwithstanding these discussions, Tontine has not named Mr. Gardner as one of its two designees, and Mr. Gardner has not been chosen to be a director.
In the Standby Agreement, Silverhawk represented that (A) neither it nor any of its affiliates is an affiliate of Tontine, (B) none of it, its affiliates, and any immediate family member of any of its affiliates is a director, officer, employee, partner (limited or general), or member of Tontine or, to its knowledge, any affiliate of Tontine or any entity of which Tontine or any affiliate thereof owns 5% or more, (C) from January 1, 2004 to the present, none of it, its affiliates, and any immediate family member of any of its affiliates has accepted any consulting, advisory, or other compensatory fee or payment from Tontine, or, to its knowledge, any affiliate of Tontine or any entity of which Tontine or any affiliate thereof owns 5% or more, and (D) there are no contracts, arrangements, understandings, or relationships (legal or otherwise) between Silverhawk and Tontine with respect to the voting of any shares of Common Stock.
Board Consideration
Our Board of Directors regularly receives information about the Company’s financial position and cash forecast. Beginning in August 2006, the independent directors expressed concern about the Company’s profitability and liquidity outlook, and in the autumn of 2006, the Board directed management to undertake a review of capital-raising and other strategic alternatives. Mr. Seglem first presented the possibility of a transaction with Tontine to the Board in a conference call on November 30, 2006. Tontine has owned more


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than 5% of our Common Stock since March 1999. On December 15, 2007, the Board met and discussed approaches the Company could consider. At that meeting, the Board received an overview of industry trends and prospects and commentary on factors specific to the Company from an investment banking firm familiar with the Company. Thereafter, our Board met on January 22, 2007, February 9, 2007, March 9, 2007, March 22, 2007, March29-30, 2007, and April 30-May 1, 2007 to consider possible arrangements with Tontine and related matters. In addition, in the period after November 30, 2006, directors held numerous conference calls to discuss the Company’s financial condition, financing options, and other strategic matters. On May 1, 2007, our Board approved the Standby Agreement and recommended it and the Share Transaction to stockholders by a vote of 6 to 2, with Messrs. Armstrong, Coffey, Killen, Klingaman, Ostrander, and Stern (the “Majority Directors”) voting in favor and Messrs. Seglem and Tortorice voting against.
Among the reasons Messrs. Seglem and Tortorice gave for opposing the transaction were their beliefs that the Share Transaction transfers control of the Company to Tontine at a discount to the market price of the Common Stock then in effect, that the Subscription Price reflected too large a discount to the market price of the Common Stock then in effect, that the Termination Fee is too high, and that Tontine had not agreed in writing to lend the Company money if, prior to the completion of the Rights Offering, the Company’s liquidity requirements exceed its capital resources and committed financing arrangements. Mr. Seglem and Mr. Tortorice expressed the view that the Company had not adequately explored alternatives to the Share Transaction, that the Company’s financial condition was sufficiently strong that it was not required to enter into the Standby Agreement at that time, and that the Company could and should therefore explore alternatives to the Standby Agreement and the Share Transaction. Mr. Seglem also expressed concern about the absence of specified terms for an exchange offer to the holders of the Series A Preferred Stock and about amendments to the Standby Agreement that could add additional standby purchasers.
The Majority Directors observed that the Standby Agreement permits Tontine to acquire no more than 30% (and depending on stockholder participation, potentially no more than 25%) of the Company’s fully diluted Common Stock and designate only 2 members of a 7-member Board, that the Subscription Price and the Termination Fee were the result of arm’s length bargaining with Tontine, that they believed the size of the Termination Fee to be reasonable, that the Company has the option to pay the Termination Fee in cash in certain circumstances, that the Company’s sole commitment with respect to additional standby purchasers is to consider in good faith proposals to add additional standby purchasers, that Tontine had agreed in writing to advance the Company an amount not to exceed $2 million for general corporate purposes, that the Company had committed to redeem the Series A Preferred Stock that was outstanding at the conclusion of the Rights Offering at the redemption price specified in the Certificate of Designation, and that the Company continued to evaluate an exchange offer to the holders of the Series A Preferred Stock. The Majority Directors observed that the Board had asked management to seek alternatives in the fall of 2006, but that the alternatives that management had presented to the Standby Agreement and the Share Transaction did not, in these directors’ judgment, provide a more desirable and timely means to address the Company’s financial condition and liquidity considerations. In March 2007, therefore, the Majority Directors believed it incumbent on the Company to finalize the transaction with Tontine and complete the Rights Offering on a timetable consistent with the Company’s need for liquidity. The Majority Directors also observed that the Rights Offering will not take place unless approved by the Company’s stockholders, that if the Rights Offering is approved by stockholders, all stockholders will have the option to purchase shares in the Rights Offering at the Subscription Price and all stockholders will have an oversubscription privilege, and that the Company’s financial condition would be significantly improved by raising additional equity capital.
The Board considered the First Amendment at its meetings of June 21 and June 28. After discussion, the Board approved the First Amendment on June 28, 2007 by a vote of 6 to 1, with the Majority Directors voting in favor and Mr. Tortorice voting against.
Reasons for Soliciting Stockholder Approval
We are seeking stockholder approval of the Standby Agreement and the transactions contemplated thereby because we are required to do so under the terms of the Standby Agreement.


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Consequences if the Standby Agreement and the Transactions Contemplated Thereby are Not Approved by the Stockholders
If the Standby Agreement and the transactions contemplated thereby are not approved by the requisite vote of our stockholders, neither Tontine nor Silverhawk would be obligated to fulfill its commitments under the Standby Agreement, including their obligations to purchase shares of Common Stock. In such event, we would be required to seek alternative sources of liquidity to satisfy our existing obligations and to finance our growth and development. We may not be able to obtain such alternative source of liquidity on commercially reasonable terms, if at all. If we were unable to generate such additional liquidity, it would have a material adverse impact on our financial condition and would adversely affect the price of our Common Stock.
In order for the Share Transaction to take place, stockholders must approve both Proposal 3 (the approval of the rights offering) and Proposal 4 (the approval of the standby purchase agreement, as amended, and related matters).
Required Vote
The affirmative vote of a majority in voting power of the outstanding shares of Common Stock and the Series A Preferred Stock (each of which is represented by four Depositary Shares), voting together as a single class, present in person or represented by proxy at the annual meeting and entitled to vote on this proposal, is required to approve this proposal.
The Board of Directors recommends a vote “FOR”
the proposal to approve the Standby Agreement and
the transactions contemplated thereby.


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PROPOSAL 5
APPROVAL OF 2007 EQUITY INCENTIVE PLAN FOR EMPLOYEES
AND NON-EMPLOYEE DIRECTORS
On March 9, 2007, the Board of Directors of the Company adopted, subject to stockholder approval, the 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “2007 Plan”). 700,000 shares of Common Stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2007 Plan.
The 2007 Plan is intended to supplement the Company’s existing equity incentive plans. The Company’s stockholders last approved an equity incentive plan for employees in 2002. The last equity incentive plan for directors was adopted in 2000. As of July 3, 2007, only 103,283 shares were available under all plans for employees and only 19,176 shares were available under the directors’ plan adopted in 2000.
In order to have additional shares available for grant as incentives, the Board of Directors, at the recommendation of the Compensation and Benefits Committee, is seeking approval for the 2007 Plan. The Board of Directors believes that an equity incentive program serves an important interest of the Company and its stockholders. The Board believes that awards granted under the 2007 Plan will provide long term incentives for the officers, employees, and non-employee directors of the Company, will help the Company to attract and retain qualified officers, employees, and non-employee directors, and will help align the interests of 2007 Plan participants with the Company’s stockholders. The decision of the Board of Directors to adopt the 2007 Plan was also based on the recommendations of its nationally recognized compensation consultant, Mercer Human Resources Consulting. Mercer advised the Board that it is typical for companies in a restructuring or renewal phase to emphasize long-term incentives as a percentage of total compensation for executives and key employees. Mercer compared the Company’s current compensation position for its senior executives to that of other companies considered by Mercer to be comparable for compensation purposes. Mercer reported that Westmoreland’s total compensation of these senior executives continues to be well below the median among the companies Mercer considered comparable due, among other things, to its relative lack of long-term incentives.
The Board of Directors believes that the future success of the Company depends, in large part, upon the ability of the Company to maintain a competitive position in attracting, retaining, and motivating key personnel.Accordingly, the Board of Directors believes adoption of the 2007 Plan is in the best interests of the Company and its stockholders and recommends a vote “FOR” the approval of the 2007 Plan and the reservation of 700,000 shares of Common Stock for issuance thereunder.
Description of the 2007 Plan
The following is a brief summary of the 2007 Plan, a copy of which is attached as Appendix C to this Proxy Statement. The description of the 2007 Plan in this proxy statement is not complete and is qualified in its entirety by reference to the text of the plan attached.
Types of Awards
The 2007 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards as described below (collectively, “Awards”).
Incentive Stock Options and Non-statutory Stock Options.  Optionees receive the right to purchase a specified number of shares of Common Stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. Options may not be granted at an exercise price less than 100% of the fair market value of the Common Stock on the date of grant or for a term in excess of ten years. The 2007 Plan permits the following forms of payment of the exercise price of options: (i) payment by cash, check or in connection with a “cashless exercise” through a broker, (ii) subject to certain


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conditions, surrender to the Company of shares of Common Stock, (iii) any other lawful means, or (iv) any combination of these forms of payment.
Unless approved by the Company’s stockholders, (i) no outstanding option may be amended to provide an exercise price less than the then-current exercise price of such option, and (ii) no option may be issued under the 2007 Plan in substitution for any outstanding option to purchase shares of Common Stock if the exercise price of such option is less than the then-current exercise price of the cancelled option.
Stock Appreciation Rights.  A stock appreciation right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in Common Stock or cash or a combination thereof determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of Common Stock. SARs may be granted independently or in tandem with an option. SARs may not be granted at a base price less than 100% of the fair market value of the Common Stock on the date of grant.
Restricted Stock Awards.  Restricted stock awards entitle recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.
Restricted Stock Unit Awards.  Restricted stock unit awards entitle the recipient to receive shares of Common Stock to be delivered at the time such shares vest pursuant to the terms and conditions established by the Board of Directors.
Other Stock-Based Awards.  Under the 2007 Plan, the Board of Directors has the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in whole or in part by reference to, or otherwise based on, shares of Common Stock, and the grant of Awards entitling recipients to receive shares of Common Stock to be delivered in the future.
Performance Conditions.  The Compensation and Benefits Committee may determine, at the time of grant, that a restricted stock award, restricted stock unit award or other stock-based award granted to an employee will vest solely upon the achievement of specified performance criteria designed to qualify for deduction under Section 162(m) of the Code. The performance criteria for each such Award will be based on one or more of the following measures: (a) earnings before interest, taxes, depreciationand/or amortization, (b) earnings before operating income or profit, (c) operating efficiencies, (d) return on equity, assets, capital, capital employed, or investment, (e) after tax operating income, (f) net income, (g) earnings or book value per share, (h) cash flow(s), (i) total sales or revenues or sales or revenues per employee, (j) production, (k) stock price or total stockholder return, (l) dividends, (m) strategic business objectives consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures, or (n) except in the case of individuals who are “covered employees” under Section 162(m) of the Code, any other performance criteria established by the Compensation and Benefits Committee. These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance goals (i) may vary by employee and may be different for different Awards; (ii) may be particular to a employee or the department, branch, line of business, subsidiary, division or other unit in which the employee works and may cover such period as may be specified by the Compensation and Benefits Committee; and (iii) will be set by the Compensation and Benefits Committee within the time period prescribed by, and will otherwise comply with the requirements of, Section 162(m) of the Code.
Director Awards.  The 2007 Plan provides for the automatic grant of Awards to members of the Board of Directors who are not employees of the Company (“Non-Employee Directors”). On the commencement of service on the Board, each Non-Employee Director will receive an Award with a value determined in a manner deemed appropriate by the Board, which may include Black-Scholes modeling, equal to $60,000. In


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addition, on the date of each annual meeting of stockholders, each Non-Employee Director who is both serving as a director immediately before and immediately after such meeting will receive an Award with a value determined in a manner deemed appropriate by the Board, which may include Black-Scholes modeling, equal to $30,000; provided, however, that no Non-Employee Director will be eligible to receive this annual Award unless such director has served on the Board for at least seven months. The Board retains the specific authority from time to time to increase or decrease the dollar values of Awards granted to Non-Employee Directors under the 2007 Plan. Awards automatically granted to Non-Employee Directors will (i) have an exercise or base price equal to 100% of the fair market value of the Common Stock on the date of grant, (ii) vest according to the schedule specified in the Award, (iii) expire at the time specified in the Award, which in the case of Options will be the earlier of 10 years from the date of grant or three months following cessation of service on the Board, and (iv) contain such other terms and conditions as the Board determines. If a Non-Employee Director’s service terminates for any reason other than a Reorganization Event or Change in Control Event, then all of such Non-Employee Director’s Awards will automatically vest and become fully exercisable on the date such individual ceases to be a director, provided that the individual has served as a director for three years or more. If the individual has served as a director for less than three years, all of the Non-Employee Director’s Awards will expire on the date such individual ceases to be a director. Notwithstanding the foregoing vesting provisions, (i) a Non-Employee Director’s Awards may vest automatically upon the occurrence of a Reorganization Event or Change in Control Event as described below, and (ii) the Board may provide for accelerated vesting in the case of the death or disability of a director.
Transferability of Awards
Except as the Board of Directors may otherwise determine or provide in an Award, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order, and during the life of the grantee, will be exercisable only by the grantee.
Eligibility to Receive Awards
Employees, officers, and directors of the Company and its subsidiaries and of other business ventures in which the Company has a controlling interest are eligible to be granted Awards under the 2007 Plan. Under present law, however, incentive stock options may only be granted to employees of the Company and its subsidiaries.
The maximum number of shares with respect to which Awards may be granted to any participant under the 2007 Plan may not exceed 200,000 shares per calendar year. For purposes of this limit, the combination of an option in tandem with a SAR is treated as a single Award.
Plan Benefits
All of the Company’s employees are eligible to receive Awards under the 2007 Plan. Historically, the Company has granted awards under its plans to approximately 30 persons, including its executive officers and Non-Employee Directors. The Company expects to continue this practice under the 2007 Plan. Other than the automatic granting of Awards to Non-Employee Directors as described above, the granting of Awards under the 2007 Plan is discretionary, and neither the Board of Directors nor the Compensation and Benefits Committee has made any grants under the 2007 Plan.
On July 3, 2007, the last reported sale price of the Common Stock on the American Stock Exchange was $28.01.
Administration
The 2007 Plan is administered by the Board of Directors. The Board of Directors has the authority to adopt, amend, and repeal the administrative rules, guidelines, and practices relating to the 2007 Plan and to interpret the provisions of the 2007 Plan. Pursuant to the terms of the 2007 Plan, the Board of Directors may


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delegate authority under the 2007 Plan to one or more committees or subcommittees of the Board of Directors.
Subject to any applicable limitations contained in the 2007 Plan, the Board of Directors, the Compensation and Benefits Committee, or any other committee to whom the Board of Directors delegates authority, as the case may be, selects the recipients of Awards and determines (i) the number of shares of Common Stock covered by options and the dates upon which such options become exercisable, (ii) the exercise price of options (which may not be less than 100% of the fair market value of the Common Stock on the date of grant; provided, however, that if the Board or such committee approves the grant of an option with an exercise price to be determined on a future date, the exercise price will be not less than 100% of the fair market value on such future date), (iii) the duration of options (which may not exceed 10 years), and (iv) the number of shares of Common Stock subject to any SAR, restricted stock award, restricted stock unit award or other stock-based Awards and the terms and conditions of such Awards, including conditions for repurchase, issue price, and repurchase price.
The Board of Directors is required to make appropriate adjustments in connection with the 2007 Plan and any outstanding Awards to reflect stock splits, stock dividends, recapitalizations, spin-offs, and other similar changes in capitalization.
The 2007 Plan also contains provisions addressing the consequences of any Reorganization Event or Change in Control Event. A Reorganization Event is defined under the 2007 Plan as (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities, or other property, or is cancelled or (b) any exchange of all of the Common Stock of the Company for cash, securities, or other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company. In connection with a Reorganization Event, the Board of Directors may take any one or more of the following actions as to all or any outstanding Awards on such terms as the Board determines: (i) provide that Awards will be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice, provide that all unexercised Options or other unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised within a specified period following the date of such notice, (iii) provide that outstanding Awards will become exercisable, realizable, or deliverable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the “Acquisition Price”), make or provide for a cash payment to an Award holder equal to (A) the Acquisition Price times the number of shares of Common Stock subject to the holder’s Awards (to the extent the exercise price does not exceed the Acquisition Price) minus (B) the aggregate exercise price of all the holder’s outstanding Awards, in exchange for the termination of such Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards will convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof), and (vi) any combination of the foregoing.
A Change in Control Event is defined under the 2007 Plan as:
(i) the acquisition by any person or group of beneficial ownership of 20% or more of either (A) the then-outstanding shares of Common Stock (the “Outstanding Company Common Stock”), or (B) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), provided that the following acquisitions will not constitute a Change of Control Event: (x) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise of convertible or exchangeable securities unless such securities were acquired directly from the Company), (y) any acquisition by an employee benefit plan sponsored or maintained by the Company or (z) any acquisitions pursuant to a Business Combination that does not constitute a Change in Control Event as provided in paragraph (iii) below; and provided, further, that if any person or group acquires beneficial ownership of 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities but, notwithstanding such ownership, a


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Change in Control Event is not deemed to have occurred pursuant to clause (x) above, then the acquisition by such person or group of any additional shares of Common Stock (other than pursuant to a stock split, stock dividend or similar event) will constitute a Change in Control Event, or
(ii) such time as the Board of Directors of the Company (or any successor corporation to the Company) is not comprised of a majority of Continuing Directors, defined as members of the Board who (A) were members of the Board at the date the 2007 Plan was adopted or (B) were nominated pursuant to the terms of the Standby Agreement or (C) were nominated or elected to the Board after such date by a majority of Continuing Directors or whose election to the Board was recommended by a majority of Continuing Directors, excluding any individual whose assumption of office was the result of an actual or threatened proxy contest, or
(iii) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the Company’s assets (a “Business Combination”), unless immediately following such Business Combination (A) all or substantially all of the persons who were beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Stock immediately prior to such Business Combination beneficially own more than 50% of then-outstanding shares of common stock and the combined voting power of the resulting or acquiring corporation (the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Stock immediately prior to the Business Combination, and (B) no person (other than an employee benefit plan) beneficially owns 20% or more of the then-outstanding shares of common stock and the combined voting power of the Acquiring Company, or
(iv) the liquidation or dissolution of the Company.
Notwithstanding the foregoing clause (i), Tontine may acquire up to 30% of the Company’s fully diluted and issued and outstanding shares of Common Stock (exclusive of stock options and unexchanged shares of Series A Preferred Stock) without causing a Change of Control Event.
Upon the occurrence of a Change of Control Event, unless specifically provided to the contrary in the instrument evidencing any Award or any other agreement between a participant and the Company, all restrictions and conditions on all outstanding Restricted Stock Awards will automatically be deemed terminated and satisfied. In addition, unvested options and SARs granted to an employee or a director of the Company will automatically become vested or exercisable upon a Change of Control Event if such employee is Terminated within 12 months following such Change of Control or the director is removed from the Board within 12 months of the Change of Control, or, if a regular meeting of shareholders occurs within 12 months of the Change of Control, such director is not nominated for re-election at such meeting after he or she expresses a desire to be so nominated. For purposes of the foregoing, “Terminated” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his or her level of responsibility which, in either such case, causes the employee to voluntarily terminate his or her employment.
The Board of Directors may at any time provide that any Award will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.
If any Award expires, is terminated, surrendered, or canceled without being fully exercised, is forfeited in whole or in part, or is settled in cash, or otherwise results in any Common Stock not being issued, the unused shares of Common Stock covered by such Award will again be available for grant under the 2007 Plan, subject, however, in the case of incentive stock options, to any limitations under the Code. In addition, shares of Common Stock tendered to the Company by a participant to exercise an Award will be added to the number of shares of Common Stock available for grant of Awards under the 2007 Plan.


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Substitute Options
In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms, as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the 2007 Plan. Substitute Awards will not count against the 2007 Plan’s overall share limit, except as may be required by the Code.
Amendment or Termination
No Award may be made under the 2007 Plan after the expiration of 10 years from the effective date of the 2007 Plan, but Awards previously granted may extend beyond that date. The Board of Directors may at any time amend, suspend, or terminate the 2007 Plan.
If Stockholders do not approve the adoption of the 2007 Plan, the 2007 Plan will not go into effect, and the Company will not grant any Awards under the 2007 Plan. In such event, the Board of Directors will consider whether to adopt alternative arrangements based on its assessment of the needs of the Company.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax consequences that generally will arise with respect to Awards granted under the 2007 Plan. This summary is based on the federal tax laws in effect as of the date of this proxy statement. In addition, this summary assumes that all Awards are exempt from, or comply with, the rules under Section 409A of the Internal Revenue Code regarding nonqualified deferred compensation. Changes to these laws could alter the tax consequences described below. The plan provides that no Award will provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A.
Incentive Stock Options
A participant will not have income upon the grant of an incentive stock option. Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by the Company or its corporate parent or 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant has not been so employed during that time, then the participant will be taxed as described below under “Non-statutory Stock Options.” The exercise of an incentive stock option may subject the participant to the alternative minimum tax.
A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price). The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain. If a participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and a portion of the profit will be ordinary income and a portion may be capital gain. This capital gain will be long-term if the participant has held the stock for more than one year and otherwise will be short-term. If a participant sells the stock at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Non-statutory Stock Options
A participant will not have income upon the grant of a non-statutory stock option. A participant will have compensation income upon the exercise of a non-statutory stock option equal to the value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the stock, the participant will


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have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term.
Stock Appreciation Rights
A participant will not have income upon the grant of a stock appreciation right. A participant generally will recognize compensation income upon the exercise of SARs equal to the amount of the cash and the fair market value of any stock received. Upon the sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the SAR was exercised. This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Restricted Stock Awards
A participant will not have income upon the grant of restricted stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a timely 83(b) election is made, then a participant will have compensation income equal to the value of the stock less the purchase price. When the stock is sold, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the date of grant. If the participant does not make an 83(b) election, then when the stock vests the participant will have compensation income equal to the value of the stock on the vesting date less the purchase price. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Restricted Stock Units
A participant will not have income upon the grant of a restricted stock unit. A participant is not permitted to make a Section 83(b) election with respect to a restricted stock unit award. When the restricted stock unit vests, the participant will have income on the vesting date in an amount equal to the fair market value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted under the 2007 Plan will vary depending on the specific terms of such Award. Among the relevant factors are whether or not the Award has a readily ascertainable fair market value, whether or not the Award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the Award and the participant’s holding period and tax basis for the Award or underlying Common Stock.
Tax Consequences to the Company
There will be no tax consequences to the Company except that the Company will be entitled to a deduction when a participant has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Code.
The Board of Directors recommends a vote “FOR”
the proposal to approve the 2007 Equity Incentive Plan for
Employees and Non-Employee Directors.


23

PROPOSAL 6
APPROVAL OF AN AMENDMENT TO OUR
CERTIFICATE OF INCORPORATION
The Board of Directors has approved, subject to stockholder approval, an amendment to our Certificate of Incorporation that would increase the number of shares of Common Stock that we are authorized to issue from 20,000,000 to 30,000,000 and make a corresponding change in the aggregate number of shares of all classes of stock that we are authorized to issue from 25,000,000 to 35,000,000. If approved by our stockholders, the increase in authorized Common Stock (and the corresponding increase in the aggregate number of shares of all classes of stock) would become effective as soon as reasonably practicable after the annual meeting, upon our filing of a certificate of amendment to our Certificate of Incorporation with the Delaware Secretary of State. The form of certificate of amendment to be filed, if approved by our stockholders, is attached as Appendix D to this proxy statement.
Our Certificate of Incorporation currently authorizes us to issue 20,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. As of the record date for our annual meeting, there were 9,119,705 shares of Common Stock issued and outstanding, and 160,129 shares of Series A Preferred Stock (and 640,515 Depositary Shares) issued and outstanding. As of the record date for the annual meeting, we also had the following shares of Common Stock reserved for issuance: 2,450,000 shares of Common Stock reserved for issuance under stock incentive plans, 150,000 shares of Common Stock reserved for issuance upon the exercise of the SOF Investments warrant, and 1,094,001 shares of Common Stock reserved for issuance upon the conversion of the outstanding Series A Preferred Stock. We are seeking the authority to issue equity incentives covering an additional 700,000 shares of Common Stock at the annual meeting. Based on the number of shares of Common Stock currently outstanding and reserved for issuance and the number of shares issuable pursuant to existing stock incentive plans, and assuming that stockholders approve the 2007 Stock Incentive Plan, we would have approximately 6,486,000 shares of Common Stock remaining available for issuance.
As discussed above, we are seeking stockholder approval for the Standby Agreement and related transactions, including a rights offering with a minimum size of $85,000,000, in which we would offer a minimum of approximately 4.7 million additional shares of Common Stock. We are also considering an offer to exchange shares of Common Stock for the outstanding shares of Series A Preferred Stock. We cannot quantify the precise number of shares of Common Stock that would be issued in these transactions, in part because we have not determined whether to conduct an exchange offer or set an exchange ratio, and in part because the number of shares to be issued in the Rights Offering will depend on the number of shares of Series A Preferred Stock outstanding when we conduct the Rights Offering. However, we believe that we have more than enough authorized shares of Common Stock to conduct the Share Transaction and, if we elect to conduct an exchange offer, to do that as well.
In view of the significant number of shares that could be issued in the Share Transaction and a possible exchange offer, our Board of Directors believes that this is an appropriate time to seek authority to issue additional shares of Common Stock. The additional shares of Common Stock would be available for other issuances for any proper corporate purpose from time to time as determined by our Board of Directors. For example, in addition to the Share Transaction, we may issue shares of Common Stock in public or private offerings for cash, or for use as consideration in acquiring other companies or assets with stock. Our Board of Directors also believes the amendment to our Certificate of Incorporation will enhance our flexibility in managing our capitalization, raising capital, and structuring appropriate equity compensation.
We do not have any current plans to issue additional equity securities (other than in connection with the Share Transaction and a possible exchange offer, in connection with grants under our present and future equity compensation plans,and/or the potential issuance of shares of Common Stock upon the exercise of the SOF Investments warrant), and have not entered into any agreement to sell our equity securities at this time (other than as contemplated by the Standby Agreement) or to make an acquisition utilizing Common Stock. Our Board of Directors is seeking approval for additional authorized Common Stock at this time because future opportunities requiring prompt action may arise and our Board of Directors believes the delay and expense in


24

seeking stockholder approval for additional authorized Common Stock could deprive the Company and our stockholders of the ability to benefit effectively from opportunitiesand/or cause the loss of attractive acquisitions or financing arrangements.
Our Board of Directors believes that it is in the best interests of the stockholders for the Company to have the flexibility to issue additional shares of Common Stock in any or all of the above circumstances. Although the issuance of additional shares of Common Stock could, in certain instances, discourage an attempt by another person or entity to acquire control of us, we have not proposed the increase in the number of authorized shares of Common Stock with the intention of using the additional authorized shares for anti-takeover purposes.
The additional shares of Common Stock to be authorized will have rights identical to the currently outstanding Common Stock. The proposed amendment will not affect the par value of the Common Stock, which will remain at $2.50 per share. Under our Certificate of Incorporation, our stockholders do not have preemptive rights to subscribe to additional securities that we may issue. This means that current stockholders do not have a prior right to purchase any new issue of our capital stock in order to maintain their proportionate ownership of Common Stock.
If we issue additional shares of Common Stock or other securities convertible into Common Stock in the future, it could dilute the voting rights of existing holders of Common Stock and could also dilute earnings per share and book value per share. In addition, such issuances could trigger the anti-dilution provisions under the SOF Investments warrant.
The affirmative vote of a majority in voting power of (i) the shares of Common Stock and the Series A Preferred Stock (each of which is represented by four Depositary Shares) outstanding on the record date for the annual meeting, voting together as a single class, and (ii) the shares of Common Stock outstanding on the record date for the annual meeting, voting as a separate class, is required to approve this proposal. Notwithstanding stockholder approval of the proposal to amend our Certificate of Incorporation, the Board of Directors reserves the right to abandon the amendment at any time prior to its effectiveness without any further action by our stockholders, although the Board of Directors does not have any current plan to do so.
The Board of Directors recommends a vote “FOR”
the proposal to amend our Certificate of Incorporation.


25

CORPORATE GOVERNANCE
 
Our Board of Directors believes that good corporate governance is important to ensure that our companythe Company is managed for the long-term benefit of stockholders. This section describes key corporate governance guidelines and practices that our Board has adopted. Complete copies of our committee charters and code of business conduct are available on the Investor Relations section of our website, www.westmoreland.com. Alternatively, you can request a copy of any of these documents by writing to the Vice President, Corporate Relations, Westmoreland Coal Company, 2 North Cascade Ave., 14th2nd Floor, Colorado Springs, Colorado 80903.
 
Information about the Board and Committees
 
The Board of Directors held ninefifteen meetings during 2006. All of our directors attended in person, or by telephone, all of the meetings of the Board of Directors and all of the2008, including four meetings held by all committees on which they served during 2006jointly with the Audit Committee and which wereone meeting held duringjointly with the time they were members of the Board.Compensation and Benefits, Audit, and Nominating and Corporate Governance Committees. All directorsdirector nominees attended our 20062008 annual meeting of stockholders. Resolutions adopted by the Board provide that directors are expected to attend the annual meeting of stockholders.
Mr. Klingaman joined No director, during his period of service, attended fewer than 75% of the Board in February 2006. Mr. James Sight was elected to the Board at our 2006 annual meeting and resigned from the Board in November 2006. Mr. Christopher K. Seglem was elected to the Board at our 2006 annual meeting and resigned from the Board in May 2007. Mr. Michael Armstrong was elected to our Board at our 2006 annual meeting and resigned from the Board in July 2007. Messrs. Thomas W. Ostrander and Donald A. Tortorice were elected to the Board at our 2006 annual meeting and are currently serving as directors; they were not nominated for re-election at the 2007 annual meeting. Mr. Seglem served as Chairmantotal number of meetings of the Board through May 1, 2007. In May 2006, Mr. Killen was named Vice-Chairman, and effective May 2, 2007, Mr. Killen was named interim, non-executive Chairman of the Board.committees on which he served.
 
The Audit Committee ofmet eight times during 2008, including four meetings held jointly with the Board of Directors met six times during 2006.and one meeting held jointly with the Compensation and Benefits, Nominating and Corporate Governance Committees and the Board. The committee is comprised of Messrs. Coffey (Chairman), Ostrander,Stern and Stern. Mr. Tortorice was also a member of the Audit Committee until May 2006 when he became the Chairman of the Compensation and Benefits Committee.Klingaman. The Audit Committee which reports to the Board of Directors, approves the appointment of our independent registered public accounting firm, monitors the independence and directs the performance of our independent registered public accounting firm, and monitors the integrity of our financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance. It also reviews with our independent registered public accounting firm the audit plan for our company,the Company, our internal accounting controls, our financial statements, and the independent registered public accounting firm’s report to the Audit Committee. The Board of Directors has determined that Thomas J. Coffey is an “audit committee financial expert” as defined in Item 407(d)(5) ofRegulation S-K. The Board has also determined that each member of the Audit Committee, including Mr. Coffey, is “independent” under the American Stock Exchange’sNYSE Amex listing standards, Section 10A of the Securities Exchange Act of 1934, as amended, or the Exchange Act, andRule 10A-3 thereunder. A copy of the Audit Committee Charter can be found in the Investor Relations section of our web sitewebsite at www.westmoreland.com.
 
The Compensation and Benefits Committee of the Board of Directors met sixfive times during 2006.2008 including one meeting held jointly with the Audit and Nominating and Corporate Governance Committees and Board. The committee wasis comprised of Messrs. KillenKlingaman (Chairman), Armstrong, Stern,Coffey and Tortorice until May 2006 and Messrs. Tortorice (Chairman), Armstrong (until his resignation in July 2007), and Klingaman thereafter.D’Appolonia. Each member of the Compensation and Benefits Committee is “independent” under the American Stock Exchange’sNYSE Amex listing standards. This committee is responsible for assuring that the Board, of Directors, various committee chairpersons and committee members, our Executive Chairman, Chief Executive Officer, other officers, and our key management are compensated appropriately and in a manner consistent with our approved compensation strategy, internal equity considerations, competitive practice, and any relevant laws or regulations. The processes and procedures followed by our Compensation and Benefits Committee in considering and determining executive and director compensation are described below under the heading “Executive“— Executive and Director Compensation Processes”.Processes.” A copy of the Compensation and Benefits Committee Charter may be found on the Investor Relations section of our website at www.westmoreland.com.
 
We had separate Nominating and Corporate Governance Committees until May 2006, when those committees were combined. The Corporate Governance Committee was comprised of Messrs. Ostrander


26

(Chairman), Armstrong, Coffey, and Tortorice and met twice during 2006. The Nominating Committee was comprised of Messrs. Killen (Chairman), Armstrong, and Sight and also met twice during 2006. The Nominating and Corporate Governance Committee is comprised of Messrs. Killen (Chairman) and Ostrander and met on May 2, 2007once during 2008 to review the qualifications of potential candidates to serve as common stockholder nominees and depositary stockholder nominees for election to the BoardBoard. The committee is comprised of DirectorsMessrs. Stern (Chairman) and to recommend a slate of candidates for consideration by the Board of Directors. The Nominating and Corporate Governance Committee also met on July 11, 2007 to recommend a revised slate of candidates for consideration by the Board of Directors following the resignation of Mr. Armstrong from the Board.Coffey. Each member of the Nominating and Corporate Governance Committee is “independent” under the American Stock Exchange’sNYSE Amex listing standards. This committee which reports to the Board of Directors, identifies and recommends individuals qualified to be nominated as members of the Board of Directors.Board. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate director candidates is discussed below under “— Director Candidate Nomination Process.” The Nominating and Corporate Governance Committee is also authorized to provide oversight on matters related to corporate governance and structure and to make recommendations to the Board of Directors.Board. This committee also provides for the evaluation of Board, committee, and


6

individual director performance and recommends individuals qualified to be nominated as members of the Board of Directors.Board. A copy of the Nominating and Corporate Governance Committee Charter can be found on the Investor Relations section of the Company’s web sitewebsite at www.westmoreland.com.
 
The Executive Committee of the Board of Directors, comprised of Messrs. Seglem (Chairman) (until his resignation in May 2007), Armstrong (until his resignation in July 2007), Killen, and Sight (until his resignation in November 2006), did not meet during 2006. To the extent permitted by law, this2008. The committee is authorized to exercise the powercomprised of the Board of Directors with respect to the management of the businessMessrs. Alessi (Chairman), Klingaman and affairs of our company.
There are no family relationships between any director, executive officer, or person nominated or chosen by us to become a director or executive officer of our company except for between Mr. Christopher Seglem, who served as Chairman, President and Chief Executive Officer through May 1, 2007, and Mr. Mark Seglem as described in “Certain Transactions — Other Related Person Transactions” below.D’Appolonia.
 
Compensation and Benefits Committee Interlocks and Insider Participation
 
During 2006,2008, each of Messrs. Armstrong,Robert E. Killen (who served as a director until May 2008), Klingaman, Stern, Coffey and TortoriceD’Appolonia served on our Compensation and Benefits Committee. None of these directors was a current or former officer or employee of our company,the Company, and none had any related person transaction involving the Company. During 2008, none of our company.executive officers served on the board of directors of any entity that had one or more executive officers serving on our Board.
 
Director Candidate Nomination Process
 
The process followed by the Nominating and Corporate Governance Committee to identify and evaluate director candidates when a vacancy exists or is anticipated includes invitations to Board members for recommendations, the collection of information about individuals recommended, meetings to evaluate biographical information and background material relating to potential candidates, and interviews of selected candidates by members of the committee and the Board.
 
In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended director nominees, the Nominating and Corporate Governance Committee takes into consideration a number of criteria which include the candidate’s integrity, business acumen, knowledge of our business and industry, maturity, experience, diligence, potential conflicts of interest, willingness to serve as a director and regularly attend and participate in Board meetings, and the ability to act in the interests of all stockholders. The committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of skills, experience, and knowledge that will assure that the Board can continue to fulfill its responsibilities.
 
Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders


27

making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the Nominating and Corporate Governance Committee,c/o Corporate Secretary, Westmoreland Coal Company, 2 North Cascade Avenue, 14th2nd Floor, Colorado Springs, CO 80903. Assuming that appropriate biographical and background material has been provided on a timely basis, the committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in our proxy statement for the next annual meeting.
 
Stockholders also have the right under our bylaws to nominate director candidates directly, without any action or recommendation on the part of the Corporate Governance and Nominating Committee or the Board, by following the procedures set forth in Section 2.6, “Advance Notice of Nominees,” in our bylaws. Among other things, a stockholder wishing to nominate a candidate for election as a director must give notice to us within the time period specified in such section, and the notice must include the information about the stockholder and the proposed nominee required in the bylaws. Any stockholder wishing to nominate a candidate for election to the Board without any action or recommendation of the Nominating and Corporate Governance Committee or the Board must strictly comply with the procedures specified in Section 2.6 of the bylaws. Candidates nominated by stockholders in accordance with the procedures set forth in the bylaws will not be included in our proxy statement for the next annual meeting.


7

Communicating with the Board
 
The Board has provided a process that permits stockholders to communicate directly with the Board. Stockholders wishing to communicate with us, including the Board, generally are asked to contact the Vice President-Corporate Relations and Secretary, Diane S. Jones, at Westmoreland Coal Company, 2 North Cascade Ave., 14th2nd Floor, Colorado Springs, Colorado 80903, diane.jones@westmoreland.com,(719) 448-5814,442-2600, who is primarily responsible for receiving, managing, monitoring, and responding to stockholder communications.
 
Stockholders who wish to write directly to the Board on any topic should address communications to the Board of Directors in care of the Chairman, Westmoreland Coal Company Board of Directors, Westmoreland Coal Company, 2 North Cascade Ave., 14th2nd Floor, Colorado Springs, Colorado 80903.
 
Our Chairman with the assistance of Ms. Jones, will report on stockholder communications to the Board and provide copies or specific summaries to directors on matters deemed to be of appropriate importance.
In general, communications from stockholders relating to corporate governance will be forwarded to the Board unless they are frivolous, obscene, or repeat the same information contained in earlier communications, or fail to identify the author.
 
Director Independence
 
Under the applicable rules of the American Stock Exchange, a director will qualify as an “independent director” only if (1) he is not an executive officer or employee of our company and (2) the Board affirmatively determines that he does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
None of Messrs. Coffey, Killen, Klingaman, and Stern is an executive officer or employee of our company. Our Board has determined that none of Messrs. Coffey, Killen,D’Appolonia, Klingaman, and Stern has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined underby the NYSE Amex Company Guide Section 121A(2) of the American Stock Exchange Company Guide. Our Board reached a similar determination with respect to Mr. Sight, who served as a director until November 6, 2006, with respect to Mr. Armstrong, who served as a director until July 2007, and with respect to Messrs. Ostrander and Tortorice, who are serving as directors until the 2007 annual meeting.803(A).


28

Executive and Director Compensation Process
 
The Compensation and Benefits Committee is responsible for setting the salaries and incentive compensation of our executive officers. The committee’s objective is to oversee and administer compensation programs that attract, retain, reward, and motivate highly qualified executive officers to perform their duties in a competent and efficient manner, increase our long-term profitability, and build stockholder value. The Compensation and Benefits Committee establishes our overall compensation strategy to ensure that our executives are rewarded appropriately and that executive compensation supports Westmoreland’sour business strategy and objectives.
In discharging its duties, the Compensation and Benefits Committee reviews and determinesapproves the compensation, including base salaries, annual incentives, long-term incentives, and other benefits, of our Chief Executive Officer (except as described below), our Chief Financial Officer, and the three most highly-compensated executive officers other than our Chief Executive Officer and Chief Financial Officer. We refer to these five officers, plus our former Chief Financial Officer, as our named“named executive officers.officers” for purposes of this proxy statement. The Compensation and Benefits Committee also determinesreviews and approves the compensation for other key executives who are not identified in this report.
 
In 2008, our Board determined the CEO compensation. Mr. Alessi transitioned from President and CEO to Executive Chairman at the time Mr. Lobb joined the Company. As a result, compensation arrangements for Mr. Alessi in his new role were determined by members of the Board other than himself. Compensation for Mr. Lobb, who served as our Chief Executive Officer and Director from April 2008 to January 2009, was determined by the Board in advance of his employment and election to the Board. Following Mr. Lobb’s resignation in 2009, Mr. Alessi resumed duties as President and CEO in addition to Executive Chairman. Mr. Alessi’s compensation remains determined by the full Board, other than himself.
The Compensation and Benefits Committee has the authority to retain consultants directlydirectly. In recent years, but excluding 2007 and 2008, the committee has engaged a nationally recognized executive compensation consultant Mercer Human Resource Consulting, or Mercer, to assist in performing its duties. Mercer was engaged to assistThe compensation consultant has assisted with the development of our compensation strategy, to annually review the competitiveness of our executive compensation programs, and to provide recommendations for changes or adjustments to these programs. The compensation strategywhich was specifically designed to support our business strategy, with an expectation that changes to our companythe Company would affect pay delivery programs. In 2008, the


8

Compensation and Benefits Committee, through human resources management, obtained survey information from an executive compensation consulting firm, the Hay Group, for executives in the mining industry. This survey data, together with a review of the proxy data from companies in similar industry and size, will be studied by management and the Compensation and Benefits Committee during 2009 and be used as the basis for future compensation review.
 
Our compensation planning process, including business and succession planning, evaluation of our executive officers’ performance, and consideration of our business environment is ongoing throughout the year.
 
Our Chief Executive Officer and members of management, and our Vice President of Human Resourcesincluding human resources management, work with the Chairman of the Compensation and Benefits Committee to establish the agenda for Compensation and Benefits Committee meetings and in the preparation of meeting information. We seek the input of our management and our Vice President of Human Resources, and Mercerhuman resources staff in making executive compensation decisions. Our Chief Executive Officer also participates in Compensation and Benefits Committee meetings at its request to provide background information on Westmoreland’sthe Company’s strategic objectives, his evaluation of the performance of the named executive officers, and compensation recommendations as to senior executive officers (other than for himself). In determining the appropriate compensation level for our Chief Executive Officer, the committee meets in executive session and reviews performance of our company and our Chief Executive Officer’s performance against pre-established goals.
 
The Compensation and Benefits Committee has implemented an annual performance review program for our executives, under which annual performance goals are determined and set each calendar year for our companythe Company as a whole, and for the power segment and each mining operation. The corporate goals target the achievement of specific regulatory, financial and operational milestones. Individual mine and power segment goals are proposed by each mine manager or senior power executive and approved by our Chief Executive Officer. Our Chief Executive Officer’s goals are approved by the Compensation and Benefits Committee. Annual salary increases, annual bonuses, and annual long-term incentive awards, including any stock option, SAR, performance unit, and restricted stock awards granted to our executives are tied to the achievement of corporate, power segment, or mine performance goals and to individual accomplishments.
 
