10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File No. 001-11155

WESTMORELAND COAL COMPANY

(Exact name of registrant as specified in its charter)

Delaware	23-1128670
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2 North Cascade Avenue, 2nd Floor Colorado Springs, CO	80903 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(719) 442-2600

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on Which Registered
Common Stock, par value $2.50 per share		NYSE Alternext US
Depositary Shares, each representing one-quarter of a share of Series A Convertible Exchangeable Preferred Stock Preferred Stock Purchase Rights

Securities registered pursuant to Section 12(g) of the Act:

Series A Convertible Exchangeable Preferred Stock, par value $1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o      No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o      No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company.)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of voting common stock held by non-affiliates as of June 30, 2008 was $134,698,392.

There were 9,620,711 shares outstanding of the registrant’s common stock, $2.50 par value per share (the registrant’s only class of common stock), as of March 1, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by reference in Part III.

WESTMORELAND COAL COMPANY

FORM 10-K

ANNUAL REPORT

TABLE OF CONTENTS

Item			Page
PART I
	1	Business		3
	1A	Risk Factors		12
	1B	Unresolved Staff Comments		20
	2	Properties		20
	3	Legal Proceedings		23
	4	Submission of Matters to a Vote of Security Holders		25
PART II
	5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
	6	Selected Financial Data		28
	7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	7A	Quantitative and Qualitative Disclosures about Market Risk		46
	8	Financial Statements and Supplementary Data		47
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		96
	9A	Controls and Procedures		96
	9B	Other Information		99
PART III
	10	Directors, Executive Officers and Corporate Governance		100
	11	Executive Compensation		100
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		100
	13	Certain Relationships and Related Transactions, and Director Independence		100
	14	Principal Accountant Fees and Services		100
PART IV
	15	Exhibits and Financial Statement Schedules		100
Signatures				101
EX-10.5
EX-10.7
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-10.16
EX-10.17
EX-10.51
EX-21.1
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32

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Forward-Looking Disclaimer

Throughout this Form 10-K, we make statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors (refer to Part I, Item 1A). Specific factors that could cause actual results to differ materially from such forward-looking statements include, among others, the following:

•  worldwide economic conditions;

•  our ability to produce coal at existing and planned future operations;

•  changes in postretirement benefit and pension obligations;

•  availability and costs of credit, surety bonds and letters of credit;

•  inability to expand coal operations due to limitations in obtaining bonding capacity to back new mining permits;

•  our ability to maintain compliance with debt covenant requirements or obtain waivers from our lenders in cases of non-compliance;

•  the ability of our subsidiaries to pay dividends to us due to restrictions in our debt arrangements;

•  our ability to negotiate profitable coal contracts, price reopeners and extensions;

•  our ability to maintain satisfactory labor relations and our ability to successfully negotiate labor contracts, particularly at our Rosebud Mine;

•  financial stability of our customers, and their ability to continue to comply with their contractual commitments in a timely manner;

•  disruptions in delivery or changes in pricing from third party vendors of goods and services which are necessary for our operations, such as fuel, steel products, explosives and tires;

•  impact of weather on demand, production and transportation;

•  the performance of our Roanoke Valley power plants, or ROVA, and the structure of its contracts with its lenders and Dominion Virginia Power;

•  coal’s market share of electricity generation;

•  future legislation and changes in regulations, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particular matter or greenhouse gases; and

•  our ability to raise additional capital, our access to financing and our ability to sell assets as discussed under Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of our goals. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I

The words “we,” “our,” “the Company,” or “Westmoreland,” as used in this report refer to Westmoreland Coal Company and its applicable subsidiary or subsidiaries.

ITEM 1 — BUSINESS.

Overview

We are an energy company organized as a Delaware corporation in 1910. We mine coal, which is used to produce electric power, and we own power-generating plants.

We own five surface mines, which are all located in the United States, which supply coal to power plants. Several of these power plants are located adjacent to our mines, and we sell virtually all our coal under multi-year contracts. Due to the generally longer duration and terms of our contracts, we enjoy relatively stable demand compared to competitors who sell more of their production on the spot market and under short-term contracts.

We sold 29.3 million tons of coal in 2008, less than 3% of all the coal produced in the United States. We were the tenth largest coal producer in the United States, ranked by tons of coal mined in 2008.

In addition to our mining operations, we own the Roanoke Valley power plants, or ROVA. ROVA consists of two coal-fired generating units with a total capacity of 230 megawatts. ROVA supplies power pursuant to long-term contracts.

Mining Operations

Surface mining involves removing overburden (earth and rock covering the coal) with heavy earth-moving equipment, such as draglines, power shovels, excavators and loaders. Once exposed, we drill, fracture and systematically remove the coal using haul trucks or conveyors to transport the coal to a preparation plant or to a loadout facility. We reclaim disturbed areas as part of our normal mining activities. After final coal removal, we use draglines, power shovels, excavators or loaders to backfill the remaining pits with the overburden removed at the beginning of the process. Once we have replaced the overburden and topsoil, we reestablish vegetation and make other improvements that have local community and environmental benefits.

Our Absaloka Mine is owned by our subsidiary, Westmoreland Resources, Inc., or WRI. The right to mine coal at our Absaloka Mine has been subleased to an affiliated entity whose operations we control. The Beulah, Jewett, Rosebud, and Savage Mines are owned by our subsidiary, Westmoreland Mining LLC, or WML.

Absaloka.  The Absaloka Mine is located on approximately 15,000 acres in Big Horn County, Montana, near the town of Hardin, with the coal reserves leased from the Crow Tribe of Indians. The mine currently consists of two active pit areas, one dragline and a loadout facility. All of the coal is shipped crushed and raw to customers, primarily via the Burlington Northern Santa Fe Railway, or BNSF. A portion of the mine’s production is shipped via truck.

Beulah.  The Beulah Mine is located on approximately 9,300 acres in Mercer and Oliver Counties, North Dakota, near the town of Beulah. The coal is controlled by federal and state leases, as well as private coal leases. The mine currently consists of three active pit areas, two draglines and a loadout facility. All of the coal is shipped crushed and raw to customers via both a conveyor belt and by rail.

Jewett.  The Jewett Mine is located on approximately 35,000 acres in Freestone, Leon, and Limestone Counties, Texas, near the town of Jewett, about half way between Dallas and Houston. The coal is controlled by private coal leases. The mine currently consists of three active pit areas and four walking draglines. All of the coal is shipped crushed and raw to the customer via a conveyor belt owned by the mine’s customer.

Rosebud.  The Rosebud Mine is located on approximately 25,000 acres in Rosebud and Treasure Counties, Montana, near the town of Colstrip, about 130 miles east of Billings. The majority of the coal is controlled by federal and private leases, with a minor portion controlled by the state of Montana. The mine

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currently consists of multiple active pit areas, four draglines, conveying systems and a loadout facility. All of the coal is shipped crushed and raw to customers; approximately half is shipped via a conveyor belt that we own and the remainder of the mine’s production is shipped via rail and truck.

Savage.  The Savage Mine is located on approximately 1,600 acres in Richland County, Montana, near the town of Sidney. The coal is controlled by federal and private coal leases. The mine currently consists of one active pit area with one dragline. All of the coal is shipped crushed and raw to customers, via truck.

The following table presents the sales from our mines in the last three years (in thousands of tons):

Year	Absaloka		Rosebud		Jewett		Beulah		Savage		Total
2008		6,418		13,026		6,494		3,046		359		29,343
2007		7,347		12,583		6,781		2,946		354		30,011
2006		7,079		12,430		6,798		2,702		376		29,385

Power Operations

Through a subsidiary, we own 100% of the interests in the 180-megawatt and 50-megawatt ROVA I and ROVA II, collectively known as ROVA, coal-fired power plants located in Weldon, North Carolina. ROVA was built as a Public Utility Regulatory Policies Act co-generation facility with long-term Power Purchase Agreements with Dominion Virginia Power, commencing operations in 1994. ROVA is an Electric Wholesale Generator, a Federal Energy Regulatory Commission classification created by the Energy Policy Act of 1992.

The following table shows megawatt hours produced and average capacity factors achieved at ROVA for the last three years:

	Megawatt		Average
Year	Hours		Capacity Factor
2008		1,641,000		91	%
2007		1,590,000		91	%
2006		1,639,000		92	%

ROVA purchases coal under long-term contracts with a fuel supplier, which expire for ROVA I in 2014 and ROVA II in 2015. ROVA supplies power under long-term contracts with Dominion Virginia Power, or Dominion, which expire in 2019 for ROVA I and in 2020 for ROVA II. The contracts with Dominion can be extended by mutual consent for five-year terms at mutually agreeable pricing. In 2008, our contracts with Dominion accounted for approximately 18% of our consolidated revenues.

Information about Segments

Please refer to Note 20 of the Consolidated Financial Statements for additional information about the segments of our business.