During the first calendar quarter of each year, we evaluate performance against the goals and individual accomplishments for the recently completed year. Generally, each executive’s evaluation begins with a self-assessment, which is submitted in writing or discussed with our Chief Executive Officer. Our Chief Executive Officer then formulates an evaluation based on the executive’s self-assessment, the Chief Executive Officer’s own evaluation, and input from others within our company.the Company. This process leads to a recommendation by the Chief Executive Officer for annual executive salary increases, annual incentive bonuses, and annual long-term incentive awards, if any, which is then reviewed and approved by the Compensation and Benefits Committee. In the case of our Chief Executive Officer, his individual performance evaluation is conducted by the Compensation and Benefits Committee, which determines his compensation changes and awards. For all


29

executives, annual incentive bonuses, to the extent granted, are implementedawarded during the first calendar quarter of the year. AnnualWe typically implement increases in annual base salary increasessalaries at the beginning of the second calendar quarter of the year, and annual long termwe typically grant long-term incentive awards, including stock option, SAR, performance unit,options and restricted stock awards, to the extent granted, are implemented at the end of the second calendar quarter of the year for all executives.year. The timing of any increase or grant depends on business conditions.
 
The compensation of our directors is determined by the full Board and is based on recommendations from the Compensation and Benefits Committee, which considers information from our Executive Chairman, Chief Executive Officer, our human resources department, and any consultants retained by the committee in formulating its recommendation. The Compensation and Benefits Committee generally reviews director compensation every other year, engagingyear. In 2006 and prior years, the Company engaged Mercer to assist in its evaluation of the competitivenessdirector compensation. As part of current compensation levels for non-employee directors.its analysis, Mercer usesused the Mercer General Industry Survey and a review of proxy data of the same Westmorelandfrom a peer group used for a comparison of executive compensation to determine the competitiveness of Westmoreland’s director compensation. Mercer, atcompanies. At the request of the Compensation and Benefits Committee, Mercer updated its 2005 report in 2006 and provided an additional report regarding director compensation to the Compensation and Benefits Committee in December 2006. Our Vice President of Human Resources, a certified compensation professional, also providesAlso in 2006, our human resources department provided the committee with information to the Compensation and Benefits Committee regarding director compensation, including information frombased on the National Association of Corporate Directors’ 2006 report on directors’ compensation. Our Chief Executive Officer makes recommendations toIn 2008, the human resources department obtained survey data for executive compensation within the mining industry from the Hay Group. This survey data will serve as the foundation for the Compensation and Benefits Committee regarding directors’ compensation, based on the information provided by Mercer and the Vice President of Human Resources. The committee makes the final determination regarding director compensation recommendations to present to the full Board for their approval.use in 2009, along with proxy data from applicable competitors.


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BENEFICIAL OWNERSHIP OF SECURITIES
 
Except as set forth in theThe following table no person or entitysets forth certain information with respect to persons known by the management of the Company to usown beneficially owned more than 5%five percent (5%) of ourany class of the voting securities of the Company as of May 15, 2007:March 31, 2009.
 
Number of Shares and Nature of Beneficial Ownership(1)
 
                                
Name and Address
   Percentage of
   Percentage of
    Percentage of
   Percentage of
of Beneficial Owner
 Common Stock Common Stock Depositary Shares Depositary Shares  Common Stock Common Stock Depositary Shares Depositary Shares
Alan A. Blase  —   —   70,659(2)  11.0%
1073 SW 119th Ave.,
#5 Davie, FL 33325		                
Alan A. Blase, et al  —   —   157,900(2)  24.6%
c/o Frank T. Vicino, Jr.
3312 NE 40th Street
            
Ft. Lauderdale, FL 33308            
Barclays Global Investors, NA  690,340(3)  7.2%  —   — 
400 Howard Street
San Francisco, CA 94105		            
Jeffrey L. Gendell  1,543,600(3)  17.0%  4,300(4)  *  3,165,311(4)  28.1%  4,300(5)  * 
55 Railroad Avenue, 1st Fl
Greenwich, CT 06830		                
55 Railroad Avenue
Greenwich, CT 06830		            
Stephen D. Rosenbaum  28,924   *  60,000(5)  9.4%  28,924   *   60,000(6)  9.4%
817 N. Calvert Street
Baltimore, MD 21202		                            
Wellington Management  549,900(6)  6.1%  —   — 
Company, LLP
75 State Street
Boston, MA 02109		                
T. Rowe Price  755,600(7)  7.8%  —   — 
100 East Pratt St.
Baltimore, Maryland 21289		            
 
 
(1)Information in this table is as of May 15, 2007,March 31, 2009, unless otherwise indicated, and is based solely on information contained in Schedules 13D, Schedules 13G, and Section 16 Forms filed by the beneficial owners with the Securities and Exchange Commission, or the SEC, or information furnished to us. Except as indicated below, the respective beneficial owners have reported that they have sole voting power and sole dispositive power with respect to the securities set forth opposite their names. For ease of analysis, the common stock information in the table and the related footnotes does not include the number of shares of common stock into which the depositary shares may be converted. A holder of depositary shares may convert such depositary shares into shares of common stock at any time at a conversion ratio of 1.708 shares of common stock for each depositary share. Consequently, a holder of depositary shares is deemed to beneficially own all of the shares of common stock into which such holder’s depositary shares may be converted. However, for so long as we are in arrears on six or more preferred stock dividends, holders of depositary shares are not entitled to vote for the election of directors to be elected by holders of the common stock unless such depositary shares are actually converted prior to the record date for the annual meeting. Percentages of less than 1% are indicated by an asterisk.
 
(2)According to a Schedule 13G13D/A filed on February 14, 2007,March 31, 2009, Mr. Alan Blase beneficially owns 70,659157,900 depositary shares of which he has sole voting and sole dispositive power for 820 shares he personally owns, and shared dispositive power over 157,080 shares. Mr. Blase serves as account manager for the Vicino Group, which is comprised of a total of ten individual investors, partnerships or other investment entities identified in the Schedule 13D/A. The shares owned by several investors. No single investor has more than 5% ownership and onlyfor which Mr. Blase has shared dispositive power withinclude 34,170 shares owned personally by Frank Vicino Sr., and 86,250 depositary shares held personally by Frank T. Vicino Jr. In addition to shares owned personally, Mr. Frank Vicino Sr. has dispositive power over an additional 3,400 shares for a total beneficial ownership of 37,570 depositary shares. All of these shares are included in the amounts beneficially held by Mr. Blase with respectshown above. In addition to its/his/her ownshares owned personally, Mr. Frank T. Vicino Jr. has shared dispositive power over an additional 21,980 depositary shares for a total beneficial ownership of 108,230 depositary shares. All of these shares are included in the amounts beneficially held by Mr. Blase shown above. No other member of the group has


10

more than 5% sole ownership. The depositary shares are convertible into 120,685269,693 shares of common stock, which would represent 1.3%2.7% of the total shares of common stock outstanding. See Note (1).
 
(3)According to a Form 13G filed February 5, 2009 with the SEC, Barclays Global Investors, NA, a bank as defined in section 3(a)(6) of the Exchange Act, beneficially owns 458,821 shares of common stock of which it has sole voting power over 407,030 shares and sole dispositive power over all 458,821 shares. The remaining shares of the 690,340 shares of common stock reported in the table above are held by Barclays Global Fund Advisors, an investment adviser, of which it has sole voting and dispositive power. The Form 13G reports that the reported shares are held in trust accounts for the economic benefit of the beneficiaries of those accounts. See Note (1).
(4)The total for Mr. Gendell includes shares of common stock, as well as shares of common stock issuable upon conversion of (i) depositary shares and (ii) the senior secured convertible notes issued March 4, 2008. According to a Schedule 13D13D/A filed May 4, 2007November 10, 2008 with the SEC, Mr. Gendell owns 549,000 shares of common stock of which he has sole voting and dispositive power. The remaining 994,600 shares of common stock are held byIn addition, Tontine Capital Partners, L.P. and other limited partnerships and limited liability companies that are affiliates of Tontine Capital Partners, L.P. (collectively with Mr. Gendell, “Reporting Persons”) own 994,600 shares of common stock, depositary shares which are convertible into 7,343 shares of common stock and senior secured convertible notes which are convertible into 1,614,368 shares of common stock. Mr. Gendell is either a managing member of, or a managing member of the general partner of, these limited partnerships and limited liability companies and has shared voting and dispositive power over these shares. See Notes (1) and (4). Because of Mr. Gendell’s relationship with Tontine Capital Partners, L.P., the shares owned by Tontine Capital Partners, L.P. and its affiliates and the shares that may be acquired by them inupon conversion of the Share Transaction will bedepositary shares and the senior secured convertible notes are attributed to Mr. Gendell for purposes of calculating the beneficial ownership of our securities. The Schedule 13D/A also reported that the Reporting Persons will begin to explore alternatives for the disposition of their holdings in the Company, which alternatives may include, without limitation: (a) dispositions through open market sales, underwritten offerings and/or privately negotiated sales by the Reporting Persons, (b) a sale of the Company, or (c) distributions by the Reporting Persons of their interests in the Company to their respective investors. The Schedule 13D/A also reported that the disposition of the holdings is expected to be effected over time and in an orderly fashion. See Note (1).
 
(4)(5)According to a Form 3/A filed December 9, 2003, Tontine Partners, L.P., an affiliate of Mr. Gendell and Tontine Capital Partners, L.P., owns 4,300 depositary shares. These depositary shares are convertible into


31

7,343 shares of common stock, which shares of common stock together withare included in the 1,543,600 shares of common stock3,165,311 share total for Mr. Gendell reported in the table would represent 17.1% of the total shares of common stock outstanding.table. See Notes (1) and (3)(4).
 
(5)(6)The depositary shares are convertible into 102,480 shares of common stock, which together with the 28,924 shares of common stock reported in the table, would represent 1.5%1.4% of the total shares of common stock outstanding. See Note (1).
 
(6)(7)According to a Schedule 13G13G/A filed on February 14, 2007, Wellington Management Company, LLP, or Wellington, in its capacity13, 2009, these securities are owned by various individual and institutional investors, including 591,800 shares held by T. Rowe Price Small-Cap Stock Fund, Inc., for which T. Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, Price Associates may be deemed to beneficially own 549,900 sharesbe a beneficial owner of common stock. Wellington has shared voting power over 265,300 shares and shared dispositive power over all 549,900 shares.such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.


11

 
The following table sets forth information as of May 15, 2007March 31, 2009 concerning stock ownership of individual directors and our named executive officers, and all of our executive officers and directors as a group:group.
 
Number of Shares and Nature of Beneficial Ownership(1)
 
                 
     Percentage of
     Percentage of
 
Name of Directors, Named Executive Officers and Persons as a Group(2)
 Common Stock  Common Stock  Depositary Shares  Depositary Shares 
 
Keith E. Alessi  5,556(3)  *  —   — 
Michael Armstrong(4)  53,984(5)  *  11,334(6)  1.8%
David J. Blair  658(7)  *  —   — 
Thomas J. Coffey  41,853(8)  *  —   — 
Robert W. Holzwarth  7,326(9)  *  —   — 
Richard M. Klingaman  500   *  —   — 
Robert E. Killen  239,814(10)  2.6%  750(11)  *
John V. O’Laughlin  38,099(12)  *  —   — 
Thomas W. Ostrander  104,368(13)  1.2%  —   — 
Christopher K. Seglem  416,274(14)  4.5%  1,188(15)  *
William M. Stern  47,103(16)  *  7,850(17)  1.2%
Donald A. Tortorice  23,853(18)  *  —   — 
Roger D. Wiegley  393(19)  *  —   — 
Directors and Executive Officers as a Group (23 persons)  729,921(20)  7.8%  19,934(21)  3.1%
                 
     Percentage of
     Percentage of
 
Name of Directors, Named Executive Officers and Persons as a Group(2)
 Common Stock  Common Stock  Depositary Shares  Depositary Shares 
 
Keith E. Alessi  32,412(3)  *  —   — 
Thomas J. Coffey  45,164(4)  *  —   — 
Michael R. D’Appolonia  2,916(5)  *  —   — 
Morris W. Kegley  951(6)  *  —   — 
Richard M. Klingaman  3,811(7)  *  —   — 
Todd A. Myers  32,725(8)  *  —   — 
John V. O’Laughlin  38,893(9)  *  —   — 
Kevin A. Paprzycki  853(10)  *  —   — 
William M. Stern  50,414(11)  *  7,850(12)  1.2%
Delbert L. Lobb  348(13)  *  —   — 
David J. Blair  947(14)  *  —   — 
Directors and Executive Officers as a Group (9 persons)  208,139   2.1%  7,850   1.2%
 
 
(1)This information is based on information known to us or furnished to us by our directors and executive officers. Except as indicated below, we are informed that the respective beneficial owners have sole voting power and sole dispositive power with respect to all of the shares set forth opposite their names. Percentages of less than 1% are indicated by an asterisk. For ease of analysis, the common stock information in the table and the related footnotes does not include the number of shares of common stock into which the depositary shares may be converted. A holder of depositary shares may convert such depositary share into shares of common stock at any time at a conversion ratio of 1.708 shares of common stock for each depositary share. Consequently, a holder of depositary shares is deemed to beneficially own all of the shares of common stock into which such holder’s depositary shares may be converted. However, for so long as we are in arrears on six or more preferred stock dividends, holders of depositary shares are not entitled to vote for the election of directors to be elected by holders of common stock unless such depositary shares are actually converted prior to the record date for the Annual Meeting. Also, shares that may be purchased under equity incentive plans are reflected in the table but are not entitled to vote unless exercised prior to the record date for the Annual Meeting. Our equity incentive plans include our 1991 Non-Qualified Stock Option Plan for Non-Employee Directors, or 1991 Plan; our 1995 Long-Term Incentive Stock Plan, or 1995 Plan; our 1996 Directors’ Stock Incentive Plan, or 1996 Directors’ Plan; our 2000 Nonemployee Directors’ Stock Incentive Plan, as amended, or the 2000 Directors’ Plan; our 2000 Long-Term Incentive Stock Plan, or 2000 Employees’ Plan; and our 2002


32

Long-Term Incentive Stock Plan, or 2002 Plan. The Westmoreland Coal Company and Subsidiaries Employees’ Savings Plan, or the 401(k) Plan, provides investment alternatives that include a common stock fund and a depositary share fund. All amounts included herein held through the 401(k) Plan are as of May 15, 2007.
 
(2)Mr. Seglem is aLobb, our former President and Chief Executive Officer, and Mr. Blair, our former Chief Financial Officer, are “Named Executive Officer”Officers,” but isare not included in “Directors and Executive Officers as a Group.”
(3)Consists entirelyIncludes 1,856 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 30,556 shares of common stock which may be purchased upon exercise of options under our 2002 Plan.
(4)Mr. Armstrong resigned from the Board of Directors in July 2007.
(5)See Notes (1), (4) and (6).
(6)Includes 2,400 depositary shares held by a trust of which Mr. Armstrong is trustee, 3,834 depository shares held by Mr. Armstrong as a personal investment; and 5,100 depository shares held by an investment LLC that Mr. Armstrong manages and over which he exercises voting and dispositive power. The depositary shares are convertible into 19,358 shares of common stock, which together with the 53,984 shares of common stock reported in the table, would represent 0.8% of the total shares of common stock outstanding. See Note (1).
(7)Includes 658 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.
(8)Includes 15,000 shares of common stock which may be purchased upon exercise of options under our 2000 Directors’ Plan.
Plan and 1,756 shares of common stock for which sale is restricted until May 2009.
(9)
(5)Includes 6602,916 shares of restricted common stock subject to vesting and forfeiture.
(6)Includes 951 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 6,666plan.
(7)Includes 1,756 shares of common stock for which may be purchased upon exercise of options under our 2002 Plan.
sale is restricted until May 2009.
(10)
(8)Includes 88,990 shares of common stock owned by Mr. Killen as a personal investment, 59,184 shares of common stock held jointly by Mr. Killen and his spouse, 61,5002,875 shares of common stock held by a limited partnershipPrudential Retirement, as trustee of which Mr. Killen and his spouse are general partners and 22,640 shares of common stock held by a limited partnership of which Mr. Killen is the general partner. Mr. Killen has voting and dispositive power over all 22,640 shares.401(k) plan. Also includes 7,50023,300 shares of common stock which may be purchased upon exercise of options under the 1995 Plan, the 2000 Directors’Plan, and the 2002 Plan. See Notes (1) and (11).


12

 
(11)(9)Includes 750 depositary shares jointly held by Mr. Killen and his spouse. These depositary shares are convertible into 1,281 shares of common stock, which shares of common stock, together with the 239,814 shares of common stock reported in the table, would represent 2.7% of the total shares of common stock outstanding. See Notes (1) and (10).
(12)Includes 2,1992,993 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan. Also includes 34,300 shares of common stock which may be purchased upon exercise of options under the 1995 Plan, the 2000 Employees’ Plan, and the 2002 Plan.
(13)(10)Includes 56,000 shares of common stock which may be purchased upon exercise of options under the 1991 Plan, the 1996 Plan, and the 2000 Directors’ Plan.
(14)Includes 4,720853 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan, and 239,000 shares of common stock which may be purchased upon exercise of options under the 1995 Plan, the 1996 Directors’ Plan, the 2000 Employees’ Plan, and the 2002 Plan. See Notes (1) and (15).
plan.
(15)Includes 88 depositary shares held by Prudential Retirement, as trustee of the 401(k) Plan. The depositary shares are convertible into 2,029 shares of common stock, which together with the 416,274 shares of common stock reported in the table, would represent 4.5% of the total shares of common stock outstanding. See Notes (1) and (14).
(16)(11)Includes 10,000 shares of common stock which may be purchased upon exercise of options under the 2000 Directors’ Plan.
Plan and 1,756 shares of common stock for which sale is restricted until May 2009.
(17)
(12)Includes 2,800 depositary shares held in trust for which Mr. Stern is a trustee and beneficiary, 3,000 shares held by a trust for which Mr. Stern is sole trustee, and 2,050 shares held in trust for which Mr. Stern is sole trustee and beneficiary. The depositary shares are convertible into 13,407 shares of common stock, which together with the 47,10350,414 shares of common stock reported in the table, would represent 0.7%less than 1% of the total shares of common stock outstanding. See NotesNote (1) and (16).


33

(13)
(18)Includes 12,500Reported shares represent the number of common stock which may be purchased upon exerciseshares owned as of options under the 2000 Directors’ Plan.
(19)Includes 393last date of Mr. Lobb’s employment, including 348 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan. See Note (1).plan.
(14)
(20)See Notes (5), (7) — (10), (12) — (13), (16), and (18) — (19).
(21)See Notes (6), (11), and (17).Reported shares represent number of shares owned as of the last date of Mr. Blair’s employment, including 947 shares of common stock held by Prudential Retirement, as trustee of the 401(k) Plan.
 
Beneficial ownership is determined in accordance with the rules of the SEC. The number of shares beneficially owned by a person includes shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of May 15, 2007.April 14, 2009. The shares issuableto be issued pursuant to these options are not deemed outstanding for the purposes of computing the percentage ownership of any other person.
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
Section 16(a) of the Exchange Act requires the Company’s officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 45 with the SEC and the American Stock Exchange.NYSE Amex. Officers, directors, and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the knowledge of management, based solely on its review of such reports furnished to the Company, all Section 16(a) filing requirements applicable to the Company’s officers, directors, and greater than ten percent beneficial owners were complied with during the year ended December 31, 2006.2008. However, a more than ten percent owner of the Company’s depositary shares has notified us that it has failed to timely file Section 16 reports for the year ended December 31, 2008. While we anticipate such late reports to be filed soon, they have not been filed to date.


13

 
EQUITY COMPENSATION PLAN INFORMATION
 
As of December 31, 20062008, the Company had stock options and stock appreciation rights (“SARs”) outstanding from three shareholder-approved stock plans for employees that were approved by shareholdersstockholders and threeone stock incentive plansplan for non-employee directors that arewas not approved by shareholders.stockholders. The value of a SARCompany also had options outstanding from one stockholder-approved stock plan for employees and non-employee directors. The 2000 Nonemployee Directors’ Stock Incentive Plan is equal to the appreciation inonly plan not approved by stockholders, and it has been superseded by the market value of a share of the Company’s common stock between the date of grantstockholder approved 2007 Equity Incentive Plan for Employees and the date of exercise.
Non-Employee Directors. The employee plans provide2000 Nonemployee Directors’ Stock Incentive Plan provided for the grant of incentive stock options (“ISOs”), nonqualified options under certain circumstances, SARs,to non-employee directors at the time they were first elected to the Board and restricted stock. Employee ISOs and SARs generally vest over two or three years, expire ten years fromat the datetime of grant and may not have an exercise or base price that is less than the market value of the stock on the date of grant.
The non-employee director plans generally provide for automatic grants of nonqualified stock options or restricted stock to directors when elected, or re-electedeach subsequent re-election to the Board. The use of SARs with a four year vesting period was approved for awards beginning in 2006.
 
In 2006, the Company granted SARs as the form of award for both the employee and director plans. The Company utilizes SARs, and currently intends to settle those SARs in stock, because stock-settled SARs generally require fewer shares than do options to deliver similar incentive to an executive or Board member.


34

The following table presents information regarding equity compensation plans as of December 31, 20062008 and depicts the total number of securities to be issued upon the exercise of outstanding options and SARs (if settled based on the price of the Common Stock on December 31, 2006)2008), the weighted average exercise prices of the options and the number of securities available for future issuance.
 
20062008 EQUITY COMPENSATION PLAN INFORMATION
 
                           
     Number of
        Number of
     Securities
        Securities
     Remaining Available
        Remaining Available
 Number of
   for Future Issuance
    Number of
   for Future Issuance
 Securities to be
   Under Equity
    Securities to be
   Under Equity
 Issued Upon
   Compensation Plans
    Issued Upon
   Compensation Plans
 Exercise of
 Weighted Average
 (Excluding
    Exercise of
 Weighted Average
 (Excluding
 Outstanding
 Exercise Price
 Securities
    Outstanding
 Exercise Price
 Securities
 Options, Warrants
 of Outstanding Options,
 Reflected
    Options, Warrants
 of Outstanding Options,
 Reflected
 and Rights
 Warrants and Rights
 in Column (a))
    and Rights
 Warrants and Rights
 in Column (a))
Plan Category
 (a) (b) (c)    (a) (b) (c)
Equity compensation plans approved by security holders  396,060(1)(2) $11.86(1)  210,472(1)(2)      312,724(1)(2) $19.62(1)  600,147(1)(2)
Equity compensation plans not approved by security holders  148,500  $11.00   19,176       75,000  $15.85   19,176 
Total  544,560(1)(2) $11.62(1)  229,648(1)(2)      387,724(1)(2) $18.89(1)  619,323(1)(2)
 
 
(1)Includes 2,944no shares of Common Stock issuablecommon stock to be issued on settlement of in-the-money SARs outstanding at December 31, 2006, which is the number2008, because no SARs werein-the-money as of shares of Common Stock that the Company would have been required to issue, if it had been required to settle all outstanding SARs on December 31, 2006, and if it had elected to settle all outstanding SARs in shares of Common Stock.date. At December 31, 2006, 544,6802008, 191,000 SARs were outstanding inunder the employee plans;plans of which 176,895 were vested; those SARs had base prices between $18.035$19.365 and $29.48. TheAt December 31, 2008, 16,067 SARs were originally granted on a three-year vesting schedule. On December 30, 2005outstanding under the Company accelerated the vestingdirector plans, of all unvestedwhich 8,026 were vested; those SARs as described in “Compensation Discussionhad base prices between $23.985 and Analysis — Components of the Executive Compensation Program — Long-Term Incentive Compensation — Stock Appreciation Rights (SARs)” below.$25.14. The base prices of the SARs are not reflected in column (b) of this table but are described in this note.
 
(2)The maximum number of shares of common stock the Company could be required to issue to settle the SARs outstanding inunder the employee plans at December 31, 20062008 is 544,680191,000 if one share of stock is required for each SAR outstanding. Similarly, the maximum number of shares of common stock the Company could be required to issue to settle the SARs outstanding inunder the director plans at December 31, 20062008 is 16,067 if one share of stock is required for each SAR outstanding. (No director or employee SARs werein-the-money at December 31, 2006.2008.) If the Company were required to issue this total number of shares in settlement of its SARs, the total number of securities to be issued upon the exercise of outstanding options, warrants and rights (column (a)) would be 1,102,363, which exceeds the number of securities available for future issuance under the Company’s existing equity compensation plans. The Company is seeking approval for additional shares to be used for equity compensation at its 2007 Annual Meeting of Stockholders as described in “Proposal 5 — Approval of 2007 Equity Incentive Plan for Employees and Non-Employee Directors” in this proxy statement.594,791.


3514

 
EXECUTIVE OFFICERS
 
The following sets forth certain information with respect to the executive officers of the Company:Company.
 
       
Name(1)Name
 
Age
 
Position
 
Keith E. Alessi(2)Alessi 5254 Interim Executive Chairman,
President and interim Chief Executive Officer (effective May 1, 2007)
David J. Blair(3)Kevin A. Paprzycki 5338 Chief Financial Officer
Roger D. Wiegley(4)John V. O’Laughlin 5857 General Counsel and Secretary
Robert W. Holzwarth(5)59Senior Vice President, Power
John V. O’Laughlin(6)56 Vice President, Coal Operations
Todd A. Myers(7)Myers 4345 Vice President, Coal Sales
Ronald H. Beck(8)Morris W. Kegley 6261 Vice President, Finance and Treasurer
Mark K. Seglem(9)49Vice President, Strategic Planning and Administration
Thomas G. Durham(10)58Vice President, Planning and Engineering
Douglas P. Kathol(11)54Vice President, Development
Mary S. Dymond(12)54Vice President, Human Resources and Risk Management
Gregory S. Woods(13)54Vice President, Eastern Operations
Diane S. Jones(14)49Vice President, Corporate Relations and Assistant Secretary
Bronwen J. Turner(15)52Vice President, Government and Community Relations
Kevin A. Paprzycki(16)36Controller and Principal Accounting Officer
Morris W. Kegley(17)59Assistant General Counsel and Assistant Secretary
 
Mr. Alessi was elected Chief Executive Officer and President effective as of January 27, 2009. In addition, Mr. Alessi currently serves as a director and Chairman of the Board. From May to August 2007, Mr. Alessi served as the Company’s interim Chief Executive Officer and President and served as its Chief Executive Officer and President from August 2007 to April 2008. Mr. Alessi was also Chief Executive Officer of Lifestyle Improvement Centers, LLC from April 2003 to May 2006. Since 2002, Mr. Alessi has been an adjunct lecturer at the Ross School of Business at the University of Michigan. Mr. Alessi currently serves on the board of directors of H&E Equipment Services, Inc., Town Sports International Holdings, Inc. and MWI Veterinary Supply, Inc.
 
(1)Mr. Christopher K. Seglem was Chairman, President and Chief Executive Officer at December 31, 2006 and held the positions through May 1, 2007. He was elected President and Chief Operating
Mr. Paprzycki joined Westmoreland as Controller and Principal Accounting Officer in June 2006 and was named Chief Financial Officer in April 2008. Prior to joining Westmoreland, he held positions at Applied Films Corporation as Corporate Controller from November 2005 to June 2006. From June 2004 to November 2005, Mr. Paprzycki was Chief Financial Officer at Evans and Sutherland Computer Corporation and Director of Finance from June 2001 to November 2004. Mr. Paprzycki became a certified public accountant in 1994, and a certified financial manager and a certified management accountant in June 1992, and a Director of the Company in December 1992. In June 1993, he was elected Chief Executive Officer, at which time he relinquished the position of Chief Operating Officer. In June 1996, he was elected Chairman of the Board. He is a member of the bar of Pennsylvania.
(2)Mr. Alessi was elected interim President and interim Chief Executive Officer in May 2007. He is a member of the Board of Directors and Chairman of the audit committee of both Town Sports International Holdings, Inc. and H&E Equipment Services, Inc. He is also a member of the Board of Directors of MWI Veterinary Supply, Inc. Mr. Alessi is adjunct professor of law at Washington and Lee University School of Law and at the Ross School of Business at the University of Michigan.
(3)Mr. Blair joined Westmoreland in April 2005. He joined Westmoreland after seventeen years with Nalco Chemical Company where he was most recently acting Chief Financial Officer for Ondeo Nalco Company, a global specialty chemical company.
(4)Mr. Wiegley joined Westmoreland in May 2005. Prior to joining Westmoreland he held legal positions with Credit Suisse Group from 1999 to 2005 and served as General Counsel for one of its affiliates. Mr. Wiegley served as outside counsel for Westmoreland from 1992 to 1994 while a partner with Sidley Austin LLP and from 1994 to 1997 with Pillsbury Winthrop Shaw Pittman LLP.
(5)Mr. Holzwarth joined Westmoreland in November 2004. Prior to joining Westmoreland, he was Chief Executive Officer of United Energy, a publicly-traded utility in Australia. From 1993 to 2003 he was employed by Aquila, Inc. in various management positions, including from 1997 to 2000 as Vice President and General Manager of Power Services and Generation, in which capacity he managed power plants capable of generating over 2,000 MW of electricity, and from 2002 to 2003 as Chief Executive Officer of United Energy, Australia, an electric distribution utility serving 600,000 customers.


36

 
(6)Mr. O’Laughlin joined Westmoreland in February 2001 as Vice President, Mining, and was named President and General Manager of Dakota Westmoreland Corporation in March 2001. He later became President and General Manager of Western Energy Company and President of Texas Westmoreland Coal Company and was promoted to Vice President of Coal Operations for Westmoreland Coal Company in May 2005. Prior to joining Westmoreland, Mr. O’Laughlin was with Morrison Knudsen Corporation’s mining group for twenty-eight years, most recently as Vice President of Mine Operations which included responsibility for the contract mining services at the Absaloka Mine.
(7)Mr. Myers rejoined Westmoreland in January 2000 as Vice President, Marketing and Business Development and in 2002 became Vice President, Sales and Marketing. He originally joined Westmoreland in 1989 as a Market Analyst and was promoted in 1991 to Manager of the Contract Administration Department. He left Westmoreland in 1994. Between 1994 and 2000, he was Senior Consultant and Manager of the environmental consulting group of a nationally recognized energy consulting firm, specializing in coal markets, independent power development, and environmental regulation.
(8)Mr. Beck joined Westmoreland in July 2001 as Vice President, Finance and Treasurer. From September 2003 to April 2005, he also served as Acting Chief Financial Officer. Prior to joining Westmoreland he was a financial officer at Columbus Energy Corp. from 1985 to 2000, lastly as Vice President and Chief Financial Officer.
(9)Mr. Mark Seglem joined Westmoreland in July 2003 as Vice President, Business Operations of Texas Westmoreland Coal Co. In May 2006 he was promoted to President of Texas Westmoreland and elected Vice President, Strategic Planning and Administration of Westmoreland Coal Company. Mr. Seglem came to Westmoreland from the Secretary of Defense’s office where he had served as a division director since August of 2001. Prior to that he worked for two years as a manager of the defense consulting firm, Whitney, Bradley, and Brown of Vienna, Virginia. Mr. Seglem served in the United States Navy as a Surface Warfare Officer from 1979 to 1999 retiring at the grade of Captain (select).
(10)Mr. Durham joined Westmoreland as Vice President, Coal Operations in April 2000 and was named Vice President, Planning and Engineering in May 2005. For the four years prior to joining Westmoreland, he was a Vice President of Norwest Mine Services, Inc. which provides worldwide mining consulting services on surface mining and other projects. Mr. Durham has over 30 years of surface mine management and operations experience. He became a Registered Professional Engineer in 1976.
(11)Mr. Kathol joined Westmoreland in August 2003. Prior to joining Westmoreland, Mr. Kathol was Vice President and Controller of Norwest Mine Services, Inc. which provides worldwide mining consulting services. Mr. Kathol has over 27 years experience evaluating and developing energy related projects.
(12)Ms. Dymond joined Westmoreland in June 2006, as Vice President, Human Resources and became Vice President, Human Resources and Risk Management in November 2006. From 2000 to June 2006, she was with Cenveo, Inc., a publicly-held printing and paper conversion company, where she served as Vice President of Human Resources. Ms. Dymond has held senior human resources and risk management positions with publicly-held companies in the energy and manufacturing sectors since 1987, including serving as Vice President of Human Resources of ACX Technologies, the publicly-held spin-off of the Adolph Coors Brewing Co. Ms. Dymond is a Certified Compensation Professional.
(13)Mr. Woods joined Westmoreland in May 1973 and held various corporate accounting and management information systems positions while at Westmoreland’s Virginia and West Virginia coal mining operations. Mr. Woods has been with Westmoreland Energy, LLC since 1990 and has held the positions of Controller, Asset Manager, and Vice President, Finance and Asset Management. Mr. Woods was elected to his current positions as Vice President, Eastern Operations of Westmoreland Coal Company in June 2000, as Executive Vice President of Westmoreland Energy, LLC in February 1997, and as President of Westmoreland Technical Services, Inc. in April 2001.
(14)Ms. Jones joined Westmoreland in March 1993 as Manager, Business Development of Westmoreland Energy, LLC and became Manager of Business Development and Corporate Relations for Westmoreland Coal Company in 1995. She was named Vice President Corporate Business Development and Corporate Relations in 2000 and then named Vice President Corporate Relations in August 2003. Prior to joining
Mr. O’Laughlin joined Westmoreland in February 2001 as Vice President, Mining, and was named President and General Manager of Dakota Westmoreland Corporation in March 2001. He later became President and General Manager of Western Energy Company, President of Texas Westmoreland Coal Company and was promoted to Vice President of Coal Operations for Westmoreland Coal Company in May 2005. Prior to joining Westmoreland, Mr. O’Laughlin was with Morrison Knudsen Corporation’s mining group for twenty-eight years, most recently as Vice President of Mine Operations, which included responsibility for the contract mining services at the Absaloka Mine.
Mr. Myers rejoined Westmoreland in January 2000 as Vice President, Marketing and Business Development and in 2002 became Vice President, Sales and Marketing, now called Vice President, Coal Sales. He originally joined Westmoreland in 1989 as a Market Analyst and was promoted in 1991 to Manager of the Contract Administration Department. He left Westmoreland in 1994. Between 1994 and 2000, Mr. Myers was Senior Consultant and Manager of the environmental consulting group of a nationally recognized energy consulting firm, specializing in coal markets, independent power development, and environmental regulation.
Mr. Kegley joined Westmoreland in October 2005 as Assistant General Counsel and was named General Counsel in August 2007. Prior to joining Westmoreland, he held legal positions with Peabody Energy Company from February 2004 to October 2005, AngloGold North America from June 2001 to February 2004, Kennecott Energy Company from August 1998 to June 2001, and Amax Coal Company and Cyprus Amax Minerals Company from February 1981 to July 1998. He is a member of the bar of Indiana, Illinois, Wyoming, and Colorado.


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Westmoreland, Ms. Jones held engineering and business development positions in the utility industry. She became a Registered Professional Engineer in 1985.
(15)Ms. Turner joined Westmoreland in August 2003 as Director, Government and Community Relations and was named Vice President, Corporate Government and Community Relations in January 2006. Prior to joining Westmoreland she was a policy analyst for the Education Commission of the States and Director of Marketing and Communications for Quark Inc. She has over 25 years experience in various positions in marketing, communications and public policy, including representing communities impacted by energy development.
(16)Mr. Paprzycki joined Westmoreland as Controller and Principal Accounting Officer in June 2006. Prior to joining Westmoreland he held positions at Applied Films Corporation as Corporate Controller from November 2005 to June 2006. From June 2004 to November 2005, he was Chief Financial Officer at Evans and Sutherland Computer Corporation and Director of Finance from June 2001 to November 2004. Mr. Paprzycki became a certified public accountant in 1994, and a certified financial manager and a certified management accountant in 2004.
(17)Mr. Kegley joined Westmoreland in October 2005. Prior to joining Westmoreland he held legal positions with Peabody Energy Company from February 2004 to October 2005, AngloGold North America from June 2001 to February 2004, Kennecott Energy Company from August 1998 to June 2001, and Amax Coal Company and Cyprus Amax Minerals Company from February 1981 to July 1998. He is a member of the bar of Indiana, Illinois, Wyoming, and Colorado.


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COMPENSATION DISCUSSION AND ANALYSIS
 
Business Context
 
We are a U.S. energy company that produces approximately 30 million tons of coal and generates 1.6 million megawatt hours of electric power annually. We also broker coal for others, operate power facilities for others under contract and provide repair and maintenance services to utility, independent power, and industrial generation facilities. We have been mining coal for over 150 years.others. Between 1992 and 2001, we transitioned from primarily underground coal production, most of which was in the Eastern United States, to current production from surface mines in Montana, North Dakota, and Texas. Working in combination with others, we also diversified into the production of independent power, and we brought eight projects to commercial operations during this period.power. Our principalonly power production facility today is in North Carolina. We now employ approximately 1,3001,125 people in sevensix states and our Company isare ranked as the ninthtenth largest coal producer in the country based on tonsestimates of coal mined in 2006.2008.
 
We have faced a numberhigh levels of financial challenges over the past two decades. By the late 1980’sdebt. In addition, our underground mining operations were characterized by depleted reserves and high costs causing significant operating losses. Coal markets were soft and prices declining. We also faced high and growing post-retirement medical costs for retired membersand pension obligations require a significant outlay of the United Mine Workers of America, or UMWA. How to finance a turnaround itself posed a very substantial challenge. By the early 1990’s the Company was in defaultcash on various bank covenants and could not pay dividends on our preferred stock. In response, we initiated a plan to transform our company into a profitable enterprise by shutting down non-performing operations, monetizing existing assets wherever possible, capping UMWA post-retirement medical costs to the extent possible and reinvesting available proceeds in a new business plan and strategy emphasizing western surface mining, and independent power production. Our financial situation forced us to rely primarily on asset based financing, which limited the amount of free cash available to us from operations.an annual basis. As a result, we have been cash constrained over the past two decades. In recognition of this, management and the Compensation and Benefits Committee have kept cash compensation levels relatively low and flat. This has meant often deferring or limiting pay increases and the pay-out of certain incentive compensation earned.constrained.
 
Successful execution of our strategic plan has been predicated on attracting and retaining a talented and highly motivated executive team with a deep technical and operational knowledge of the energy markets. The skill sets, educational requirements, experience and personal qualities of our executives are in demand by many of our competitors. At the same time, we have had to address the financial constraints imposed on us in transforming our companythe Company from a mature, but struggling enterprise to a growing one with sustainable positive cash flow and profitability. Within professional compensation circles we have been in what is known as the renewal stage. Companies at this stage use certain guidelines for compensation policy and design, which emphasizes proportionally greater reliance on annual and long-term incentive compensation. At the same time, the relatively small number of our shares outstanding has limited our ability to deliver long-term incentives at the level of value typically indicated for a company in the renewal stage. Therefore, compensation levels for our executives have changed only minimally from prior years’ levels.
The competition for executive talent in the energy industry has always been considerable, but never more so than today as the worldwide demand for energy has risen to new levels, increasing the pressure on energy companies to permit and construct new power generation facilities, find and develop new fuel reserves, extract resources under challenging geological conditions, comply with new environmental and reclamation requirements, manage higher production costs associated with dramatic increases in the prices of key supplies such as diesel fuel and electricity, and address the scarcity of supplies such as tires. Unwanted turnover among our key executives could be very costly to our shareholders. Therefore, ourfinancially stable one. Our executive compensation program has been designed to support our long-term strategic objectives, as well as address the realities of the competitive market for talent.
It is the intention of the Compensation and Benefits Committee to set the compensation levels of our executives at appropriate levels in line with stated compensation principles and objectives discussed below, in part through the use of long-term equity awards. Our most recent equity plan to provide long-term incentives


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to employees was approved by our shareholders in 2002 and the shares reserved for that plan are now nearly depleted. In order to have additional shares available for grant as incentives, the Board of Directors, at the recommendation of the Compensation and Benefits Committee, is seeking approval for a new long-term equity incentive plan for its employees and its non-employee directors. See “Proposal 5 — Approval of 2007 Equity Incentive Plan for Employees and Non-Employee Directors” above.
 
Compensation Principles and Objectives
 
Our executive compensation program has been designed to provide a total compensation package that allows us to attract, retain and motivate executives with the business and technical knowledge necessary to capably manage our business.
 
Our executive compensation program is guided by several key principles:
 
 • Design a program that is simple, understandable, and effective in providing incentive while aligned with long-term stockholder interests;
• Target compensation levels that are at least at the median of our industry, peer group and the markets in which we compete for executive talent;
 
 • Structure executive compensation to reflect our presence in the renewal stage;business situation;
 
 • Link pay to performance by making a substantial percentage of total executive compensation variable, or “at risk,” by relying on annual and long-term incentive compensation programs;
 
 • Use equity awards or awards with equity-like features, to align executive compensation with shareholderstockholder interests; and
 
 • Provide a total compensation program that emphasizes direct compensation over indirect compensation such as perquisites and other benefits.
 
Establishing the Executive Compensation Program
 
Our executive compensation program takes into consideration our stage in the business cycle,situation, the marketplace for similar positions, our past practices, and the experience and talents that each individual executive brings to our company.
At Westmoreland, the Company. Our Compensation and Benefits Committee a committee of the Board of Directors consistingconsists of three independent directors administerswho administer our executive compensation program. The Compensation and Benefits Committee establishes our overall compensation strategy to ensure that our executives are rewarded appropriately and that executive compensation supports our business strategy and objectives.


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A further description of the duties and responsibilities of the Compensation and Benefits Committee can be found in “Corporate Governance — Information on Board and Committees” above.
Setting Compensation Targets
 
In general, our executive compensation program is intended to deliver compensation that is competitive within our industry and the markets in which we compete for executive talent. In making executive compensation decisions, we are guided by the compensation principles described above. However, fulfillment of these objectives has been limited by our cash constraints and the relatively small pool of shares available for stock options and grants. Wegrants prior to approval of the 2007 Equity Incentive Plan for Employees and Non-employee Directors, known as the 2007 plan. Going forward, we also expect to consider historical compensation levels, competitive pay practices atnoted in the broad-based survey data of other applicable companies, in our peer group, and the relative compensation levels of our named executive officers. We may also consider industry conditions, industry life cycle, corporate performance as compared to internal goals as well as to the peer group and the overall effectiveness of the compensation program in achieving desired results.
 
Our program offers our named executive officers the opportunity to be compensated above or below target, depending upon various measures of performance. As a result, the compensation program is designed to result in compensation to our executives that can be significantly above target in times of relatively superior performance and significantly below target in times of relatively poor performance. Base salary and incentive pay performance targets have typically reflected our cash and equity constraints.


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As targeted total compensation levels are determined, the Compensation and Benefits Committee also determines the portion of total compensation that will be contingent, performance-based pay. Performance-based pay generally includes cash bonuses under the annual incentive plan mostlyprimarily for achievement of specified performance objectives, and cash generated, and stock-based or similar incentive compensation whose value is dependent upon long-term or relative appreciation in our stock price.
 
TheGoing forward, the Compensation and Benefits Committee reviews, on an annual basis, its performance andexpects to evaluate the effectiveness of our compensation program in obtaining desired results.results by comparing our practices against industry best standards and comparing our retention rate of key executives to that of similarly situated companies.
 
The Compensation-Setting Process
 
The compensation-setting process is described in more detail above under “Corporate Governance — Executive and Director Compensation Processes”.Processes.”
 
Peer Comparisons
 
TheIn 2007, the Compensation and Benefits Committee periodically benchmarksworked with Mr. Alessi to evaluate our internal compensation structure and did not use a comparative peer group. In 2008, management, working with the competitivenesscommittee, participated in and purchased the results of an executive compensation and benefits survey specific to the mining industry as well as a survey of companies of comparative revenue and employee base. The committee did not use a comparative peer group. During 2009, it is the committee’s intent to use the executive compensation and benefits survey and to review proxy data of a meaningful peer group for comparative analyses so that they may benchmark our executives’ compensation against peers from companies of similar industry, employee base and revenue. Given the changing nature of our compensation programsbusiness and industry, the companies included in the peer group may vary from year to determine how well our actual compensation levels compare to our overall philosophy and target markets.year. Our historic benchmarking peer group has consisted of other mining and energy companies, with a focus on size based on revenues. The committee believes revenue is an appropriate reference point for determining the composition of the peer group because it provides a reasonable basis for comparing like positions and scope of responsibility.
 
The peer group for 2006 was selected by the Compensation and Benefits Committee based on the recommendation of Mercer. The peer group included Alliance Resource Partners, Cabot Oil and Gas Corp., Cimarex Energy Co., Comstock Resources, Inc., Denbury Resources, Inc., Houston Exploration Co., Plains Exploration and Production Co., Range Resources Co., St. Mary Land and Exploration Co. and Swift Energy Co. The proxy statements of this peer group are analyzed for comparison purposes in regard to the compensation of our Chief Executive Officer and other named executive officers. Given the changing nature of our business and industry, the companies included in the peer group will vary from year to year, and it is the Compensation and Benefits Committee’s intent in 2007 to again thoroughly review the peer group and make changes as appropriate. The Compensation and Benefits Committee also reviews industry-wide compensation survey data.
Because of the relatively small size of our company compared to the other publicly-traded coal companies and because we are also a power developer and operator, the Compensation and Benefits Committee receives compensation data for other publicly traded coal companies for informational purposes only.
Components of the Executive Compensation Program
 
OurAll of our named executive officers are compensated under an executive compensation program which consists of three elements:
 
 • Base salary,salary;
 
 • Annual incentive compensation,compensation; and
 
 • Long-term incentive compensation.


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Base Salary
 
Base salary is designed to compensate our named executive officers at a fixed level of compensation that serves as a retention tool throughout the executive’s career. In determining base salaries, the Compensation and Benefits Committee considers each executive’s role and responsibility, unique skills, future potential with our company,the Company, salary levels for similar positions in our target market, and internal pay equity. Our compensation philosophy is to target base salaries at market levels, based on the 60th percentileexecutive compensation and benefits surveys obtained by the Company, for each named executive officer since our incentive compensation levels have typically been far below target and market median levels. As described


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earlier, our overall pay levels remain below market levels, while most of our base salaries fell within a median range in 2006.officer.
 
In general, base salary is intended to represent approximately 30% of the overall compensation package, assuming that we are achieving targeted performance levels for our incentive programs.
 
DueAfter 18 months with no internal equity or merit adjustments to thebase salaries for executives due to cash constraints, mentioned above,salaries for our named executive officers, except for Mr. Alessi and Mr. Kegley, were adjusted by 5% effective January 1, 2008. Mr. Alessi’s compensation is determined at the discretion of the Board. His initial salary increases for allwas adjusted from $40,000 per month during his interim appointment as President and CEO, to $50,000 per month upon his being named President and CEO in August 2007. In May 2008, his salary was adjusted from $50,000 per month to $25,000 per month as he relinquished the role of our senior management were limitedPresident and CEO and assumed the role of Executive Chairman. It was increased back to $50,000 per month in January 2009 when he resumed the role of President and CEO. Mr. Lobb began his employment in April 2008 as the CEO at a base salary of $41,667 per month. Mr. Lobb also received an additional cash award of $200,000 at the end of 2008 as an employment incentive and as specified under his offer of employment. Mr. Kegley received a 2.75% salary increase in January 2008 following a salary increase in August 2007 at the time he was named General Counsel. Mr. Paprzycki’s salary was increased to $200,000 in April 2008 at the time he was named CFO to reflect the importance of his duties and to bring his salary to a 2.5%comparable level with other named executive officers.
In April 2009, base salaries for the named executive officers, except for Mr. Alessi and Mr. O’Laughlin, were adjusted by 3.5%. Mr. Alessi’s salary was adjusted as described above. Mr. O’Laughlin received a 5.8% adjustment effective July 1, 2006.based on survey data of similar positions for companies of similar revenue and employee base.
 
Annual Incentive Compensation
 
The Annual Incentive Planannual incentive plan is intended to provide incentive, at-risk compensation at the median level for targeted performance levels.
 
The Compensation and Benefits Committee provides our executives, including our named executive officers, with the opportunity to earn an annual cash incentive award each year. Our annual incentive plan is designed to reward the achievement of specific, pre-established financial and operational objectives. In 2006 and in other years2008, it has also included a discretionarypersonal performance component equivalent to about one-third of the total potential value designed to reward individual effort and performance.
Our Annual Incentive Plan provides The annual incentive award opportunities for executives, including our named executive officers, using objectives that are consistent with annual award opportunities provided to the broader employee population. Our selection of specific performance metrics reflects this company-wide consistency in objectives.Mr. Alessi is described separately below.
 
In recent years, including 2006,2008, we established performance objectives for our named executive officers,officers. Target levels for those with targeted levelsdirect operational responsibility, including Mr. O’Laughlin, were based on the safety of our operations (35%(30% weight) and, our financial performance (40% weight) and a personal performance component (30% weight). Better than industry average safetyFor those with no direct operational responsibly, the primary performance is required forobjective was our financial performance (55%) and a payout under the safety component. Better than budgeted cash and pretax income generated is required for payout under the financial objectives. Award opportunities also included a discretionarypersonal performance component (35% weight) to recognize the relative contributions of each named executive officer to the accomplishment of strategic objectives, outstanding performance, special efforts, and similar factors.
(45%). The formula used to calculate the payout under each annual incentive award isis: (i) the performance in each of the three areas as determined by operational responsibility — safety, financial and discretionarypersonal performance — multiplied by (ii) the weight assigned to each area;area, which in turn is multiplied by the (iii) the executive’s tier level, which is a percentage of the executive’s base salary, and is then multiplied by (iv) the executive’s base salary. The sum of the payout of each component represents the total annual incentive payout.
 
Better than industry average safety performance is required for a payout under the safety component. The safety objective compares the lost-time incident (“LTI”) rate of our mine operations to nation-wide surface mine industry averages as reported by the Mine Safety and Health Administration.


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Two components were selected to reflectIn 2008, our financial performance in 2006. The first objectivecomponent was based on achievement of pretax income, as compared the net increase in budgeted cash to the Board-approved budgeted cash, which measurespretax income set forth in the business unit’s budget for that period approved by the Board. For an increase in cash including capital expenditures, net of cash from investing and financing. Toexecutive to receive his targeted bonus for 2008, the executive’s business unit was required to achieve target, a 7.5% increase in net cash over budget was required. The second component relates to our 2006 pretax income, which required a 7.5% (adjustedas compared to reflect accounting changes resulting from the ROVA acquisition) increase over budgeted pretax income or pretax income target of approximately $6 million.set forth in the business unit’s budget for 2008.
 
Award opportunities include a personal performance component to recognize the relative contributions of each named executive officer to the accomplishment of strategic objectives, outstanding performance, special efforts, and similar factors. The discretionarypersonal performance component is based upon the individual results and accomplishments of each participant and is approved by theparticipant.
The Compensation and Benefits Committee. The full Board of DirectorsCommittee participated in the review and award of 20062008 annual incentive awards.
awards for our named executive officers and senior-level executives and managers. In recent years (including 2006),2008, the bonus targets for our named executive officers, other than Mr. Alessi and Mr. Lobb, were set according to the executive’s tier level,level. The targets ranged from 40% to 60%45% of base salary. Maximum payouts are capped at two times the targeted percent of salary. Actual awards are shown by individual in the 2006 Summary Compensation table below. On average, if payouts are made at target levels, these awards represent 15% of the total compensation package.


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In general, we pay incentive bonuses in the year following the annual performance period. Due to cash constraints in 2006, annualAnnual incentive amounts earned in 2008 were paid in the first quarter of 2009. Actual awards are shown by individual in the 2008 Summary Compensation table below.
Annual bonus amounts shown in the 2008 Summary Compensation table (except for 2005the amount shown for Mr. Lobb which reflects an employment incentive) are based on performance whichagainst the above objectives. Bonuses for the named executive officers other than Mr. Alessi and Mr. O’Laughlin were based on financial performance (55%) and personal performance (45%). Mr. O’Laughlin’s bonus was based on the safety of our operations (30%), financial performance (40%), and personal performance (30%). For 2008, the financial component of the bonus was based on an increase in budgeted pretax income. If the increase was 7.5% greater than the budgeted amounts, our executives would have normally been paid in 2006, were deferred for ourreceived the targeted levels of the financial component of the bonus. The business units relevant to the named executive officers failed to meet their minimum financial performance targets, so no executive received any bonus in respect of financial performance for 2008. Our safety performance was better than the industry average (1.34 LTI compared to the national average of 1.41) which resulted in a 60% payout of that component of the bonus for 2008 to Mr. O’Laughlin. The personal component of the bonus was based on individual contributions to the accomplishment of strategic objectives, outstanding performance, special efforts, and similar factors. For 2008, the personal component of the bonus was based on subjective judgment as to the individual’s contribution to the Company and took into consideration the accomplishment of individual goals. A minimum of two goals were set by each named executive and the goals were approved by the CEO.
In 2008, Mr. Alessi participated in the annual incentive plan, with a guaranteed minimum bonus in an amount equal to 120% of the amount paid to him in salary for the period from January 1, 2008 through April 28, 2008, and paid in the first quarter of 2007.
2009 at the same time as bonuses were paid under the annual incentive plan to our other senior executives. Mr. Alessi’s bonus was based upon his successful execution of several priorities, given by the Board, which included the reduction of corporate overhead, improvement of financial reporting processes, consolidation of functions at our mining operations and the completion of two debt refinancing transactions that strengthened our core business. In addition2009, Mr. Alessi is eligible to receive up to 70% of his annual salary to be determined by the incentive award practices above, in any yearBoard or the Compensation and Benefits Committee has the discretion to approve a special President’s Award to executive officers, key management, and administrative staff recognizing outstanding individual leadership, effort, and contribution to the strategic success of our company. Recommendations for this special award are made exclusively by our Chief Executive Officer, or in the case where the Chief Executive Officer is a recipient, the Compensation and Benefits Committee determines that award. No President’s Awards were made in 2006 to any of the named executive officers.its discretion.
 
Long-Term Incentive Compensation
 
General.  A keyOne component of our executive compensation program is the use of long-term incentives. The Compensation and Benefits Committee believes that long-term incentive compensation plays an essential role in attractingmay help attract and retainingretain executive talent and providingprovide executives with incentives to maximize the value of our shareholders’ investments in the Company. In 2000, the Board of Directors adopted a Performance Unit Plan, or the 2000 PUP, as part of our long-term incentive program because an insufficient number of shares were available for issuance under shareholder-approved equity plans to support our program. The 2000 PUP offers the opportunity for cash or stock to be earned based on the absolute or relative performance of our stock over three year periods. The 2000 PUP is intended to provide a strong link between executive performance and the enhancement of shareholder value.
us. Long-term incentive awards for executives are based on a tier structure which targets a percentage of salary, adjusted for market conditions. The annualized value of the long-term incentive awards for our named executive officers is generally intended to be the largest component of our total compensation package and, as a company in the renewal stage of the business cycle, is targeted at the 50th to 75th percentile of market. On average, if the plan targets are met, these awards represent more than 50% of the total compensation package. However, again as a result of cash constraints and the limited number of stock options, stock grants and stock appreciation rights, or SARs, available to the Company,us, award values have frequently been set below the 50th percentile of market and have delivered even less value over most performance periods.


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Historical Long-Term Equity Compensation Practices.  In 2000, the Board adopted a Performance Unit Plan, or the 2000 PUP, as part of our long-term incentive program because an insufficient number of shares were available for issuance under stockholder-approved equity plans to support our program. The 2000 PUP offered the opportunity for cash or stock to be earned based on the absolute or relative performance of our stock over three year periods. Awards under the 2000 PUP were granted in the years2000-2002 and2004-2006. Those units granted in 2002, 2004 and 2005 that vested in 2005, 2007 and 2008 resulted in no value and no payments because we did not achieve the aggressive performance targets established in 2002, 2004 and 2005. Performance units granted in 2006 will be valued at the end of the performance period occurring at the end of June 2009. Based on our stock performance as of December 31, 2008, the performance units granted in 2006 were not “in-the money,” meaning if settled at that time, they would result in no payments.
In 2005 and 2006, long-term incentive awards consisted of SARs, which were intended to approximate 60% of the total value of the long-term incentive award, and performance units, which represented the remaining 40% of intended award value. These award vehicles were selected by the Compensation and Benefits Committee due to their performance orientation and to conserve shares available under approved equity plans. Although awards generally vest over three years, on December 30, 2005, we accelerated the vesting of all unvested SARs previously awarded to executive officers and other employees primarily to reduce the compensation expense that would have been recorded in future periods following our adoption of Financial Accounting Standards Board Statement No. 123, “Share Based Payment (revised 2004),” or FAS 123R, effective January 1, 2006.
In 2008, the Compensation and Benefits Committee simplified our long term incentive program by issuing stock options and eliminated the use of both SARs and performance units, which were historically ineffective. The issuance of stock options is easier to administer and more readily understood by senior management, thus increasing the incentive value of the awards. Equivalent jobs receive equivalent grants, regardless of salary. The strike price of the options is set as the fair market value (the closing price) of our common stock on the date of the grant.
 
Timing of Grants Disclosure and Rationale.  Except for certain initial awards granted as of the date of hire for new executives, the timing of long-term incentive compensation awards is typically July 1st and intended to allow for the continuity of awards from year-to-year.year to year. The Compensation and Benefits Committee approves the award types, amounts and award terms and conditions for each award to our named executive officers. It delegates administration of the plan to our Human Resources and Investor Relations Departments. To achieve continuity, the awards, and specifically the actual number of shares to be awarded to each named executive officer, isare approved at a meeting of the Compensation and Benefits Committee held generally in the week prior to July 1st inJune each year. The grant date, or effective date, of each award is set by the Compensation and Benefits Committee asat July 1st in each year. We do not engage in the practice of timing grants with the release of non-public information.
 
Current Framework.Equity Incentive Plan.  In 2005Stock option awards were granted in 2008 under the 2007 plan to a senior management group based on a tier structure that reflected scope and 2006,responsibility of positions. The awards underranged from 1,000 to 60,000 stock options. We issued 60,000 stock options to Mr. Alessi who served at the time as Executive Chairman, 25,000 to Mr. Lobb as our long-term incentive compensation plan consisted ofPresident and CEO, 15,000 to Mr. O’Laughlin, who has executive management responsibility for multiple coal mining operations, and 7,000 stock appreciation rights, or SARs, which were intendedoptions to approximate 60%each of the total value of the long-term incentive award, and performance units, which represented the remaining 40% of intended award value. These award vehicles have been selected by the Compensation and Benefits Committee due to their performance orientation and to conserve shares available under approved equity plans. The use of SARs requires the commitment of fewer shares than restricted stock or stock options. A key feature of these vehicles is the link to our stock price.
Stock Appreciation Rights (SARs).  SARs are designed to maximize long-term shareholder value since awards have no value unless our stock increases after the award date. SARs are a key component of executive compensation at our company. SARs are granted under the shareholder approved 2002 Long-Term Incentive


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Stock Plan, or the 2002 Plan. We currently grant SARs to our named executive officers because stock-settled SARs generally require fewer shares than do options to deliver similar value to an executive.
Under the 2002 Plan, the exercise price of options and SARs is set to be not less than the market price of our common stock on the grant date. In addition, option or SAR re-pricing is expressly prohibited.
executives. Awards generally vest over a period of three years, with one-third becoming exercisable on each anniversary of the grant date as long as the executiveindividual is still employed by us on the date of vesting. The Compensation and Benefits Committee selected a three-year vesting period to reinforce the link between thesethe incentives and our long-term performance. Awards generally expire after ten years. SARs only have value if our stock price appreciates after the day of grant.
 
Although awards generally vest over three years, on December 30, 2005, we acceleratedIn addition to the vesting of all unvested SARs previously awarded to executive officers and other employees under the 2002 Plan, including those granted during 2005. The decision to accelerate the vesting of these SARs was made primarily to reduce the compensation expense that would have been recorded in future periods following our adoption of Financial Accounting Standards Board Statement No. 123, “Share Based Payment (revised 2004),” or FAS 123R, effective January 1, 2006.
Performance Units.  Performance units are also granted to our named executive officers under the 2000 PUP in lieuaward of stock options, or grants. As with options or grants, the 2000 PUP is designedwe also issued 100,000 restricted shares of common stock as an employment incentive to link employees’ long-term economic interest with those of our shareholders. Use of a multi-year performance period emphasizes the importance of longer-term results and the enhancementMr. Lobb when he joined us. All of the value of shareholders’ investments.
Each performance unit entitles the recipient to receive a payment in cash or stock,shares were unvested and were forfeited at the electiontime of the Compensation and Benefits Committee, subject to the achievement of certain performance metrics measured over a three-year performance period from the date of the grant. The Compensation and Benefits Committee may also elect to defer full payment of amounts earned over time.
As described in more detail below under “Executive Compensation — Grants of Plan-Based Awards,” the value of each performance unit under the 2000 PUP is a function of three separate components, each expressedhis resignation, as a percentage, measured over the three-year performance period: total shareholder return, total shareholder return relative to two market indices and return on shareholders’ equity. These three performance measures and the goals set by the Compensation and Benefits Committee were selected to be consistent with the compensation principles of aligning executive incentive compensation to shareholder interest.
Performance units vest in one-third annual increments beginning on the first anniversary of the date of the grant. The Compensation and Benefits Committee selected a three-year vesting period to reinforce the link between these incentives and our long-term performance.
Awards under the 2000 PUP were granted in the years2000-2002 and2004-2006. The Company awardedhis stock options to implement its long term incentive program in 2003. Those units granted in 2002 that vested in 2005 resulted in no value and no payments because we did not achieve the aggressive performance targets established in 2002. Performance units granted in 2004 and 2005 will be valued at the end of the performance periods occurring at the end of June, 2007 and 2008, respectively. Based on the Company’s stock performance as of December 31, 2006, the performance units granted in 2004 and 2005 were not “in-the money,” meaning if settled at that time, they would result in no payments.options.


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For 2006, the number of performance units awarded to our named executive officers ranged from 40% to 125% of base salary, with a target value of $100 per unit and a cap of $200 per unit. Further information about the 2000 PUP and awards to our named executive officers, including target dollar values, are shown below under “Executive Compensation — Grants of Plan-Based Awards.”
Tax Deductibility Policy
 
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction for certain compensation in excess of $1 million paid to our Chief Executive Officer, Chief Financial Officer


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CEO, CFO and our other named executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if the requirements of that section are met. The Compensation and Benefits Committee reviews the potential effect of Section 162(m) periodically and generally seeks to structure the long-term incentive compensation granted to our executive officers in a manner that is intended to avoid disallowance of deductions under Section 162(m). Nevertheless, there can be no assurance that compensation will be treated as qualified performance-based compensation under Section 162(m). In addition, the Compensation and Benefits Committee reserves the right to use its judgment to authorize compensation payments that may be subject to the limitexceed $1 million when the Compensation and Benefits Committeeit believes such payments are appropriate and in the best interests of our companythe Company and our stockholders, after taking into consideration changing business conditions and the performance of its employees.
 
Benefits
 
Benefits for our named executive officers are established based upon an assessment of competitive market factors, a determination of what is needed to attract and retain high caliber executives, and our financial condition. Our primary benefits for executives include participation in the broad-based plans available to most of our other employees:employees including defined benefit retirement plans, 401(k) plans, savings plans, health and dental plans and various insurance plans, including disability and life insurance.
We also provide certain executives, including our named executive officers, the following benefits:
• Supplemental Retirement and Savings.  The Internal Revenue Code limits the amount of compensation that may be taken into account for the purpose of determining the retirement benefits payable under tax-qualified ERISA retirement plans. The limitation for 2006 is $220,000. Consequently, so that we could provide retirement income to certain of our senior executives and other key individuals that is commensurate as a percentage of pre-retirement income with that paid to other employees, we established a nonqualified Supplemental Executive Retirement Plan, or SERP, effective January 1, 1992. Because of attrition in, or retirement of, the individuals originally covered by the SERP, only Mr. Christopher K. Seglem, who served as Chairman, President and Chief Executive Officer through May 1, 2007, is eligible for benefits among currently active employees.
• Deferred Compensation.  The Compensation and Benefits Committee has the authority under the 2000 PUP to mandate deferral of any 2000 PUP award. Several named executive officers are currently subject to deferrals under this plan. Deferred compensation is also discussed under the heading “Executive Compensation — Deferred Compensation” below.
 
Perquisites
 
Perquisites for our executives, including our named executive officers, are very limited. We eliminated virtually all perquisites provided to executives in 1992. During 2006,As our Executive Chairman and CEO, Mr. Seglem wasAlessi is the named designee on a corporate country club membership. Mr. Lobb was also a designee during his tenure as CEO. Mr. Alessi and Mr. Lobb paid for their own membership and was reimbursed for the monthly dues and business related expenses for a local business luncheon club.dues.
 
We offer financial planning assistanceprovide reimbursement to senior executives, including our named executive officers, up to 80% of the cost, capped at $1,600 per year. In addition, we will reimburse named executive officers for 80% of the cost of an annual physical examination, up to $500 per year.
 
It is not our practice or policy to provide a company vehicle or a vehicle allowance to our executives. However, in the case of Mr. O’Laughlin, who has responsibility for the executive management of multiple coal mining operations that are reasonably reachable by vehicle, but located a significant driving distance apart, we provide for the use of a company-owned vehicle specifically for traveling between locations.
 
The value of these benefits, in the case that such benefits exceed $10,000, is included in the “All Other Compensation” column of the 2006 Summary Compensation table below. Except for Mr. Wiegley, none of the named executive officers currently receive benefits valued in aggregate of $10,000.


45

Employment Contracts
 
We do not have contracts of employment with our executives, except for the severance arrangements described below.
 
Post-Termination Compensation
 
WeEffective May 21, 2007 and our subsidiaries haveas amended December 2008, we adopted a severance policies which arepolicy that applies to all active full-time employees. This policy is designed to provide our employees with financial protection against the loss of their employment as the result of circumstances beyond their control. At December 31, 2006, our severance policies consisted of an Executive Severance Policy, or the Executive Policy, which covered Mr. Christopher K. Seglem, and a Severance Policy, or the Employee Policy, which covered all other full-time non-union employees, including our named executive officers, other than Mr. Christopher K. Seglem. Effective May 21, 2007, we have adopted a revised severance policy that applies to all active full-time employees other than our interim President and interim Chief Executive Officer.
The Executive Policy provides for severance payments and benefits if a termination occurs, which is defined as (i) discharge for unacceptable job performance (other than that resulting from gross or willful misconduct), (ii) discharge due to a mistake in the recruiting process, or (iii) a significant reduction, or increase without adequate compensation, in the nature or scope of the executive’s authority or duties. There is also additional compensation provided in circumstances under the termination of employment following a change in control, as defined in the Executive Policy. The Employee Policy provided for severance payments and benefits if termination of employment occurs without cause, or in the case of a reduction in work force or upon liquidation of the company. The revised severance policy provides for severance payments and benefits in the following circumstances: involuntary termination that is not for cause; termination due to sale of a facility, division or business segment; or relocation of more than 50 miles that the employee declines. Severance benefits are not payable if the employee receives an offer of similar employment within 30 days from an affiliate of the Company, or if the employee is terminated due to outsourcing, from a company to which the relevant work is outsourced.
Additional information regarding the severance policies,policy, including a definition of key terms and an estimated quantification of benefits that would have been received by our named executive officers had termination occurred on December 31, 2006,2008, is found under the heading “Executive Compensation — Severance Benefits”Potential Payments Upon Termination or Change in Control” below.
COMPENSATION AND BENEFITS COMMITTEE REPORT
The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Richard M. Klingaman, Chairman
Thomas J. Coffey
Michael R. D’Appolonia


4621

 
EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following table summarizes the compensation paid to each individual who served as our principal executive officer or principal financial officer in 2006 to the persons who held the position of Chief Executive Officer and Chief Financial Officer during 20062008 and our other three most highly compensated executive officers (other than our principal executive and financial officers) who were serving as executive officers at the end of 2006, whom weDecember 31, 2008. We refer to these seven individuals collectively as our named executive officers. The determination of our most highly compensated executive officers is based on total compensation for 20062008 as calculated in the “Summary Compensation” table (excluding the change in the actuarial value of pension and defined benefit plan benefits and above-market or preferential earnings on deferred compensation) shown below.
 
2006 SUMMARY COMPENSATION
                                     
              Change in
    
            Non-
 Pension
    
            Equity
 Value and
    
            Incentive
 Nonqualified
    
            Plan
 Deferred
    
        Stock
 Option
 Com-
 Compensation
 All Other
  
Name and Principal
   Salary
 Bonus
 Awards
 Awards(1)
 pensation
 Earnings(2)
 Compensation(3)(4)
 Total
Position
 Year ($) ($) ($) ($) ($) ($) ($) ($)
 
Christopher K. Seglem(5)  2006   536,780   225,296   —   177,934   —   353,103   16,025   1,309,138 
Chief Executive Officer and President                                    
David J. Blair  2006   256,250   110,551   —   19,742   —   17,115   7,508   411,166 
Chief Financial Officer                                    
Roger D. Wiegley  2006   253,688   128,947   —   44,847   —   23,840   24,204   475,526 
General Counsel and Secretary                                    
Robert W. Holzwarth  2006   241,913   113,667   —   58,034   —   26,449   8,169   448,232 
Senior Vice President, Power                                    
John V. O’Laughlin  2006   198,044   81,657   —   29,756   —   23,263   8,445   341,165 
Vice President, Coal Operations                                    
                                     
                 Change in
          
                 Pension
          
                 Value and
          
                 Nonqualified
          
                 Deferred
          
           Stock
  Option
  Compensation
  All Other
       
Name and Principal
    Salary
  Bonus
  Awards(1)
  Awards(1)
  Earnings(2)
  Compensation(3)
  Total
    
Position
 Year  ($)  ($)  ($)  ($)  ($)  ($)  ($)    
 
Keith E. Alessi  2008   403,846   242,308   —   231,261   3,775   12,222   893,412     
Executive Chairman, CEO and President  2007   351,692   422,031   —   301,073   —   21,157   1,095,953     
Kevin A. Paprzycki  2008   189,450   34,101   —   28,302   8,741   7,088   267,682     
CFO                                    
John V. O’Laughlin  2008   211,374   45,657   —   77,583   52,408   6,971   393,993     
Vice President, Coal Operations  2007   200,665   89,336   —   47,993   32,235   9,758   367,064     
   2006   192,860   81,657   —   29,756   30,096   8,445   342,814     
Todd A. Myers  2008   218,568   78,685       52,106   29,014   7,582   385,955     
Vice President, Coal Sales  2007   208,542   37,538   —   38,297   14,552   8,066   306,995     
Morris W. Kegley  2008   200,156   36,028   —   23,019   30,301   7,411   296,915     
General Counsel  2007   175,154   39,410   —   9,211   21,494   9,421   254,690     
Delbert L. Lobb(4)  2008   326,923   200,000   351,111   49,316   —   59,657   987,007     
Former President and CEO                                    
David J. Blair(5)  2008   72,982   —   —   (26,178)  —   333,630   380,434     
Former CFO  2007   256,250   51,891   —   39,267   21,278   9,434   378,120     
   2006   253,004   110,551   —   19,742   17,115   7,508   407,920     
 
(1)The amounts in this column reflect the amount expensed by us in 2006each year indicated for financial reporting purposes pursuant to SFAS No.FAS 123R. The assumptions used in calculating these amounts are discussed in note 1213 to our financial statements for the year ended December 31, 2006,2008, which accompany this proxy statement. Unlike the amount reflected in our financial statements, these amounts do not reflect any estimate of forfeitures related to service-based vesting. Instead, these amounts, except for Mr. Blair, assume that each executive will perform the requisite service to vest in his award.
 
(2)Includes2008 figures include “above-market” interest on deferred compensation for Messrs. SeglemO’Laughlin and O’LaughlinMyers of $36,404$145 and $1,501, respectively.$286. Also includes change in pension value for Messrs. Seglem, Blair, Wiegley, HolzwarthAlessi, Paprzycki, O’Laughlin, Myers, and O’LaughlinKegley of $316,699, $17,115, $23,840, $26,449$3,775, $8,741, $52,263, $28,728, and $21,762,$30,301, respectively. The change in pension value for Mr. Seglem includes $265,224 from the Supplemental Executive Retirement Plan. Pension economic assumptions utilized for our SFAS 87 financial reporting for fiscal years ended in 2005, 2006, 2007 and 20052008 were used for calculations at the end of those years respectively. A discount rate of 5.7% was used for 2005, and 5.95% for 2006.2006, 6.3% for 2007, and 6.1% for 2008.
 
(3)“All Other Compensation” for 2008 includes reimbursements and payments, as applicable, for our contributions to the 401(k) Plan, and life insurance premiums. We contributed $6,600$6,900, $5,684, $5,998, $6,557, $6,005, $3,227 and $2,158 in matching contributions to the 401(k) Plan during 2006 on behalf of each of Messrs. Seglem,Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, Wiegley, and Holzwarth and $7,714 on behalf of Mr. O’Laughlin. In 2006, werespectively. We paid life insurance premiums of $9,425; $908; $1,637; $1,569;$1,872, $1,404, $973, $1,025, $1,407, $1,248 and $731$472 for Messrs. Seglem,Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, Wiegley, Holzwarth and O’Laughlin, respectively. For Messrs. Alessi and Lobb, the amount shown also includes $3,450 of a special contribution to the 401(k) Plan. For Mr. Wiegley, “All Other Compensation”Lobb, the amount includes $1,600 in financial planning fees$51,732 for relocation and $14,367 for temporary living expenses. For Mr. Blair, the amount shown includes severance benefits and transportation expenses.vacation pay of $331,000.


4722

 
(4)In accordance with SEC rules, other compensationMr. Lobb resigned as President and CEO effective January 27, 2009. He was paid a bonus of $200,000 at the end of 2008 under the terms of his offer of employment. Mr. Lobb forfeited all of his stock and option awards at the time of his resignation. He was not vested in the form of perquisites and other personal benefits has been omitted in those instances where the aggregate of such perquisites and other personal benefits is less than $10,000. Further information regarding our practices with respect to perquisites may be found under “Compensation Discussion and Analysis — Perquisites” above.pension plan.
 
(5)Mr. SeglemBlair served as our President and Chief Executive Officer and as Chairman of our Board of DirectorsCFO through March 31, 2008. He was not vested in 2006 and through May 1, 2007.the pension plan.
 
Executive compensation consists of three elements:  base salary, annual incentive bonus and long-term incentive compensation. We made no internal equity or merit adjustments to base salaries for executives in July 2006 due to cash constraints; however, we did make a cost-of-living adjustment of 2.5% effective July 1, 2006.
Annual bonus amounts shown in the 2006 Summary Compensation table are based on performance compared against three weighted performance objectives (safety 35%, financial 30% and discretionary 35%) as described in “Compensation Disclosure and Analysis — Components of the Executive Compensation Program — Annual Incentive Compensation” above. To achieve the targeted bonus level for 2006 required a lost-time incident rate 25% better than the industry average, a net increase of 7.5% over budgeted cash as approved by the Board, attaining pretax income 7.5% higher than budgeted pretax income, plus a discretionary component based on individual performance at the median level. Safety performance in 2006 was 11% better than the industry average which resulted in achieving a 31% payout of that component. We achieved a 283% increase in budgeted cash resulting in achieving the maximum payout of that component and a 130% increase over our budgeted pretax income (adjusted to reflect accounting changes resulting from the ROVA acquisition) resulting in achieving the maximum payout of that component. The discretionary component provides for recognition of individual contributions to the accomplishment of strategic objectives, outstanding performance, special efforts, and similar factors. We paid bonuses earned for 2006 performance in the second quarter of 2007.
The deferred compensation earnings shown in the “Summary Compensation” table reflect interest paid on deferred performance unit awards under the 2000 PUP.
None of the individuals listed in the table above received any loans or credits from us.
Grants of Plan-Based Awards
The following table summarizes the performance units (which are referred to in the table below as non-equity incentive plan awards) and awards of stock appreciation rights (which are referred to in the table below as options) in 2006 to our named executive officers:
20062008 GRANTS OF PLAN-BASED AWARDS
 
                                                     
                             All Other
  All Other
       
                             Stock
  Option
       
        Number of
  Estimated Future Payouts
  Estimated Future Payouts
  Awards:
  Awards:
     Grant Date
 
        Non-Equity
  Under Non-Equity
  Under Equity
  Number
  Number of
  Exercise or
  Fair Value
 
        Incentive
  Incentive Plan Awards  Incentive Plan Awards  of Shares
  Securities
  Base Price
  of Stock
 
        Plan Units
  Thres-
        Thres-
        of Stock
  Underlying
  of Option
  and Options
 
  Grant
  Approval
  Granted(1)
  hold
  Target
  Maximum
  hold
  Target
  Maximum
  or Units
  Options
  Awards(2)
  Awards(3)
 
Name
 Date  Date  (#)  ($)  ($)  ($)  (#)  (#)  (#)  (#)  (#)  ($ / Sh)  ($) 
 
Christopher K. Seglem  7/1/06   6/23/06   6,808   0   680,800   1,361,600   —   —   —   —   —   —   — 
   7/1/06   6/23/06   —   —   —   —   —   —   —   —   52,700   24.41   768,366 
David J Blair  7/1/06   6/23/06   1,050   0   105,000   210,000   —   —   —   —   —   —   — 
   7/1/06   6/23/06   —   —   —   —   —   —   —   —   8,100   24.41   118,098 
Roger D Wiegley  7/1/06   6/23/06   2,376   0   237,600   475,200   —   —   —   —   —   —   — 
   7/1/06   6/23/06   —   —   —   —   —   —   —   —   18,400   24.41   268,272 
Robert W Holzwarth  7/1/06   6/23/06   1,558   0   155,800   311,600   —   —   —   —   —   —   — 
   7/1/06   6/23/06   —   —   —   —   —   —   —   —   12,100   24.41   176,418 
John V O’Laughlin  7/1/06   6/23/06   1,275   0   127,500   255,000   —   —   —   —   —   —   — 
   7/1/06   6/23/06   —   —   —   —   —   —   —   —   9,900   24.41   144,342 
                         
        All Other
  All Other
       
        Stock
  Option
       
        Awards:
  Awards:
     Grant Date
 
        Number of
  Number of
  Exercise or
  Fair Value
 
        Shares of
  Securities
  Base Price
  of Stock
 
        Stock or
  Underlying
  of Option
  and Options
 
  Grant
  Approval
  Units
  Options (1)
  Awards
  Awards(2)
 
Name
 Date  Date  (#)  (#)  ($/Sh)  ($) 
 
Keith E. Alessi  7/1/08   6/25/08   —   60,000   21.40   118,359 
Kevin A. Paprzycki  7/1/08   6/25/08   —   7,000   21.40   13,808 
John V. O’Laughlin  7/1/08   6/25/08   —   15,000   21.40   29,590 
Todd A. Myers  7/1/08   6/25/08   —   7,000   21.40   13,808 
Morris W. Kegley  7/1/08   6/25/08   —   7,000   21.40   13,808 
Delbert L. Lobb(3)  7/1/08   6/25/08   —   25,000   21.40   49,316 
   4/28/08   4/21/08   100,000(4)  —   —   351,111 


48

 
(1)Performance units granted pursuant to the 2000 PUP for the performance period July 2006-July 2009. Performance unitsOptions vest annually in one-third increments but payout is not determined until the end of the three-year performance period. Payouts may then be deferred by the Compensation and Benefits Committee as allowed under the 2000 PUP.increments.
 
(2)The base price is defined by the 2002 Plan as the average of the high and low prices per share on the date of grant. The corresponding closing price on the date of grant was $23.72.
(3)Represents a grant date fair value of $14.58$11.84 per SAR.option for all named executives and $15.80 per share of restricted stock granted to Mr. Lobb.
(3)Mr. Lobb forfeited all awards made in 2008 upon his resignation.
(4)Restricted stock vests annually in one-third increments.
As described in the Compensation Discussion and Analysis above, the value of each performance unit is a function of three separate components, each expressed as a percentage, measured over the three-year performance period: absolute total shareholder return (weighted 50%), total shareholder return relative to two market indices (weighted 25%) and return on shareholders’ equity (weighted 25%). To determine the value of the performance units, a “weighted average” of these components in calculated. The maximum value for each performance unit is $200. Values between $0 and $200 are extrapolated. Target value is $100.
To achieve target requires (i) total average annual shareholder return of 9%, (ii) total average annual shareholder return that would rank our company on average at the 60th percentile among companies in each of the Russell 2000 and S&P Utility indices, and (iii) average annual return on shareholder’s equity of 9.5%. Each of these comparisons is determined over the three-year performance period.
The formula used to calculate the payout under each three-year performance period is (i) the performance of each component measured as a percentage of the goal at target, multiplied by (ii) the weight assigned to each area, which in turn is multiplied by (iii) the performance unit value at target, which has historically been $100. The sum of the payout of each component is then multiplied by (iv) the number of performance units granted to the executive resulting in the total payout for the performance period.
Performance units granted in 2006 are for the performance period2006-2009. The values shown reflect the target value, or $100, per performance unit. Actual payout can range from $0 to $200 per unit. For more information about long-term incentive compensation, see “Compensation Discussion and Analysis — Components of the Executive Compensation Program — Long-Term Incentive Compensation” above.
The SARs granted in 2006 vest in one-third increments over a three-year period. The base price of the SARs is defined by the 2002 Plan as the average of the high and low prices per share of our common stock on the date of grant, July 1, 2006, or $24.41. The corresponding closing price on the date of grant was $23.72. SARs will result in value to the executive as the price of our common stock increases.


4923

Outstanding Equity Awards at Fiscal Year-End2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
The following table shows outstanding restricted stock, options and SARs as of December 31, 20062008 for our named executive officers. Included in the table are initial grants of long-term incentive options, restricted stock or SARs made in connection with the hiring of Messrs. Blair, Holzwarth, WiegleyAlessi, Lobb, Paprzycki and O’Laughlin in 2005, 2004, 20052007, 2008, 2006 and 2001 respectively, and annual long-term incentive awards. Approval of annual long-term incentive awards isMr. Lobb’s option award was made byon April 21, 2008 for the Compensation and Benefits Committee in advance of the grant date as described under “Compensation Discussion and Analysis — Components of the Executive Compensation Program — Long-Term Incentive Compensation” above. Approval occurred on June 23, 2006 for awardsaward effective July 1, 2006.April 28, 2008.
 
2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
                                     
  Option Awards  Stock Awards 
                          Equity
 
        Equity
              Equity
  Incentive
 
        Incentive
              Incentive
  Plan Awards:
 
        Plan Awards:
              Plan Awards:
  Market or
 
  Number of
  Number of
  Number of
           Market
  Number of
  Payout Value
 
  Securities
  Securities
  Securities
        Number of
  Value of
  Unearned
  of Unearned
 
  Underlying
  Underlying
  Underlying
        Shares or
  Shares or
  Shares, Units
  Shares, Units
 
  Unexercised
  Unexercised
  Unexercised
  Option
     Units of
  Units of
  or Other
  or Other
 
  Options
  Options
  Unearned
  Exercise
  Option
  Stock That
  Stock That
  Rights That
  Rights That
 
  (#)  (#)  Options
  Price
  Expiration
  Have Not
  Have Not
  Have Not
  Have Not
 
Name
 Exercisable  Unexercisable  (#)  ($)  Date  Vested  Vested  Vested  Vested 
 
Christopher K. Seglem  117,200(1)  —   —   2.81   6/8/10   —   —   —   — 
   10,000(2)  —   —   3.00   6/7/09   —   —   —   — 
   31,900(3)  —   —   12.86   6/23/12   —   —   —   — 
   32,100(4)  —   —   17.80   12/30/13   —   —   —   — 
   32,100(5)  —   —   18.08   6/29/13   —   —   —   — 
   3,352(6)  —   —   18.09   5/28/11   —   —   —   — 
   12,348(6)  —   —   18.19   5/28/11   —   —   —   — 
   63,300(7)  —   —   19.37   6/30/14   —   —   —   — 
   82,100(8)  —   —   20.98   6/30/15   —   —   —   — 
   —   52,700(12)  —   24.41   6/30/16   —   —   —   — 
David J. Blair  10,000(8)  —   —   19.78   4/24/15   —   —   —   — 
   19,900(8)  —   —   20.98   6/30/15   —   —   —   — 
   —   8,100(12)      24.41   6/30/16   —   —   —   — 
Roger D. Wiegley  10,000(8)  —   —   18.035   5/15/15   —   —   —   — 
   17,900(8)  —   —   20.98   6/30/15   —   —   —   — 
       18,400(12)  —   24.41   6/30/16   —   —   —   — 
Robert W. Holzwarth  6,666(9)  3,334(13)  —   27.86   10/31/14   —   —   —   — 
   17,900(8)  —   —   20.98   6/30/15   —   —   —   — 
   13,300(10)  —   —   22.86   10/31/14   —   —   —   — 
   —   12,100(12)  —   24.41   6/30/16   —   —   —   — 
John V. O’Laughlin  20,000(11)  —   —   12.04   3/4/11   —   —   —   — 
   4,700(3)  —   —   12.86   6/23/12   —   —   —   — 
   3,650(4)  —   —   17.80   12/30/13   —   —   —   — 
   3,650(5)  —   —   18.08   6/29/13   —   —   —   — 
   491(6)  —   —   18.09   5/28/11   —   —   —   — 
   1,809(6)  —   —   18.19   5/28/11   —   —   —   — 
   9,800(7)  —   —   19.37   6/30/14   —   —   —   — 
   14,600(8)  —   —   20.98   6/30/15   —   —   —   — 
   —   9,900(12)  —   24.41   6/30/16   —   —   —   — 
                         
  Option Awards  Stock Awards 
                 Market
 
                 Value of
 
                 Shares or
 
  Number of
  Number of
        Number of
  Units of
 
  Securities
  Securities
        Shares or
  Stock That
 
  Underlying
  Underlying
        Units of
  Have Not
 
  Unexercised
  Unexercised
  Option
     Stock That
  Vested
 
  Options
  Options
  Exercise
  Option
  Have Not
  As of
 
  (#)
  (#)
  Price
  Expiration
  Vested
  12/31/08
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)  ($) 
 
Keith E. Alessi  —   60,000(1)  21.40   6/30/18   —   — 
   30,556(2)  —   23.93   5/01/17   —   — 
Kevin A. Paprzycki  —   7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
   1,666(4)  834(4)  29.48   6/4/16   —   — 
John V. O’Laughlin  20,000(5)  —   12.04   3/04/11   —   — 
   4,700(6)  —   12.86   6/23/12   —   — 
   3,650(7)  —   17.80   12/30/13   —   — 
   3,650(8)  —   18.08   6/29/13   —   — 
   491(9)  —   18.09   5/28/11   —   — 
   1,809(9)  —   18.19   5/28/11   —   — 
   9,800(10)  —   19.37   6/30/14   —   — 
   14,600(11)  —   20.98   6/30/15   —   — 
       15,000(1)  21.40   6/30/18   —   — 
   6,600(3)  3,300(3)  24.41   6/30/16   —   — 
Todd A. Myers  6,700(6)  —   12.86   6/23/12   —   — 
   6,700(7)  —   17.80   12/30/13   —   — 
   6,700(8)  —   18.08   6/29/13   —   — 
   683(9)  —   18.09   5/28/11   —   — 
   2,517(9)  —   18.19   5/28/11   —   — 
   12,300(10)  —   19.37   6/30/14   —   — 
   16,200(11)  —   20.98   6/30/15   —   — 
       7,000(1)  21.40   6/30/18   —   — 
   5,266(3)  2,634(3)  24.41   6/30/16   —   — 
Morris W. Kegley      7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
Delbert L. Lobb  —   —   —   —   100,000(12)  1,110,000 
   —   25,000(1)  21.40   6/30/18   —   — 
 
 
(1)VestedVests in twothree annual increments beginning 6/9/01.7/1/09.
 