Sales, Markets and Customers

Coal prices are influenced by a number of factors and vary dramatically by region. As a result of these regional characteristics, market prices of coal, by product type, within a given major coal-producing region tend to be relatively consistent with each other. The price of coal within a region is influenced by market conditions, mine operating costs, coal quality, transportation costs involved in moving coal from the mine to the point of use and the costs of alternative fuels. In addition to supply and demand factors, the price of coal at the mine is influenced by geologic characteristics such as seam thickness, overburden ratios and depth of reserves. It is generally cheaper to mine coal seams that are thick and located close to the surface. The price of coal is also a function of quality characteristics such as heat value, sulfur, ash and moisture content. Higher carbon and lower ash content generally result in higher prices, and higher sulfur and higher ash content generally result in lower prices.

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We sell almost all of the coal that we produce to plants that generate electricity. In 2008, for example, we sold less than 1% of our coal to industrial and institutional users.

Our coal revenues include amounts earned by our coal sales company from sales of coal produced by mines other than ours. In 2008, 2007, and 2006, such amounts were $1.2 million, $4.1 million, and $5.6 million, respectively.

The U.S. Energy Information Administration projects that the output of coal-fired plants used to generate electricity will increase from 2,021 billion kilowatt hours in 2007 (49% of total generation) to 2,401 billion kilowatt hours in 2030 (47% of total generation). The average annual increase over the next 22 years is projected to be 0.9%.

Competition

The coal industry is intensely competitive and we compete with many other suppliers of coal to provide fuel to power plants. Additionally, coal competes with other fuels such as nuclear energy, natural gas, hydropower and petroleum for steam and electrical power generation. Costs and other factors, such as safety and environmental considerations, relating to these alternative fuels affect the overall demand for coal as a fuel.

We believe that the competitive advantage of our mines derives from three facts:

•  all of our mines are the most economic suppliers to each of their respective principal customers;

•  nearly all of the power plants we supply were specifically designed to use our coal; and

•  the plants we supply are among the lowest cost producers of electric power in their respective regions and are among the cleaner producers of power from solid fossil fuels.

As a result, we believe that the power-generating plants that we supply are more likely to be dispatched to produce power, and that our mines will be supplying the coal that powers these generating units.

From the standpoint of a purchaser of coal, two of the principal costs of burning coal are the cost of the coal and the cost of transporting the coal from the point of extraction to the purchaser. We believe that all of our mines are the most economic suppliers to each of their respective principal customers, a result of a transportation advantage they have compared to our competitors. We also believe that, except for the Jewett Mine, the next most economic suppliers to these customers could be other mines that we own.

The principal customers of the Rosebud, Jewett, and Beulah Mines are located adjacent to the mines; the coal for these customers can be delivered by conveyor belt or off-road truck rather than by more expensive means such as on-road truck or rail. The customers of the Savage Mine are located approximately 20 to 25 miles from the mine so that coal can be transported most economically by on-road truck.

The Absaloka Mine faces a different competitive situation than our other mines. The Absaloka Mine sells its coal in the rail market to utilities located in the northern tier of the United States that are served by BNSF. These utilities may purchase coal from us or from other producers, and we compete with other producers on the basis of price and quality, with the purchasers also taking into account the cost of transporting the coal to their plants. The Absaloka Mine enjoys about a 300-mile rail advantage over its principal competitors from the Southern Powder River Basin to supply the northern tier of the United States.

Long-Term Coal Supply Agreements

We sell virtually all of our coal under multi-year contracts. More than three-quarters of our tons are sold under contracts with remaining supply obligation terms of three years or more. One-half of our scheduled 2009 tons remain under contract through 2015 and one-third through 2019. This assumes that our contract at the Jewett Mine is not terminated prior to 2018 or extended beyond 2018. Our open-market mine, Absaloka, has no contract commitments beyond 2012.

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The following table presents our estimate of the sales tonnages under our existing long-term contracts. Many of our contracts provide for the supply of customer requirements rather than fixed tonnages. Where provided, we have used our customers’ projections of their requirements. Where not provided, we have used estimates based on historic levels. The tonnages in the table below represent estimated sales tonnage under existing, executed contracts and generally exclude pending or anticipated contract renewals or new contracts. These projections reflect customers’ scheduled major plant outages, if known.

Projected Sales Tonnage Under
Existing Long-Term Contracts
As of December 31, 2008
(In millions of tons)
2009	28.0
2010	26.4
2011	22.0
2012	19.4
2013	19.3
Thereafter	86.9
Total	202.0

In order to protect ourselves from increases in commodity costs, our coal sales contracts typically contain price escalation and adjustment provisions, pursuant to which the price for our coal may be periodically revised. The price may be adjusted in accordance with changes in our actual costs, broad economic indicators such as the Consumer Price Index, or commodity-specific indices such as the Producer Price Index-light fuel oils.

In 2008, our four largest contracts, with the owners of Colstrip 3&4 Units, Limestone Generating Station, Colstrip 1&2 Units, and Coyote Station, accounted for 28%, 20%, 11% and 10%, respectively, of our coal revenues. No other contract accounted for as much as 10% of our coal revenues in 2008.

The Absaloka Mine operates primarily in the open market and has several contracts with various parties that total more than 7.0 million tons in 2009 and decline to zero by 2013. More than 3.0 million tons will expire at the end of 2009 under three separate agreements, which are expected to be renegotiated during the year. About 80% of all tons have been sold to the rail-served Sherburne County Station under several contracts.

The Rosebud Mine has two contracts with the adjacent Colstrip Station. One agreement with Colstrip Units 1&2 provides for approximately 3.0 million tons per year. That index and cost adjusted agreement will be replaced in 2010 by a new cost-plus agreement with a projected term through 2019. A second agreement at Units 3&4 covers approximately 7.0 million tons per year and is set to expire at the end of 2019. This contract is also cost-plus, with specific return on capital provisions. The Rosebud Mine also has a 1.5 to 2.5 million ton per year fixed price contract with Minnesota Power’s Boswell Station that expires on December 31, 2010.

The Jewett Mine’s coal supply is sold pursuant to a new cost-plus agreement with NRG Texas Power’s adjacent Limestone Station commencing January 1, 2008. NRG Texas Power is obligated to pay all the mine’s costs of production plus a margin and all of the mine’s capital and reclamation expenditures. The new agreement has a term through 2018, which may be extended by NRG Texas Power for up to an additional ten years or until the mine reserves are exhausted. NRG has the option to determine volumes to be delivered, which are currently about 5.4 to 6.0 million tons per year, and to terminate the agreement at its discretion.

The Beulah Mine supplies approximately 2.5 million tons per year to the adjacent Coyote Station under an agreement that expires in May 2016 and approximately 0.6 million tons per year to the rail-served Heskett Station under an agreement that expires at the end of 2011. Prices under these agreements are based upon certain actual mine costs and certain inflation indices for such things as diesel fuel.

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The Savage Mine supplies approximately 0.3 million tons per year to the local Lewis & Clark Station under an agreement that expires at the end of 2012. Prices under this agreement are based upon certain actual mine costs and certain inflation indices for such things as diesel fuel.

Suppliers

The main types of goods we purchase are mining equipment and replacement parts, explosives, fuel, tires, and lubricants. Although we have many well-established, strategic relationships with our key suppliers, we do not believe that we are dependent on any of our individual suppliers. The supplier base providing mining materials has been relatively consistent in recent years, although there continues to be some consolidation. In recent years, the demand for certain surface and underground mining equipment and off-the-road tires has increased. As a result, lead times for certain items have generally increased, although no material impact is currently expected on our operations.

Insurance Subsidiary

We have elected to retain some of the risks associated with operating our company through a wholly owned, consolidated insurance subsidiary, Westmoreland Risk Management Ltd., or WRM. WRM, a Bermuda corporation, provides our primary layer of property and casualty insurance. By using this insurance subsidiary, we have mitigated the effect of escalating property and casualty insurance premiums and retained some of the economic benefits of our excellent loss record, which has had minimal claims since we established the subsidiary. We reduce our major exposure by insuring for losses in excess of our retained limits with a number of third party insurance companies.

Except for the assets of WRM, all of our assets are located in the United States. We had no export sales and derived no revenues from outside the United States during the five-year period ended December 31, 2008, except for de minimis spot coal sales to a Canadian utility.

Seasonality

Our business is somewhat seasonal. The owners of the power plants to which we supply coal typically schedule maintenance for those plants in the spring and fall, when demand for electric power is typically less than it is during other seasons. For this reason, our coal revenues are usually higher in the winter and summer. ROVA also typically undergoes scheduled maintenance in the spring and fall, so our revenue from power operations is also lower in those seasons.

Government Regulations

Numerous federal, state and local governmental permits and approvals are required for mining and power operations and our operations are subject to extensive governmental regulation. We believe that our operations comply with all applicable laws and regulations, and it is our policy to operate in compliance with all applicable laws and regulations, including those involving environmental matters. However, because of comprehensive regulatory requirements, violations occur from time-to-time in the mining and power industries. None of the violations to date or the monetary penalties assessed upon us have been material.