(2)VestedMr. Alessi voluntarily forfeited 66,667 unvested options out of 100,000 options granted in four annual increments beginning 6/8/00.2007. The remaining 30,556 options vested between June 2007 and April 2008.
 
(3)SARs vest in three equal annual installments, with the first increment vesting on 7/1/07.
(4)SARs vest in three annual increments with the first increment vesting on 6/5/07.


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(5)Vested in two annual increments beginning 3/5/02.
(6)Vested in two annual increments beginning 6/24/03.
 
(4)(7)Vested in three annual increments beginning 12/31/04.
 
(5)(8)Vested in three annual increments beginning 6/30/04.
 
(6)(9)Vested in two annual increments beginning 5/29/02.


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(7)(10)SARs; one third vested on 7/1/05 and the balance vested 12/30/05.
 
(8)(11)SARs vested 12/30/05.
 
(9)Vested in two annual increments beginning 11/1/05.
(10)SARs; one third vested on 11/1/05 and the balance vested 12/30/05.
(11)Vested in two annual increments beginning 3/5/02.
(12)SARs vest in 3 equal annual installments, withMr. Lobb forfeited all outstanding equity awards at the first increment vesting on7/1/07.
(13)3,334 options vest on11/1/07.time of his resignation.
 
Option Exercises and Stock Vested Stock
 
The following table presents information regardingThere were no option or SAR exercises or vesting of stock awards during 20062008 for our named executive officers. No SARs held by our named executive officers vested during 2006 and no SARs were exercised. There were no restricted stock awards outstanding during 2006.


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2006 OPTION EXERCISES AND STOCK VESTED
                 
  Option Awards  Stock Awards 
  Number of Shares
  Value Realized on
  Number of Shares
  Value Realized on
 
  Acquired on Exercise
  Exercise
  Acquired on Vesting
  Vesting
 
Name
 (#)  ($)  (#)  ($) 
 
Christopher K. Seglem  40,000   793,200   —   — 
David J. Blair  —   —   —   — 
Roger D. Wiegley  —   —   —   — 
Robert W. Holzwarth  —   —   —   — 
John V. O’Laughlin  —   —   —   — 
2008 Pension Benefits
 
The following table presents pension plan benefits for each of our named executive officers:
2006 PENSION BENEFITS
               
       Present Value
    
       of Accumulated
    
       Benefit as of
    
    Number of Years
  December 31,
  Payments During Last
 
    Credited Service
  2006(1)
  Fiscal Year
 
Name
 Plan Name (#)  ($)  ($) 
 
Christopher K. Seglem Pension Plan  26.33   363,680   0 
  SERP(2)  26.33   2,255,949   0 
David J. Blair Pension Plan  1.67   27,831   0 
Roger D. Wiegley Pension Plan  1.58   36,622   0 
Robert W. Holzwarth Pension Plan  2.17   54,149   0 
John V. O’Laughlin Pension Plan  4.75   88,617   0 
               
       Present Value
    
       of Accumulated
    
       Benefit as of
    
    Number of Years
  December 31,
  Payments During Last
 
    Credited Service
  2008(2)
  Fiscal Year
 
Name(1)
 
Plan Name
 (#)  ($)  ($) 
 
Keith E. Alessi Westmoreland  .58   3,775   — 
  Retirement Plan (WCC)            
Kevin A. Paprzycki Westmoreland  2.58   17,642   — 
  Retirement Plan (WCC)            
John V. O’Laughlin Westmoreland  8.0   205,861   — 
  Retirement Plan (BSS)            
Todd A. Myers Westmoreland  9.08   109,330   — 
  Retirement Plan (WCC)            
Morris W. Kegley Westmoreland  3.25   72,993   — 
  Retirement Plan (WCC)            
 
 
(1)Mr. Lobb and Mr. Blair are not included in the table. Neither were vested in the pension plan at the time they ceased employment.
(2)Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2006.2008. Demographic assumptions are also consistent with our pension financial reporting, with the exception that per SEC guidance, pre-retirement decrements are not used. A discount rate of 5.95%6.1% was used for 2006.
(2)Supplemental Executive Retirement Plan — see description below.2008.
 
Pension Plan
We sponsor a Pension Plan, which we refer to as the Plan, for eligible employees of our company and our subsidiaries to which employees make no contributions. The Plan is a mergerEach of the Westmoreland Pension Plan, andnamed executive officers, except Mr. Alessi, participates in the same defined benefit pension plans offered to other plans that were in place at subsidiaries at the time of their acquisition. The Plan


51

maintains the formulas for benefit calculations which are associated with each of the original plans.non-union employees. All employees whose terms and conditions of employment are not subject to collective bargaining and who work 1,000 or more hours per year are eligible for participation in the Plan.pension plans. Eligible employees become fully vested after five years of service, or, in any event, upon attaining age 65.
The Planpension plan was adopted effective December 1, 1997 as a qualified replacement planand provides for a previous plan, which was terminated effective November 30, 1996. In general, the Plan provides for payment of annual retirement benefits to eligible employees and also provides for disability benefits and for reduced benefits upon retirement prior to the normal retirement age of 65. ForThe pension plan provides the purpose of benefit calculation under the Plan for Mr. Seglem, credited service under the previous plan is included with credited service under the current Plan. The amount of the accrued benefit paid upon termination of the previous plan, calculated as of the termination date of the previous plan, is subtracted to arrive at the benefit amount payable under the Plan. The amounts shown in the table above have been reduced by $174,424, the amount of accrued benefit under the previous plan for Mr. Seglem. Since Messrs. Blair, Wiegley, Holzwarth and O’Laughlin were not employees of our company at the time the previous plan was terminated, they have no accrued benefit under the previous plan but participate in our current pension plan.
Mr. O’Laughlin’s pension benefits are calculated differently than the method for our other named executive officers as he is a participant in the portion of the Plan which is a cash balance plan associated with Western Energy Company. Each year the cash balance account may be credited with three types of credits: basic credit, additional credit and interest credit, based on total points and eligible earnings for the year. Total points are determined by adding attained age and completed years of service at the beginning of the year; eligible earnings include base pay, commissions and the straight time portion of any overtime for the year, subject to IRS limitations.
The current compensation covered by the Plan for any named executive officer is that amount reported in the salary column of the Summary Compensation table, subject to limitations imposed by the Internal Revenue Code. In 2006 that limit was $220,000.
Each of Messrs. Seglem, Blair, Wiegley and Holzwarth are covered under the Westmoreland Coal Company provisions of the Pension Plan as follows and which also provide for disability benefits and for reduced benefits upon early retirement.following benefits:
 
 • The benefit equals 1.2% of average earnings plus 0.5% of average earnings in excess of covered compensation times years of service.service up to 30 years. Covered compensation is a 35 year average of Social Security wage bases at Social Security retirement age.age;
 
 • Normal retirement age is 65. Early retirement benefits are available at age 55 with 10 years of service. Benefits are reduced actuarially for early commencement before age 65. Participants with 20 or more years of service may retire at age 62, instead of 65, with no reduction in benefits. At December 31, 2006, Mr. Seglem had 26 years of service and was eligible to retire with full benefits at age 62. None of the othernamed executives covered under this plan are eligible to retire.retire as of December 31, 2008; and
 
 • The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 662/3% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
• Mr. Seglem is also eligible to benefit under the SERP. This plan has the same plan provisions discussed above, with the exception of the pay considered for the calculation of the benefit formula. Bonuses are included in the definition of compensation. Additionally, the limitations on pay allowed to be considered in qualified pension plans are disregarded.
 
Mr. O’Laughlin is also covered under plan provisions for two subsidiaries where he has worked. Aspects of each subsidiary’s plan provisions may be less attractive, and other aspects of a subsidiary’s plan provisions may be more attractive, than the Western Energy Companyplan provisions applicable to us. Based on Mr. O’Laughlin’s service and salary, the Beulah and Savage Salaried Employee’s (“BSS”) benefits are the most valuable as of December 31, 2008. Because the BSS benefit is currently the most valuable, we have shown benefits for Mr. O’Laughlin based on this formula. The provisions in the Pension Planof this plan are as follows:
 
 • The benefit value equals a cash balance account increasing with 6% interest annually and credited annually with pay credits1.2% of 3% to 12%average earnings plus 0.4% of pay based on age plus service, plus 1.5% to 6.0% of payaverage earnings in excess of 50%the integration level, times pension service with a maximum of 35 years. The integration level is equal to 35% of the Social Security Wage Base, again based on age plus service.taxable wage base in effect for the plan year of termination;


5226

 
 • The account balanceNormal retirement age is converted to65. Early retirement benefits are available at age 55 with 5 years of service. Benefits are reduced 3% per year for early commencement before age 62. Participants with 30 or more years of vesting service who terminate and retire on or after attaining age 60 are eligible for an annuity based on actuarial equivalent conversion factors based on age.immediate pension without reduction for early commencement; and
 
 • Early retirement benefitsThe executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are available at age 50 with 5 years of service. Benefits are reduced actuarially for early commencement before age 65, based on the conversion factors discussed above. Mr. O’Laughlin is eligible for early retirement.50%, 662/3%, 75% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
 
Mr. O’Laughlin may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms availableAlessi, and those who are a 50% joint and survivor option and a single life annuity.
Our new employees hired on or after July 1, 2006 and who are not subject to collective bargaining and who work 1,000 or more hours per year, are covered under a new benefit plan. There are two components to the new benefit plan design, the first being a defined benefit plan to which employees make no contributions. EligibleAs eligible employees become fully vested after five years of service, or in any event, upon attaining age 65. The second componentMr. Alessi is a defined contribution plan, or 401(k) Plan, in which employees may elect to have a pre-tax deduction from their pay deposited in a 401(k) Plan account. Employees’ contributions are matched by the Company at 50% of the first 6% of compensation the employee contributes. The matching contribution is made in Westmoreland Common Stock and employees become vested in the matching contribution over a two year period. This benefit also providesnot currently eligible for a monthly Special Contribution paid by the Company in Westmoreland Common Stock to employees’ 401(k) plan account equal to 1.5% of their gross pay. Employees are immediately 100% vested in the Special Contribution. The Special Contribution will be made without regard to any contributions the employees make to the Plan. If an employee has not elected to make contributions under the Plan, the Company will create an Account for the employee into which the Special Contribution will be made. None of the named executive officers are participants in the new benefit plan.participation.
 
Supplemental Executive Retirement Plan
The Internal Revenue Code limits the amount of compensation that may be taken into account for the purpose of determining the retirement benefit payable under retirement plans, such as the Plan, that are qualified under ERISA. The limitation for 2006 is $220,000. So that we may provide retirement income to certain of our senior executives and other key individuals that is commensurate as a percentage of pre-retirement income with that paid to other company employees, we established a nonqualified Supplemental Executive Retirement Plan, or the SERP, effective January 1, 1992. Mr. Seglem, who served as our President and Chief Executive Officer through May 1, 2007, is covered by the SERP.
To become vested in the SERP, a participant must attain age 55 and generally complete 10 years of service. Bonus payments are included in a participant’s compensation under the SERP, although excluded under the Plan. Benefits are payable out of our general assets, and shall commence and be payable at the same time and in the same form as benefits under the Plan.


53

2008 Pension Benefits Upon Retirement/Termination Disability or Death
 
Mr. Christopher K. SeglemO’Laughlin and Mr. O’LaughlinMyers are each vested in the pension plan and are entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The following table shows benefitsBenefits shown for Mr. SeglemO’Laughlin and Mr. O’Laughlin assumingMyers assume that the event entitling them to benefits occurred on December 31, 2006:2008. The benefits for Mr. Myers are first payable on March 1, 2029. The benefits for Mr. O’Laughlin are first payable on January 1, 2009.
 
2006 PENSION BENEFITS UPON RETIREMENT/TERMINATION, DISABILITY OR DEATH
                              
         Time or Period of
          Time or Period of
Name
 Type of Termination Plan Benefit Amount Form of Payment Payment  
Type of Termination
 
Plan
 
Benefit Amount
 
Form of Payment
 
Payment
Christopher K. Seglem Retirement/Termination Pension Plan $2,579   Monthly Annuity   Life 
   SERP $15,997   Monthly Annuity   Life 
 Disability Pension Plan $2,964   Monthly Annuity   Life 
   SERP $18,388   Monthly Annuity   Life 
 Death Pension Plan $2,066   Monthly Annuity   Life of Spouse 
   SERP $12,814   Monthly Annuity   Life of Spouse 
John V. O’Laughlin Retirement/Termination Pension Plan $592   Monthly Annuity   Life  Retirement/Termination Pension Plan $1,677   Monthly Annuity  Life
 Disability Pension Plan $592   Monthly Annuity   Life  Disability Pension Plan $1,677   Monthly Annuity  Life
 Death Pension Plan $283   Monthly Annuity   Life of Spouse  Death Pension Plan $771   Monthly Annuity  Life of Spouse
Todd A. Myers Retirement/Termination Pension Plan $2,191   Monthly Annuity  Life
 Disability Pension Plan $2,191   Monthly Annuity  Life
 Death Pension Plan $1,757   Monthly Annuity  Life of Spouse
 
Retiree Medical Benefits
 
Each of Messrs. Blair, WiegleyPaprzycki, O’Laughlin, Myers and HolzwarthKegley are covered under our broad-based retiree medical plan that provides for continued medical coverage upon retirement at age 62 and with twenty years of service, or age 65 with five years of service. At December 31, 2006, Mr. Seglem was also covered by this broad-based retiree medical plan; following the termination of his employment in May 2007, his medical benefits are provided pursuantservice for those hired prior to the Executive Policy described below. Mr. O’Laughlin’s retiree medical benefits are different than those for our other named executive officers as he is a participant in the retiree medical plan associated with Western Energy Company. Mr. O’Laughlin would be eligible for benefits at age 50 with fiveJune 1, 2003 or 10 years of service. Both of these plans areservice for those hired on or after June 1, 2003. This plan is closed to individuals hired after July 1, 2006. The Company adopted an alternative, less costly retiree medical plan for new employees hired after July 1, 2006. Mr. Alessi is covered under this plan but is not yet vested.
 
2008 Nonqualified Deferred Compensation
 
The following table presents information regarding deferred compensation during 2006 for our named executive officers:
2006 NONQUALIFIED DEFERRED COMPENSATION
                     
  Executive
  Registrant
     Aggregate
    
  Contributions
  Contributions in Last
  Aggregate Earnings
  Withdrawals/
  Aggregate Balance at
 
  in Last Fiscal Year
  Fiscal Year(1)
  in Last Fiscal Year(2)
  Distributions
  Last Fiscal Year-End
 
Name
 ($)  ($)  ($)  ($)  ($) 
 
Christopher K. Seglem(3)  0   346,620   95,959   735,796(4)  852,175(5)
David J. Blair  0   68,581   0   0   0 
Roger D. Wiegley  0   137,051   0   0   0 
Robert W. Holzwarth  0   100,963   0   0   0 
John V. O’Laughlin(6)  0   92,531   4,025   16,902(7)  34,787(8))
                     
  Executive
  Registrant
     Aggregate
    
  Contributions
  Contributions in Last
  Aggregate Earnings
  Withdrawals/
  Aggregate Balance at
 
  in Last Fiscal Year
  Fiscal Year
  in Last Fiscal Year(1)
  Distributions
  Last Fiscal Year-End
 
Name
 ($)  ($)  ($)  ($)  ($) 
 
John V. O’Laughlin(2)  0   0   291   19,316(3)  0 
Todd A. Myers(2)  0   0   572   27,787(4)  0 
 
 
(1)Amounts reported in this column represent annual bonus amounts for 2005 performance that would generally have been paid in 2006, but were deferred by the Compensation and Benefits Committee and paid in first quarter 2007. These amounts were reported as “bonus” in the Summary Compensation Table for 2005, except for Mr. Blair who was not included among the top five most highly compensated officers in 2005.


54

(2)Aggregate Earnings represents interest earned on all deferred compensation during 2006.2008. The portion included in this total that is considered at an “above-market” rate is also reported in the 20062008 Summary Compensation table above.
 
(3)We deferred payments related to the 2000 award of performance units which vested in 2003 and payments related to the 2001 award of performance units which vested in 2004, the value of which was reported in the Summary Compensation Table for 2003 and 2004, respectively.
(4)Includes interest of $130,389.
(5)Includes $146,207 in accrued interest.
(6)(2)We deferred payments related to the 2001 award of performance units which vested in 2004.
 
(7)(3)Includes interest of $2,465.$4,878.
 
(8)(4)Includes $5,912 in accrued interest.interest of $7,018.
Deferred Compensation Plan
We previously had a Deferred Compensation Plan but terminated that plan following a change in applicable regulations. No named executive officer deferred any compensation in 2006 under that plan.
Performance Unit Plan Deferral Provision
 
Under the 2000 PUP, the Compensation and Benefits Committee has the discretion and authority to defer payment of vested performance units in a lump sum or in installments over any period of time not to exceed


27

ten years. Participants in the 2000 PUP may not voluntarily defer any payments under this plan.
In 2000, Mr. Seglem was awarded performance units under the 2000 PUP. Each performance unit entitled the recipient to receive a payment in cash or stock, at the election of the Compensation and Benefits Committee, equal to an amount based on the increase in our common stock over a three year period. Upon vesting in 2003, and as permitted by the 2000 PUP,2004, the Compensation and Benefits Committee elected to pay approximatelyone-fifth of the 2000 awards through a combination of cash and common stock and defer payment of the balance in cash over a period of up to four years.
In 2001, Messrs. Seglem and O’Laughlin were awarded performance units under the 2000 PUP. Each performance unit entitled the recipient to receive a payment in cash or common stock, at the electionportion of the Compensationpayments earned from awards made in 2001. Awards earned by Mr. O’Laughlin and Benefits Committee, equal to an amount based upon the total stockholder return percentage on our common stock over a three year period. In 2004,Mr. Myers were deferred and as permitted by the 2000 PUP, the Compensation and Benefits Committee elected to pay in cash approximatelyone-fifth of the 2001 awards and defer payment of the balance over a period of up to four years.
Interestinterest paid at the rate of Primeprime plus 1% is paid on. Final payment of all long-term compensationdeferred amounts, deferred by the Compensation and Benefits Committee.
In addition, the Annual Incentive Plan payments for performance during 2005 that would normally be paidplus interest, was made in 2006 were deferred without interest by the Compensation and Benefits Committee. They were paid in full in the first quarter of 2007.March 2008.
 
Severance BenefitsPotential Payments Upon Termination orChange-in-Control
 
At December 31, 2006, weOur named executive officers are not entitled to any additional payments or benefits relating to termination of employment other than the retirement benefits previously described in the preceding compensation tables and participation in a severance policy that is generally available to all our subsidiaries hademployees. Our executives are “at-will” employees. They do not have employment contracts or any benefits triggered by a change in control.
During 2008, Messrs. Paprzycki, O’Laughlin, Myers and Kegley were covered by our employee severance policies, including our Executive Severance Policy, dated December 8, 1993, whichpolicy. Mr. Alessi is the same as thenot covered under any severance policy. The severance policy, established in 1990 and filed with the Securities and Exchange Commission as an Exhibit to ourForm S-1 on July 28, 2004. We refer to this policy, which covers Mr. Seglem, as the Executive Policy. We also had a Severance Policy dated July 26, 2004, which we refer to as the Employee Policy, which covered all other non-union employees who had six months of service, including Messrs. Blair, Wiegley, Holzwarth and O’Laughlin. Oneffective May 21, 2007, we adopted a revisedas amended December 31, 2008, covers virtually all our employees, although the amount of the severance policy that applies to all active full-time employees other than our interim President and interim Chief Executive Officer.


55

Executive Policy
benefit depends upon which of the six employee categories an employee is in. The Executive Policyhighest category, which includes senior officers, provides for severance paymentscompensation equal to 12 months of monthly base pay, 12 months of outplacement assistance and 12 months of health benefit continuation. Severance benefits if a termination occurs for any ofare payable under the policy only in the following reasons:
• Unacceptable job performance other than that resulting from gross or willful misconduct, which is defined as an act or acts constituting larceny, fraud, gross negligence, crime or crimes, moral turpitude in the course of employment, or willful and material misrepresentation to our directors or officers,
• A significant reduction or increase, without adequate compensation, in the nature or scope of the executive’s authority or duties,
• A reduction in base compensation, the aggregate value of employee benefits or cessation of eligibility for incentive bonus payments, or
• A change in control of our company.
Three typescircumstances: involuntary termination that is not for cause, termination due to sale of events qualify as changes in control:  (1) the acquisition by any persona facility, division or business segment, or relocation of 20% or more of the combined voting power of our stock, or the acquisition by a person who already owns 20% or more of the combined voting power of our stock of an additional 5% or more of the combined voting power, unless the Board determinesthan 50 miles that the acquisition was not hostile or adverse, (2) a change in the composition of the Board over two years, so that the directors at the start of that period cease to be a majority of the Board, unless the new directors are nominated by the incumbent directors, and (3) a business combination transaction in which we are not the surviving entity, or the sale of all or substantially all of our assets, or the adoption of a plan of liquidation or dissolution.employee declines.
 
TheMr. Blair began receiving severance and benefits payableunder the revised policy in the event of termination include (1) a cash payment, payable over a twenty-four month period, equal2008. These benefits are estimated to twice the greater of the executive’s annual average cash compensation, defined as the greater of the annualized base salary at the time of severance plus the amount of bonus awarded (including amounts deferred) in that year or the annual average of the executive officer’s most recent five calendar years of base salary and bonus awarded (including amounts deferred), including the year of termination, (2) medical, dental and life insurance coverage for two years, (3) treatment of incentive stock options and SARs in accordance with the provisions of the appropriate incentive plan, (4) financial planning for the year of termination and the following year, (5) outplacement services for up to two years from the termination date, and (6) payment for unused vacation. We are also required to pay any costs and expenses the executive incurs in enforcing this policy. These amounts are subject to reduction in certain circumstances, including if, following a business combination transaction, the executive takes a position with the surviving company.total $331,000.
 
If an involuntary termination not for cause, or a termination underdue to sale of a facility, division or business segment, or relocation of more than 50 miles that the Executive Policyemployee declines, had occurred on December 31, 2006,2008, then Messrs. Paprzycki, O’Laughlin, Myers and if none of the events occurred that reduced the amounts payable to Mr. Seglem, such as acceptanceKegley would have received, upon execution of a position with a surviving or continuing corporation, then he would have been entitled to receive a cash paymentrelease and settlement agreement, severance payments of $200,000, $207,946, $218,970 and $200,362, respectively, in the range of $1,766,800 to $3,238,392, payable overtwenty-four months. The amount within that range dependsequal installments on the interpretation applied tonormal payroll schedule and net of required withholdings. We estimate that the Executive Policy and assumes there was no change of control. In addition, Mr. Seglem would also have been entitled to receive perquisites and other personal benefits with a total cost to the Company of $66,426, of which $32,974 is the premium cost to us of providing 12 months of medical, vision and dental benefits to Messrs. Paprzycki, O’Laughlin, Myers and life insurance coverage for two years atKegley and the level specified by the Executive Policy, assuming that rates in effectvalue of their unused vacation at December 31, 2006 remained in effect over the two year period, $19,000 is the approximate cost2008 to us of providing the financial planningbe $37,449, $38,549, 33,917 and outplacement services over the period required by the Executive Policy, and $18,581 is the value of Mr. Seglem’s unused vacation. The actual cost of providing post-termination medical coverage to Mr. Seglem could be higher than the premium cost because the actual medical expenses covered by the Company under its self-insurance program could exceed its premium cost.$48,148, respectively.
 
InIf the alternative, Mr. Seglem could have elected to receive the present valueemployment of his total severance discounted at thetwo-year Treasury bill rate, including the present value of the executive benefits listed above, in a lump sum cash distribution at the time of termination.


56

If Mr. Seglem’s employmentMessrs. Paprzycki, O’Laughlin, Myers and Kegley had been terminated on December 31, 2006, he would also have been entitled to full payout of the 2006 Annual Incentive Plan bonus earned for performance during 2006 in the amount of $225,296, with payment occurring at a time consistent with the payments to other participants in the Annual Incentive Plan. In the event that a change in control occurred that was not hostile or adverse, Mr. Seglem would have been entitled to receive an amount equal to a 100% award under the bonus plan.
If Mr. Seglem’s employment had been terminated on December 31, 2006, he2008, they would have retained all SARs that had then vested which consisted of 63,300 issued in 2004(for Mr. Paprzycki, 2,932, for Mr. O’Laughlin, 31,000, for Mr. Myers, 33,766 and 82,100 issued in 2005. Infor Mr. Kegley, 1,266) but would have forfeited all the event ofSARs that had not yet vested unless the termination had occurred within twelve monthsone year following a change in control Mr. Seglem’s 52,700in which unvested SARs issued in 2006 (for Mr. Paprzycki, 1,468, for Mr. O’Laughlin, 3,300, for Mr. Myers, 2,634 and for Mr. Kegley, 634) would become fully vested, but would represent no additional value because the closing price of our common stock on December 31, 2006 was less than the exercise price of those SARs. For the purposes of this event, “termination” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his level of responsibility which, in either such case, causes the employee to voluntarily terminate his employment.
In addition, if Mr. Seglem’s employment had been terminated on December 31, 2006, he would have retained all performance units that had then vested, which consisted of 2,137 issued in 2004 and 2,269 issued in 2005, but would have forfeited all the performance units that had not yet vested. However, the value of those performance units would not be determinable until the completion of the performance periods in 2007 and 2008 respectively, so we would not have been required to make any payment in respect of these units at that time. Mr. Seglem had no unvested stock options at December 31, 2006.
If Mr. Seglem’s employment had terminated on December 31, 2006, he would also have been entitled to receive the pension benefits and deferred compensation described above.
Employee Policy
The Employee Policy provided for severance payments and benefits if an eligible employee is terminated for one of the following reasons:
• Involuntary termination not for cause, where cause is defined as unsatisfactory job performance, or gross or willful misconduct that is injurious to us,
• A reduction in work force, or
• A liquidation of our company.
All full-time, non-union employees with six months of service were eligible to receive severance and benefits under this policy. In order to receive severance and benefits under the policy, the employee must sign an employment release and settlement agreement waiving claims against us.
The severance and benefits payable in the event of termination included (1) for officers at or above the level of vice president or general manager, including Messrs. Blair, Wiegley, Holzwarth and O’Laughlin, a severance payment equal to four weeks of base salary for every year of continuous and completed service, subject to a minimum of eight weeks and a maximum of 52 weeks, in equal installments on the normal payroll schedule and net of any tax, medical or other required withholdings, (2) medical, vision and dental benefits for the balance of the month in which discharge occurred, and the three following months and (3) payment for any unused vacation.
If a termination not for cause had occurred on December 31, 2006, then Messrs. Blair, Wiegley, Holzwarth and O’Laughlin would have received, upon execution of the release and settlement agreement described above, severance payments of $39,423, $39,029, $37,217 and $76,171, respectively, in equal installments on the normal payroll schedule and net of any tax, medical or other required withholdings. We estimate that the cost of providing medical, vision and dental benefits to Mr. Blair and Mr. O’Laughlin from January 1, 2007 through March 31, 2007, and the value of their unused vacation at December 31, 2006, to be $15,229 and $20,001, respectively. We estimate that the cost of providing medical, vision and dental benefits to Messrs. Wiegley and Holzwarth from January 1, 2007 through March 31, 2007, and the value of their unused vacation at December 31, 2006, was less than $10,000 each.


57

If the employment of Messrs. Blair, Wiegley, Holzwarth and O’Laughlin had been terminated on December 31, 2006, they would have retained all SARs that had then vested (for Mr. Blair, 29,900 issued in 2005; for Mr. Wiegley, 27,900 issued in 2005; for Mr. Holzwarth, 13,300 issued in 2004 and 17,900 issued in 2005; and for Mr. O’Laughlin, 9,800 issued in 2004 and 14,600 issued in 2005) but would have forfeited all the SARs that had not yet vested except if termination occurs within one year following a change in control in which case SARs issued in 2006 (for Mr. Blair, 8,100; for Mr. Wiegley, 18,400; for Mr. Holzwarth, 12,100; and for Mr. O’Laughlin, 9,900) would become fully vested, but would represent no additional value because the closing price of our common stock on December 31, 2006 was less than the base price of those SARs. For the purposes of this event, “termination” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his or her level of responsibility which, in either such case, causes the employee to voluntarily terminate his or her employment. In addition, Mr. Holzwarth had 3,334 unvested options which would vest upon a change in control, but at no additional value because the closing price of our common stock on December 31, 2006 was less than the exercise price of those options.
 
In addition, if the employment of Messrs. Blair, Wiegley, HolzwarthPaprzycki, O’Laughlin, Myers and O’LaughlinKegley had been terminated on December 31, 2006,2008, they would have retained all performance units that had then vested (for Mr. Blair, 550Paprzycki, 160 issued in 2005; for Mr. Wiegley, 495 issued in 2005; for Mr. Holzwarth, 448 issued in 2004 and 494 issued in 2005; and2006; for Mr. O’Laughlin, 332850 issued in 2004 and 4042006; for Mr. Myers, 678 issued in 2005)2006; and Mr. Kegley, 165 issued in 2006), but would have forfeited all the performance units that had not yet vested. However, the value of thosethe vested performance units would not then have been determinable, so we would not have been required to make any payment in respect of these units at that time. If a change in control had occurred on December 31, 2006,2008, and if our existence had ended, then vested performance units held by Messrs. Blair, Wiegley, Holzwarth and O’Laughlin would have terminated without value. However, if our existence had continued following the change in control, then vested performance units held by Messrs. Blair, Holzwarth, O’Laughlin and Wiegley would also have continued in existence, without acceleration of vesting, and would have been valued in the course of our business.
If the employment of Messrs. Blair, Holzwarth, O’Laughlin and Wiegley had terminated on December 31, 2006, they would also have received the pension benefits and deferred compensation described above.
Revised Severance Policy
We adopted a revised severance policy on May 21, 2007. This policy covers virtually all our employees, although the amount of the severance benefit depends upon which of the six employee categories an employee is in. The highest category, which includes twelve senior officers, provides for severance compensation equal to 12 months of monthly base pay, 12 months of outplacement assistance and 12 months of health benefit continuation. The lowest category includes non-exempt and hourly employees and provides for severance compensation equal to one week’s base pay per year of service, but not less than two weeks and not more than 26 weeks base pay. Severance benefits are payable under the policy only in the following circumstances: involuntary termination that is not for cause; termination due to sale of a facility, division or business segment; or relocation of more than 50 miles that the employee declines. Severance benefits are not payable if the employee receives an offer of similar employment within 30 days from an affiliate of the Company, or if the employee is terminated due to outsourcing, from a company to which the relevant work is outsourced.


5828

DIRECTOR COMPENSATION AND BENEFITS COMMITTEE REPORT
The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Richard M. Klingaman, Chairman
Thomas J. Coffey
Michael R. D’Appolonia


21

EXECUTIVE COMPENSATION
Summary Compensation Table
 
The following table summarizes the compensation paid to each individual who served as our principal executive officer or principal financial officer in 20062008 and our three most highly compensated executive officers (other than our principal executive and financial officers) who were serving as executive officers at December 31, 2008. We refer to the membersthese seven individuals collectively as our named executive officers. The determination of our Boardmost highly compensated executive officers is based on total compensation for 2008 as calculated in the “Summary Compensation” table (excluding the change in the actuarial value of Directors:pension and defined benefit plan benefits and above-market or preferential earnings on deferred compensation) shown below.
 
                             
              Change
       
              in Pension
       
              Value and
       
              Nonqualified
       
           Non-Equity
  Deferred
       
  Fees Earned or
  Stock
  Option
  Incentive Plan
  Compensation
  All Other
    
  Paid in Cash
  Awards
  Awards(2)
  Compensation
  Earnings
  Compensation
  Total
 
Name(1)
 ($)  ($)  ($)  ($)  ($)  ($)  ($) 
 
Michael Armstrong  46,000   —   3,444(3)  —   —   —   49,444 
Thomas J. Coffey  52,875   —   3,444(4)  —   —   —   56,319 
Robert E. Killen  53,175   —   3,444(5)  —   —   —   56,619 
Richard M. Klingaman  39,000   —   14,793(6)  —   —   —   53,793 
Thomas W. Ostrander  44,000   —   3,444(7)  —   —   —   47,444 
James W. Sight  29,500   —   3,444(8)  —   —   —   32,944 
William M. Stern  44,000   —   3,444(9)  —   —   —   47,444 
Donald A. Tortorice  48,800   —   4,882(10)  —   —   —   53,682 
                                     
                 Change in
          
                 Pension
          
                 Value and
          
                 Nonqualified
          
                 Deferred
          
           Stock
  Option
  Compensation
  All Other
       
Name and Principal
    Salary
  Bonus
  Awards(1)
  Awards(1)
  Earnings(2)
  Compensation(3)
  Total
    
Position
 Year  ($)  ($)  ($)  ($)  ($)  ($)  ($)    
 
Keith E. Alessi  2008   403,846   242,308   —   231,261   3,775   12,222   893,412     
Executive Chairman, CEO and President  2007   351,692   422,031   —   301,073   —   21,157   1,095,953     
Kevin A. Paprzycki  2008   189,450   34,101   —   28,302   8,741   7,088   267,682     
CFO                                    
John V. O’Laughlin  2008   211,374   45,657   —   77,583   52,408   6,971   393,993     
Vice President, Coal Operations  2007   200,665   89,336   —   47,993   32,235   9,758   367,064     
   2006   192,860   81,657   —   29,756   30,096   8,445   342,814     
Todd A. Myers  2008   218,568   78,685       52,106   29,014   7,582   385,955     
Vice President, Coal Sales  2007   208,542   37,538   —   38,297   14,552   8,066   306,995     
Morris W. Kegley  2008   200,156   36,028   —   23,019   30,301   7,411   296,915     
General Counsel  2007   175,154   39,410   —   9,211   21,494   9,421   254,690     
Delbert L. Lobb(4)  2008   326,923   200,000   351,111   49,316   —   59,657   987,007     
Former President and CEO                                    
David J. Blair(5)  2008   72,982   —   —   (26,178)  —   333,630   380,434     
Former CFO  2007   256,250   51,891   —   39,267   21,278   9,434   378,120     
   2006   253,004   110,551   —   19,742   17,115   7,508   407,920     
(1)The amounts in this column reflect the amount expensed by us in each year indicated for financial reporting purposes pursuant to FAS 123R. The assumptions used in calculating these amounts are discussed in note 13 to our financial statements for the year ended December 31, 2008, which accompany this proxy statement. Unlike the amount reflected in our financial statements, these amounts do not reflect any estimate of forfeitures related to service-based vesting. Instead, these amounts, except for Mr. Blair, assume that each executive will perform the requisite service to vest in his award.
(2)2008 figures include “above-market” interest on deferred compensation for Messrs. O’Laughlin and Myers of $145 and $286. Also includes change in pension value for Messrs. Alessi, Paprzycki, O’Laughlin, Myers, and Kegley of $3,775, $8,741, $52,263, $28,728, and $30,301, respectively. Pension economic assumptions utilized for our SFAS 87 financial reporting for fiscal years ended in 2005, 2006, 2007 and 2008 were used for calculations at the end of those years respectively. A discount rate of 5.7% was used for 2005, 5.95% for 2006, 6.3% for 2007, and 6.1% for 2008.
(3)“All Other Compensation” for 2008 includes reimbursements and payments, as applicable, for our contributions to the 401(k) Plan, and life insurance premiums. We contributed $6,900, $5,684, $5,998, $6,557, $6,005, $3,227 and $2,158 in matching contributions to the 401(k) Plan on behalf of Messrs. Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, respectively. We paid life insurance premiums of $1,872, $1,404, $973, $1,025, $1,407, $1,248 and $472 for Messrs. Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, respectively. For Messrs. Alessi and Lobb, the amount shown also includes $3,450 of a special contribution to the 401(k) Plan. For Mr. Lobb, the amount includes $51,732 for relocation and temporary living expenses. For Mr. Blair, the amount shown includes severance benefits and vacation pay of $331,000.


22

(4)Mr. Lobb resigned as President and CEO effective January 27, 2009. He was paid a bonus of $200,000 at the end of 2008 under the terms of his offer of employment. Mr. Lobb forfeited all of his stock and option awards at the time of his resignation. He was not vested in the pension plan.
(5)Mr. Blair served as CFO through March 31, 2008. He was not vested in the pension plan.
2008 GRANTS OF PLAN-BASED AWARDS
                         
        All Other
  All Other
       
        Stock
  Option
       
        Awards:
  Awards:
     Grant Date
 
        Number of
  Number of
  Exercise or
  Fair Value
 
        Shares of
  Securities
  Base Price
  of Stock
 
        Stock or
  Underlying
  of Option
  and Options
 
  Grant
  Approval
  Units
  Options (1)
  Awards
  Awards(2)
 
Name
 Date  Date  (#)  (#)  ($/Sh)  ($) 
 
Keith E. Alessi  7/1/08   6/25/08   —   60,000   21.40   118,359 
Kevin A. Paprzycki  7/1/08   6/25/08   —   7,000   21.40   13,808 
John V. O’Laughlin  7/1/08   6/25/08   —   15,000   21.40   29,590 
Todd A. Myers  7/1/08   6/25/08   —   7,000   21.40   13,808 
Morris W. Kegley  7/1/08   6/25/08   —   7,000   21.40   13,808 
Delbert L. Lobb(3)  7/1/08   6/25/08   —   25,000   21.40   49,316 
   4/28/08   4/21/08   100,000(4)  —   —   351,111 
 
 
(1)Christopher K. Seglem served as our President and Chief Executive Officer until May 2007 and was a member of our Board of Directors until he resignedOptions vest annually in May 2007. Employees, including Mr. Seglem, do not receive additional compensation for serving on the Board. Mr. Seglem’s compensation for 2006 is described above, under “Executive Compensation.”one-third increments.
 
(2)The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes of the stock appreciation rights granted to the directors in 2006. TheRepresents a grant date fair value of these$11.84 per option for all named executives and $15.80 per share of restricted stock granted to Mr. Lobb.
(3)Mr. Lobb forfeited all awards computedmade in accordance with FAS 123R, was, for Mr. Klingaman, $14.13 per SAR, or $52,763, and for each of Messrs. Armstrong, Coffey, Killen, Ostrander, Sight, Stern, and Tortorice, $14.94 per SAR, or $26,324.2008 upon his resignation.
(4)Restricted stock vests annually in one-third increments.


23

2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table shows outstanding restricted stock, options and SARs as of December 31, 2008 for our named executive officers. Included in the table are initial grants of incentive options, restricted stock or SARs made in connection with the hiring of Messrs. Alessi, Lobb, Paprzycki and O’Laughlin in 2007, 2008, 2006 and 2001 respectively, and annual long-term incentive awards. Approval of Mr. Lobb’s option award was made on April 21, 2008 for the award effective April 28, 2008.
                         
  Option Awards  Stock Awards 
                 Market
 
                 Value of
 
                 Shares or
 
  Number of
  Number of
        Number of
  Units of
 
  Securities
  Securities
        Shares or
  Stock That
 
  Underlying
  Underlying
        Units of
  Have Not
 
  Unexercised
  Unexercised
  Option
     Stock That
  Vested
 
  Options
  Options
  Exercise
  Option
  Have Not
  As of
 
  (#)
  (#)
  Price
  Expiration
  Vested
  12/31/08
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)  ($) 
 
Keith E. Alessi  —   60,000(1)  21.40   6/30/18   —   — 
   30,556(2)  —   23.93   5/01/17   —   — 
Kevin A. Paprzycki  —   7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
   1,666(4)  834(4)  29.48   6/4/16   —   — 
John V. O’Laughlin  20,000(5)  —   12.04   3/04/11   —   — 
   4,700(6)  —   12.86   6/23/12   —   — 
   3,650(7)  —   17.80   12/30/13   —   — 
   3,650(8)  —   18.08   6/29/13   —   — 
   491(9)  —   18.09   5/28/11   —   — 
   1,809(9)  —   18.19   5/28/11   —   — 
   9,800(10)  —   19.37   6/30/14   —   — 
   14,600(11)  —   20.98   6/30/15   —   — 
       15,000(1)  21.40   6/30/18   —   — 
   6,600(3)  3,300(3)  24.41   6/30/16   —   — 
Todd A. Myers  6,700(6)  —   12.86   6/23/12   —   — 
   6,700(7)  —   17.80   12/30/13   —   — 
   6,700(8)  —   18.08   6/29/13   —   — 
   683(9)  —   18.09   5/28/11   —   — 
   2,517(9)  —   18.19   5/28/11   —   — 
   12,300(10)  —   19.37   6/30/14   —   — 
   16,200(11)  —   20.98   6/30/15   —   — 
       7,000(1)  21.40   6/30/18   —   — 
   5,266(3)  2,634(3)  24.41   6/30/16   —   — 
Morris W. Kegley      7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
Delbert L. Lobb  —   —   —   —   100,000(12)  1,110,000 
   —   25,000(1)  21.40   6/30/18   —   — 
 
(3)(1)Vests in three annual increments beginning 7/1/09.
(2)Mr. Armstrong had no stockAlessi voluntarily forfeited 66,667 unvested options out of 100,000 options granted in 2007. The remaining 30,556 options vested between June 2007 and 1,762 SARS outstanding at December 31, 2006. Mr. Armstrong resigned fromApril 2008.
(3)SARs vest in three equal annual installments, with the Boardfirst increment vesting on 7/1/07.
(4)SARs vest in July 2007.three annual increments with the first increment vesting on 6/5/07.


24

 
(4)Mr. Coffey had 15,000 stock options and 1,762 SARs outstanding at December 31, 2006.
(5)Mr. Killen had 7,500 stock options and 1,762 SARs outstanding at December 31, 2006.Vested in two annual increments beginning 3/5/02.
 
(6)Mr. Klingaman had no stock options and 3,733 SARs outstanding at December 31, 2006.Vested in two annual increments beginning 6/24/03.
 
(7)Vested in three annual increments beginning 12/31/04.
(8)Vested in three annual increments beginning 6/30/04.
(9)Vested in two annual increments beginning 5/29/02.
(10)SARs; one third vested on 7/1/05 and the balance vested 12/30/05.
(11)SARs vested 12/30/05.
(12)Mr. Ostrander had 66,000 stock options and 1,762 SARsLobb forfeited all outstanding equity awards at December 31, 2006.the time of his resignation.
Option Exercises and Stock Vested
There were no option or SAR exercises or vesting of stock awards during 2008 for our named executive officers.