Environmental Regulations

Federal and state regulations require regular monitoring of our mines and power plants to ensure compliance. While it is not possible to quantify the expenditures we incur to maintain compliance with all federal and state environmental laws, those costs have been and are expected to continue to be significant.

Mining Permits and Necessary Approvals.  Numerous governmental permits, licenses or approvals are required for mining and related operations. When we apply for these permits and approvals, we may be required to present data to federal, state or local authorities pertaining to the effect or impact our operations may have upon the environment. The requirements imposed by any of these authorities may be costly and time consuming and may delay commencement or continuation of mining or other operations. Regulations also

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provide that a mining permit or modification can be delayed, refused or revoked if an officer, director or a substantial stockholder has outstanding mining permit violations. Thus, past or ongoing violations of mining laws could provide a basis to revoke existing permits and to deny the issuance of additional permits.

Surface Mining Control and Reclamation Act.  The Surface Mining Control and Reclamation Act of 1977, or the Surface Mining Act, establishes mining, environmental protection and reclamation standards for all aspects of surface mining. Mining operators must obtain Surface Mining Act permits and permit renewals from the Office of Surface Mining or from the applicable state agency if the state agency has developed a mining regulatory program that is no less stringent than the federal mining regulatory program under the Surface Mining Act. Once a permit application is prepared and submitted to the regulatory agency, it could take six months to two years to be issued. Before a Surface Mining Act permit is issued, a mine operator must submit a bond or other form of financial security to guarantee the performance of reclamation obligations. The Abandoned Mine Land Fund, which is part of the Surface Mining Act, currently requires a $0.315 per ton fee on sub-bituminous coal and $0.09 per ton fee on lignite produced and sold from surface mines in the U.S. with proceeds used to rehabilitate lands mined and left unreclaimed and to pay health care benefit costs for certain retired coal miners.

Surety Bonds.  Mine operators are often required by federal and/or state laws to assure, usually through the use of surety bonds, payment of certain long-term obligations including mine closure or reclamation costs, federal and state workers’ compensation costs, post retirement health costs and other miscellaneous obligations. Although surety bonds are usually noncancelable during their term, many of these bonds are renewable on an annual basis. The costs of these bonds have fluctuated in recent years while the market terms of surety bonds have generally become more unfavorable to mine operators. These changes in the terms of the bonds have been accompanied at times by a decrease in the number of companies willing to issue surety bonds. As of December 31, 2008, we have posted an aggregate of $213.5 million in surety bonds for reclamation purposes. In addition, we had approximately $40.8 million of surety bonds and letters of credit outstanding at December 31, 2008, to secure workers’ compensation, post retirement health benefit obligations and other obligations.

Clean Air Act.  The Clean Air Act and the corresponding state laws that regulate the emissions of materials into the air affect U.S. coal-fired power plants and coal mining operations.

•  Acid Rain.  Title IV of the Clean Air Act imposes a “cap-and-trade” system to reduce sulfur dioxide emissions from utility coal-fueled power plants. Plants can comply by reducing emissions and banking or selling unused sulfur dioxide emission allowances as issued annually by the EPA or by purchasing allowances. Title IV also requires, generally, the installation and optimization of so-called Low NOx Burners to control nitrogen oxide emissions.

•  NAAQS.  National Ambient Air Quality Standards, or NAAQS, are a core component of the Clean Air Act. Areas that are not in compliance with NAAQS, referred to as non-attainment areas, must take steps to reduce emissions levels. The EPA designated 211 counties in 25 states as being non-attainment areas relating to Particulate Matter 2.5, or PM_2.5, of which sulfur dioxide is a primary precursor. In 2008, EPA significantly strengthened the NAAQS for ground-level ozone, for which nitrogen oxide is a primary precursor, revising the level of the primary and secondary 8-hour ozone standards to 0.075 parts per million. The EPA is required to issue final ozone nonattainment designations by March 2010. Any designated non-attainment areas must create and submit plans that detail how the designated area will attain the required ozone or fine particulate levels through lowered emissions.

•  Clean Air Interstate Rule and Mercury.  The EPA promulgated the Clean Air Interstate Rule, or CAIR, and the Clean Air Mercury Rule, or CAMR, in March 2005. CAIR requires reduction of sulfur dioxide and nitrogen oxide emissions from electricity generating plants in 28 states and the District of Columbia. CAMR sought to permanently cap and reduce nationwide mercury emissions from coal-fired power plants. On February 8, 2008, the D.C. Circuit Court of Appeals rendered a decision effectively vacating CAMR. In addition, on July 11, 2008, the D.C. Circuit Court of Appeals rendered a separate decision effectively vacating CAIR. However, on December 23, 2008, the D.C. Circuit Court of

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Appeals issued an order that leaves CAIR in effect while the EPA develops a new clean air program for power plants.

•  New Source Review.  The New Source Review program, or NSR, requires that when large industrial facilities, such as power plants, are rehabilitated or refurbished, they also modernize air pollution controls. In April 2007, the Supreme Court ruled against a generator in an enforcement proceeding. This decision could potentially expose numerous electricity generators to government or citizen actions based on failure to obtain NSR permits for changes to emissions sources.

•  Section 126 Rule. On December 17, 1999, the EPA issued regulations under Section 126 of the Clean Air Act. The Section 126 rule requires combined nitrogen oxide reductions of 510,000 tons during each annual ozone season from specified power stations in the Eastern United States, including ROVA. Each power plant is assigned a nitrogen oxide emissions allocation, and power plants can reduce emissions to meet the allocation or purchase allowances.

•  North Carolina Nitrogen Oxide Limits.  North Carolina adopted new nitrogen oxide limits in June 2004 to comply with CAIR. ROVA is in compliance with these regulations through the installation of a neural network in its boilers, which increases efficiency and reduces nitrogen oxide emissions, and through the purchase of NOx credits.

Clean Water Act.  The Clean Water Act employs a variety of regulatory and non-regulatory tools to sharply reduce direct pollutant discharges into waterways and manage polluted runoff. The Clean Water Act affects U.S. coal mining operations by requiring effluent limitations and treatment standards for wastewater discharge. Also, Total Maximum Daily Load, or TMDL, regulations establish a process by which states designate stream segments as not meeting present water quality standards. Industrial dischargers, including coal mines, may be required to meet new TMDL effluent standards for these stream segments.

Resource Conservation and Recovery Act.  The Resource Conservation and Recovery Act, or RCRA, affects coal-mining operations by establishing requirements for the treatment, storage, and disposal of hazardous wastes. Certain coal mine wastes, such as overburden and coal cleaning wastes, are exempted from hazardous waste management. The EPA has determined that national non-hazardous waste regulations under RCRA Subtitle D are needed for coal combustion wastes disposed in surface impoundments and landfills and used as mine-fill.

CERCLA (Superfund).  CERCLA affects U.S. coal mining operations by creating liability for investigation and remediation in response to releases of hazardous substances into the environment and for damages to natural resources. Under Superfund, joint and several liability may be imposed on waste generators, site owners or operators and others regardless of fault. Under the EPA’s Toxic Release Inventory process, companies are required to report the use, manufacture or processing of listed toxic materials that exceed defined thresholds. Coal mines, including our mines, typically do not trigger reporting thresholds.

Material Effects of Environmental Regulation

Environmental regulations affect the costs of operating power plants and coal mines, as well as the market potential for various qualities of coal. In some instances, these effects could provide us a competitive advantage, while in others they could create a disadvantage.

Power Operations.  ROVA is among the newer and cleaner coal-fired power plants in the United States. It is exempted under Title IV of the Clean Air Act, but may opt-in to receive allocations of sulfur dioxide emission allowances for CAIR compliance. The plant is among the lowest coal-fired emitters of mercury in the country. We are evaluating whether ROVA could be a net consumer or seller of sulfur dioxide allowances, nitrogen oxide credits and/or mercury allowances under new and pending regulations. With regard to coal ash regulations, ROVA both remarkets and landfills its combustion waste. Landfills are lined and meet strict North Carolina Department of Solid Waste regulations. Should ROVA incur additional costs of regulatory compliance, it is unlikely that we will be able to pass through these costs under our agreements with Dominion Virginia Electric.

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Coal Operations.  Our coal mine operations are not materially affected by environmental regulations any differently than competing surface mines. However, each mine will exhibit its own unique set of compliance costs. All of our coal supply agreements contain government impositions provisions that may allow the pass-through of certain compliance costs.

Coal Markets.  Our mines do not produce compliance coal, that is, coal containing 1.2 pounds or less of sulfur dioxide per million British thermal unit. This fact restricts our ability to sell to power plants that do not utilize sulfur dioxide emission controls and otherwise leads to a price discount based, in part, on the market price for Title IV sulfur dioxide emission allowances. Our coal also contains about twice the ash content of our primary competitors, which can translate into a cost disadvantage where post-combustion coal ash must be land filled.