25

2008 Pension Benefits
               
       Present Value
    
       of Accumulated
    
       Benefit as of
    
    Number of Years
  December 31,
  Payments During Last
 
    Credited Service
  2008(2)
  Fiscal Year
 
Name(1)
 
Plan Name
 (#)  ($)  ($) 
 
Keith E. Alessi Westmoreland  .58   3,775   — 
  Retirement Plan (WCC)            
Kevin A. Paprzycki Westmoreland  2.58   17,642   — 
  Retirement Plan (WCC)            
John V. O’Laughlin Westmoreland  8.0   205,861   — 
  Retirement Plan (BSS)            
Todd A. Myers Westmoreland  9.08   109,330   — 
  Retirement Plan (WCC)            
Morris W. Kegley Westmoreland  3.25   72,993   — 
  Retirement Plan (WCC)            
 
(8)(1)Mr. Sight had no stock optionsLobb and 1,762 SARS outstandingMr. Blair are not included in the table. Neither were vested in the pension plan at December 31, 2006. Mr. Sight resigned from the Board in November 2006.time they ceased employment.
(2)Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2008. Demographic assumptions are also consistent with our pension financial reporting, with the exception that per SEC guidance, pre-retirement decrements are not used. A discount rate of 6.1% was used for 2008.
Each of the named executive officers, except Mr. Alessi, participates in the same defined benefit pension plans offered to other non-union employees. All employees whose terms and conditions of employment are not subject to collective bargaining and who work 1,000 or more hours per year are eligible for participation in the pension plans. Eligible employees become fully vested after five years of service, or, in any event, upon attaining age 65. The pension plan was adopted effective December 1, 1997 and provides for the payment of annual retirement benefits to eligible employees and also provides for disability benefits and for reduced benefits upon retirement prior to the normal retirement age of 65. The pension plan provides the following benefits:
 
(9)• Mr. Stern had 10,000 stock options and 1,762 SARs outstanding1.2% of average earnings plus 0.5% of average earnings in excess of covered compensation times years of service up to 30 years. Covered compensation is a 35 year average of Social Security wage bases at December 31, 2006.Social Security retirement age;
 
(10)• Mr. Tortorice had 7,500 stock options and 1,762 SARs outstandingNormal retirement age is 65. Early retirement benefits are available at age 55 with 10 years of service. Benefits are reduced actuarially for early commencement before age 65. Participants with 20 or more years of service may retire at age 62, instead of 65, with no reduction in benefits. None of the named executives covered under this plan are eligible to retire as of December 31, 2006.2008; and
• The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 662/3% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
 
We compensateMr. O’Laughlin is also covered under plan provisions for two subsidiaries where he has worked. Aspects of each subsidiary’s plan provisions may be less attractive, and other aspects of a subsidiary’s plan provisions may be more attractive, than the membersplan provisions applicable to us. Based on Mr. O’Laughlin’s service and salary, the Beulah and Savage Salaried Employee’s (“BSS”) benefits are the most valuable as of our BoardDecember 31, 2008. Because the BSS benefit is currently the most valuable, we have shown benefits for Mr. O’Laughlin based on this formula. The provisions of Directorsthis plan are as follows:
• 1.2% of average earnings plus 0.4% of average earnings in excess of the integration level, times pension service with a maximum of 35 years. The integration level is equal to 35% of the Social Security taxable wage base in effect for the plan year of termination;


26

• Normal retirement age is 65. Early retirement benefits are available at age 55 with 5 years of service. Benefits are reduced 3% per year for early commencement before age 62. Participants with 30 or more years of vesting service who terminate and retire on or after attaining age 60 are eligible for an immediate pension without reduction for early commencement; and
• The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 662/3%, 75% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
Mr. Alessi, and those who are hired on or after July 1, 2006 and who are not oursubject to collective bargaining and who work 1,000 or more hours per year, are covered under a new benefit plan. As eligible employees whom we refer to as our non-employee directors, by paying them an annual retainer and a feebecome fully vested after five years of service, Mr. Alessi is not currently eligible for each meeting of the Board or committee that they attend and by granting equity in the form of stock options, SARs or restricted shares of common stock based on the 2000 Director Plan. These cash payments and equity grants are the sole compensation the non-employee directors receive from us, and we do not grant loans or credits.participation.
 
Annual Retainer and Meeting Fees2008 Pension Benefits Upon Retirement/Termination Disability or Death
 
In 2006,Mr. O’Laughlin and Mr. Myers are each non-employee director receivedvested in the pension plan and are entitled to an annual retainer of $30,000 paid in quarterly installments. Each non-employee director also received $1,000 per meeting attendedlifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the Boardspouse). Benefits shown for Mr. O’Laughlin and Mr. Myers assume that the event entitling them to benefits occurred on December 31, 2008. The benefits for Mr. Myers are first payable on March 1, 2029. The benefits for Mr. O’Laughlin are first payable on January 1, 2009.
               
            Time or Period of
Name
 
Type of Termination
 
Plan
 
Benefit Amount
  
Form of Payment
  
Payment
 
John V. O’Laughlin Retirement/Termination Pension Plan $1,677   Monthly Annuity  Life
  Disability Pension Plan $1,677   Monthly Annuity  Life
  Death Pension Plan $771   Monthly Annuity  Life of Spouse
Todd A. Myers Retirement/Termination Pension Plan $2,191   Monthly Annuity  Life
  Disability Pension Plan $2,191   Monthly Annuity  Life
  Death Pension Plan $1,757   Monthly Annuity  Life of Spouse
Retiree Medical Benefits
Each of each committeeMessrs. Paprzycki, O’Laughlin, Myers and Kegley are covered under our broad-based retiree medical plan that provides for continued medical coverage upon retirement at age 62 and with twenty years of which he was a member. In addition,service, or age 65 with five years of service for those hired prior to June 1, 2003 or 10 years of service for those hired on or after June 1, 2003. This plan is closed to individuals hired after July 1, 2006. The Company adopted an alternative, less costly retiree medical plan for new employees hired after July 1, 2006. Mr. Alessi is covered under this plan but is not yet vested.
2008 Nonqualified Deferred Compensation
                     
  Executive
  Registrant
     Aggregate
    
  Contributions
  Contributions in Last
  Aggregate Earnings
  Withdrawals/
  Aggregate Balance at
 
  in Last Fiscal Year
  Fiscal Year
  in Last Fiscal Year(1)
  Distributions
  Last Fiscal Year-End
 
Name
 ($)  ($)  ($)  ($)  ($) 
 
John V. O’Laughlin(2)  0   0   291   19,316(3)  0 
Todd A. Myers(2)  0   0   572   27,787(4)  0 
(1)Aggregate Earnings represents interest earned on all deferred compensation during 2008. The portion included in this total that is considered at an “above-market” rate is also reported in the 2008 Summary Compensation table above.
(2)We deferred payments related to the 2001 award of performance units which vested in 2004.
(3)Includes interest of $4,878.
(4)Includes interest of $7,018.
Under the Chairman of the Audit Committee received an additional $750 per meeting, the Chairman of2000 PUP, the Compensation and Benefits Committee received anhas the discretion and authority to defer payment of vested performance units in a lump sum or in installments over any period of time not to exceed


5927

additional $650 per meetingten years. Participants in the 2000 PUP may not voluntarily defer any payments under this plan. In 2004, the Compensation and all other committee chairmen received an additional $500 per meeting attended and chaired. In December 2006, the Board approvedBenefits Committee elected to defer payment of a separate additional retainer effective May 19, 2006 of $15,000 for the Vice Chairmanportion of the Boardpayments earned from awards made in 2001. Awards earned by Mr. O’Laughlin and $11,000 forMr. Myers were deferred and interest paid at the Chairmanrate of the Audit Committee, also paidprime plus 1%. Final payment of all deferred amounts, plus interest, was made in quarterly installments and prorated in any quarterly period in which the director is not the Chairman for the entire quarterly period. Beginning in 2007, fees for participation in meetings by telephone, rather than in person, were reduced to $500 per meeting, except in the case where the meeting is scheduled as a telephonic meeting.March 2008.
 
Long-Term CompensationPotential Payments Upon Termination orChange-in-Control
 
We have historically delivered long-term compensationOur named executive officers are not entitled to directorsany additional payments or benefits relating to termination of employment other than the retirement benefits previously described in the formpreceding compensation tables and participation in a severance policy that is generally available to all our employees. Our executives are “at-will” employees. They do not have employment contracts or any benefits triggered by a change in control.
During 2008, Messrs. Paprzycki, O’Laughlin, Myers and Kegley were covered by our employee severance policy. Mr. Alessi is not covered under any severance policy. The severance policy, effective May 21, 2007, as amended December 31, 2008, covers virtually all our employees, although the amount of optionsthe severance benefit depends upon which of the six employee categories an employee is in. The highest category, which includes senior officers, provides for severance compensation equal to 12 months of monthly base pay, 12 months of outplacement assistance and 12 months of health benefit continuation. Severance benefits are payable under the policy only in the following circumstances: involuntary termination that is not for cause, termination due to sale of a facility, division or restricted stock. Inbusiness segment, or relocation of more than 50 miles that the employee declines.
Mr. Blair began receiving severance benefits under the revised policy in 2008. These benefits are estimated to total $331,000.
If an involuntary termination not for cause, or a termination due to sale of a facility, division or business segment, or relocation of more than 50 miles that the employee declines, had occurred on December 2005,31, 2008, then Messrs. Paprzycki, O’Laughlin, Myers and Kegley would have received, upon execution of a release and settlement agreement, severance payments of $200,000, $207,946, $218,970 and $200,362, respectively, in equal installments on the Boardnormal payroll schedule and net of Directors approvedrequired withholdings. We estimate that the restatedcost of providing 12 months of medical, vision and amended 2000 Director Plandental benefits to allowMessrs. Paprzycki, O’Laughlin, Myers and Kegley and the usevalue of their unused vacation at December 31, 2008 to be $37,449, $38,549, 33,917 and $48,148, respectively.
If the employment of Messrs. Paprzycki, O’Laughlin, Myers and Kegley had been terminated on December 31, 2008, they would have retained all SARs asthat had then vested (for Mr. Paprzycki, 2,932, for Mr. O’Laughlin, 31,000, for Mr. Myers, 33,766 and for Mr. Kegley, 1,266) but would have forfeited all the SARs that had not yet vested unless the termination had occurred within one year following a formchange in control in which unvested SARs issued in 2006 (for Mr. Paprzycki, 1,468, for Mr. O’Laughlin, 3,300, for Mr. Myers, 2,634 and for Mr. Kegley, 634) would become fully vested, but would represent no additional value because the closing price of awardour common stock on December 31, 2008 was less than the base price of those SARs. For the purposes of this event, “termination” means involuntary dismissal or a material change in order to conserve shares available for grant. Each non-employee director is entitled to receive, as an initial grant uponthe employee’s level of total compensation or a material change in his or her first joininglevel of responsibility which, in either such case, causes the Board, restricted stock, optionsemployee to purchase a number of shares of common stock, or SARs equal to $60,000 in value. Thereafter, each non-employee director is entitled to receive, uponvoluntarily terminate his or her re-election toemployment.
In addition, if the Board, a grantemployment of restricted stock, options or SARs equal to $30,000Messrs. Paprzycki, O’Laughlin, Myers and Kegley had been terminated on December 31, 2008, they would have retained all performance units that had then vested (for Mr. Paprzycki, 160 issued in value. In 2006,2006; for Mr. Klingaman received an initial grant of SARs equal to $60,000O’Laughlin, 850 issued in value and each other non-employee director received a grant of SARs equal to $30,0002006; for Mr. Myers, 678 issued in value. Directors’ fees toemployee-directors were discontinued in 2000,2006; and Mr. Seglem hasKegley, 165 issued in 2006), but would have forfeited all the performance units that had not received directors’ fees in respect of meetings of the Board of Directors or committees thereof that have taken place after March 2000.
With assistance from Mercer, we use Black-Scholes modeling to determine the number of SARs required to equalyet vested. However, the value of the grant madevested performance units would not then have been determinable, so we would not have been required to each director. The base valuemake any payment in respect of these units at that time. If a change in control had occurred on December 31, 2008, and if our existence had ended, then vested performance units would have terminated without value. However, if our existence had continued following the SARs is determined based onchange in control, then vested performance units would also have continued in existence, without acceleration of vesting, and would have been valued in the market price, defined by the 2000 Director Plan as averagecourse of the high and low trading prices of the common stock on the day of grant. The value shown above under the column “Option Awards” reflects the value of the 2006 SAR grants as determined under FAS 123R. Each grant vests over a period of four years and expires ten years from the grant date.our business.


28

COMPENSATION AND BENEFITS COMMITTEE REPORT
 
The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
 
Donald A. Tortorice, Chairman
Richard M. Klingaman, Chairman
Thomas J. Coffey
Michael R. D’Appolonia


21

EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid to each individual who served as our principal executive officer or principal financial officer in 2008 and our three most highly compensated executive officers (other than our principal executive and financial officers) who were serving as executive officers at December 31, 2008. We refer to these seven individuals collectively as our named executive officers. The determination of our most highly compensated executive officers is based on total compensation for 2008 as calculated in the “Summary Compensation” table (excluding the change in the actuarial value of pension and defined benefit plan benefits and above-market or preferential earnings on deferred compensation) shown below.
                                     
                 Change in
          
                 Pension
          
                 Value and
          
                 Nonqualified
          
                 Deferred
          
           Stock
  Option
  Compensation
  All Other
       
Name and Principal
    Salary
  Bonus
  Awards(1)
  Awards(1)
  Earnings(2)
  Compensation(3)
  Total
    
Position
 Year  ($)  ($)  ($)  ($)  ($)  ($)  ($)    
 
Keith E. Alessi  2008   403,846   242,308   —   231,261   3,775   12,222   893,412     
Executive Chairman, CEO and President  2007   351,692   422,031   —   301,073   —   21,157   1,095,953     
Kevin A. Paprzycki  2008   189,450   34,101   —   28,302   8,741   7,088   267,682     
CFO                                    
John V. O’Laughlin  2008   211,374   45,657   —   77,583   52,408   6,971   393,993     
Vice President, Coal Operations  2007   200,665   89,336   —   47,993   32,235   9,758   367,064     
   2006   192,860   81,657   —   29,756   30,096   8,445   342,814     
Todd A. Myers  2008   218,568   78,685       52,106   29,014   7,582   385,955     
Vice President, Coal Sales  2007   208,542   37,538   —   38,297   14,552   8,066   306,995     
Morris W. Kegley  2008   200,156   36,028   —   23,019   30,301   7,411   296,915     
General Counsel  2007   175,154   39,410   —   9,211   21,494   9,421   254,690     
Delbert L. Lobb(4)  2008   326,923   200,000   351,111   49,316   —   59,657   987,007     
Former President and CEO                                    
David J. Blair(5)  2008   72,982   —   —   (26,178)  —   333,630   380,434     
Former CFO  2007   256,250   51,891   —   39,267   21,278   9,434   378,120     
   2006   253,004   110,551   —   19,742   17,115   7,508   407,920     
(1)The amounts in this column reflect the amount expensed by us in each year indicated for financial reporting purposes pursuant to FAS 123R. The assumptions used in calculating these amounts are discussed in note 13 to our financial statements for the year ended December 31, 2008, which accompany this proxy statement. Unlike the amount reflected in our financial statements, these amounts do not reflect any estimate of forfeitures related to service-based vesting. Instead, these amounts, except for Mr. Blair, assume that each executive will perform the requisite service to vest in his award.
(2)2008 figures include “above-market” interest on deferred compensation for Messrs. O’Laughlin and Myers of $145 and $286. Also includes change in pension value for Messrs. Alessi, Paprzycki, O’Laughlin, Myers, and Kegley of $3,775, $8,741, $52,263, $28,728, and $30,301, respectively. Pension economic assumptions utilized for our SFAS 87 financial reporting for fiscal years ended in 2005, 2006, 2007 and 2008 were used for calculations at the end of those years respectively. A discount rate of 5.7% was used for 2005, 5.95% for 2006, 6.3% for 2007, and 6.1% for 2008.
(3)“All Other Compensation” for 2008 includes reimbursements and payments, as applicable, for our contributions to the 401(k) Plan, and life insurance premiums. We contributed $6,900, $5,684, $5,998, $6,557, $6,005, $3,227 and $2,158 in matching contributions to the 401(k) Plan on behalf of Messrs. Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, respectively. We paid life insurance premiums of $1,872, $1,404, $973, $1,025, $1,407, $1,248 and $472 for Messrs. Alessi, Paprzycki, O’Laughlin, Myers, Kegley, Lobb and Blair, respectively. For Messrs. Alessi and Lobb, the amount shown also includes $3,450 of a special contribution to the 401(k) Plan. For Mr. Lobb, the amount includes $51,732 for relocation and temporary living expenses. For Mr. Blair, the amount shown includes severance benefits and vacation pay of $331,000.


22

(4)Mr. Lobb resigned as President and CEO effective January 27, 2009. He was paid a bonus of $200,000 at the end of 2008 under the terms of his offer of employment. Mr. Lobb forfeited all of his stock and option awards at the time of his resignation. He was not vested in the pension plan.
(5)Mr. Blair served as CFO through March 31, 2008. He was not vested in the pension plan.
2008 GRANTS OF PLAN-BASED AWARDS
                         
        All Other
  All Other
       
        Stock
  Option
       
        Awards:
  Awards:
     Grant Date
 
        Number of
  Number of
  Exercise or
  Fair Value
 
        Shares of
  Securities
  Base Price
  of Stock
 
        Stock or
  Underlying
  of Option
  and Options
 
  Grant
  Approval
  Units
  Options (1)
  Awards
  Awards(2)
 
Name
 Date  Date  (#)  (#)  ($/Sh)  ($) 
 
Keith E. Alessi  7/1/08   6/25/08   —   60,000   21.40   118,359 
Kevin A. Paprzycki  7/1/08   6/25/08   —   7,000   21.40   13,808 
John V. O’Laughlin  7/1/08   6/25/08   —   15,000   21.40   29,590 
Todd A. Myers  7/1/08   6/25/08   —   7,000   21.40   13,808 
Morris W. Kegley  7/1/08   6/25/08   —   7,000   21.40   13,808 
Delbert L. Lobb(3)  7/1/08   6/25/08   —   25,000   21.40   49,316 
   4/28/08   4/21/08   100,000(4)  —   —   351,111 
(1)Options vest annually in one-third increments.
(2)Represents a grant date fair value of $11.84 per option for all named executives and $15.80 per share of restricted stock granted to Mr. Lobb.
(3)Mr. Lobb forfeited all awards made in 2008 upon his resignation.
(4)Restricted stock vests annually in one-third increments.


23

2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table shows outstanding restricted stock, options and SARs as of December 31, 2008 for our named executive officers. Included in the table are initial grants of incentive options, restricted stock or SARs made in connection with the hiring of Messrs. Alessi, Lobb, Paprzycki and O’Laughlin in 2007, 2008, 2006 and 2001 respectively, and annual long-term incentive awards. Approval of Mr. Lobb’s option award was made on April 21, 2008 for the award effective April 28, 2008.
                         
  Option Awards  Stock Awards 
                 Market
 
                 Value of
 
                 Shares or
 
  Number of
  Number of
        Number of
  Units of
 
  Securities
  Securities
        Shares or
  Stock That
 
  Underlying
  Underlying
        Units of
  Have Not
 
  Unexercised
  Unexercised
  Option
     Stock That
  Vested
 
  Options
  Options
  Exercise
  Option
  Have Not
  As of
 
  (#)
  (#)
  Price
  Expiration
  Vested
  12/31/08
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)  ($) 
 
Keith E. Alessi  —   60,000(1)  21.40   6/30/18   —   — 
   30,556(2)  —   23.93   5/01/17   —   — 
Kevin A. Paprzycki  —   7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
   1,666(4)  834(4)  29.48   6/4/16   —   — 
John V. O’Laughlin  20,000(5)  —   12.04   3/04/11   —   — 
   4,700(6)  —   12.86   6/23/12   —   — 
   3,650(7)  —   17.80   12/30/13   —   — 
   3,650(8)  —   18.08   6/29/13   —   — 
   491(9)  —   18.09   5/28/11   —   — 
   1,809(9)  —   18.19   5/28/11   —   — 
   9,800(10)  —   19.37   6/30/14   —   — 
   14,600(11)  —   20.98   6/30/15   —   — 
       15,000(1)  21.40   6/30/18   —   — 
   6,600(3)  3,300(3)  24.41   6/30/16   —   — 
Todd A. Myers  6,700(6)  —   12.86   6/23/12   —   — 
   6,700(7)  —   17.80   12/30/13   —   — 
   6,700(8)  —   18.08   6/29/13   —   — 
   683(9)  —   18.09   5/28/11   —   — 
   2,517(9)  —   18.19   5/28/11   —   — 
   12,300(10)  —   19.37   6/30/14   —   — 
   16,200(11)  —   20.98   6/30/15   —   — 
       7,000(1)  21.40   6/30/18   —   — 
   5,266(3)  2,634(3)  24.41   6/30/16   —   — 
Morris W. Kegley      7,000(1)  21.40   6/30/18   —   — 
   1,266(3)  634(3)  24.41   6/30/16   —   — 
Delbert L. Lobb  —   —   —   —   100,000(12)  1,110,000 
   —   25,000(1)  21.40   6/30/18   —   — 
(1)Vests in three annual increments beginning 7/1/09.
(2)Mr. Alessi voluntarily forfeited 66,667 unvested options out of 100,000 options granted in 2007. The remaining 30,556 options vested between June 2007 and April 2008.
(3)SARs vest in three equal annual installments, with the first increment vesting on 7/1/07.
(4)SARs vest in three annual increments with the first increment vesting on 6/5/07.


24

(5)Vested in two annual increments beginning 3/5/02.
(6)Vested in two annual increments beginning 6/24/03.
(7)Vested in three annual increments beginning 12/31/04.
(8)Vested in three annual increments beginning 6/30/04.
(9)Vested in two annual increments beginning 5/29/02.
(10)SARs; one third vested on 7/1/05 and the balance vested 12/30/05.
(11)SARs vested 12/30/05.
(12)Mr. Lobb forfeited all outstanding equity awards at the time of his resignation.
Option Exercises and Stock Vested
There were no option or SAR exercises or vesting of stock awards during 2008 for our named executive officers.


25

2008 Pension Benefits
               
       Present Value
    
       of Accumulated
    
       Benefit as of
    
    Number of Years
  December 31,
  Payments During Last
 
    Credited Service
  2008(2)
  Fiscal Year
 
Name(1)
 
Plan Name
 (#)  ($)  ($) 
 
Keith E. Alessi Westmoreland  .58   3,775   — 
  Retirement Plan (WCC)            
Kevin A. Paprzycki Westmoreland  2.58   17,642   — 
  Retirement Plan (WCC)            
John V. O’Laughlin Westmoreland  8.0   205,861   — 
  Retirement Plan (BSS)            
Todd A. Myers Westmoreland  9.08   109,330   — 
  Retirement Plan (WCC)            
Morris W. Kegley Westmoreland  3.25   72,993   — 
  Retirement Plan (WCC)            
(1)Mr. Lobb and Mr. Blair are not included in the table. Neither were vested in the pension plan at the time they ceased employment.
(2)Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2008. Demographic assumptions are also consistent with our pension financial reporting, with the exception that per SEC guidance, pre-retirement decrements are not used. A discount rate of 6.1% was used for 2008.
Each of the named executive officers, except Mr. Alessi, participates in the same defined benefit pension plans offered to other non-union employees. All employees whose terms and conditions of employment are not subject to collective bargaining and who work 1,000 or more hours per year are eligible for participation in the pension plans. Eligible employees become fully vested after five years of service, or, in any event, upon attaining age 65. The pension plan was adopted effective December 1, 1997 and provides for the payment of annual retirement benefits to eligible employees and also provides for disability benefits and for reduced benefits upon retirement prior to the normal retirement age of 65. The pension plan provides the following benefits:
• 1.2% of average earnings plus 0.5% of average earnings in excess of covered compensation times years of service up to 30 years. Covered compensation is a 35 year average of Social Security wage bases at Social Security retirement age;
• Normal retirement age is 65. Early retirement benefits are available at age 55 with 10 years of service. Benefits are reduced actuarially for early commencement before age 65. Participants with 20 or more years of service may retire at age 62, instead of 65, with no reduction in benefits. None of the named executives covered under this plan are eligible to retire as of December 31, 2008; and
• The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 662/3% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
Mr. O’Laughlin is also covered under plan provisions for two subsidiaries where he has worked. Aspects of each subsidiary’s plan provisions may be less attractive, and other aspects of a subsidiary’s plan provisions may be more attractive, than the plan provisions applicable to us. Based on Mr. O’Laughlin’s service and salary, the Beulah and Savage Salaried Employee’s (“BSS”) benefits are the most valuable as of December 31, 2008. Because the BSS benefit is currently the most valuable, we have shown benefits for Mr. O’Laughlin based on this formula. The provisions of this plan are as follows:
• 1.2% of average earnings plus 0.4% of average earnings in excess of the integration level, times pension service with a maximum of 35 years. The integration level is equal to 35% of the Social Security taxable wage base in effect for the plan year of termination;


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• Normal retirement age is 65. Early retirement benefits are available at age 55 with 5 years of service. Benefits are reduced 3% per year for early commencement before age 62. Participants with 30 or more years of vesting service who terminate and retire on or after attaining age 60 are eligible for an immediate pension without reduction for early commencement; and
• The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 662/3%, 75% and 100% joint and survivor options, a10-year certain and life option, and a single life annuity.
Mr. Alessi, and those who are hired on or after July 1, 2006 and who are not subject to collective bargaining and who work 1,000 or more hours per year, are covered under a new benefit plan. As eligible employees become fully vested after five years of service, Mr. Alessi is not currently eligible for participation.
2008 Pension Benefits Upon Retirement/Termination Disability or Death
Mr. O’Laughlin and Mr. Myers are each vested in the pension plan and are entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). Benefits shown for Mr. O’Laughlin and Mr. Myers assume that the event entitling them to benefits occurred on December 31, 2008. The benefits for Mr. Myers are first payable on March 1, 2029. The benefits for Mr. O’Laughlin are first payable on January 1, 2009.
               
            Time or Period of
Name
 
Type of Termination
 
Plan
 
Benefit Amount
  
Form of Payment
  
Payment
 
John V. O’Laughlin Retirement/Termination Pension Plan $1,677   Monthly Annuity  Life
  Disability Pension Plan $1,677   Monthly Annuity  Life
  Death Pension Plan $771   Monthly Annuity  Life of Spouse
Todd A. Myers Retirement/Termination Pension Plan $2,191   Monthly Annuity  Life
  Disability Pension Plan $2,191   Monthly Annuity  Life
  Death Pension Plan $1,757   Monthly Annuity  Life of Spouse
Retiree Medical Benefits
Each of Messrs. Paprzycki, O’Laughlin, Myers and Kegley are covered under our broad-based retiree medical plan that provides for continued medical coverage upon retirement at age 62 and with twenty years of service, or age 65 with five years of service for those hired prior to June 1, 2003 or 10 years of service for those hired on or after June 1, 2003. This plan is closed to individuals hired after July 1, 2006. The Company adopted an alternative, less costly retiree medical plan for new employees hired after July 1, 2006. Mr. Alessi is covered under this plan but is not yet vested.
2008 Nonqualified Deferred Compensation
                     
  Executive
  Registrant
     Aggregate
    
  Contributions
  Contributions in Last
  Aggregate Earnings
  Withdrawals/
  Aggregate Balance at
 
  in Last Fiscal Year
  Fiscal Year
  in Last Fiscal Year(1)
  Distributions
  Last Fiscal Year-End
 
Name
 ($)  ($)  ($)  ($)  ($) 
 
John V. O’Laughlin(2)  0   0   291   19,316(3)  0 
Todd A. Myers(2)  0   0   572   27,787(4)  0 
(1)Aggregate Earnings represents interest earned on all deferred compensation during 2008. The portion included in this total that is considered at an “above-market” rate is also reported in the 2008 Summary Compensation table above.
(2)We deferred payments related to the 2001 award of performance units which vested in 2004.
(3)Includes interest of $4,878.
(4)Includes interest of $7,018.
Under the 2000 PUP, the Compensation and Benefits Committee has the discretion and authority to defer payment of vested performance units in a lump sum or in installments over any period of time not to exceed


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ten years. Participants in the 2000 PUP may not voluntarily defer any payments under this plan. In 2004, the Compensation and Benefits Committee elected to defer payment of a portion of the payments earned from awards made in 2001. Awards earned by Mr. O’Laughlin and Mr. Myers were deferred and interest paid at the rate of prime plus 1%. Final payment of all deferred amounts, plus interest, was made in March 2008.
Potential Payments Upon Termination orChange-in-Control
Our named executive officers are not entitled to any additional payments or benefits relating to termination of employment other than the retirement benefits previously described in the preceding compensation tables and participation in a severance policy that is generally available to all our employees. Our executives are “at-will” employees. They do not have employment contracts or any benefits triggered by a change in control.
During 2008, Messrs. Paprzycki, O’Laughlin, Myers and Kegley were covered by our employee severance policy. Mr. Alessi is not covered under any severance policy. The severance policy, effective May 21, 2007, as amended December 31, 2008, covers virtually all our employees, although the amount of the severance benefit depends upon which of the six employee categories an employee is in. The highest category, which includes senior officers, provides for severance compensation equal to 12 months of monthly base pay, 12 months of outplacement assistance and 12 months of health benefit continuation. Severance benefits are payable under the policy only in the following circumstances: involuntary termination that is not for cause, termination due to sale of a facility, division or business segment, or relocation of more than 50 miles that the employee declines.
Mr. Blair began receiving severance benefits under the revised policy in 2008. These benefits are estimated to total $331,000.
If an involuntary termination not for cause, or a termination due to sale of a facility, division or business segment, or relocation of more than 50 miles that the employee declines, had occurred on December 31, 2008, then Messrs. Paprzycki, O’Laughlin, Myers and Kegley would have received, upon execution of a release and settlement agreement, severance payments of $200,000, $207,946, $218,970 and $200,362, respectively, in equal installments on the normal payroll schedule and net of required withholdings. We estimate that the cost of providing 12 months of medical, vision and dental benefits to Messrs. Paprzycki, O’Laughlin, Myers and Kegley and the value of their unused vacation at December 31, 2008 to be $37,449, $38,549, 33,917 and $48,148, respectively.
If the employment of Messrs. Paprzycki, O’Laughlin, Myers and Kegley had been terminated on December 31, 2008, they would have retained all SARs that had then vested (for Mr. Paprzycki, 2,932, for Mr. O’Laughlin, 31,000, for Mr. Myers, 33,766 and for Mr. Kegley, 1,266) but would have forfeited all the SARs that had not yet vested unless the termination had occurred within one year following a change in control in which unvested SARs issued in 2006 (for Mr. Paprzycki, 1,468, for Mr. O’Laughlin, 3,300, for Mr. Myers, 2,634 and for Mr. Kegley, 634) would become fully vested, but would represent no additional value because the closing price of our common stock on December 31, 2008 was less than the base price of those SARs. For the purposes of this event, “termination” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his or her level of responsibility which, in either such case, causes the employee to voluntarily terminate his or her employment.
In addition, if the employment of Messrs. Paprzycki, O’Laughlin, Myers and Kegley had been terminated on December 31, 2008, they would have retained all performance units that had then vested (for Mr. Paprzycki, 160 issued in 2006; for Mr. O’Laughlin, 850 issued in 2006; for Mr. Myers, 678 issued in 2006; and Mr. Kegley, 165 issued in 2006), but would have forfeited all the performance units that had not yet vested. However, the value of the vested performance units would not then have been determinable, so we would not have been required to make any payment in respect of these units at that time. If a change in control had occurred on December 31, 2008, and if our existence had ended, then vested performance units would have terminated without value. However, if our existence had continued following the change in control, then vested performance units would also have continued in existence, without acceleration of vesting, and would have been valued in the course of our business.


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DIRECTOR COMPENSATION
 
2008 Director Compensation
                 
  Fees Earned or
  Stock
  Option
    
  Paid in Cash
  Awards(2)(3)(4)
  Awards(5)
  Total
 
Name(1)
 ($)  ($)  ($)  ($) 
 
Thomas J. Coffey  66,250   48,740   6,581(6)  121,571 
Michael R. D’Appolonia  19,207   13,071   —   32,278 
Robert E. Killen  44,276   18,747   6,581(7)  69,604 
Richard M. Klingaman  50,300   48,740   17,588(8)  116,628 
William M. Stern  50,000   48,740   6,581(9)  105,321 
(1)Mr. Alessi, our President and CEO, has served as a member of our Board since August 2007. Mr. Lobb, our former President and CEO, served as a member of our Board from May 2008 to January 2009. Employees, including Messrs. Alessi and Lobb, do not receive additional compensation for serving on the Board.
(2)The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes in 2008 of stock awards granted to the directors in 2007 and 2008. The assumptions used in calculating these amounts are discussed in note 13 to our financial statements for the year ended December 31, 2008, which accompany this proxy statement. The grant date fair value of the awards granted in 2007 computed in accordance with FAS 123R was $19.29. See notes (3) and (4) for the grant date fair value of the awards granted in 2008 computed in accordance with FAS 123R.
(3)1,756 shares of common stock were awarded to each non-employee director re-elected to the Board in May 2008. Sale of the shares is restricted until May 2009. The grant date fair value of these awards was $17.08.
(4)Mr. D’Appolonia was awarded 2,916 shares of restricted stock upon his election to the Board in July 2008. The stock vests in two equal annual increments. The grant date fair value of these awards was $20.57.
(5)The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes in 2008 of the SARs granted to the directors in 2006. The assumptions used in calculating these amounts are discussed in note 13 to our financial statements for the year ended December 31, 2008, which accompany this proxy statement. Unlike the amount reflected in our financial statements, these amounts do not reflect any estimate of forfeitures related to service-based vesting. Instead, these amounts assume that each director will perform the requisite service to vest in his award. The grant date fair value of these awards, computed in accordance with FAS 123R, was, for Mr. Klingaman, $14.13 per SAR, or $52,763, and for each of Messrs. Coffey, Killen and Stern, $14.94 per SAR, or $26,324. Each grant vests over a period of four years and expires ten years from the grant date.
(6)Mr. Coffey had 15,000 stock options and 1,762 SARs outstanding at December 31, 2008.
(7)Mr. Killen served on our Board until May 2008 and he had 7,500 stock options and 1,762 SARs outstanding at December 31, 2008.
(8)Mr. Klingaman had no stock options and 3,733 SARs outstanding at December 31, 2008.
(9)Mr. Stern had 10,000 stock options and 1,762 SARs outstanding at December 31, 2008.
We compensate the members of our Board who are not our employees, whom we refer to as our non-employee directors, by paying them an annual retainer and a fee for each meeting of the Board or committee that they attend and by granting equity in the form of stock options, SARs or restricted shares of common stock based on the 2000 Director Plan and the 2007 plan. These cash payments and equity grants are the sole compensation the non-employee directors receive from us.


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Annual Retainer and Meeting Fees
In 2008, our non-employee directors, except for our Non-Executive Chairman and our Chairman of the Audit Committee, received an annual retainer of $30,000 paid in quarterly installments. Our Non-Executive Chairman received a retainer of $90,000 through his term of service which ended in May 2008. Our Chairman of the Audit Committee received an annual retainer of $41,000. All retainers are prorated in any quarterly period in which the individual is not a directorand/or the Chairman for the entire quarterly period. Each non-employee director also received $1,000 per meeting attended of the Board and of each committee of which he was a member. Any director who participates in meetings by telephone, rather than in person, receives a reduced fee of $500 per meeting. There is no reduction in fee for meetings in which all directors participate telephonically. In addition, the Chairman of the Audit Committee received an additional $750 per meeting, the Chairman of the Compensation and Benefits Committee received an additional $650 per meeting and all other committee chairmen received an additional $500 per meeting attended and chaired.
Long-Term Compensation
We have historically delivered long-term compensation to directors in the form of option or stock awards. In December 2005, the Board approved the restated and amended 2000 Director Plan to allow the use of SARs as a form of award in order to conserve shares available for grant. In 2007, stockholders approved the 2007 plan. Under the 2007 plan, each non-employee director is entitled to receive, as an initial grant upon his or her first joining the Board, stock awards, options to purchase a number of shares of common stock, or SARs equal to $60,000 in value. Thereafter, each non-employee director is entitled to receive, upon his or her re-election to the Board, a grant of stock, options or SARs equal to $30,000 in value. In 2008, under the terms of the new plan, each non-employee director, except Mr. D’Appolonia, received a grant of 1,756 shares of common stock equal to $30,000 in value upon re-election to the Board. Mr. D’Appolonia received a grant of 2,916 shares of restricted stock upon his election to the Board. These stock grants are reported in the table above.
The value shown above under the column “Option Awards” reflects the value of the SARs granted in 2006 as determined under FAS 123R for 2008. Each grant vests over a period of four years and expires ten years from the grant date.


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CERTAIN RELATED PARTY TRANSACTIONS
 
Policies and Procedures for Related Person Transactions
 
Our Board has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which Westmoreland Coal Company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest.
 
If a related person proposes to enter into such a transaction, arrangement, or relationship, which we refer to as a related person transaction, the related person must report the proposed related person transaction to our general counsel. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the Board’s Audit Committee. Whenever practicable, the reporting, review, and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committeeAudit Committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the Chairman of the committeeAudit Committee to review and, if deemed appropriate, approve proposed related person


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transactions that arise between committee meetings, subject to ratification by the committeeAudit Committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
 
A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committeeAudit Committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committeeAudit Committee will review and consider:
 
 • the related person’s interest in the related person transaction;
 
 • the approximate dollar value of the amount involved in the related person transaction;
 
 • the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;
 
 • whether the transaction was undertaken in the ordinary course of our business;
 
 • whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party;
 
 • the purpose of, and the potential benefits to us of, the transaction; and
 
 • any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.
 
The committeeAudit Committee may approve or ratify the transaction only if the committeeit determines that, under all of the circumstances, the transaction is in our best interests. The committeeAudit Committee may impose any conditions on the related person transaction that it deems appropriate.
 
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, the Board has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
 
 • interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity), that is a participant in the transaction, where (a) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (b) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction, (c) the amount involved in the transaction equals less than the greater of $200,000 or 5% of the annual consolidated gross revenues of the other entity that is a party to the transaction, and (d) the amount involved in the transaction equals less than 2% of our annual consolidated gross revenues; and


31

 • compensation to an executive officer if the compensation has been approved, or recommended to the Board of Directors for approval, by the Compensation and Benefits Committee of the Board or a group of independent directors performing a similar function; or
 
 • an arrangement that is specifically contemplated by provisions of our certificate of incorporation or bylaws, such as the exculpation, indemnification, and directors’ and officers’ insurance arrangements contemplated by the certificate of incorporation and bylaws.
 
The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Compensation and Benefits Committee in the manner specified in its charter.
 
StandbyTransactions with Tontine
Note Purchase Agreement
 
On May 2, 2007,March 4, 2008, we entered into a Standby Purchase Agreement withcompleted the sale of $15 million of senior secured convertible notes, which we call our senior notes, to Tontine Partners, L.P. and Tontine Capital Partners, L.P. under which, or the Tontine agreedPurchasers. The sale was completed pursuant to certain standby commitments with respect toa Senior Secured Convertible Note Purchase Agreement dated as of March 4, 2008 among us, the Tontine Purchasers, and Tontine Capital Associates, L.P., as collateral agent.
The senior notes bear interest at a rate of 9% per annum, payable in cash or in kind at our planned rights offering to holdersoption, and are payable in full on March 4, 2013. The Tontine Purchasers may convert the senior notes into shares of our Common Stock,common stock, initially at a conversion price of $10.00 per share. The number of shares of common stock into which the senior notes may be converted would increase in the circumstances specified in the note purchase agreement, including (i) if we pay interest on the senior notes in kind and (ii) if we take the actions described in the note purchase agreement (including paying dividends or making distributions in shares of common stock or issue securities convertible into or exchangeable for shares of common stock at an exercise price less than the conversion price of the senior notes then in effect), but the senior notes may not be converted into more than 1,877,946 shares of common stock.
In approving the note purchase agreement and the transactions contemplated thereby, the Board considered, among many other things: (1) conditions in the capital markets; (2) our liquidity situation and need for additional capital; (3) the then-ongoing financial restatement and our inability to provide audited financial information to prospective lenders; (4) the going concern emphasis contained in the audit report on our most recent annual financial statements at the time; and (5) the terms of the documents proposed to be signed. The Board also considered our related persons transaction policy.
In the note purchase agreement, we agreed that, so long as the Tontine Purchasers and their affiliates, which we call the Rights Offering. The minimum sizerefer to collectively as Tontine, own 10% or more of the Rights Offeringoutstanding shares of common stock (including the shares issuable upon conversion of the senior notes on an as-converted basis):
• Tontine shall have the right to designate two persons for election to the Board who are reasonably acceptable to the Board, and the Board will consist of not more than nine members (not more than seven members when no Series A Convertible Exchangeable Preferred Stock is outstanding); and
• Subject to the limitations specified in the note purchase agreement, if we offer to sell common stock (or securities convertible into or exchangeable for shares of common stock), then Tontine shall have the right to subscribe for the offered securities on the same terms and conditions and at the same price as the other offerees.
The note purchase agreement contains affirmative and negative covenants and representations and warranties. The Tontine Purchasers may declare the senior notes immediately due and payable upon the occurrence of the events of default described in the note purchase agreement, and the senior notes are immediately due and payable without declaration upon the occurrence of other events of default specified in the note purchase agreement.


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$85,000,000. The price at which holders of rights mayIn connection with the note purchase shares of Common Stock,agreement, we and our subsidiary, Westmoreland Resources, Inc., or Subscription Price, is $18.00 per share. Effective July 3, 2007,WRI, entered into the following agreements with the Tontine Purchasers and the Collateral Agent:
• Registration Rights Agreement dated as of March 4, 2008.  Pursuant to the registration rights agreement, we agreed to register the shares of common stock owned by Tontine for sale pursuant to the Securities Act of 1933, as amended;
• Guaranty dated as of March 4, 2008.  Pursuant to the guaranty, WRI guaranteed our indebtedness under the senior notes and the note purchase agreement;
• Security Agreement dated as of March 4, 2008.  Pursuant to the security agreement, WRI granted the collateral agent, for the benefit of the Tontine Purchasers, a security interest in certain of WRI’s assets; and
• Pledge Agreement dated as of March 4, 2008.  Pursuant to the pledge agreement, we pledged our interest in the stock of WRI to the collateral agent, for the benefit of the Tontine Purchasers.
In connection with the note purchase agreement, we Tontine, and Silverhawk Capital Partners GP, LLC executed thealso amended our Amended and Restated Rights Agreement dated as of February 7, 2003, as amended by the First Amendment to Standby Purchase Agreement.Amended and Restated Rights Agreement dated May 2, 2007, to permit Tontine to acquire up to 34.5% of our outstanding common stock, subject to the limits described therein.
 