While new regulations could increase market prices for sulfur dioxide emission allowances and therefore the price discount applied to our open market coal, they could also cause power plants to retrofit sulfur dioxide emission controls, therefore expanding our market potential. Higher costs for complying with coal ash regulations could also result in a higher price discount for our open market coal. Absaloka is our primary open market mine. All of our other mines’ markets are secured by both long-term coal supply agreements and by the customers’ lack of access to competing coal, except at our Jewett Mine in Texas. All of our core customers’ plants meet New Source Performance Standards under the Clean Air Act, limiting their exposure to NSR. The states that account for half of our sales tonnages and the majority of our coal revenues are not among the states directly affected by regulations for fine particulate matter, ozone, or CAIR.

Our primary exposure is at the Jewett Mine whose customer, the NRG Texas Power-Limestone Station, blends our lignite with compliance coal from Wyoming. Tightened nitrogen oxide and new mercury emission standards could result in an increased blend of the Wyoming coal in order to reduce emissions. Further, increased market prices for sulfur dioxide emissions and increased coal ash costs could also favor an increased blend of the lower ash Wyoming compliance coal. NRG Texas Power has the option to increase its purchases of other coal and reduce purchases of our coal and to terminate our contract.

In general, new environmental regulations governing the mining and combustion of coal increase the costs of coal-fired electricity generation and reduce the cost advantage of coal versus natural gas and other energy sources. We believe that our core customer plants and ROVA are among the lowest cost and cleanest coal-fired generators and therefore the least susceptible to competition from other energy sources. However, to the extent that competition from other energy sources reduces coal consumption nationally, it could also depress coal market prices and therefore the prices we obtain for our open market coal.

Health and Benefits

Mine Health and Safety Laws.  Originally enacted in 1969, Congress expanded the Mine Safety and Health Act in 1977 to impose comprehensive safety and health standards on all aspects of mining operations. Additionally, all of the states in which we operate have mine safety and health regulations. Recently, Congress enacted the Mine Improvement and New Emergency Response Act of 2006, which imposes additional obligations on coal operators. We maintain active programs at all of our mines, focusing on 100% compliance utilizing safe practices and safety rules. In 2008, our mines performed better than the national average for surface mines.

Black Lung.  Under various Black Lung Benefits regulations, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees who last worked in the coal industry prior to July 1, 1973. We believe we have adequate funds set aside to cover our black lung obligations.

Coal Act.  The Coal Industry Retiree Health Benefit Act of 1992 established various funds to ensure the continued provision of health-care benefits to retired miners and their dependents. Coal operators are required to make payments to the plans to provide for the current and projected cost of benefits to eligible retirees, whether for their own retirees or to share in the cost of benefits to orphaned retirees whose employers were not providing for their benefits. These obligations, which we refer to as our heritage costs, are discussed in

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more detail under Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

Employees and Labor Relations

Including our subsidiaries, we directly employed 1,119 people on December 31, 2008.

Our Rosebud, Savage, and Absaloka Mines are party to agreements with Local 400 of the International Union of Operating Engineers. Our Beulah Mine is party to an agreement with Local 1101 of the United Mine Workers of America. In total, 591 employees, or approximately 53% of our total employees, are represented by collective bargaining agreements. The labor agreement at the Rosebud Mine, which covered 29% of our employees, expired in February 2009, and the employees are currently working without a contract while a renewal of the contract is being negotiated.

We believe that our relations with all employees are good. However, a labor strike may occur if we are unable to successfully negotiate the collective bargaining agreement that expired in February 2009.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may access and read our filings without charge through the SEC’s website, at www.sec.gov. You may also read and copy any document we file at the SEC’s Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.

We also make the documents listed above available through our website, www.westmoreland.com, as soon as practicable after we file or furnish them with the SEC. You may also request copies of the documents, at no cost, by telephone at (719) 442-2600 or by mail at Westmoreland Coal Company, 2 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 80903, Attention: Vice President-Investor Relations and Public Affairs. The information on our website is not part of this Annual Report on Form 10-K.

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ITEM 1A — RISK FACTORS.

Our business involves certain risks and uncertainties. In addition to the risks and uncertainties described below, we may face other risks and uncertainties, some of which may be unknown to us and some of which we may deem immaterial. New risk factors emerge from time to time and it is not possible for management to predict all such risks, nor can it assess the impact of all such risks on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Investors should not place undue reliance on these statements as a prediction of actual results.

We may not generate sufficient cash flow to pay our operating expenses, meet our debt service costs and pay heritage and corporate costs, and we may not be able to obtain additional sources of liquidity to meet these needs.