We reimbursed Tontine currently owns 17.0%approximately $160,000 in 2008 for legal fees in connection with the note purchase agreement.
The Tontine Purchasers, together with their affiliates, own 1,543,600 shares of common stock, or approximately 16% of the common stock currently outstanding, Common Stock. Tontine has agreed to subscribe for and purchase its pro rata portion of the shares offered in the Rights Offering. Subject to the limit described below, Tontine has also agreed to act as a “Standby Purchaser” to purchase any shares not subscribed for by other stockholders in the Rights Offering. If, after giving effect to its purchase of common shares not purchased by other stockholders, Tontine owns less than 25% of the fully diluted shares of Common Stock (aftereach case without giving effect to the shares issued in the Rights Offering but exclusive ofcommon stock options and unexchanged shares of Series A Preferred Stock), Tontine will have the option to purchase an additional number of shares of Common Stock at the Subscription Price, up to such amount that will result in Tontine’s owning not more than 25%issuable upon conversion of the fully diluteddepositary shares of Common Stock (after giving effect toor the shares issuedsenior notes. The ownership on an as-converted basis is described in the Rights Offering and this option, but exclusive of stock options and unexchanged shares of Series A Preferred Stock). The Standby Purchase Agreement limits the number of shares that Tontine may acquire. Under the Standby Purchase Agreement, Tontine has agreed that it will not purchase shares of Common Stock that would result in it or any “group” (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of which it is a member owning 30% or more of the issued and outstanding shares of Common Stock on a fully diluted basis (after giving effect to the shares issued in the Rights Offering but exclusive of stock options and unexchanged shares of Series A Preferred Stock).
Additional information regarding the Rights Offering is provideddetail above under “Proposal 3 — Approval“Beneficial Ownership of the Rights Offering.Securities.”
The value of Tontine’s interest in the Rights Offering cannot be calculated at this time, because we have not determined the size of the Rights Offering and because we do not know (among other things) how many of the shares offered in the Rights Offering will be purchased by stockholders other than Tontine.
The closing of the transactions contemplated by the Standby Purchase Agreement is subject to a number of conditions, including the approval of our stockholders. The closing is also conditioned on the appointment to our Board of two designees of Tontine who are reasonably acceptable to our Board. We and Tontine have not determined these two individuals. In approving the Standby Purchase Agreement, our Board considered, among other things, that Tontine currently owns 17.0% of our outstanding Common Stock and the Board representation that Tontine would receive upon the closing of the Rights Offering.
Other Related Person Transactions
Mr. Mark Seglem, the brother of Christopher Seglem, who served as our Chairman of the Board, President, and Chief Executive Officer through May 1, 2007, is the President of Texas Westmoreland Coal Company, an indirect subsidiary of our company. On May 4, 2006, Mr. Mark Seglem was also elected our Vice President, Strategic Planning and Administration by the Board of Directors, in addition to his duties at Texas Westmoreland. In 2006, Mr. Mark Seglem was paid $275,964 in total compensation and granted 7,400 SARs. Mr. Mark Seglem’s total compensation includes an annual incentive bonus for 2006 performance as described in “— Annual Incentive Compensation” above. Scoring for Mr. Mark Seglem’s annual incentive bonus is based equally on the performance of Texas Westmoreland and Westmoreland Coal Company. The SARs vest over a three-year period, have a base value equal to the average of the high and low stock price on the date of grant, $24.41, and may be exercised over a ten-year period. Mr. Mark Seglem was also awarded 952 performance units. The performance units vest in one-third annual increments and are valued according to the terms of the 2006 grants of performance units under the 2000 PUP as described in “— Grants of Plan-Based Awards” above.
On May 1, 2007, in connection with his appointment as interim President and interim Chief Executive Officer, we agreed to pay Mr. Keith E. Alessi $40,000 per month and granted him options to purchase 100,000 shares of Common Stock, one-thirty-sixth of which will vest each month for the first twelve months, the next third of which will vest on the second anniversary of the date of grant, and the final third of which will vest on the third anniversary of the date of grant. The exercise price for the options is equal to the fair


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market value of the Common Stock on the date of grant. The options were granted pursuant to our 2002 Plan. We also agreed to pay Mr. Alessi’s temporary housing expense and to reimburse him at the normal, commercial coach rate if Mr. Alessi uses his personal airplane for Company business.
 
AUDIT COMMITTEE REPORT
 
The Company’s Audit Committee of the Westmoreland Coal Company Board of Directors (the “Audit Committee”) is composed of three directors and operates under a written charter first adopted by the Board of Directors on March 10, 2000 and amended most recently on March 8, 2007.11, 2009.
 
Management is responsible for the Company’s internal controls and financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee’s responsibility is to retain the independent registered public accounting firm, review and monitor the independence and performance of the Company’s independent registered public accounting firm, monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance and provide an avenue of communication among the independent registered public accounting firm, management and the Board of Directors.Board.
 
In this context, the Audit Committee met with management and the independent registered public accounting firm to review and discuss the Company’s significant accounting policies, systems of internal controls and the audited consolidated financial statements for the year ended December 31, 2006.2008. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the Company’sindependent registered public accounting firmaccountant required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees), as adopted byapplicable requirements of the Public Company Accounting Oversight Board in Rule 3600T,regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the Company’s registered public accounting firm theirindependent accountant the independent accountant’s independence. The Audit Committee also considered whether the independent registered public accounting firm’s provision of non-audit related services to the Company is compatible with maintaining such auditor’s independence.
 
Based on its discussions with management and the independent registered public accounting firm, and its review of the representations and information provided by management and the independent registered public accounting firm, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in Westmoreland Coalthe Company’s Annual Report onForm 10-K for the year ended December 31, 20062008 for filing with the Securities and Exchange Commission.
 
Thomas J. Coffey, Chairman
Thomas W. OstranderRichard M. Klingaman
William M. Stern


6334

 
AUDITORS
 
KPMG LLP (“KPMG”) served as theour independent registered public accounting firm of the Company for the fiscal year ended December 31, 2006 and have been selected to serve as the Company’s registered public accounting firm for 2007. The Company expects2008. We expect that a representative of that firm will be present at the Annual Meeting and will have the opportunity to make a statement and to respond to appropriate questions from stockholders.
Change in Independent Public Accounting Firm
In 2008, our Audit Committee solicited proposals from accounting firms, and following a rigorous evaluation process, made a decision to change accounting firms. On January 6, 2009, we notified KPMG that upon completion of the 2008 audit engagement and the filing of the Company’s Annual Report onForm 10-K for the year ending December 31, 2008, it would be dismissed as the Company’s independent registered public accounting firm. The decision to change accounting firms was approved by our Audit Committee. On March 13, 2009, KPMG completed its audit services for the Company for the fiscal year ended December 31, 2008.
During the years ended December 31, 2008 and 2007 and the subsequent period through the date of the filing theForm 8-K/A on March 23, 2009, the Company had no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to KPMG’s satisfaction, would have caused KPMG to make reference in connection with their opinion to the subject matter of the disagreement; or (2) reportable events, except as described below. Management of the Company has authorized KPMG to respond fully to the inquiries of the new independent registered public accounting firm regarding all matters.
KPMG’s reports on the Company’s consolidated financial statements as of and for the years ended December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except as follows:
The audit report of KPMG on the consolidated financial statements of the Company and subsidiaries as of and for the year ended December 31, 2008 contained a separate paragraph that stated that “The consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficit, and has a net capital deficiency that raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.”
The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2008 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles.
The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2007 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicated that the Company did not maintain effective internal control over financial reporting as of December 31, 2007 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contained an explanatory paragraph that stated that:
“Management identified and included in its assessment material weaknesses related to electronic spreadsheets that impact the Company’s financial reporting, census data used to calculate postretirement medical benefit obligations, and the accounting for one of the Company’s stock based compensation plans.”
The Company requested and obtained from KPMG a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the above statements. A copy of KPMG’s letter, dated March 16, 2009, is filed as Exhibit 16.1 to our Current Report onForm 8-K/A filed March 23, 2009.


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Engagement of Ernst & Young LLP
On January 8, 2009, our Audit Committee approved the engagement of Ernst & Young LLP (“Ernst & Young”) as our new independent registered public accounting firm beginning with fiscal year 2009, and to perform procedures related to the financial statements to be included in our quarterly report onForm 10-Q, beginning with, and including, the quarter ending March 31, 2009. The Company has not consulted with Ernst & Young during its two most recent fiscal years ended December 31, 2007 and December 31, 2008, or during any subsequent period prior to its appointment as the Company’s auditor with respect to any of the matters or events listed in Regulations S-K 304(a)(2)(i) and (ii). We expect that a representative of Ernst & Young will be present at the Meeting and will have the opportunity to make a statement and to respond to appropriate questions from stockholders.
 
Auditor’s Fees
 
The following table summarizes the fees of KPMG, LLP, our independent registered public accounting firm, for each of the last two fiscal years. For 2006,2008, audit fees include an estimate of amounts approved by the Audit Committee but not yet billed.
 
                
Fee Category
 2005 2006  2008 2007 
Audit Fees(1) $1,040,000  $2,167,000  $1,136,000  $1,947,320 
Audit Related Fees(2) $19,250  $20,750  $—  $72,502 
Tax Fees(3) $19,435  $24,115  $—  $— 
All Other Fees $—  $—  $—  $— 
Total Fees $1,078,685  $2,211,865  $1,136,000  $2,019,822 
 
 
(1)Audit fees consist of fees for the audit of our financial statements, including fees related to the audit of our restated financial statements, and that related to acquisition activity, the audit of our internal controls over financial reporting, the review of the interim financial statements included in our quarterly reports onForm 10-Q, and other professional services provided in connection with statutory and regulatory filings.
 
(2)Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements and which are not reported under “Audit Fees”.Fees.” These services relate to employee benefit audits.
(3)Tax fees consistplan audits in 2007 and review of fees for tax compliance and tax advice services. Tax compliance services, which relate to preparation of original and amended tax returns, claims for refunds and tax payment-planning services, accounted for none of the total tax fees paid for 2005 and 2006. Tax advice services relate to assistance with tax audits and appeals and employee benefit plans.certain SEC filings in 2007.
 
Pre-Approval Policy and Procedures
 
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by the Company’s registered public accounting firm. This policy generally provides that the Company will not engage its registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.
 
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to the Company by its registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.
 
The Audit Committee has also delegated to the Chairman of the Audit Committee the authority to approve any audit or non-audit services to be provided to the Company by its registered public accounting firm. Any approval of services by the Chairman of the Audit Committee pursuant to this delegated authority is reported on at the next meeting of the Audit Committee.
 
All fees ofpaid to KPMG LLP in 20062007 and 2008 were pre-approved by the Audit Committee.


6436

 
PROPOSALS OF STOCKHOLDERS FOR 20082010 ANNUAL MEETING
 
Any proposal that a stockholder of the Company wishes to be considered for inclusion in the Company’s proxy statement and proxy card for the Company’s 20082010 Annual Meeting of Stockholders (the “2008“2010 Annual Meeting”) must be submitted to the Secretary of the Company at its offices, 2 North Cascade Avenue, 14th2nd Floor, Colorado Springs, Colorado 80903, no later than March 21, 2008.December 17, 2009. In addition, such proposals must comply with the requirements ofRule 14a-8 under the Exchange Act.
 
If a stockholder of the Company wishes to present a proposal before the 20082010 Annual Meeting, but does not wish to have the proposal considered for inclusion in the Company’s proxy statement and proxy card, such stockholder must also give written notice to the Secretary of the Company at the address noted above. The Secretary must receive such notice no earlier than April 18, 2008January 15, 2010 and no later than May 18, 2008,February 14, 2010, and the stockholder must comply with the provisions of the Company’s By-Laws.bylaws.
 
The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements, including conditions established by the SEC. If a stockholder fails to provide timely notice of a proposal to be presented at the 20082010 Annual Meeting, the proxies designated by the Board of Directors of the Company will have discretionary authority to vote on any such proposal.
 
* * *
 
Upon the written request of any person who on the record date was a record owner of Company stock, or who represents in good faith that he or she was on such date a beneficial owner of such stock entitled to vote at the Annual Meeting, the Company will send such person, without charge, a copy of its Annual Report onForm 10-K for 2006,2008, as filed with the Securities and Exchange Commission. Requests for this report should be directed to the Vice President-Corporate Relations, Diane S. Jones, at Westmoreland Coal Company, 14th2nd Floor, 2 North Cascade Avenue, Colorado Springs, Colorado 80903. The Company has adopted a Code of Business Conduct and Ethics Policy which is applicable to all employees, including all senior officers and financial personnel. A copy of the Company’s Code of Business Conduct and Ethics Policy can be found on the Company’s web site at www.westmoreland.com. The Company will provide any person, without charge, upon request, a copy of its Code of Conduct. RequestsBusiness Conduct and Ethics. Any requests for the Code of Business Conduct and Ethics should be in writing and should be directed to the attention of the General Counsel of the Company at the preceding address.
 
OTHER BUSINESS
 
The Board of Directors has no present intention of bringing any other business before the meeting and has not been informed of any other matters that are to be presented to the meeting. If any other matters properly come before the meeting, however, the persons named in the enclosed proxy will vote in accordance with their best judgment.
 
If you vote by mail, we encourage you to specify your choices by marking the appropriate boxes on the enclosed proxy card. You do not need to mark any boxes if you wish to vote according to the Board’s recommendations; just sign, date, and return the proxy in the enclosed envelope. Thank you for your cooperation and your prompt response.
By order of the Board of Directors,
 
-s- Diane S. Jones
Roger D. WiegleyDiane S. Jones
General Counsel Vice President, Corporate Relations
and Secretary


6537

Appendix A

     (WESTMORELAND LOGO)
(BAR CODE)
 
STANDBY PURCHASE AGREEMENT
This STANDBY PURCHASE AGREEMENT (this“Agreement”) dated as of May 2, 2007, by and between Westmoreland Coal Company, a Delaware corporation (the“Company”), and Tontine Capital Partners, L.P., a Delaware limited partnership(“Standby Purchaser”).
WITNESSETH:
WHEREAS, the Company proposes, as soon as practicable after the Rights Offering Registration Statement (as defined herein) becomes effective, to distribute to holders of its common stock (the“Common Stock”) of record as of the close of business on the record date of the Rights Offering (the“Record Date”), non-transferable rights (the“Rights”) to subscribe for and purchase additional shares of Common Stock (the“New Shares”) at a subscription price (the“Subscription Price”) in accordance with the term sheet attached hereto as Annex A and incorporated herein by reference (such term sheet, the“Term Sheet” and such offering, the“Rights Offering”); and
WHEREAS, pursuant to the Rights Offering, stockholders of record will receive a fraction of a Right, as determined in accordance with the Term Sheet, for each share of Common Stock held by them as of the Record Date, and each whole Right will entitle the holder to purchase one New Share, at the Subscription Price (the“Basic Subscription Privilege”) and to purchase New Shares not subscribed for by other holders of rights; and
WHEREAS, the Company has requested Standby Purchaser to agree to purchase from the Company upon expiration of the Rights Offering, and Standby Purchaser is willing to so purchase, New Shares, at the Subscription Price, to the extent such New Shares are not purchased by stockholders pursuant to the exercise of Rights; and
WHEREAS, Standby Purchaser shall have the option to purchase and the Company shall sell to Standby Purchaser an additional number of shares of Common Stock, at the Subscription Price, up to such amount that will result in Standby Purchaser owning not more than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options and unexchanged Preferred Stock (as defined herein)) after giving effect to the Rights Offering and the exercise of such option to purchase additional shares of Common Stock; and
WHEREAS, in order to further induce Standby Purchaser to enter into this Agreement, the Company has agreed to grant Standby Purchaser (including any of its permitted assignees) registration rights with respect to the Securities (as defined herein) purchased by them pursuant to this Agreement or otherwise owned by them pursuant to a registration rights agreement substantially in the form attached hereto as Annex B (the“Registration Rights Agreement”);
NOW THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties hereto hereby agree as follows:
Section 1.  Certain Other Definitions.  The following terms used herein shall have the meanings set forth below:
“Additional Subscription Shares” shall have the meaning set forth in Section 3 hereof.
“Affiliate” shall have the meaning set forth inRule 12b-2 under the Exchange Act.
“Agreement” shall have the meaning set forth in the preamble hereof.
“Basic Subscription Privilege” shall have the meaning set forth in the recitals hereof.
“Board” shall have the meaning set forth in Section 3(b) hereof.
“Business Day” shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York.


A-1

“Certificate of Designation” shall mean the Certificate of Designation governing the Preferred Stock.
“Closing” shall mean the closing of the purchases described in Section 2 hereof, which shall be held at 10:00 a.m. (New York City time) on the Closing Date at the offices of Weil, Gotshal & Manges LLP located at 767 Fifth Avenue, New York, New York 10153, or such other time and place as may be agreed to by the parties hereto.
“Closing Date” shall mean the date that is three (3) Business Days after the Rights Offering Expiration Date, or such other date as may be agreed to by the parties hereto.
“Commission” shall mean the United States Securities and Exchange Commission, or any successor agency thereto.
“Common Stock” shall have the meaning set forth in the recitals hereof.
“Company” shall have the meaning set forth in the preamble hereof.
“Company Indemnified Persons” shall have the meaning set forth in Section 13(b) hereof.
“Company SEC Documents” shall have the meaning set forth in Section 4(h) hereof.
“Company Stockholder Approval” shall have the meaning set forth in Section 4(e) hereof.
“Designee” shall have the meaning set forth in Section 8 hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder.
“Exercise Notice” shall have the meaning set forth in Section 3(b) hereof.
“Expenses” shall have the meaning set forth in Section 7(c) hereof.
“Indemnified Persons” shall have the meaning set forth in Section 13(b) hereof.
“Market Adverse Effect” shall have the meaning set forth in Section 9(a)(iv) hereof.
“Material Adverse Effect” shall mean a material adverse effect on the financial condition, or on the earnings, financial position, operations, assets, results of operation, business or prospects of the Company and its subsidiaries taken as a whole.
“New Shares” shall have the meaning set forth in the recitals hereof.
“Observer Rights” shall have the meaning set forth in Section 8 hereof.
“Option” shall have the meaning set forth in Section 3 hereof.
“Person” shall mean an individual, corporation, partnership, association, joint stock company, limited liability company, joint venture, trust, governmental entity, unincorporated organization or other legal entity.
“Post-Closing Calculation” shall have the meaning set forth in Section 2(c) hereof.
“Preferred Exchange” shall mean the exchange of the Preferred Stock for Common Stock in accordance with the Term Sheet.
“Preferred Exchange Registration Statement” shall mean the Company’s Registration Statement onForm S-1 under the Securities Act or such other appropriate form under the Securities Act in connection with the Preferred Exchange.
“Preferred Stock” shall mean the Company’s Series A Preferred Stock, par value $1.00 per share.
“Prospectus” shall mean a prospectus, as defined in Section 2(10) of the Securities Act, that meets the requirements of Section 10 of the Securities Act and is current with respect to the securities covered thereby.


A-2

“Proxy Statement” shall mean a definitive proxy statement filed with the Commission relating to the Rights Offering and the transactions contemplated hereunder, together with all amendments, supplements and exhibits thereto.
“Registration Rights Agreement” shall have the meaning set forth in the recitals hereof.
“Record Date” shall have the meaning set forth in the recitals hereof.
“Representative” shall have the meaning set forth in Section 7(b) hereof.
“Rights” shall have the meaning set forth in the recitals hereof.
“Rights Offering” shall have the meaning set forth in the recitals hereof.
“Rights Offering Expiration Date” shall mean the date on which the subscription period under the Rights Offering expires.
“Rights Offering Prospectus” shall mean the final Prospectus included in the Rights Offering Registration Statement for use in connection with the issuance of the Rights.
“Rights Offering Registration Statement” shall mean the Company’s Registration Statement onForm S-1 under the Securities Act or such other appropriate form under the Securities Act, pursuant to which the Rights and underlying shares of Common Stock will be registered pursuant to the Securities Act.
“Securities” shall mean those of the New Shares, Unsubscribed Shares and Additional Subscription Shares that are purchased by Standby Purchaser pursuant to Section 2, 3 or 7(i) hereof, as the case may be.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder.
“Standby Indemnified Persons” shall have the meaning set forth in Section 13(a) hereof.
“Standby Purchaser” shall have the meaning set forth in the preamble hereof.
“Subscription Agent” shall have the meaning set forth in Section 7(a)(vii) hereof.
“Subscription Price” shall have the meaning set forth in the recitals hereof.
“Term Sheet” shall have the meaning set forth in the recitals hereof.
“Transfer” shall have the meaning set forth in Section 11(a) hereof.
“Triggering Event” shall have the meaning set forth in Section 3(b) hereof.
“Unsubscribed Shares” shall have the meaning set forth in Section 2(b) hereof.
Section 2.  Standby Purchase Commitment.
(a) Standby Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell to Standby Purchaser, at the Subscription Price, all of the New Shares that will be available for purchase by Standby Purchaser pursuant to its Basic Subscription Privilege.
(b) Standby Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Standby Purchaser, at the Subscription Price, any and all New Shares if and to the extent such New Shares are not purchased by the Company’s stockholders, excluding those New Shares that are purchased pursuant to the oversubscription rights of the Company’s stockholders in accordance with the Term Sheet (the“Unsubscribed Shares”).
(c) Notwithstanding anything else contained in this Agreement, Standby Purchaser shall not acquire Securities hereunder which would result in it or any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of which it is a member owning more than thirty percent (30%) of the fully diluted issued and outstanding shares of Common Stock (exclusive of stock options and unexchanged Preferred Stock) after


A-3

giving effect to Standby Purchaser’s purchase of New Shares under its Basic Subscription Privilege and Unsubscribed Shares. If any shares of the Preferred Stock remain outstanding sixty (60) days after the Closing, Standby Purchaser’s ownership percentage shall be recalculated and the number of such shares of Preferred Stock, on an as converted basis, shall be included in the number of outstanding shares of Common Stock when calculating Standby Purchaser’s ownership percentage (the“Post-Closing Calculation”). If the number of shares of Common Stock Standby Purchaser purchased hereunder was reduced because it would have owned more than thirty percent (30%) of the fully diluted shares of Common Stock, as calculated above, and if the Post-Closing Calculation is performed, Standby Purchaser shall have the option for the period of ten (10) Business Days following the date of the Post-Closing Calculation to purchase an additional number of shares of Common Stock, at the Subscription Price, up to such amount that will result in Standby Purchaser and any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of which it is a member owning not more than thirty percent (30%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options) after giving effect to Standby Purchaser’s purchase of New Shares under its Basic Subscription Privilege and Unsubscribed Shares.
(d) Payment of the Subscription Price for the Securities shall be made, on the Closing Date, against delivery of certificates evidencing the Securities, in United States dollars by means of certified or cashier’s checks, bank drafts, money orders or wire transfers.
Section 3.  Option.
(a) If after giving effect to Standby Purchaser’s purchase of New Shares under its Basic Subscription Privilege and Unsubscribed Shares, Standby Purchaser owns less than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options and unexchanged Preferred Stock), Standby Purchaser shall have the option (the“Option”) to purchase an additional number of shares of Common Stock (the“Additional Subscription Shares”), at the Subscription Price, up to such amount that will result in Standby Purchaser and any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of which it is a member owning not more than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options and unexchanged Preferred Stock) after giving effect to the Rights Offering and the exercise of the Option. Standby Purchaser shall have the right to exercise the Option at any time from the Closing through the tenth (10th) Business Days following the Closing upon delivery of written notice thereof to the Company. If the Post-Closing Calculation is performed and as a result thereof Standby Purchaser owns less than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock, as calculated above, Standby Purchaser shall have the option for the period of ten (10) Business Days following the date of the Post-Closing Calculation to purchase an additional number of shares of Common Stock, at the Subscription Price, up to such amount that will result in Standby Purchaser and any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of which it is a member owning not more than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options) after giving effect to Standby Purchaser’s purchase of New Shares under its Basic Subscription Privilege and Unsubscribed Shares and any shares of Common Stock purchased pursuant to this Section 3.
(b) If (i) the board of directors of the Company (the“Board”) does not recommend to the stockholders of the Company the approval of this Agreement and the transactions contemplated hereunder (and prompt written notice thereof shall be given to the Standby Purchaser as provided in Section 7(a)(i)) or does recommend to the stockholders of the Company the approval of this Agreement and the transactions contemplated hereunder and later changes such recommendation and the Standby Purchaser subsequently terminates this Agreement pursuant to Section 12(b)(i) or Section 12(b)(ii), or (ii) the Standby Purchaser terminates this Agreement pursuant to Section 12(b)(i) (any such event, a“Triggering Event”), Standby Purchaser shall have the option to purchase a number of shares equal to up to 19.9% of the outstanding shares of Common Stock, at the Subscription Price, but not to exceed that number of shares that would result in Standby Purchaser and any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of which it is a member owning more than twenty-five percent (25%) of the fully diluted outstanding shares of Common Stock (exclusive of stock options) after giving effect to the exercise of such option. Standby Purchaser shall have the right to exercise such option for a period of thirty (30) calendar days following the date of a


A-4

Triggering Event upon delivery of written notice (the“Exercise Notice”) thereof to the Company. Prior to the occurrence of such a purchase, the Company shall comply with Sections 7(d) and 7(f) if it has not previously done so.
(c) If, at the time of the Triggering Event, the Company has received an Acquisition Proposal, or an Acquisition Proposal has otherwise been publicly proposed or disclosed, and if the Standby Purchaser delivers an Exercise Notice, the Company may, in the Company’s discretion, pay Standby Purchaser a fee of ten million dollars ($10,000,000) in cash within ten (10) calendar days following the delivery to the Company of the Exercise Notice rather than sell the Standby Purchaser the shares of Common Stock contemplated by Section 3(b). The term “Acquisition Proposal” means any bona fide proposal or offer, whether written or oral, (i) for a merger, consolidation, dissolution, tender offer for more than fifty percent (50%) of the Company’s equity securities, recapitalization, share exchange or other business combination involving the Company or any of its Subsidiaries, (ii) for the issuance by the Company or any of its Subsidiaries of over fifty percent (50%) of its equity securities or (iii) to acquire in any manner, directly or indirectly, over thirty-five percent (35%) of the equity securities or consolidated total assets of the Company, in each case other than the transactions contemplated by this Agreement.
(d) Notwithstanding anything to the contrary set forth in Section 3(b) or 3(c), the Company is not required to sell to the Standby Purchaser the shares of Common Stock or pay the cash fee contemplated by that Section if (i) the Company notifies the Standby Purchaser that the Company reasonably projects that it will need a liquidity infusion of $5 million or less in order to avoid significant harm to its business, (ii) within thirty (30) days after the giving of such notice the Standby Purchaser has not agreed to make an equity infusion or a loan in such amount to the Company on terms reasonably acceptable to the Company and the Standby Purchaser and (iii) Standby Purchaser terminates this Agreement pursuant to Section 12 as a result of any action taken by the Company to satisfy such liquidity need in an amount not to exceed $5,000,000.
Section 4.  Representations and Warranties of the Company.  The Company represents and warrants to Standby Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted.
(b) This Agreement has been duly and validly authorized, executed and delivered by the Company and, subject to approval by the Company’s stockholders, constitutes a binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
(c) The authorized capital stock of the Company consists of (i) 20,000,000 shares of Common Stock, of which, (A) 9,070,425 shares are issued and outstanding, as of April 13, 2007, (B) 1,094,001 shares are reserved for issuance upon conversion of the Preferred Stock, as of the date hereof, (C) 150,000 shares are reserved for issuance upon exercise of the Company’s warrants issuable if the Company extends its $30,000,000 bridge loan facility from SOF Investments, L.P., (D) 527,650 shares are reserved for issuance upon exercise of options and other awards granted under the Company’s stock option and incentive plans, as of the date hereof, and (E) 560,747 stock appreciation rights are issued and outstanding under the Company’s incentive plans, as of the date hereof, and (ii) 5,000,000 shares of Preferred Stock, of which 160,129 shares are issued and outstanding, as of the date hereof. The number of shares of Common Stock issuable upon conversion of the Preferred Stock, upon exercise of the Company’s warrants issuable if the Company extends its bridge loan facility from SOF Investments, L.P., and upon exercise of options and other awards granted under the Company’s stock option and incentive plans is subject to adjustment in the manner specified in the Certificate of Designation, the Note Purchase Agreement dated June 29, 2006 (and the form of warrant included therein) and the stock option and incentive plans, respectively. All of the outstanding shares of Common Stock and Preferred Stock have


A-5

been duly authorized, are validly issued, fully paid and nonassessable and were offered, sold and issued in compliance with all applicable federal and state securities laws and without violating any contractual obligation or any other preemptive or similar rights.
(d) At the time the Rights Offering Registration Statement becomes effective, the Rights Offering Registration Statement will comply in all material respects with the requirements of the Securities Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the time the Rights Offering Registration Statement becomes effective and at the Closing Date, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;provided,however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Rights Offering Registration Statement or the Prospectus made in reliance upon and in conformity with the information furnished to the Company in writing by Standby Purchaser for use in the Rights Offering Registration Statement or in the Prospectus.
(e) The Proxy Statement will not, on the date it is first mailed to stockholders of the Company, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading and will not, at the time the stockholders of the Company vote at a meeting of the stockholders of the Company, to approve this Agreement and the transactions hereunder(“Company Stockholder Approval”)and an amendment to the Company’s Certificate of Incorporation providing for an increase in the number of authorized shares of Common Stock to 30,000,000, omit to state any material fact necessary to correct any statement in any earlier communication from the Company with respect to the solicitation of proxies for the Company Stockholder Approval which shall have become false or misleading in any material respect. The Proxy Statement will comply as to form in all material respects with the applicable requirements of the Exchange Act. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to information furnished to the Company in writing by Standby Purchaser for inclusion or incorporation by reference in any of the foregoing documents.
(f) All of the Securities and New Shares will have been duly authorized for issuance prior to the Closing (assuming Company Stockholder Approval has been obtained) and the shares issuable upon exercise of the Option are duly authorized for issuance, and, when issued and distributed as set forth in the Prospectus, will be validly issued, fully paid and non-assessable; and none of the Securities or New Shares will have been issued in violation of the preemptive rights of any security holders of the Company arising as a matter of law or under or pursuant to the Company’s Certificate of Incorporation, as amended, the Company’s bylaws, as amended, or any agreement or instrument to which the Company is a party or by which it is bound.
(g) The documents incorporated by reference into the Prospectus pursuant to Item 12 ofForm S-1 under the Securities Act, when they become effective or at the time they are filed with the Commission, as the case may be, will comply in all material respects with the applicable provisions of the Exchange Act.
(h) Since January 1, 2005, the Company has filed with the Commission all forms, reports, schedules, statements and other documents required to be filed by it through the date hereof under the Exchange Act, or the Securities Act (all such documents, as supplemented and amended since the time of filing, collectively, the“Company SEC Documents”). The Company SEC Documents, including without limitation all financial statements and schedules included in the Company SEC Documents, at the time filed or, in the case of any Company SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing, and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the


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circumstances under which they were made, not misleading, and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable. The audited consolidated financial statements of Company included in Amendment No. 1 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2005 and the unaudited consolidated financial statements of the Company included in the Company’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2006 comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved, and present fairly in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.
(i) Since December 31, 2006, there have not been any events, changes, occurrences or state of facts that, individually or in the aggregate, have had or would reasonably be expected to have a Material Adverse Effect, except as disclosed in writing by the Company to Standby Purchaser.
Section 5.  Representations and Warranties of Standby Purchaser.  Standby Purchaser represents and warrants to the Company as follows:
(a) Standby Purchaser is a partnership duly organized, validly existing and in good standing under the laws of its state of organization.
(b) This Agreement has been duly and validly authorized, executed and delivered by Standby Purchaser and constitutes a binding obligation of Standby Purchaser enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
(c) Standby Purchaser is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act and is acquiring the Securities for investment for its own account, with no present intention of dividing its participation with others (other than in accordance with Sections 16 hereof) or reselling or otherwise distributing the same in violation of the Securities Act or any applicable state securities laws.
(d) Standby Purchaser understands that: (i) other than pursuant to the Registration Rights Agreement, the resale of the Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and the Securities may not be sold or otherwise transferred unless (a) the Securities are sold or transferred pursuant to an effective registration statement under the Securities Act, (b) at the Company’s request, Standby Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope reasonably satisfactory to the Company’s counsel) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, or (c) the Securities are sold pursuant to Rule 144 promulgated under the Securities Act; (ii) any sale of such Securities made in reliance on Rule 144 under the Securities Act may be made only in accordance with the terms of such Rule; and (iii) except as set forth in the Registration Rights Agreement, neither the Company nor any other Person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. Standby Purchaser acknowledges that an appropriate restrictive legend will be placed on the certificate or certificates representing the Securities that may be issued pursuant to this Agreement.
Section 6.  Deliveries at Closing.
(a) At the Closing, the Company shall deliver to Standby Purchaser the following:
(i) A certificate or certificates representing the number of shares of Common Stock issued to Standby Purchaser pursuant to Section 2 or 3 hereof, as the case may be; and


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(ii) A certificate of an officer of the Company on its behalf to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects on and as of the Closing Date, with the same effect as if made on the Closing Date.
(b) At the Closing, Standby Purchaser shall deliver to the Company the following:
(i) Payment of the Subscription Price of the Securities purchased by Standby Purchaser, as set forth in Section 2(d) or 3 hereof, as the case may be; and
(ii) A certificate of Standby Purchaser to the effect that the representations and warranties of Standby Purchaser contained in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date.
Section 7.  Covenants.
(a) Covenants.  The Company agrees as follows between the date hereof and the Closing Date, except as otherwise contemplated hereunder:
(i) To use its reasonable best efforts to have the Board recommend to the stockholders of the Company to approve this Agreement and the transactions contemplated hereunder, it being understood that the Board will make its determination consistent with its fiduciary duties, and prompt written notice shall be given to the Standby Purchaser of any such determination not to recommend;
(ii) To as soon as reasonably practicable (A) seek Company Stockholder Approval of the Rights Offering, the transactions contemplated hereunder and an increase in the number of authorized shares of the Common Stock to 30,000,000 and (B) file with the Commission the Rights Offering Registration Statement, the Preferred Exchange Registration Statement and the Proxy Statement;
(iii) To use reasonable best efforts to cause the Rights Offering Registration Statement, the Preferred Exchange Registration Statement and any amendments thereto to become effective as promptly as possible, and to cause the Proxy Statement to be cleared by the Commission as promptly as practicable;
(iv) To use reasonable best efforts to effectuate the Rights Offering and the Preferred Exchange;
(v) As soon as reasonably practicable after the Company is advised or obtains knowledge thereof, to advise Standby Purchaser with a confirmation in writing, of (A) the time when the Rights Offering Registration Statement, the Preferred Exchange Registration Statement or any amendment thereto has been filed or declared effective or the Prospectus or any amendment or supplement thereto has been filed, (B) the issuance by the Commission of any stop order, or of the initiation or threatening of any proceeding, suspending the effectiveness of the Rights Offering Registration Statement, the Preferred Exchange Registration Statement or any amendment thereto or any order preventing or suspending the use of any preliminary prospectus or the Prospectus or any amendment or supplement thereto, (C) the issuance by any state securities commission of any notice of any proceedings for the suspension of the qualification of the New Shares for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, (D) the receipt of any comments from the Commission, and (E) any request by the Commission for any amendment to the Rights Offering Registration Statement, the Preferred Exchange Registration Statement or any amendment or supplement to the Prospectus or for additional information. The Company will use its reasonable best efforts to prevent the issuance of any such order or the imposition of any such suspension and, if any such order is issued or suspension is imposed, to obtain the withdrawal thereof as promptly as possible;
(vi) To operate the Company’s business in the ordinary course of business consistent with past practice;
(vii) To notify, or to cause the subscription agent for the Rights Offering (the“Subscription Agent”) to notify Standby Purchaser, on each Friday during the exercise period of the Rights, or more frequently if reasonably requested by Standby Purchaser, of the aggregate number of Rights known by the Company or the Subscription Agent to have been exercised pursuant to the Rights Offering as of the


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close of business on the preceding Business Day or the most recent practicable time before such request, as the case may be;
(viii) Not to issue any shares of capital stock of the Company, or options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, securities convertible into or exchangeable for capital stock of the Company, or other agreements or rights to purchase or otherwise acquire capital stock of the Company, (A) except for shares of Common Stock issuable pursuant to the Preferred Exchange, (B) except for shares of Common Stock issuable upon exercise of stock options existing on the date hereof, (C) except for the conversion of Preferred Stock existing on the date hereof, (D) except for the warrants issuable to SOF Investments, L.P., and the Common Stock issuable upon exercise of those warrants, (E) except for equity awards to employees and directors of the Company consistent with past practices and covering not more than 185,000 shares of Common Stock and (F) except for equity awards in connection with the hiring of new personnel by the Company and covering not more than 100,000 shares of Common Stock;
(ix) Not to authorize any stock split, stock dividend, stock combination or similar transaction affecting the number of issued and outstanding shares of Common Stock;
(x) Not to declare or pay any dividends or repurchase any shares of Common Stock or Preferred Stock, except pursuant to the Preferred Exchange; and
(xi) Not to incur any indebtedness or guarantees thereof, other than borrowings in the ordinary course of business and consistent with past practice.
(b) No Shop.  Between the date hereof and the Closing Date, subject to the fiduciary duties of the Board, as determined solely by the Board acting in good faith, after receipt of the advice of the Company’s outside legal counsel, the Company shall not, and shall not permit any of its Affiliates, directors, officers, employees, representatives or agents of the Company (collectively, the“Representatives”) to, directly or indirectly, (i) discuss, knowingly encourage, negotiate, undertake, initiate, authorize, recommend, propose or enter into, any transaction involving a merger, consolidation, business combination, purchase or disposition of any material amount of the assets or any capital stock of the Company or any of its subsidiaries other than the transactions contemplated by this Agreement, the Preferred Exchange or the redemption after the Closing of the shares of Preferred Stock not exchanged pursuant to the Preferred Exchange at the price specified in the Certificate of Designation, (ii) facilitate, knowingly encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers in respect of any such alternative transaction, (iii) furnish or cause to be furnished, to any Person, any information concerning the business, operations, properties or assets of the Company or any of its subsidiaries in connection with any such alternative transaction, or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or knowingly encourage, any effort or attempt by any other Person to do or seek any of the foregoing. The Company shall (and shall cause its Representatives to) immediately cease and cause to be terminated any existing discussions or negotiations with any Persons conducted heretofore with respect to any such alternative transaction, it being understood that, following such termination, the Board will act consistently with its fiduciary duties and the first sentence of this subsection (b).
(c) Expense Reimbursement.  The Company agrees to promptly reimburse Standby Purchaser for all of its reasonableout-of-pocket costs and expenses and reasonable attorneys’ fees (collectively,“Expenses”) incurred by Standby Purchaser in connection with this Agreement, its due diligence investigation of the Company, the drafting and negotiation of documentation in connection with the transactions contemplated hereunder and all other activities relating to the transactions contemplated hereunder upon the Company’s receipt of all reasonably requested documentation to support the incurrence by Standby Purchaser of such Expenses,provided that the Company shall not be obligated to reimburse Expenses related to due diligence in excess of $400,000.
(d) Registration Rights Agreement.  The Company and Standby Purchaser shall execute and deliver to each other and any of their permitted assignees on or prior to the Closing Date the Registration Rights Agreement.


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(e) Public Statements.  Neither the Company nor Standby Purchaser shall issue any public announcement, statement or other disclosure with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party hereto, which consent shall not be unreasonably withheld or delayed, except (i) if such public announcement, statement or other disclosure is required by applicable law or applicable stock market regulations, in which case the disclosing party shall consult in advance with respect to such disclosure with the other parties to the extent reasonably practicable, or (ii) the filing of any Schedule 13D, to which a copy of this Agreement and the Registration Rights Agreement may be attached as an exhibit thereto.
(f) Rights Plan.  As soon as practicable after the date hereof, the Company shall amend the Amended and Restated Rights Agreement, dated as of February 7, 2003, between the Company and EquiServe Trust Company, N.A. to permit the acquisition by Standby Purchaser and its Affiliates of the shares of Common Stock contemplated by Sections 2 and 3 of this Agreement.
(g) Notice of Redemption.  On the Closing Date, the Company shall send a notice of redemption of the Preferred Stock pursuant to Section 3 of the Certificate of Designation.
(h) Certain Acquisitions and Sales.  Between the date hereof and the last date on which Standby Purchaser may acquire shares of Common Stock from the Company pursuant to Sections 2 and 3 of this Agreement, neither Standby Purchaser nor any of its Affiliates shall acquire any shares of Common Stock;provided,however, that the foregoing shall not restrict the acquisition of shares of Common Stock by Standby Purchaser or its Affiliates (i) from the Company pursuant to Sections 2, 3 and (i)of this Agreement or (ii) from Standby Purchaser or one or more of its Affiliates. If during such period Standby Purchaser or any of its Affiliates sells or otherwise disposes of any shares of Common Stock, other than among themselves, the 25% and 30% maximum percentage calculations in Sections 2(c), 3(a) and 3(b) hereof shall be made as if such sales or dispositions had not occurred.
(i) Additional Investment.  Subject to the satisfaction of the conditions set forth in Sections 9(a)(i) — 9(a)(iv), 9(c)(i) and 9(c)(iv) as to such shares of Common Stock issued pursuant to this Section 7(i) (or the waiver of such conditions by Standby Purchaser), at any time prior to the Closing, at the request of the Company (which request shall be made pursuant to the adoption of a resolution by the Board), Standby Purchaser will purchase, at the Subscription Price, shares of Common Stock for an aggregate purchase price not to exceed $2,000,000. The Company shall use the proceeds from such purchase by Standby Purchaser for general corporate purposes. Prior to the occurrence of such purchase, the Company shall comply with Section 7(d) if it has not previously done so. For purposes of this Section 7(i), any references to Closing Date in Sections 9(a)(i) — 9(a)(iv), 9(c)(i) and 9(c)(iv) shall be deemed to refer to the closing date of such purchase of shares of Common Stock pursuant to this Section 7(i).
Section 8.  Director and Observer Rights.
(a) The Company acknowledges and agrees that commencing on the Closing Date and for so long as Standby Purchaserand/or its Affiliates own at least ten percent (10%) of the outstanding shares of Common Stock, Standby Purchaser shall have the right to designate two Persons for election to the Board who shall be reasonably acceptable to the Board and who shall be nominated for election to the Board. During such time, the Board shall consist of not more than nine (9) members, which number shall be reduced to seven (7) upon redemption of all of the Preferred Stock not exchanged pursuant to the Preferred Exchange.
(b) The Company further acknowledges and agrees that commencing on the Closing Date and for so long as Standby Purchaserand/or its Affiliates own at least ten percent (10%) of the outstanding shares of Common Stock, Standby Purchaser shall have the right to designate one Person who is either an employee of Standby Purchaser or is otherwise reasonably acceptable to the Board (the“Designee”) to act as an observer to the Board as provided below(“Observer Rights”). During such time as Standby Purchaser has Observer Rights, the Company shall invite the Designee to attend any meetings of the Board and any committees thereof (at the same time directors are invited thereto) and provide the Designee with such materials (at the same time such materials are provided to directors) as the Company provides to directors in connection with their service on the Board and any committees thereof,provided that the Designee need not be permitted to attend (i) any


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portion of any such meeting or be provided with any portion of such materials to the extent that so doing would jeopardize any legal privilege, including the attorney-client privilege, and to the extent the subject of such meeting or materials is potentially adverse to Standby Purchaser and (ii) any portion of any such meeting attended only by the members of the Board in executive session. The exercise by Standby Purchaser of Observer Rights is conditioned upon the Company’s receipt of a confidentiality agreement executed by Standby Purchaser and the Designee reasonably satisfactory to the Company providing for Standby Purchaser’s and the Designee’s preservation of the confidentiality of any materials provided or information received at any meeting of the Board or any committee thereof. The Company shall promptly reimburse the Observer for all reasonable expenses incurred in connection with the Observer’s attendance at such meetings.
Section 9.  Conditions to Closing.
(a) The obligations of Standby Purchaser to consummate the transactions contemplated hereunder are subject to the fulfillment, prior to or on the Closing Date, of the following conditions:
(i) The representations and warranties of the Company in Section 4 shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as if made on such date (except for representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date);
(ii) The Company shall have executed and delivered to Standby Purchaser a duly executed copy of the Registration Rights Agreement;
(iii) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have been any Material Adverse Effect and no event shall have occurred or circumstance shall exist which would reasonably likely result in a Material Adverse Effect;
(iv) As of the Closing Date, none of the following events shall have occurred and be continuing: (A) trading in the Common Stock shall have been suspended by the Commission or the American Stock Exchange or trading in securities generally on the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market shall have been suspended or limited or minimum prices shall have been established on either such exchange or the Nasdaq National Market, (B) a banking moratorium shall have been declared either by U.S. federal or New York State authorities, or (C) there shall have occurred any material new outbreak or material escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis which has a material adverse effect on the U.S. financial markets (collectively, a“Market Adverse Effect”);
(v) The Company shall have sent a notification of redemption to each holder of unexchanged shares of Preferred Stock simultaneously with the Closing; and
(vi) Two (2) nominees of Standby Purchaser reasonably acceptable to the Board shall have been elected or appointed to the Board, which Board shall consist of not more than nine (9) members immediately after giving effect to such additional two (2) directors; it being understood that the Board shall be reduced to seven (7) directors following the redemption of all of the Preferred Stock not exchanged pursuant to the Preferred Exchange.
(b) The obligations of the Company to consummate the transactions contemplated hereunder are subject to the fulfillment, prior to or on the Closing Date, of the following conditions:
(i) The representations and warranties of Standby Purchaser in Section 5 shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as if made as of such date (except for representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date); and
(ii) Standby Purchaser shall have executed and delivered to the Company a duly executed copy of the Registration Rights Agreement.


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(c) The obligations of each of the Company and Standby Purchaser to consummate the transactions contemplated hereunder in connection with the Rights Offering are subject to the fulfillment, prior to or on the Closing Date, of the following conditions:
(i) No judgment, injunction, decree or other legal restraint shall prohibit, or have the effect of rendering unachievable, the consummation of the Rights Offering or the transactions contemplated by this Agreement;
(ii) The Rights Offering Registration Statement shall have been filed with the Commission and declared effective; no stop order suspending the effectiveness of the Rights Offering Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or otherwise shall have been complied with;
(iii) The Rights Offering and the transactions contemplated hereunder shall have been approved by the affirmative vote of a majority of the shares of the Company’s securities present in person or by proxy at the meeting of stockholders and entitled to vote on the matter;
(iv) The New Shares and the Securities shall have been authorized for listing on the American Stock Exchange; and
(v) The Preferred Exchange shall be consummated simultaneously with the Closing or such other time as mutually agreed by Standby Purchaser and the Company.
Section 10.Preferred Exchange.  The definitive terms of the Preferred Exchange are still being discussed by the Company and Standby Purchaser as of the date hereof and notwithstanding the provisions set forth herein and the Term Sheet, the Company and Standby Purchaser may determine to modify the Preferred Exchange by amending this Agreement, each such party acting reasonably in connection therewith.
Section 11.Restrictions on Transfer.
(a) Standby Purchaser shall not, and shall ensure that its Affiliates do not, purchase, sell, transfer, assign, convey, gift, mortgage, pledge, encumber, hypothecate or otherwise dispose of, directly or indirectly(“Transfer”), any Securities;provided,however, that the foregoing shall not restrict in any manner a Transfer (i) by Standby Purchaser to one or more of its Affiliates,provided that the transferee in each case agrees to be subject to the terms of this Section 11, or (ii) to any other person in a private transaction if the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such Transfer is exempt from the registration requirements of the Securities Act or (iii) made in accordance with Rule 144 under the Securities Act,provided that the Company shall have the right to receive an opinion of legal counsel for the holder, reasonably satisfactory to the Company, to the effect that such Transfer is exempt from the registration requirements of the Securities Act, prior to the removal of the legend subject to Rule 144 or (iv) made pursuant to a registration statement declared effective by the Commission. Any purported Transfers of Securities in violation of this Section 11 shall be null and void and no right, title or interest in or to such Securities shall be Transferred to the purported transferee, buyer, donee, assignee or encumbrance holder. The Company will not give, and will not permit the Company’s transfer agent to give, any effect to such purported Transfer in its stock records.
(b) Restrictive Legends.  Standby Purchaser understands and agrees that the Securities will bear a legend substantially similar to the legend set forth below. The legend may be removed pursuant to Section 11(a)(iii) and Section 11(a)(iv) as provided above. The legend shall be removed upon the effectiveness of a registration statement filed pursuant to the Registration Rights Agreement.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED AND/OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION AND/OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, (B) IN A TRANSACTION WHICH


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IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND REGISTRATION AND/OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS PROVIDED THAT AT THE ISSUER’S REQUEST, THE TRANSFEROR THEREOF SHALL HAVE DELIVERED TO THE ISSUER AN OPINION OF COUNSEL (WHICH OPINION SHALL BE IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE ISSUER) TO THE EFFECT THAT SUCH SECURITIES MAY BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION, OR (C) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
Section 12.Termination.
(a) This Agreement may be terminated at any time prior to the Closing Date, by Standby Purchaser by written notice to the Company if there is a Material Adverse Effect or a Market Adverse Effect, in either case that is not cured within twenty-one (21) days after the occurrence thereof (the“Cure Period”),provided that the right to terminate this Agreement after the occurrence of each Material Adverse Effect or a Market Adverse Effect, which has not been cured within the Cure Period, shall expire seven (7) days after the expiration of such Cure Period.
(b) This Agreement may be terminated at any time prior to the Closing Date, by the Company on one hand or Standby Purchaser on the other hand by written notice to the other party hereto:
(i) if there is a material breach of this Agreement by the other party that is not cured within fifteen (15) days after receipt of written notice by such breaching party; or
(ii) if the Closing has not occurred on or prior to November 15, 2007, for any reason whatsoever, other than a material breach hereunder by such terminating party or failure of the closing condition specified in Section 9(a)(iv).
Section 13.Indemnification and Contribution.
(a) In the event of any registration of any Securities under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless Standby Purchaser and each other Person who participated in the offering of such Securities and each other Person, if any, who controls Standby Purchaser or such participating Person within the meaning of the Securities Act (all such Persons being hereinafter referred to, collectively, as the“Standby Indemnified Persons”), against any losses, claims, damages or liabilities, joint or several, to which any of the Standby Indemnified Persons may become subject (i) as a result of any breach by the Company of any of its representations or warranties contained herein or in any certificate delivered hereunder or (ii) under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (A) any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (B) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each such Standby Indemnified Person for any reasonable legal or any other expenses reasonably incurred by such Standby Indemnified Person in connection with investigating or defending any such loss, claim, damage, liability or action;provided,however, that the Company shall not be liable in any such case to any Standby Indemnified Person to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Standby Indemnified Person specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Standby Indemnified Person, and shall survive the transfer of such Securities or New Shares by such Standby Indemnified Person.
(b) Standby Purchaser agrees to indemnify and hold harmless the Company, its directors and officers and each other Person, if any, who controls the Company within the meaning of the Securities Act (all such Persons being hereinafter referred to, collectively, as the“Company Indemnified Persons” and together with


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the Standby Indemnified Persons, the“Indemnified Persons”) against any losses, claims, damages or liabilities to which any of the Company Indemnified Persons may become subject (i) as a result of any breach by Standby Purchaser of any of its representations or warranties contained herein or in any certificate delivered hereunder or (ii) under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information provided in writing to the Company by Standby Purchaser specifically for use in any registration statement under which Securities are registered under the Securities Act at the request of Standby Purchaser, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto.
(c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person, except to the extent the indemnifying party is actually prejudiced thereby) and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party;provided,however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (A) the indemnifying party has agreed to pay such fees or expenses or (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld or delayed). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (i) such settlement or compromise contains a full and unconditional release of the indemnified party or (ii) the indemnified party otherwise consents in writing, which consent shall not be unreasonably withheld or delayed. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels.
(d) (i) If the indemnification provided for in this Section 13 is unavailable to an Indemnified Person hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such Indemnified Person, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Person in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Persons shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, the indemnifying party or the Indemnified Persons, and their relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 13(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.


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Section 14.Survival.  The representations and warranties of the Company and Standby Purchaser contained in this Agreement or in any certificate delivered hereunder shall survive the Closing hereunder.
Section 15.Notices.  All notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the party making the same, shall specify the Section of this Agreement pursuant to which it is given or being made and shall be deemed given or made (i) on the date delivered if delivered by telecopy or in person, (ii) on the third (3rd) Business Day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid) or (iii) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, as follows:
(a) if to Standby Purchaser, at:
c/o Tontine Capital Management L.L.C.
55 Railroad Avenue
Greenwich, Connecticut 06830
Attention: Joseph V. Lash
Telecopy No.:(203) 769-2010
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman
Telecopy No.:(212) 310-8007
(b) if to the Company, at:
Westmoreland Coal Company
2 North Cascade Avenue, 14th Floor
Colorado Springs, Colorado 80903
Attention: Roger Wiegley
Telecopy No.:(719) 448-5824
with a copy to:
WilmerHale
1875 Pennsylvania Avenue, NW
Washington, D.C. 20006
Attention: Michael J. Levitin
Telecopy No.:(202) 663-6363
or to such other representative or at such other address of a party as such party hereto may furnish to the other parties in writing in accordance with this Section 15. If notice is given pursuant to this Section 15 of any assignment to a permitted successor or assign of a party hereto, the notice shall be given as set forth above to such successor or permitted assign of such party.
Section 16.Assignment.  This Agreement will be binding upon, and will inure to the benefit of and be enforceable by, the parties hereto and their respective successors and assigns, including any person to whom Securities are transferred in accordance herewith. This Agreement, or Standby Purchaser’s obligations and rights hereunder, may be assigned, delegated or transferred, in whole or in part, by Standby Purchaser to any of its Affiliates over which Standby Purchaser or any of its Affiliates exercises investment authority, including, without limitation, with respect to voting and dispositive rights,provided that any such assignee assumes the obligations of Standby Purchaser hereunder and agrees to be bound by the terms of this Agreement in the same manner as Standby Purchaser. Standby Purchaser or any of its Affiliates may assign, delegate or transfer, in whole or in part, its Basic Subscription Privilege to any other Affiliate or to Standby Purchaser. Notwithstanding the foregoing or any other provisions herein, no such assignment will relieve Standby


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Purchaser of its obligations hereunder if such assignee fails to perform such obligations. In addition, upon the request of Standby Purchaser, the Company and Standby Purchaser will negotiate in good faith to add one or more third parties designated by Standby Purchaser as additional purchasers of Unsubscribed Shares and to provide an option to each such additional purchaser, comparable to the Option set forth in Section 3(a), to purchase additional shares of Common Stock in an amount to be mutually agreed upon, at the Subscription Price. To the extent there are any such additional purchasers, the Company and Standby Purchaser will negotiate in good faith to amend this Agreement to add any such additional purchasers to this Agreement prior to the mailing of the Proxy Statement to the stockholders of the Company.
Section 17.Entire Agreement.  This Agreement embodies the entire agreement and understanding between the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein, with respect to the standby purchase commitments or the registration rights granted by the Company with respect to the Securities and the New Shares. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter of this Agreement.
Section 18.Governing Law.  This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York, without giving effect to the conflict of laws provisions thereof.
Section 19.Severability.  If any provision of this Agreement or the application thereof to any person or circumstances is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
Section 20.Extension or Modification of Rights Offering.  Without the prior written consent of Standby Purchaser, the Company may (i) waive irregularities in the manner of exercise of the Rights, and (ii) waive conditions relating to the method (but not the timing) of the exercise of the Rights to the extent that such waiver does not materially adversely affect the interests of Standby Purchaser.
Section 21.Miscellaneous.
(a) Subject to the first sentence of Section 7(b) and the Board’s fiduciary duties, the Company shall not after the date of this Agreement enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to holders of Securities in this Agreement.
(b) The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning of this Agreement.
(c) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.
WESTMORELAND COAL COMPANY
 By: /s/  Robert E. Killen
Name: Robert E. Killen
Title:  Director
TONTINE CAPITAL PARTNERS, L.P.
By: TONTINE CAPITAL MANAGEMENT, L.L.C.,
its general partner
By: /s/  Jeffrey L. Gendell
Name: Jeffrey L. Gendell
Title: Managing Member


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Annex A
WESTMORELAND COAL COMPANY
Term Sheet
Issuer:Westmoreland Coal Company (the “Company”)
 
Offering Size:
Using a black ink pen, mark your votes with anXas shown in this example. Please do not write outside the designated areas.
Common equity rights offering of $85 million, plus the amount necessary to redeem all unexchanged shares of the Company’s Series A Preferred Stock (the “Preferred Stock”), plus the Additional Subscription Privilege, with the size to be determined by mutual agreement of Tontine Capital Partners, L.P. (“Tontine”) and the Companyx
(BAR CODE)
 
Authorization:Prior approval of the Company’s Board of Directors and subject to shareholder approval
Rights Offering:The Company will distribute to (i) holders of its common stock and (ii) if agreed to by the Company and Tontine, holders of Preferred Stock, who have elected to exchange their shares of Preferred Stock for common stock, on an as exchanged basis (collectively, the “Eligible Participants”), at no charge, a fraction of a subscription right for each share of the Company’s common stock that Eligible Participants own (including on an as exchanged basis) as of the Record Date, with the fraction to be based on the offering size, the number of shares of common stock outstanding and the Subscription Price
Basic Subscription Privilege:Each subscription right will entitle Eligible Participants to purchase one share of common stock, upon payment of the Subscription Price in cash
Over-subscription privilege:Each Eligible Participant who exercises all of his rights mayover-subscribe for up to all of his pro rata share of unsubscribed rights. Pro rata share will be based on each Eligible Participant’s ownership percentage of all outstanding common stock on an as exchanged basis
Launch Date:To be determined
Record Date:The Record Date is to be the Launch Date at 5:00 p.m. New York City time.
Expiration Date:The rights would expire no later than 40 days after the Launch Date. Rights not exercised by the Expiration Date will be null and void
Subscription Price:The Subscription Price shall be $18.00 per share and will be paid in cash. All payments must be cleared on or before the Expiration Date
Transferability of Rights:The subscription rights may not be sold, transferred or assigned
Subscription Commitment:Tontineand/or its affiliates will act as a standby purchaser in the rights offering for all of the unsubscribed shares, subject to the maximum ownership percentage described below
Additional Subscription Privilege:Tontine shall have the option (the “Additional Subscription Privilege”) to purchase an additional number of shares, at the


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Subscription Price, up to such amount that will result in Tontine owning 25% of the fully diluted shares (exclusive of stock options and any unexchanged Preferred Stock) after giving effect to the rights offering and the exercise of the Additional Subscription Privilege
 
Use of Proceeds:Additional liquidity, acquisitions, project development and general corporate purposes
Maximum Ownership of Tontine:Tontine may not acquire shares in the rights offering that would cause it to own more than 30% of the fully diluted shares (exclusive of stock options and any unexchanged Preferred Stock) after giving effect to the rights offering and the exercise of the Additional Subscription Privilege
Preferred Stock Exchange:The exchange offer of Preferred Stock into common stock shall be at an exchange ratio to be determined
The exchange offer will expire prior to the commencement of the rights offering. Appropriate provisions will be agreed upon by the Company and Tontine to provide prompt payment to exchanging holders
Unexchanged shares of Preferred Stock will be redeemed promptly following the consummation of the rights offering
If for any reason the unexchanged shares of Preferred Stock are not redeemed within 60 days after the closing of the rights offering, the maximum ownership by Tontine of common stock set forth above under “Additional Subscription Privilege” and “Maximum Ownership of Tontine” shall be increased to reflect such shares of Preferred Stock that have remained outstanding on an as converted basis. Tontine shall have the option to purchase any such additional shares resulting from such increase, if any, in the maximum ownership calculation
Subscription Agent:To be determined by mutual agreement of Tontine and the Company
Board of Directors:In connection with this transaction, it is the intent of the parties to reconstitute the Board of Directors to a less costly and more efficient format at the 2007 Annual Meeting while continuing its primarily independent composition. The Board shall consist of not more than seven members, plus two directors elected by the holders of Preferred Stock until such time as the Preferred Stock has been redeemed. Tontine shall have the right to designate two of the seven members and to appoint an observer to the Board so long as it and its affiliates own 10% or more of the outstanding common stock of the Company. Tontine shall also have the right to vote all of the shares it owns in its sole discretion on all matters, including the election of directors
Registration Rights:Upon the earlier of (i) such time as the Company is eligible to register its securities onForm S-3 and (ii) 13 months following the closing of the rights offering, Tontine shall have an evergreen shelf registration statement. Until such time and thereafter if the shelf registration is not effective, Tontine shall have demand registration


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rights and piggyback registration rights (other than piggyback registrations onForm S-8). Notwithstanding such registration rights, Tontine may sell Company securities only during periods when affiliates of the Company are permitted to sell such securities if Tontine has its own employees or an affiliate’s employees serving on the Board or as an observer
Other Conditions:Satisfactory completion of due diligence, negotiation and execution of definitive documentation, amendment of the Company’s Shareholder Rights Plan to accommodate Tontine’s potential pro forma ownership after giving effect to the rights offering and the Additional Subscription Privilege, and the Preferred Stock exchange offer shall have closed
Expenses:All of the expenses incurred by Tontine are to be reimbursed by the Company, subject only to a maximum of $400,000 for diligence-related expenses


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Annex B
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of          , 2007, by and among Westmoreland Coal Company, a Delaware corporation (“Company”), and the stockholders signatories hereto.
WITNESSETH:
WHEREAS, this Agreement is being entered into in connection with the Standby Purchase Agreement dated as of May 2, 2007 (the “Standby Purchase Agreement”), between the Company and Tontine Capital Partners, L.P. (“Tontine”);
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows:
1. Definitions.  Unless otherwise defined herein, capitalized terms used herein and in the recitals above shall have the following meanings:
“Additional Holders” shall mean the Permitted Assignees of Registrable Securities who, from time to time, acquire Registrable Securities from a Holder or Holders and own Registrable Securities at the relevant time, agree to be bound by the terms hereof and become Holders for purposes of this Agreement.
“Affiliate” of a Person shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such other Person. For purposes of this definition, “control” shall mean the ability of one Person to direct the management and policies of another Person.
“Agreement” shall mean this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.
“Business Day” shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York.
“Closing Date” shall have the meaning assigned to such term in the Standby Purchase Agreement.
“Commission” shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws.
“Common Stock” shall mean the shares of common stock, $2.50 par value per share, of Company, as adjusted to reflect any merger, consolidation, recapitalization, reclassification,split-up, stock dividend, rights offering or reverse stock split made, declared or effected with respect to the Common Stock.
“Company” shall have the meaning assigned to such term in the preamble.
“Demand Registration” shall have the meaning assigned to such term in Section 2(b) hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.
“Holder” shall mean (i) any Person who owns Registrable Securities at the relevant time and is a party to this Agreement or (ii) any Additional Holder.
“Majority Holders” shall mean Holders holding at the time, shares of Registrable Securities representing more than 50% of the then outstanding Registrable Securities.
“Permitted Assignee” shall mean (a) any Affiliate of any Holder who acquires Registrable Securities from such Holder, or its Affiliates, or (b) any other Person who acquires any Registrable Securities of any Holder or Holders who is designated as a Permitted Assignee by such Holder in a written notice to


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Company;provided,however, that the rights of any Person designated as a Permitted Assignee referred to in the foregoing clause (b) shall be limited if, and to the extent, provided in such notice.
“Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
“Registrable Securities” shall mean the Common Stock of Company owned by the Holders as of the date hereof or at any time in the future; and, if as a result of any reclassification, stock dividends or stock splits or in connection with a combination of shares, recapitalization, merger, consolidation, sale of all or substantially all of the assets of Company or other reorganization or other transaction or event, any capital stock, evidence of indebtedness, warrants, options, rights or other securities (collectively “Other Securities”) are issued or transferred to a Holder in respect of Registrable Securities held by the Holder, references herein to Registrable Securities shall be deemed to include such Other Securities. Shares of Common Stock and Other Securities that are Registrable Securities shall cease to be Registrable Securities at such time as they become eligible for sale pursuant to Rule 144(k) under the Securities Act.
“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.
“Shelf Registration” means a registration effected pursuant to Section 2(a) hereof.
“Shelf Registration Statement” means a “shelf” registration statement of Company relating to a “shelf” offering in accordance with Rule 415 of the Securities Act, or any similar rule that may be adopted by the Commission, pursuant to the provisions of Section 2(a) hereof which covers all of the Registrable Securities held by the Holders, on an appropriate form under the Securities Act, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.
“Standby Purchase Agreement” shall have the meaning assigned to such term in the recitals.
2. Required Registration.
(a) Company shall use its reasonable best efforts to cause a Shelf Registration Statement to be filed and declared effective by the Commission as soon as practicable following the earlier of (i) such time as the Company is eligible to register its securities onForm S-3 and (ii) thirteen (13) months following the closing of the Closing Date. Each Holder as to which any Shelf Registration is being effected agrees to furnish to Company all information with respect to such Holder necessary to make any information previously furnished to Company by such Holder not misleading. Company agrees to use its reasonable best efforts to keep the Shelf Registration Statement continuously effective for as long as any Holder holds Registrable Securities. Company further agrees, if necessary, to promptly supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the Commission.
(b) At any time following the Closing Date when the Shelf Registration Statement covering all Registrable Securities is not effective and after receipt of a written request from the Holders of Registrable Securities requesting that Company effect a registration under the Securities Act covering at least 10% of the Registrable Securities outstanding as of the Closing Date (a “‘Demand Registration”), and specifying the intended method or methods of disposition thereof, Company shall promptly notify all Holders in writing of the receipt of such request and each such Holder, in lieu of exercising its rights under Section 3 may elect (by written notice sent to Company within 10 Business Days from the date of such Holder’s receipt of the aforementioned Company’s notice) to have Registrable Securities included in such Demand Registration thereof pursuant to this Section 2(b). Thereupon Company shall, as expeditiously as is possible, use its


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reasonable best efforts to effect the registration under the Securities Act of all shares of Registrable Securities which Company has been so requested to register by such Holders for sale, all to the extent required to permit the disposition (in accordance with the intended method or methods thereof, as aforesaid) of the Registrable Securities so registered;provided,however, that Company shall not be required to effect more than two (2) registrations of any Registrable Securities pursuant to this Section 2, unless Company shall be eligible at any time to file a registration statement onForm S-3 (or other comparable short form) under the Securities Act, in which event there shall be no limit on the number of such registrations pursuant to this Section 2.
(c) A registration will not count as a Demand Registration until it has become effective (unless the requesting Holders withdraw all their Registrable Securities and Company has performed its obligations hereunder in all material respects, in which case such demand will count as a Demand Registration unless the requesting Holders pay all registration expense in connection with such withdrawn registration);provided,however, that if, after it has become effective, an offering of Registrable Securities pursuant to a registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court or is withdrawn because of any development affecting Company, such registration will be deemed not to have been effected and will not count as a Demand Registration.
(d) If the managing underwriter of a Demand Registration shall advise Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the Demand Registration would materially and adversely affect the distribution of such Registrable Securities, then all selling Holders shall reduce the amount of Registrable Securities each intended to distribute through such offering on apro-ratabasis.
3. Incidental Registration.  If Company at any time proposes to file on its behalfand/or on behalf of any of its security holders (the “demanding security holders”) a registration statement under the Securities Act on any form (other than a registration statement onForm S-4 orS-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively) for the general registration of securities, it will give written notice to all Holders at least 20 days before the initial filing with the Commission of such registration statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by Company. The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such Holders may request.
Each Holder desiring to have Registrable Securities registered under this Section 3 shall advise Company in writing within ten (10) Business Days after the date of receipt of such offer from Company, setting forth the amount of such Registrable Securities for which registration is requested. Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its reasonable best efforts to effect registration under the Securities Act of such shares. If the managing underwriter of a proposed public offering shall advise Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by Company or such demanding security holder would materially and adversely affect the distribution of such securities by Company or such demanding security holder, then all selling security holders (including the demanding security holder who initially requested such registration) shall reduce the amount of securities each intended to distribute through such offering on apro-ratabasis. Except as otherwise provided in Section 5, all expenses of such registration shall be borne by Company.
4. Registration Procedures.  If Company is required by the provisions of Section 2 or 3 to use its reasonable best efforts to effect the registration of any of its securities under the Securities Act, Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with respect to such securities and use its reasonable best efforts to cause such registration statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed one hundred eighty (180) days (other than the Shelf Registration Statement which shall be kept effective for such period as provided in Section 2(a));


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(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of one hundred eighty (180) days (other than the Shelf Registration Statement which shall be kept effective for such period as provided in Section 2(a));
(c) furnish to such selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request;
(d) use its reasonable best efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States as each holder of such securities shall request (provided,however, that Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service of process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such registration statement;
(e) promptly notify each Holder whose Registrable Securities are intended to be covered by such registration statement and each underwriter and, if requested by any such Person, confirm such notice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or “blue sky” laws or the initiation of any proceedings for that purpose, (iii) any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; and (iv) of the happening of any event which makes any statement made in a registration statement or related prospectus untrue or which requires the making of any changes in such registration statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as reasonably practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the time period during which such registration statement is required to remain effective shall be extended for the time period during which such prospectus is so suspended;
(f) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to Section 2, on the date that such shares of Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date that the registration statement with respect to such shares of Registrable Securities becomes effective, (1) an opinion, dated such date, of the independent counsel representing Company for the purposes of such registration, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the Holders making such request, in customary form and covering matters of the type customarily covered in such legal opinions; and (2) a comfort letter dated such date, from the independent certified public accountants of Company, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the Holder making such request and, if such accountants refuse to deliver such letter to such Holder, then to Company, in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or such Holder shall reasonably request. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as such Holders may reasonably request. Such letter from the independent certified


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public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five (5) Business Days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as the Holders of a majority of the Registrable Securities being so registered may reasonably request;
(g) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; and
(h) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the registration statement, an earnings statement covering the period of at least twelve (12) months beginning with the first full month of the Company’s fiscal quarter commencing after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any Holder that such Holder shall furnish to Company such information regarding the securities held by such Holder and the intended method of disposition thereof as Company shall reasonably request and as shall be required in connection with the action taken by Company.
Each Holder agrees that, upon receipt of any notice from Company of the happening of any event of the kind described in Section 4(e)(iv), such Holder shall immediately discontinue such Holder’s disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(e)(iv).
5. Expenses.  All expenses incurred in complying with this Agreement, including, without limitation, all registration and filing fees (including all expenses incident to filing with any stock exchange), printing expenses, fees and disbursements of counsel for Company, the reasonable fees and reasonable expenses of one counsel for the selling security holders (selected by those holding a majority of the shares being registered), expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdiction pursuant to Section 4(d), shall be paid by Company, except that:
(a) all such expenses in connection with any amendment or supplement to the registration statement or prospectus filed more than one hundred eighty (180) days after the effective date of such registration statement because any Holder has not effected the disposition of the securities requested to be registered shall be paid by such Holder, other than with respect to the Shelf Registration; and
(b) Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such Holder.
6. Indemnification and Contribution.
(a) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, Company shall indemnify and hold harmless to the fullest extent permitted by law the Holder of such Registrable Securities, such Holder’s directors and officers, and each other person (including each underwriter) who participated in the offering of such Registrable Securities and each other person, if any, who controls such Holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the


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statements therein not misleading, and shall reimburse such Holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such Holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action;provided,however, that Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to Company by such Holder specifically for use therein or (in the case of any registration pursuant to Section 2) so furnished for such purposes by any underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by such Holder.
(b) Each Holder, by acceptance hereof, agrees to indemnify and hold harmless to the fullest extent permitted by law Company, its directors and officers and each other person, if any, who controls Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information provided in writing to Company by such Holder specifically for use in the following documents and contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such Holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto. Notwithstanding the provisions of this paragraph (b) or paragraph (d) below, no Holder shall be required to indemnify any person pursuant to this Section 6 or to contribute pursuant to paragraph (d) below in an amount in excess of the amount of the aggregate net proceeds received by such Holder in connection with any such registration under the Securities Act.
(c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give such notice shall not limit the rights of such Person, except to the extent the indemnifying party is actually prejudiced thereby) and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party;provided,however, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (A) the indemnifying party has agreed to pay such fees or expenses or (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person. If such defense is not assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld or delayed). If such defense is assumed by the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not settle or otherwise compromise the applicable claim unless (i) such settlement or compromise contains a full and unconditional release of the indemnified party or (ii) the indemnified party otherwise consents in writing, which consent shall not be unreasonably withheld or delayed. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and disbursements of such additional counsel or counsels.
(d) If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the


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amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined bypro-rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
7. Certain Limitations on Registration Rights.  Notwithstanding the other provisions of this Agreement:
(a) Company shall not be obligated to register the Registrable Securities of any Holder if, in the opinion of counsel to Company reasonably satisfactory to the Holder and its counsel (or, if the Holder has engaged an investment banking firm, to such investment banking firm and its counsel), the sale or other disposition of such Holder’s Registrable Securities, in the manner proposed by such Holder (or by such investment banking firm), may be effected without registering such Registrable Securities under the Securities Act.
(b) Company shall not be obligated to register the Registrable Securities of any Holder pursuant to Section 2 if Company has had a registration statement, under which such Holder had a right to have its Registrable Securities included pursuant to Section 2 or 3, declared effective within six (6) months prior to the date of the request pursuant to Section 2;provided,however, that if any Holder elected to have shares of its Registrable Securities included under such registration statement but some or all of such shares were excluded pursuant to the penultimate sentence of Section 3, then such six (6) month period shall be reduced to three (3) months.
(c) Company shall have the right to delay the filing or effectiveness of a registration statement required pursuant to Section 2 hereof during one or more periods aggregating not more than ninety (90) days in any twelve (12) month period in the event that (i) Company would, in accordance with the advice of its counsel, be required to disclose in the prospectus information not otherwise then required by law to be publicly disclosed and (ii) in the judgment of Company’s board of directors, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect Company.
(d) In the event that, in the judgment of Company, it is advisable to suspend use of a prospectus included in a registration statement filed pursuant to this Agreement, due to pending material developments or other events that have not yet been publicly disclosed and as to which (i) Company would, in accordance with the advice of its counsel, be required to disclose in the prospectus information not otherwise then required by law to be publicly disclosed and (ii) in the judgment of Company’s board of directors, there is a reasonable likelihood that such disclosure would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect Company, then Company shall notify all Holders to such effect, and, upon receipt of such notice, each such Holder shall immediately discontinue any sales of Registrable Securities pursuant to such registration statement until such Holder has received copies of a supplemented or amended prospectus or until such Holder is advised in writing by Company that the then current prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed


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incorporated by reference in such prospectus. Notwithstanding anything to the contrary herein, Company shall not exercise its rights under this Section 7(d) to suspend sales of Registrable Securities for a period or periods aggregating more than ninety (90) days in any twelve (12) month period.
(e) If an employee of Tontine or an employee of an Affiliate of Tontine (other than Company) serves as a member of, or observer to, Company’s board of directors, Tontine and its Affiliates shall not be permitted to sell any Registrable Securities during such periods that Company has sent written notice to Tontine and written or electronic notice to Company’s Affiliates and directors prohibiting them from selling securities of Company due to material non-public information being available to such parties. Any registration statement in effect during any such “blackout” period which was filed pursuant to Section 2 hereof shall be extended for such number of days as Tontine and its Affiliates are not permitted to sell Registrable Securities pursuant to this Section 7(e).
(f) If at any time the Commission takes the position that some or all of the Registrable Securities may not be included in a registration statement because (i) the inclusion of such Registrable Securities violates the provisions of Rule 415 under the Securities Act as a result of the number of shares included in such registration statement, (ii) the Registrable Securities cannot be sold as an “at the market offering,”and/or (iii) the Registrable Securities may not be sold on a delayed or continuous basis under Rule 415, the Company shall (A) remove from the registration statement such portion of the Registrable Securitiesand/or (B) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the Commission may require to assure the Company’s compliance with the requirements of Rule 415.
8. Selection of Managing Underwriters.  The managing underwriter or underwriters for any offering of Registrable Securities to be registered pursuant to Section 2 shall be selected by the Holders of a majority of the Registrable Securities being so registered and shall be reasonably acceptable to Company.
9. Interpretive Matters.  Unless otherwise expressly provided or the context otherwise requires, for purposes of this Agreement the following rules of interpretation apply:
(a) When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.
(b) Any reference in this Agreement to gender includes all genders, and words imparting the singular number also include the plural and vice versa.
(c) All references in this Agreement to any “Article,” or “Section,” are to the corresponding Article or Section of this Agreement.
(d) The words “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.
(e) The word “including” or any variation thereof means “including, but not limited to,” and does not limit any general statement that it follows to the specific or similar items or matters immediately following it.
10. Miscellaneous.
(a) No Inconsistent Agreements.  Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement.
(b) Remedies.  Each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly


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asserted as a defense, the successful party shall be entitled to recover reasonable attorneys’ fees in addition to any other available remedy.
(c) Amendments and Waivers.  Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given unless Company has obtained the written consent of the Majority Holders.
(d) Notice Generally.  All notices, demands, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the party making the same, shall specify the Section of this Agreement pursuant to which it is given or being made and shall be deemed given or made (i) on the date delivered if delivered by telecopy or in person, (ii) on the third (3rd) Business Day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid) or (iii) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, as follows:
(i) If to any Holder, at its last known address appearing on the books of Company maintained for such purpose.
(ii) If to Company, at:
Westmoreland Coal Company
2 North Cascade Avenue, 14th Floor
Colorado Springs, Colorado 80903
Attention: [Roger Wiegley]
Telecopy No.: [(719)448-5824]
With a copy to:
WilmerHale
1875 Pennsylvania Avenue NW
Washington, DC 20006
Attention: Michael J. Levitin
Telecopy No.:(202) 663-6363
or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three Business Days after the same shall have been deposited in the United States mail.
(e) Rule 144.  So long as Company is subject to the reporting requirements under the Exchange Act, it shall comply with such requirements so as to permit sales of Registrable Securities by the holders thereof pursuant to Rule 144 under the Securities Act.
(f) Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto including any person to whom Registrable Securities are transferred and becomes an Additional Holder in accordance with this Agreement.
(g) Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law; Jurisdiction; Jury Waiver.  This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York without giving effect to the conflict of laws provisions thereof. Each of the parties hereby submits to personal jurisdiction and waives any objection as to venue in the County of New York, State of New York. Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in


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accordance with Section 10(d) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder.
(i) Severability.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(j) Entire Agreement.  This Agreement represents the complete agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof.
(k) Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts (including by facsimile), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(l) Termination.  Company’s obligations under this Agreement shall cease with respect to any Person when such Person ceases to be a Holder. Notwithstanding the foregoing, Company’s obligations under Section 5 and Section 6 shall survive in accordance with their terms.


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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
WESTMORELAND COAL COMPANY
 By:  
Name: 
 Title: 
Signature Page to Registration Rights Agreement


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TONTINE CAPITAL PARTNERS, L.P.
 By: TONTINE CAPITAL MANAGEMENT, L.L.C.,
its general partner
 By: 
Name: Jeffrey L. Gendell
Title: Managing Member
[TONTINE PARTNERS, L.P.
By: TONTINE MANAGEMENT, L.L.C.,
its general partner
By: 
Name: Jeffrey L. Gendell
Title: Managing Member
TONTINE OVERSEAS ASSOCIATES, L.L.C.,
as investment manager to Tontine Overseas Fund, Ltd. and certain separately managed accounts
By: 
Name: Jeffrey L. Gendell
Title: Managing Member
TONTINE CAPITAL MANAGEMENT, L.L.C.
By: Tontine Capital Overseas GP, L.L.C.,
its general partner
By: 
Name: Jeffrey L. Gendell
Title: Managing Member]
Jeffrey L. Gendell, as in individual]
Signature Page to Registration Rights Agreement


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Appendix B
AMENDED AND RESTATED FIRST AMENDMENT TO STANDBY PURCHASE AGREEMENT
This AMENDED AND RESTATED FIRST AMENDMENT TO STANDBY PURCHASE AGREEMENT (this“Amendment”), dated as of July 3, 2007, by and among Westmoreland Coal Company, a Delaware corporation (the“Company”), Tontine Capital Partners, L.P., a Delaware limited partnership(“Standby Purchaser”), and Silverhawk Capital Partners GP, LLC, a Delaware limited liability company (“Additional Purchaser”), amends that certain Standby Purchase Agreement (the“Original Agreement”), dated as of May 2, 2007, by and between the Company and Standby Purchaser.
W I T N E S S E T H :
WHEREAS, the parties hereto wish to amend the terms of the Original Agreement, as set forth herein;
WHEREAS, this Amended and Restated First Amendment to Standby Purchase Agreement reflects the correct name of the Additional Purchaser;
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree (i) that Additional Purchaser shall be added as a party to the Original Agreement and shall be entitled to the rights under, and bound by the terms of the Original Agreement, as amended by this Amendment, applicable to Additional Purchaser (capitalized terms used herein without definition shall have the respective meaning assigned to such terms in the Original Agreement), and (ii) as follows:
1. Amendment to Certain Other Definition.  Section 1 of the Original Agreement is hereby amended as follows:
(a) The following definition will be added to Section 1 of the Original Agreement immediately after the definition of the term “Agreement”:
“‘AP Securities’ shall mean the shares of Common Stock that are to be purchased by Additional Purchaser pursuant to Section 22 hereof.”
“‘Change of Control Transaction’ shall mean any merger, consolidation, recapitalization, stock purchase, share exchange, asset acquisition or other business combination involving the Company or any of its Subsidiaries in one or a series of related events in which the holders of at least a majority of the Company’s Common Stock are entitled to sell or exchange their shares of Common Stock for cash, equity securities of another issuer, any combination thereof or any other consideration.”
“‘Immediate Family Member’ shall have the meaning set forth in Item 404 ofRegulation S-K.”
(b) The term“Closing”is hereby amended to add the words “and Section 22” after the words “Section 2”.
2. New Section 22.  The Original Agreement is hereby amended by adding the following immediately after Section 21 of the Original Agreement:
Section 22.  Additional Purchaser.
“(a)Purchase of Shares of Common Stock by Additional Purchaser.  Subject to the terms and conditions set forth in this Agreement:
(i) If there are any Unsubscribed Shares that Standby Purchaser is not permitted to purchase as a result of the cap set forth in Section 2(c) hereof, then Additional Purchaser shall purchase such Unsubscribed Shares at the Subscription Price;provided,however, that Additional Purchaser shall not purchase any Unsubscribed Shares that would cause Additional Purchaser to pay an aggregate purchase price hereunder in excess of ten million two hundred thousand dollars ($10,200,000).


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(ii) If after giving effect to Additional Purchaser’s purchase of Unsubscribed Shares, if any, Additional Purchaser has not purchased a number of shares of Common Stock equal to a purchase price of ten million two hundred thousand dollars ($10,200,000), Additional Purchaser shall have the option, exercisable in its sole discretion, to purchase at the Closing, at the Subscription Price, a number of shares of Common Stock up to such shortfall.
(iii) Payment of the Subscription Price for the AP Securities shall be made, on the Closing Date, against delivery of certificates evidencing the AP Securities, in United States dollars by means of certified or cashier’s checks, bank drafts, money orders or wire transfers. Additional Purchaser shall be made a party to the Registration Rights Agreement.
(b) Representations and Warranties of the Company.
(i) Subject to the next sentence and to clause (ii) of this sub-section, the Company represents and warrants to Additional Purchaser that the representations and warranties contained in Section 4 of this Agreement are true and correct as of the date of the First Amendment to Standby Purchase Agreement, dated as of July 3, 2007 (the“Amendment Date”), by and among the Company, the Standby Purchaser and Additional Purchaser (the“Amendment”), as if made on the Amendment Date. For purposes of the foregoing, each reference to “Standby Purchaser” in such representations and warranties shall be deemed to be a reference to “Additional Purchaser.” All references to the “Agreement” shall be deemed to refer to this Agreement as amended by the Amendment.
(ii) Section 4(i) of the Original Agreement is hereby amended to read as follows: “Since December 31, 2006, there have not been any events, changes, occurrences or state of facts that, individually or in the aggregate, have had or would reasonably be expected to have a Material Adverse Effect, except for matters disclosed prior to the Amendment Date in the Company’s public filings pursuant to the Exchange Act and matters disclosed prior to the Amendment Date in writing by the Company to Standby Purchaser and Additional Purchaser.”
(c) Representations and warranties of Additional Purchaser.
(i) Additional Purchaser represents and warrants to the Company, as of the Amendment Date, that Additional Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware.
(ii) Subject to the next sentence, Additional Purchaser hereby makes, with respect to itself as of the Amendment Date, each of the representations and warranties set forth in Sections 5(b), 5(c) and 5(d) of this Agreement to the Company. For purposes of the foregoing, each reference to “Standby Purchaser” and “Securities” in such representations and warranties shall be deemed to be a reference to “Additional Purchaser” and “AP Securities”, respectively.
(iii) Additional Purchaser represents and warrants to the Company that (A) neither it nor any of its Affiliates is an Affiliate of Standby Purchaser, (B) none of it, its Affiliates and any Immediate Family Member of any of its Affiliates is a director, officer, employee, partner (limited or general) or member of Standby Purchaser or, to its knowledge, any Affiliate of Standby Purchaser or any entity of which Standby Purchaser or any Affiliate thereof owns 5% or more, (C) from January 1, 2004 to the present, none of it, its Affiliates, and any Immediate Family Member of any of its Affiliates has accepted any consulting, advisory or other compensatory fee or payment from Standby Purchaser, or, to its knowledge, any Affiliate of Standby Purchaser or any entity of which Standby Purchaser or any Affiliate thereof owns 5% or more, and (D) there are no contracts, arrangements, understandings or relationships (legal or otherwise) between Additional Purchaser and Standby Purchaser with respect to the voting of any shares of Common Stock.
(d) Deliveries at Closing.
(i) At the Closing, the Company shall deliver to Additional Purchaser the following:
(A) A certificate or certificates representing the number of shares of Common Stock issued to Additional Purchaser pursuant to Section 22(a) of this Agreement; and


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(B) A certificate of an officer of the Company on its behalf to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects on and as of the Closing Date, with the same effect as if made on the Closing Date.
(ii) At the Closing, Additional Purchaser shall deliver to the Company the following:
(A) Payment of the Subscription Price of the AP Securities purchased by Additional Purchaser pursuant to Section 22(a) of this Agreement; and
(B) A certificate of Additional Purchaser to the effect that the representations and warranties of Additional Purchaser contained in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date.
(e) Conditions to Closing.  The obligations of Additional Purchaser to consummate the transactions contemplated hereunder are subject to the fulfillment, or waiver in writing by Additional Purchaser, prior to or on the Closing Date, of the following conditions:
(i) the obligations of Standby Purchaser shall not have been terminated under this Agreement and Standby Purchaserand/or its Affiliates shall have purchased the full number of Securities that it is required to purchase pursuant to Section 2 hereof.
(ii) The representations and warranties of the Company in Section 22(b) of this Agreement shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as if made on such date (except for representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date).
(iii) The Company shall have executed and delivered to Additional Purchaser a duly executed copy of the Registration Rights Agreement.
(iv) The AP Securities shall have been authorized for listing on the American Stock Exchange.
(vi) Each of the conditions set forth in (A) clauses (iii), (iv), and (v) of Section 9(a) of this Agreement, and (B) Sections 9(c)(i) — (iv) of this Agreement shall have been satisfied. Section 9(a)(iii) is hereby amended and restated to read in its entirety as follows:
“Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, and except for matters disclosed prior to the Amendment Date in the Company’s public filings pursuant to the Exchange Act and matters disclosed prior to the Amendment Date in writing by the Company to Standby Purchaser and Additional Purchaser, there shall not have been any Material Adverse Effect and no event shall have occurred or circumstance shall exist which would reasonably likely result in a Material Adverse Effect;”
Notwithstanding anything else contained herein, waiver of a closing condition or termination by Additional Purchaser shall not be deemed a waiver or termination by Standby Purchaser or vice versa nor shall any waiver of a closing condition or termination by the Company with respect to its obligations to either Additional Purchaser or Standby Purchaser be deemed a waiver or termination with respect to the other party.
(f) Restrictions on Transfer of AP Securities.  Additional Purchaser shall be bound by the terms of Section 11 of the Agreement as if incorporated and made a part of this Section 22(f);provided,however, that for purposes of the foregoing each reference in Section 11 of the Agreement to “Standby Purchaser” and to “Securities” shall be deemed to be a reference to “Additional Purchaser” and “AP Securities”, respectively.
(g) Lock-Up of AP Securities.  Notwithstanding anything to the contrary set forth herein or in the Registration Rights Agreement, Additional Purchaser agrees:
(i) provided that the last reported sale price of the Common Stock on the American Stock Exchange on the trading date immediately preceding the date of the Closing is at least $22 per share, that it will not Transfer any AP Securities to any Person until after the first anniversary of the Closing; and


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(ii) if the last reported sale price of the Common Stock on the American Stock Exchange on the trading date immediately preceding the date of the Closing is less than $22 per share, that it will not prior to the date that is six months following the Closing, Transfer any AP Securities to any Person for consideration having a value exceeding $18 per share (subject to appropriate adjustment to reflect any stock split, stock dividend, reverse stock split or like transaction made, declared or effected with respect to the Common Stock);
provided,however, that the forgoing provisions of this Section 22(g) shall not restrict (1) any Transfer by the Additional Purchaser to one or more of its Affiliates, provided that the transferee in each case agrees to be subject to the terms of this Section 22(g) and further provided that any Transfers by such transferees shall be aggregated with those of the Additional Purchaser and with those of other such transferees for purposes of determining compliance with clause (5) of this proviso; (2) any Transfer in connection with a tender offer for the Company’s Common Stock, whether initiated by the Company or by a third party; (3) any other transfer to the Company or its Affiliates; (4) any Transfer that is part of a Change of Control Transaction; or (5) a Transfer of a number of AP Securities that, when aggregated with all previous Transfers of AP Securities, does not exceed a percentage of the total AP Securities equal to the SP Transfer Percentage. The“SP Transfer Percentage” shall be calculated from time to time by dividing (A) the aggregate number of shares of Common Stock Transferred by the Standby Purchaser and its Affiliates from and after the Closing Date, other than shares Transferred to any Affiliate of the Standby Purchaser, by (B) the total number of shares of Common Stock held by Standby Purchaser and its Affiliates immediately following the Closing plus, if applicable, the number of Additional Subscription Shares purchased by the Standby Purchaser and its Affiliates. For purposes of calculating the percentages contemplated by clause (5) and the SP Transfer Percentage, appropriate adjustments shall be made to reflect any stock split, stock dividend, reverse stock split or like transaction made, declared or effected with respect to the Common Stock.
(h) Indemnification and Contribution.  The Company and Additional Purchaser shall be bound by the terms of Section 13 of this Agreement as if incorporated and made a part of this Section 22(h);provided,however, that for purposes of the foregoing each reference in Section 13 of this Agreement to “Standby Purchaser” and to “Standby Indemnified Persons” shall be deemed to be a reference to “Additional Purchaser” and “Additional Indemnified Persons”, respectively. The obligations of each of the Standby Purchaser under Section 13(b) of this Agreement and the Additional Purchaser under this Section 22(h) to provide indemnification to Company Indemnified Persons with respect to losses, claims, damages or liabilities arising out of or are based upon information provided in writing to the Company by Standby Purchaser or Additional Purchaser, as the case may be, specifically for use in any registration statement under which Securities or AP Securities, as the case may be, are registered under the Securities Act at the request of Standby Purchaser or Additional Purchaser, as the case may be, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, shall be subject to the same limitations as are set forth in Section 6(b) of the Registration Rights Agreement as if such limitations were incorporated into and made a part of this Agreement.
(i) Obligations of the Standby Purchaser and Additional Purchaser.  The obligations of the Standby Purchaser and Additional Purchaser under this Agreement are several and not joint or joint and several and neither Standby Purchaser nor Additional Purchaser shall be liable for any breach of any of the obligations of the other under this Agreement.
(j) Reimbursement of Expenses of Mr. Gardner.  The Company agrees to promptly reimburse Ted Gardner, the Managing Member of the Additional Purchaser, for his reasonable travel and other direct out-of-pocket expenses in meeting with representatives of the Company in connection with his determination whether or not to become a member of the Board. The Company agrees that Mr. Gardner’s reasonable out-of-pocket expenses in connection with his attendance at Board and Board committee meetings shall be reimbursed by the Company consistent with the Company’s policy for reimbursing independent directors for such expenses.”
3. Amendment to Section 4(f).  Section 4(f) of the Original Agreement is hereby amended to add the words “, AP Securities” immediately after the word “Securities” in the first line and fifth line thereof.


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4. Amendment to Section 7.  Section 7 of the Original Agreement is hereby amended as follows:
(a) The words “and Additional Purchaser” shall be added immediately after the words “Standby Purchaser” in each of clause (i) and clause (v) of Section 7(a) of the Original Agreement.
(b) The words “and Additional Purchaser” shall be added immediately after the words “Standby Purchaser” in the second line of clause (vii) of Section 7(a) of the Original Agreement and the words “or Additional Purchaser” shall be added immediately after the words “Standby Purchaser” in the fourth line of clause (vii) of Section 7(a) of the Original Agreement.
(c) The words “, on the one hand,” shall be added immediately after the words “neither the Company” and the words “or Additional Purchaser, on the other hand” shall be added immediately after the words “nor Standby Purchaser” in Section 7(e) of the Original Agreement.
5. Amendment to Section 9(b).  Section 9(b) of the Original Agreement is hereby amended as follows:
(a) The words “and of Additional Purchaser in Section 22(c)” shall be added immediately after the words “Section 5” in clause (i) of Section 9(b) of the Original Agreement.
(b) The words “Each of Additional Purchaser and” shall be added immediately before the words “Standby Purchaser” in clause (ii) of Section 9(b) of the Original Agreement.
6. Amendment to Section 12.  Section 12 of the Original Agreement is hereby amended as follows:
(a) Section 12(a) of the Original Agreement is hereby amended and restated to read in its entirety as follows:
“Subject to the provisions of the last paragraph of Section 22(e), Standby Purchaser on one hand may terminate at any time prior to the Closing Date its rights and obligations hereunder and Additional Purchaser on the other hand may terminate at any time prior to the Closing Date its rights and obligations hereunder by written notice to the Company if there is a Material Adverse Effect or a Market Adverse Effect, in either case that is not cured within twenty-one (21) days after the occurrence thereof (the“Cure Period”),provided that the right to such termination after the occurrence of each Material Adverse Effect or a Market Adverse Effect, which has not been cured within the Cure Period, shall expire seven (7) days after the expiration of such Cure Period.”
(b) Section 12(b) of the Original Agreement is hereby amended and restated to read in its entirety as follows:
“(b) Subject to the provisions of the last paragraph of Section 22(e):
(i) if there is a material breach of this Agreement by Standby Purchaser or Additional Purchaser that is not cured within fifteen (15) days after receipt of written notice by such breaching party, the Company may terminate this Agreement with respect to such breaching party by written notice to the other parties hereto;
(ii) if there is a material breach of this Agreement by the Company that is not cured within fifteen (15) days after receipt of written notice by the Company, either Standby Purchaser or Additional Purchaser may terminate its rights and obligations hereunder by written notice to the other parties hereto; or
(iii) the Company may terminate this Agreement on one hand or either Standby Purchaser or Additional Purchaser may terminate its rights and obligations hereunder on the other hand if the Closing has not occurred on or prior to November 15, 2007, for any reason whatsoever, other than a material breach hereunder by such terminating party or failure of the closing condition specified in Section 9(a)(iv).”


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7. Amendment to Section 14.  Section 14 of the Original Agreement is hereby amended by adding the words “, Additional Purchaser” immediately after the word “Company”.
8. Amendment to Section 15.  Section 15 of the Original Agreement is hereby amended by adding the following after subsection (b):
(c) if to Additional Purchaser, at:
Silverhawk Capital Partners GP, LLC
1901 Roxborough Road
Suite 200
Charlotte, North Carolina 28203
Attn: Ted A. Gardner
Telecopy No.:(704) 366-6666
with a copy to:
Morrison Cohen LLP
909 Third Avenue
New York, New York 10022
Attention: David A. Scherl
Telecopy No.:(212) 735-8708
9. Amendment to Section 16.  Section 16 of the Original Agreement is hereby amended and restated in its entirety to read as follows:
“Section 16.  Assignment.  This Agreement will be binding upon, and will inure to the benefit of and be enforceable by, the parties hereto and their respective successors and assigns, including any person to whom Securities or AP Securities are transferred in accordance herewith. The rights and obligations under this Agreement, may be assigned, delegated or transferred, in whole or in part, by Standby Purchaser or Additional Purchaser to any of its Affiliates over which Standby Purchaser or Additional Purchaser, as the case may be, or any of its Affiliates exercises investment authority, including, without limitation, with respect to voting and dispositive rights, provided that any such assignee assumes the obligations of Standby Purchaser or Additional Purchaser, as the case may be, hereunder and agrees to be bound by the terms of this Agreement in the same manner as Standby Purchaser or Additional Purchaser, as the case may be. Standby Purchaser or any of its Affiliates may assign, delegate or transfer, in whole or in part, its Basic Subscription Privilege to any other Affiliate or to Standby Purchaser. Notwithstanding the foregoing or any other provisions herein, no such assignment by Standby Purchaser or Additional Purchaser will relieve Standby Purchaser or Additional Purchaser, as the case may be, or of its obligations hereunder if such assignee fails to perform such obligations. In addition, upon the request of Standby Purchaser, the Company and Standby Purchaser will negotiate in good faith to add one or more third parties designated by Standby Purchaser as additional purchasers of Unsubscribed Shares and to provide an option to each such additional purchaser, comparable to the Option set forth in Section 3(a), to purchase additional shares of Common Stock in an amount to be mutually agreed upon, at the Subscription Price. To the extent there are any such additional purchasers, the Company and Standby Purchaser will negotiate in good faith to amend this Agreement to add any such additional purchasers to this Agreement prior to the mailing of the Proxy Statement to the stockholders of the Company.”
10. Amendment to Section 17.  Section 17 of the Original Agreement is hereby amended by adding the words “, AP Securities” immediately after the words “Securities”.
11. Amendment to Section 20.  Section 20 of the Original Agreement is hereby amended by adding the words “and Additional Purchaser” immediately after the words “Standby Purchaser” in the second line thereof and the words “or Additional Purchaser” immediately after the words “Standby Purchaser” in the fifth line thereof.


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12. Amendment to Section 21.  Section 21 of the Original Agreement is hereby amended as follows:
(a) The words “or AP Securities” shall be added immediately after the word “Securities” in Section 21(a) of the Original Agreement.
(b) The following shall be added immediately after Section 21(c):
“(d) Notwithstanding any provision in this Agreement to the contrary:
(i) any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by any party from the terms of any provision of this Agreement, shall be effective (A) only in the specific instance and for the specific purpose for which made or given, and (B) only if it is made or given in writing and signed by the Company and Standby Purchaser,provided,however, that if any such amendment, supplement, modification or waiver materially adversely affects Additional Purchaser, Additional Purchaser shall have the option to terminate its rights and obligations hereunder by sending written notice of such termination to the parties hereto within forty eight (48) hours after Additional Purchaser’s receipt of written notice of such amendment, supplement, modification or waiver, and if Additional Purchaser fails to send such written notice within such forty eight (48) hour period, Additional Purchaser shall be deemed to have consented to such amendment, supplement, modification or waiver; and
(ii) except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.”
13. Amendment to Annex B of the Original Agreement.  Annex B of the Original Agreement is hereby amended as follows:
The words “on apro ratabasis” shall be added after the words “Registrable Securities” in clause (iii)(A) of Section 7(f) of Annex B of the Original Agreement.
14. Ratification of Agreement.  Except as amended hereby, the Agreement shall remain in full force and effect and is hereby ratified and confirmed.
15. Counterparts.  This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument.
16. GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
[Remainder of Page Intentionally Left Blank]


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In Witness Whereof, the undersigned have executed this Amended and Restated First Amendment to Standby Purchase Agreement as of the date first written above.
WESTMORELAND COAL COMPANY
By: /s/  David J. Blair
Name: David J. Blair
Title: Chief Financial Officer
TONTINE CAPITAL PARTNERS, L.P.
By: TONTINE CAPITAL MANAGEMENT, L.L.C.,
its general partner
By: /s/  Jeffrey L. Gendell
Name: Jeffrey L. Gendell
Title: Managing Member
SILVERHAWK CAPITAL PARTNERS GP, LLC
By: 
/s/  James C. Cook

Name: James C. Cook
Title: Managing Member
Signature Page to Amended and Restated
First Amendment to Standby Purchase Agreement


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Appendix C
WESTMORELAND COAL COMPANY
2007 EQUITY INCENTIVE PLAN FOR EMPLOYEES AND NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of this 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Plan”) of Westmoreland Coal Company, a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the “Board”).
2. Eligibility
All of the Company’s employees, officers and directors are eligible to be granted options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards (each, an “Award”) under the Plan. Each person who receives an Award under the Plan is deemed a “Participant”.
3. Administration and Delegation
(a) Administration by Board of Directors.  The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.
(b) Appointment of Committees.  To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.
4. Stock Available for Awards
(a) Number of Shares.  Subject to adjustment under Section 10, Awards may be made under the Plan for up to 700,000 shares of common stock, $2.50 par value per share, of the Company (the “Common Stock”). If any Award expires; is terminated, surrendered or canceled without having been fully exercised; is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right); is settled in cash or otherwise results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Further, shares of Common Stock tendered to the Company by a Participant to exercise an Award shall be added to the number of shares of Common Stock available for the grant of Awards under the Plan. However, in the case of Incentive Stock Options (as hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.


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(b) Section 162(m) Per-Participant Limit.  The maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 200,000 per calendar year. For purposes of the foregoing limit, the combination of an Option in tandem with a SAR (as each is hereafter defined) shall be treated as a single Award. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code or any successor provision thereto, and the regulations thereunder (“Section 162(m)”).
(c) Substitute Awards.  In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan. Substitute Awards shall not count against the overall share limit set forth in Section 4(a), except as may be required by reason of Section 422 and related provisions of the Code.
5. Stock Options
(a) General.  The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option that is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option.”
(b) Incentive Stock Options.  An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of Westmoreland Coal Company, any of Westmoreland Coal Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for any action taken by the Board, including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.
(c) Exercise Price; Fair Market Value.
(1) The Board shall establish the exercise price of each Option and specify such exercise price in the applicable option agreement. The exercise price shall be not less than 100% of the Fair Market Value (as defined below) of a share of Common Stock on the date the Option is granted; provided that if the Board approves the grant of an Option with an exercise price to be determined on a future date, the exercise price shall be not less than 100% of the Fair Market Value of a share of Common Stock on such future date.
(2) The “Fair Market Value” of a share of Common Stock for purposes of the Plan shall be determined as follows:
(A) if the Common Stock trades on a national securities exchange, the closing sale price (for the primary trading session) in the principal U.S. market for the Common Stock on the date of grant; or
(B) if the Common Stock does not trade on any such exchange, the average of the closing bid and asked prices as reported by an authorized OTCBB market data vendor as listed on the OTCBB website (otcbb.com) on the date of grant; or
(C) if the Common Stock is not publicly traded, the Board will determine the Fair Market Value for purposes of the Plan using any measure of value it determines to be appropriate (including, as it considers appropriate, relying on appraisals) in a manner consistent with the valuation principles under Section 409A of the Code, except as the Board or Committee may expressly determine otherwise; or


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(D) for any date that is not a trading day, the Fair Market Value of a share of Common Stock for such date will be determined by using the closing sale price or average of the closing bid and asked prices, as appropriate, for the immediately preceding trading day and with the timing in the formulas above adjusted accordingly.
The Board may substitute a particular time of day or other measure of “closing sale price” or “closing bid and asked prices” if appropriate because of exchange or market procedures or can, in its sole discretion, use weighted averages either on a daily basis or such longer period as complies with Section 409A of the Code. The Board has sole discretion to determine the Fair Market Value for purposes of this Plan, and all Awards are conditioned on the Participants’ agreement that the Board’s determination is conclusive and binding even though others might make a different determination.
(d) Duration of Options.  Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement, provided, however, that no Option will be granted for a term in excess of 10 years.
(e) Exercise of Option.  Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company following exercise either as soon as practicable or, subject to such conditions as the Board shall specify, on a deferred basis (with the Company’s obligation to be evidenced by an instrument providing for future delivery of the deferred shares at the time or times specified by the Board).
(f) Payment Upon Exercise.  Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as may otherwise be provided in the applicable option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;
(3) to the extent provided for in the applicable option agreement or approved by the Board, in its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their Fair Market Value, provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;
(4) payment of such other lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) Limitation on Repricing.  Unless such action is approved by the Company’s stockholders: (i) no outstanding Option granted under the Plan may be amended to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option (other than adjustments pursuant to Section 10) and (2) the Board may not cancel any outstanding option (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option.


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6. Director Awards.
(a) Initial Grant.  Upon the commencement of service on the Board by any individual who is not then an employee of the Company or any subsidiary of the Company, the Company shall grant to such person an Award with a value determined in a manner deemed appropriate by the Board, which may include a value determined using Black-Scholes modeling, equal to $60,000.
(b) Annual Grant.  On the date of each annual meeting of stockholders of the Company, the Company shall grant to each member of the Board of Directors of the Company who is both serving as a director of the Company immediately prior to and immediately following such annual meeting and who is not then an employee of the Company or any of its subsidiaries, an Award with a value determined in a manner deemed appropriate by the Board, which may include a value determined using Black-Scholes modeling, equal to $30,000; provided, however, that a director shall not be eligible to receive an Award under this Section 6(b) until such director has served on the Board for at least seven months.
(c) Grant or Base Price.  The grant or base price or exercise price of an Award granted under this Section 6 shall not be less than 100% of the Fair Market Value per share of Common Stock on the date of grant of the Award.
(d) Terms of Director Awards.
(1) Subject to clauses (2) and (3) below, Awards granted under this Section 6 shall vest according to the Schedule specified in the Award.
(2) Upon the occurrence of a Reorganization Event or a Change in Control Event (as such terms are defined below), Awards made to directors shall be treated in accordance with Sections 10(b) and 10(c).
(3) If a Participant’s service as a director terminates for any reason other than a Reorganization Event or a Change in Control Event, and if the Participant has served as a director for three years or more, then such Participant’s Awards shall vest and become fully exercisable on the date such Participant ceases to be a director. If a Participant’s service as a director terminates for any reason other than a Reorganization Event or a Change in Control Event, and such Participant has served as a director for less than three years, then all of the Participant’s unvested Awards shall expire on the date such Participant ceases to be a director; provided, however, that the Board may in its sole discretion provide for the vesting of any unvested Award if the Participant’s service as a director terminates by reason of death or disability.
(4) Awards granted under this Section 6 shall expire at the time specified in the relevant Award, which in the case of Options shall be the earlier of 10 years from the date of grant or three months following cessation of Board service.
(5) Awards shall contain such other terms and conditions as the Board shall determine.
(e) Board Discretion.  This Plan is not intended to limit the Board’s ability to revise the incentive compensation payable to the directors, and the Board retains the specific authority to from time to time increase or decrease the dollar values specified in Section 6(a) and Section 6(b) and to amend the terms of director Awards as set forth in Section 6(d).
7. Stock Appreciation Rights.
(a) General.  The Board may grant Awards consisting of a stock appreciation right (“SAR”) entitling the holder, upon exercise, to receive an amount of Common Stock or cash or a combination thereof (such form to be determined by the Board) determined in whole or in part by reference to appreciation, from and after the date of grant, in the Fair Market Value of a share of Common Stock. The date as of which such appreciation or other measure is determined shall be the exercise date.
(b) Grants.  SARs may be granted in tandem with, or independently of, Options granted under the Plan.
(c) Grant or Base Price.  The grant or base price or exercise price of an SAR shall not be less than 100% of the Fair Market Value per share of Common Stock on the date of grant of the SAR; provided that if


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the Board approves the grant of an SAR with an exercise price to be determined on a future date, the exercise price shall be not less than 100% of the Fair Market Value of a share of Common Stock on such future date.
(d) Term.  The term of an SAR shall not be more than 10 years from the date of grant.
(e) Exercise.  SARs may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with any other documents required by the Board.
8. Restricted Stock; Restricted Stock Units.
(a) General.  The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive shares of Common Stock to be delivered at the time such shares of Common Stock vest (“Restricted Stock Units”) (Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).
(b) Terms and Conditions.  The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.
(c) Additional Provisions Relating to Restricted Stock.
(1) Dividends.  Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. If any such dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to shareholders of that class of stock or, if later, the 15th day of the third month following the date the dividends are paid to shareholders of that class of stock.
(2) Stock Certificates.  The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, “Designated Beneficiary” shall mean the Participant’s estate.
(d) Additional Provisions Relating to Restricted Stock Units.
(1) Settlement.  Upon the vesting ofand/or lapsing of any other restrictions (i.e., settlement) with respect to each Restricted Stock Unit, the Participant shall be entitled to receive from the Company one share of Common Stock or an amount of cash equal to the Fair Market Value of one share of Common Stock, as provided in the applicable Award agreement. The Board may, in its discretion, provide that settlement of Restricted Stock Units shall be deferred, on a mandatory basis or at the election of the Participant.
(2) Voting Rights.  A Participant shall have no voting rights with respect to any Restricted Stock Units.
(3) Dividend Equivalents.  To the extent provided by the Board, in its sole discretion, a grant of Restricted Stock Units may provide Participants with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock (“Dividend Equivalents”). Dividend Equivalents may be paid currently or credited to an account for the Participants, may be settled in cashand/or shares of Common Stock and may be subject to the same restrictions on transfer and forfeitability as the Restricted Stock Units with respect to which paid, as determined by the Board in its sole


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discretion, subject in each case to such terms and conditions as the Board shall establish, in each case to be set forth in the applicable Award agreement.
9. Other Stock-Based Awards.
Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (“Other Stock-Based Awards”), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award, including any purchase price applicable thereto.
10. Adjustments for Changes in Common Stock and Certain Other Events.
(a) Changes in Capitalization.  In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) thesub-limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share of each outstanding Option, (iv) the share- and per-share provisions and the grant or base price of each outstanding SAR, (v) the number of shares subject to and the repurchase price per share subject to each outstanding Restricted Stock Award, (vi) the share- and per-share-related provisions and the purchase price, if any, of each outstanding Other Stock-Based Award, and (vii) the terms and conditions of each Award issuable under Section 6, shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.
(b) Reorganization Events.
(1) Definition.  A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company.
(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards.  In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Awards other than Restricted Stock Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participant’s unexercised Options or other unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Awards shall become exercisable, realizable, or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the “Acquisition Price”), make or provide for a cash payment to a


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Participant equal to the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participant’s Options or other Awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Options or other Awards and any applicable tax withholdings, in exchange for the termination of such Options or other Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 10(b), the Board shall not be obligated by the Plan to treat all Awards, or all Awards of the same type, identically.
For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
(3) Consequences of a Reorganization Event on Restricted Stock Awards.  Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall, unless the Board determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.
(c) Change in Control Events.
(1) Definition.  A “Change in Control Event” shall mean:
(A) (I) except as provided in clause (A)(II) below, the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning ofRule 13d-3 promulgated under the Exchange Act) 20% or more of either (x) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (A), the following acquisitions shall not constitute a Change in Control Event: (i) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iii) any acquisition by any corporation pursuant to a Business Combination (as defined below) which


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complies with clauses (x) and (y) of subsection (C) of this definition; and provided, further, that if any person beneficially owns 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, but notwithstanding such ownership, a Change in Control Event has not occurred because the Person’s acquisition of all or a portion of such Person’s shares is or was an acquisition described in clause (i) of the preceding proviso, then the acquisition by that Person of any additional shares of Common Stock other than pursuant to a stock split, stock dividend, or other similar event shall constitute a Change in Control Event; or
(II) notwithstanding the foregoing clause (A)(I), the acquisition of 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities shallnot be a Change of Control Event if the Person acquiring such interest in the Company’s outstanding securities does not thereby become an “Acquiring Person” under the terms of the Rights Agreement (defined below) in effect on the date of the shareholder approval of this Plan;provided, however, that if such Person would become an “Acquiring Person” under the terms of the Rights Agreement upon the acquisition of a specified percentage of the Outstanding Company Common Stock or the Outstanding Company Voting Securities greater than 20% (the “Modified Ownership Threshold”), then it shall be a Change of Control Event under this Plan if such Person acquires a beneficial interest in the Outstanding Company Common Stock or the Outstanding Company Voting Securities at or above the Modified Ownership Threshold, thereby making such Person an “Acquiring Person” under the terms of the Rights Agreement. The “Rights Agreement” referred to in this clause (A)(II) means the Amended and Restated Rights Agreement, dated as of February 7, 2003, between the Company and Computershare Trust Company, N.A. (formerly known as EquiServe Trust Company, N.A.), as rights agent, as amended by the First Amendment to the Amended and Restated Rights Agreement, dated as of May 2, 2007.
(B) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated pursuant to the terms of the Standby Purchase Agreement, dated as of May 2, 2007 between the Company and Tontine Capital Partners, L.P. or (z) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or
(C) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding


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securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or
(D) the liquidation or dissolution of the Company.
(2) Effect on Options.  Notwithstanding the provisions of Section 10(b) and irrespective of whether such an event is also a Reorganization Event, effective immediately prior to a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company. Upon the occurrence of a Change of Control Event, unless specifically provided to the contrary in the instrument evidencing any Award or any other agreement between a participant and the Company, unvested options granted to an employee or a director of the Company will automatically become vested or exercisable upon a Change of Control Event if such employee is Terminated within 12 months following such Change of Control or the director is removed from the Board within 12 months of the Change of Control, or, if a regular meeting of shareholders occurs within 12 months of the Change of Control, such director is not nominated for re-election at such meeting after he or she expresses a desire to be so nominated. For purposes of the foregoing, “Terminated” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his or her level of responsibility which, in either such case, causes the employee to voluntarily terminate his or her employment.
(3) Effect on Restricted Stock Awards.  Notwithstanding the provisions of Section 10(b) and irrespective of whether such an event is also a Reorganization Event, effective immediately prior to a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then-outstanding shall automatically be deemed terminated or satisfied.
(4) Effect on SARs and Other Stock-Based Awards.  Upon the occurrence of a Change of Control Event, unless specifically provided to the contrary in the instrument evidencing any Award or any other agreement between a participant and the Company, unvested SARs granted to an employee or a director of the Company will automatically become vested or exercisable upon a Change of Control Event if such employee is Terminated within 12 months following such Change of Control or the director is removed from the Board within 12 months of the Change of Control, or, if a regular meeting of shareholders occurs within 12 months of the Change of Control, such director is not nominated for re-election at such meeting after he or she expresses a desire to be so nominated. For purposes of the foregoing, “Terminated” means involuntary dismissal or a material change in the employee’s level of total compensation or a material change in his or her level of responsibility which, in either such case, causes the employee to voluntarily terminate his or her employment.
The Board may specify in an Award at the time of the grant the effect of a Change in Control Event on any Other Stock-Based Award.
11. General Provisions Applicable to Awards
(a) Transferability of Awards.  Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or other entity established for the benefit of the Participantand/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use aForm S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.


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(b) Documentation.  Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Such written instrument may be in the form of an agreement signed by the Company and the Participant or a written confirming memorandum to the Participant from the Company. Each Award may contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion.  Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.
(d) Termination of Status.  The Board shall determine the effect on an Award of the disability, death, termination of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.
(e) Withholding.  The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as is payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares surrendered to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(f) Amendment of Award.  Subject to Section 5(g), the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant’s rights under the Plan or (ii) the change is permitted under Section 10 hereof.
(g) Conditions on Delivery of Stock.  The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.
(h) Acceleration.  The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.
(i) Performance Awards.
(1) Grants.  Restricted Stock Awards and Other Stock-Based Awards under the Plan may be made subject to the achievement of performance goals pursuant to this Section 11(i) (“Performance Awards”), subject to the limit in Section 4(b) on shares covered by such grants.


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(2) Committee.  Grants of Performance Awards to any Covered Employee intended to qualify as “performance-based compensation” under Section 162(m) (“Performance-Based Compensation”) shall be made only by a Committee (or subcommittee of a Committee) comprised solely of two or more directors eligible to serve on a committee making Awards qualifying as “performance-based compensation” under Section 162(m). In the case of such Awards granted to Covered Employees, references to the Board or to a Committee shall be deemed to be references to such Committee or subcommittee. “Covered Employee” shall mean any person who is a “covered employee” under Section 162(m)(3) of the Code.
(3) Performance Measures.  For any Award that is intended to qualify as Performance-Based Compensation, the Committee shall specify that the degree of granting, vestingand/or payout shall be subject to the achievement of one or more objective performance measures established by the Committee, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following:
(A) earnings before interest, taxes, depreciationand/or amortization,
(B) earnings before operating income or profit,
(C) operating efficiencies,
(D) return on equity, assets, capital, capital employed, or investment,
(E) after tax operating income,
(F) net income,
(G) earnings or book value per share,
(H) cash flow(s),
(I) total sales or revenues or sales or revenues per employee,
(J) production (separate work units or SWUs),
(K) stock price or total stockholder return,
(L) dividends,
(M) strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures, or
(N) except in the case of a Covered Employee, any other performance criteria established by the Committee, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated.
Such performance measures may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs. Such performance measures: (i) may vary by Participant and may be different for different Awards; (ii) may be particular to a Participant or the department, branch, line of business, subsidiary, division, operating unit, or other unit in which the Participant works and may cover such period as may be specified by the Committee; and (iii) shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). Awards that are not intended to qualify as Performance-Based Compensation may be based on these or such other performance measures as the Board may determine.
(4) Adjustments.  Notwithstanding any provision of the Plan, with respect to any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee may adjust downwards, but not upwards, the cash or number of Shares payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance measures except in the case of the death or disability of the Participant or a change in control of the Company.


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(5) Other.  The Committee shall have the power to impose such other restrictions on Performance Awards as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for Performance-Based Compensation.
12. Miscellaneous
(a) No Right To Employment or Other Status.  No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder.  Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan.  The Plan shall become effective on the date the Plan is approved by the Company’s stockholders (the “Effective Date”). No Awards shall be granted under the Plan after the expiration of 10 years from the Effective Date, but Awards previously granted may extend beyond that date.
(d) Amendment of Plan.  The Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that (i) to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until such amendment shall have been approved by the Company’s stockholders if required by Section 162(m) (including the vote required under Section 162(m)); (ii) no amendment that would require stockholder approval under the rules of American Stock Exchange (“AMEX”) may be made effective unless and until such amendment shall have been approved by the Company’s stockholders; and (iii) if the AMEX amends its corporate governance rules so that such rules no longer require stockholder approval of “material amendments” to equity compensation plans, then, from and after the effective date of such amendment to the AMEX rules, no amendment to the Plan (A) materially increasing the number of shares authorized under the Plan (other than pursuant to Section 4(c) or 10), (B) expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the class of participants eligible to participate in the Plan shall be effective unless stockholder approval is obtained. In addition, if at any time the approval of the Company’s stockholders is required as to any other modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such modification or amendment without such approval. Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 12(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan. No Award shall be made that is conditioned upon stockholder approval of any amendment to the Plan.
(e) Compliance with Code Section 409A.  No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A is not so exempt or compliant or for any action taken by the Board.
(f) Governing Law.  The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excludingchoice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.


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Appendix D
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WESTMORELAND COAL COMPANY
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
WESTMORELAND COAL COMPANY, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “Corporation”),
DOES HEREBY CERTIFY:
1): That the Board of Directors duly adopted resolutions proposing to amend the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and in the best interests of the Corporation and its stockholders, and authorizing the appropriate officers of the Corporation to solicit the vote of stockholders therefor, which resolution setting forth the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article Fourth of the Certificate of Incorporation of the Corporation be amended in its entirety to read as follows:
FOURTH:  The aggregate number of shares of all classes of stock which the corporation has authority to issue is 35,000,000, of which (a) 5,000,000 shall be Preferred Stock of the par value of $1 per share, issuable in series, and (b) 30,000,000 shall be Common Stock of the par value of $2.50 per share.
*  * *
2): That the foregoing amendment was approved by the holders of the requisite number of shares of the Corporation in accordance with the Delaware General Corporation Law.
3): That said amendment has been duly adopted in accordance with Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation has been executed by a duly authorized officer of the Corporation on this           day of          , 2007.
WESTMORELAND COAL COMPANY
By: ­ ­
Name:
Title: 


D-1

             
 (COMPANY LOGO)

(BAR COLDE)






 000004000000000.000000 ext         000000000.000000 ext
000000000.000000 ext         000000000.000000 ext
000000000.000000 ext         000000000.000000 ext
(BAR CODE)
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
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(SCALE)



Using ablack ink pen, mark your votes with an Xas shown in this example. Please do not write outside the designated areas.
X
Annual Meeting Proxy Card
     
     
 
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
 
A Proposals — The Board of Directors recommends a voteFOR all the nominees listed andFOR Proposals 3, 4, 5 and 6.nominees.
1. Election of Directors by holders of Common Stock:
                     
1.  Election of Directors by the holders of Common Stock.+
ForWithhold  For WithholdForWithhold
     01 - - Keith E. Alessioo02 - Thomas J. Coffeyoo03 - Richard M. Klingamanoo
           +
  ForAgainstAbstain
3.Rights Offering.o01 - Keith E. Alessi o o  
           
           
4.Standby Purchase Agreement and related transactions.ooo
          
  
02 - Thomas J. Coffeyoo           
  
5.2007 Equity Incentive Plan.o03 - Michael R. D’Appolonia o o  
           
B  Non-Voting Items
       
Change of Address —Please print new address below.
 Meeting Attendance  
      
6.Amended Certificate of Incorporation.ooo
BNon-Voting Items
Comments — Please print your comments below. 
Receipt of Notice
Receipt of the Notice of Annual meeting and Proxy Statement dated July 19, 2007 are hereby acknowledged.o 
Change of Address — Please print new address below.
Meeting Attendance
 
  Mark the box to the right if you plan to attend the Annual Meeting.o
 
       
Comments—Please print your comments below.
 Receipt of the Notice of  
IF VOTING BY MAIL, YOUMUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
       
n (BAR CODE)C 1234567890

1 U P XAnnual Meeting and Proxy Statement dated April 14, 2009 are hereby acknowledged.		  J N T

0 1 2 8 8 5 1o
 MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND		+
<STOCK#>    00P38EC Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
NOTE: Please sign this proxy exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.
Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
      /       /
(BAR CODE)

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
 

      
(WESTMORELAND LOGO)
Proxy - -— Westmoreland Coal Company
COMMON STOCK
+
Proxy for COMMON STOCK Only
Solicited on Behalf of the Board of Directors
Annual Meeting — August 16, 2007- May 14, 2009
The undersigned hereby constitutes and appoints RobertKeith E. Killen,Alessi, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all shares of Common Stock held by the undersigned at the Annual Meeting of Stockholders to be held at the Corporate Headquarters,our corporate offices, 2 NorthN. Cascade Avenue, 14th2nd Floor, Colorado Springs, CO 80903, on Thursday, August 16, 2007,May 14, 2009, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be votedFORthe election of directors and FOR each of proposals 3 through 6.directors. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The proxies cannot vote your shares unless you sign and return this card.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

(BAR CODE)
                (WESTMORELAND LOGO)
(BAR CODE)
Using ablack ink pen, mark your votes with anXas shown in
this example. Please do not write outside the designated areas		x
         
 
CAnnual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
A
Proposal — The Board of Directors recommends a vote FOR the listed nominees.
2.Election of Directors by holders of Depositary Shares:+
ForWithhold
01 -  Richard M. Klingaman oo
02 -  William M. Stern oo


BAuthorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below ..
NOTE: Please sign this proxy exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
 
    
NOTE: Please sign this proxy exactly as your name appears on hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box.
/
/
    
IF VOTING BY MAIL, YOUMUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
n+

(COMPANY LOGO)

(BAR CODE)






 000004000000000.000000 ext         000000000.000000 ext
000000000.000000 ext         000000000.000000 ext
000000000.000000 ext         000000000.000000 ext
(BAR CODE)
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6

(SCALE)



1 U PX       0 1 7 4 5 8 2
+
Using ablack ink pen, mark your votes with an Xas shown in this example. Please do not write outside the designated areas.<STOCK #>      0112JB
X  
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
AProposals — The Board of Directors recommends a voteFOR all the nominees listed andFOR Proposals 3, 4, 5 and 6.
1.  Election of Directors by the holders of Common Stock.+
ForWithholdForWithholdForWithhold
     01 - - Keith E. Alessioo02 - Thomas J. Coffeyoo03 - Richard M. Klingamanoo
ForAgainstAbstain
3.Rights Offering.ooo
4.Standby Purchase Agreement and related transactions.ooo
5.2007 Equity Incentive Plan.ooo
6.Amended Certificate of Incorporation.ooo
BNon-Voting Items
Comments — Please print your comments below. 
Receipt of Notice
Receipt of the Notice of Annual meeting and Proxy Statement dated July 19, 2007 are hereby acknowledged.o 
Change of Address — Please print new address below.
Meeting Attendance
Mark the box to the right if you plan to attend the Annual Meeting.o 
IF VOTING BY MAIL, YOUMUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
n(BAR CODE)C 1234567890

1 U P X		          J N T

0 1 2 8 8 5 2		MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND		+
<STOCK#>    00P4DE

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
 
(WESTMORELAND LOGO)
 
Proxy — Westmoreland Coal Company
401 - - K PLAN COMMON STOCK
+DEPOSITARY SHARES
 
Proxy for 401 - K PLAN COMMON STOCKDEPOSITARY SHARES Only
Solicited on Behalf of the Board of Directors
Annual Meeting - August 16, 2007May 14, 2009
The undersigned hereby constitutes and appoints RobertKeith E. Killen,Alessi, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all sharesDepositary Shares of Common Stockstock held by the undersigned at the Annual Meeting of Stockholders to be held at the Corporate Headquarters,our corporate offices, 2 NorthN. Cascade Avenue, 14th2nd Floor, Colorado Springs, CO 80903, on Thursday, August 16, 2007,May 14, 2009, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be votedFORthe election of directors and FOR each of proposals 3 through 6. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
CAuthorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
NOTE: Please sign this proxy exactly as your name appears on hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
//
IF VOTING BY MAIL, YOUMUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
n+

(COMPANY LOGO)

(BAR CODE)






(BAR CODE)




Using ablack ink pen, mark your votes with an Xas shown in this example. Please do not write outside the designated areas.
X
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
AProposals — The Board of Directors recommends a voteFOR the listed nominees andFOR Proposals 3, 4, 5 and 6.
2.  Election of Directors by the holders of Depositary Shares.+
ForWithholdForWithhold
     01 - - Robert E. Killen
o
o02 - William M. Sternoo
ForAgainstAbstain
3.Rights Offering.ooo
4.Standby Purchase Agreement and related transactions.ooo
5.2007 Equity Incentive Plan.ooo
6.Amended Certificate of Incorporation.ooo
BAuthorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
NOTE: Please sign this proxy exactly as your name appears on hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
//
n(BAR CODE)C 1234567890

1 U P X		          J N T

0 1 2 8 8 5 3		MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND		+
<STOCK#>    00P4EE

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
(COMPANY LOGO)
Proxy — Westmoreland Coal Company
401-K PLAN DEPOSITARY SHARES
Proxy for 401-K PLAN DEPOSITARY SHARES Only
Solicited on Behalf of the Board of Directors
Annual Meeting - August 16, 2007
The undersigned hereby constitutes and appoints Robert E. Killen, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all Depositary Shares of stock held by the undersigned at the Annual Meeting of Stockholders to be held at the Corporate Headquarters, 2 North Cascade Avenue, 14th Floor, Colorado Springs, CO 80903, on Thursday, August 16, 2007, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted FOR the election of directors and FOR each of proposals 3 through 6. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

(COMPANY LOGO)

(BAR CODE)






(BAR CODE)




Using ablack ink pen, mark your votes with an Xas shown in this example. Please do not write outside the designated areas.
X
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
AProposals — The Board of Directors recommends a voteFORthe listednominees andFOR Proposals 3, 4, 5 and 6.
2.  Election of Directors by the holders of Depositary Shares.+
ForWithholdForWithhold
     01 - - Robert E. Killenoo02 - William M. Sternoo
ForAgainstAbstain
3.Rights Offering.ooo
4.Standby Purchase Agreement and related transactions.ooo
5.2007 Equity Incentive Plan.ooo
6.Amended Certificate of Incorporation.ooo
BAuthorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
NOTE: Please sign this proxy exactly as your name appears on hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
//
n(BAR CODE)C 1234567890

1 U P X		          J N T

0 1 2 8 8 5 4		MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE
140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND		+
<STOCK#>    00P4FE

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
(COMPANY LOGO)
Proxy — Westmoreland Coal Company
DEPOSITARY SHARES
Proxy for DEPOSITARY SHARES Only
Solicited on Behalf of the Board of Directors
Annual Meeting - August 16, 2007
The undersigned hereby constitutes and appoints Robert E. Killen, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all Depositary shares of stock held by the undersigned at the Annual Meeting of Stockholders to be held at the Corporate Headquarters, 2 North Cascade Avenue, 14th Floor, Colorado Springs, CO 80903, on Thursday, August 16, 2007, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted FOR the election of directors and FOR each of proposals 3 through 6.directors. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The proxies cannot vote your shares unless you sign and return this card.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.



     (WESTMORELAND LOGO)
(BAR CODE)
Using a black ink pen, mark your votes with anXas shown in this example. Please do not write outside the designated areas.
x
(BAR CODE)

Annual Meeting Proxy Card
6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
A  Proposals — The Board of Directors recommends a vote FOR the listed nominees.
1. Election of Directors by holders of Common Stock:
ForWithhold+
01 - Keith E. Alessioo
02 - Thomas J. Coffeyoo
03 - Michael R. D’Appoloniaoo
B  Non-Voting Items
Change of Address —Please print your new address below.
Meeting Attendance
Mark the box to the right if you plan to attend the Annual Meeting. o
Comments—Please print your comments below.
Receipt of the Notice of
Annual Meeting and Proxy Statement dated April 14, 2009 are hereby acknowledged. o
C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
NOTE: Please sign this proxy exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.
Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
      /       /
(BAR CODE)

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6

(WESTMORELAND LOGO)
Proxy — Westmoreland Coal Company401-K PLAN COMMON STOCK
Proxy for 401-K PLAN COMMON STOCK Only
Solicited on Behalf of the Board of Directors
Annual Meeting - May 14, 2009
The undersigned hereby constitutes and appoints Keith E. Alessi, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all shares of Common Stock held by the undersigned at the Annual Meeting of Stockholders to be held at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903, on Thursday, May 14, 2009, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted FOR the election of directors. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

(BAR CODE)
                (WESTMORELAND LOGO)
(BAR CODE)
Using ablack inkpen, mark your votes with anXas shown in
this example. Please do not write outside the designated areas.		x
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
A
Proposal — The Board of Directors recommends a vote FOR the listed nominees.
2.Election of Directors by holders of Depositary Shares:+
ForWithhold
01 -  Richard M. Klingaman oo
02 -  William M. Stern oo


B Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below. ..
NOTE: Please sign this proxy exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian please give your full title as such.
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
       /        /
1 U P X       0 2 1 4 2 1 4+
<STOCK #>      0112LB

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
(WESTMORELAND LOGO)
Proxy — Westmoreland Coal Company401-K PLAN DEPOSITARY SHARES
Proxy for 401-K PLAN DEPOSITARY SHARES Only
Solicited on Behalf of the Board of Directors
Annual Meeting - May 14, 2009
The undersigned hereby constitutes and appoints Keith E. Alessi, Morris W. Kegley, and Diane S. Jones and each of them, as true and lawful agents and proxies with power of substitution, to represent the undersigned and to vote all Depositary Shares of stock held by the undersigned at the Annual Meeting of Stockholders to be held at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903, on Thursday, May 14, 2009, at 8:30 a.m. (mountain time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be votedFORthe election of directors. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.