We are a holding company that conducts our operations through our subsidiaries. Certain costs are obligations of ours, such as significant heritage health benefit costs, and certain costs are incurred at the subsidiary level. Each of WML, ROVA and WRI has a credit agreement that contains covenants applicable to that subsidiary. Only the WRI agreement permits dividends to be paid by WRI to us without restriction. Limitations in the WML and ROVA debt agreements require the maintenance of reserve accounts and limit the ability of those subsidiaries to dividend funds to us based on changes in reserve account balances and the subsidiaries’ operating results. Accordingly, these subsidiaries may not be able to pay dividends to us in the amounts and in the time periods required for us to pay our heritage health benefit costs and corporate expenses.

Ultimately, if our subsidiaries’ operating cash flows are insufficient to support their operations and provide dividends to us in the amounts and time periods required to pay our expenses, and we are unable to obtain external financing at sufficient levels to pay such obligations, we will be unable to meet our obligations as they come due.

Certain assumptions regarding our operations, financing opportunities and contractual obligations must be achieved for us to meet our obligations in 2009. We will be required to significantly increase operating cash flow at WRI by increasing operating performance and efficiency; we must defer or reduce bonding requirements and reduce cash contributions to satisfy our pension obligations; WRI’s revolving line of credit must be renewed in November; and WRI’s tax credit transaction must go forward and provide the benefits we have projected. For 2010, we anticipate that additional financing will be required to meet our projected cash requirements. Because of the lack of certainty surrounding the 2009 forecast assumptions, the report from our independent registered certified public accounting firm on our consolidated financial statements for the year ended December 31, 2008, includes an explanatory paragraph reciting factors that raise substantial doubt about our ability to continue as a going concern.

To meet our ongoing liquidity needs, we are considering various alternatives. We may seek to sell certain assets, but it is not certain that asset sales could be completed in the time, or at the price, required to meet our cash needs. Liquidity needs over the next twelve months may require that we defer capital investments and bonding requirements associated with new mine development.

We have a significant amount of debt, which imposes restrictions on us and may limit our flexibility, and a decline in our operating performance may materially affect our ability to meet our future financial commitments and liquidity needs.

As of December 31, 2008, our total gross indebtedness was approximately $269.2 million, the principal components of which are: $148.1 million of Westmoreland Mining term and other debt; $81.4 million of ROVA term debt; $22.5 million under WRI’s revolving line of credit and term and other debt; and $15.8 million of convertible notes. We may incur additional indebtedness in the future, including indebtedness under our three existing revolving credit facilities.

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A substantial portion of our cash flow must be used to pay principal and interest on our indebtedness and is not available to fund working capital, capital expenditures, bonding requirements, heritage costs or other general corporate uses. In addition, the degree to which we are leveraged could have other important consequences, including:

•  increasing our vulnerability to general adverse economic and industry conditions;

•  limiting our ability to obtain additional financing to fund future working capital, capital expenditures or equipment leases or other general corporate requirements; and

•  limiting our flexibility in planning for, or reacting to, changes in our business and in the industry.

If our operating performance declines, or if we do not have sufficient cash flows and capital resources to meet our debt service obligations, we may be forced to sell assets, seek additional capital or seek to restructure or refinance our indebtedness.

Continuing unfavorable economic conditions could have a material adverse effect on our results of operations.

Economic conditions in the United States and throughout much of the world have undergone a sudden, sharp economic downturn. The recent distress in the financial markets has resulted in extreme volatility and declines in security prices and diminished liquidity and credit availability. There can be no assurance that our liquidity and our ability to access the credit or capital markets will not continue to be affected by changes in the financial markets and the global economy. Continuing turmoil in the financial markets could make it more difficult for us to access capital, sell assets, refinance our existing indebtedness, attain waivers for covenant violations from our lenders if necessary, attain future bonding capacity required to expand our operations, enter into agreements for new indebtedness, or obtain funding through the issuance of our securities.

Volatility in the capital markets could negatively impact our pension expense and cash contributions.

During 2008, both the debt and equity markets experienced significant downturns, resulting in significant reductions in asset values for our partially funded pension plans. In particular, the projected benefit obligation for the qualified pension plan now exceeds the fair market value of plan assets by $35.9 million. These reductions, if not offset by gains in future years, will result in higher pension and postretirement expenses in future years along with additional cash contributions. Due to the reduction in asset values, we currently expect to make minimum pension contributions required by our loan agreement of approximately $11.3 million for the 2009 plan year.

Our coal mining operations are subject to external conditions that could disrupt operations and negatively affect our profitability.

Our coal mining operations are all surface mines. These mines are subject to conditions or events beyond our control that could disrupt operations, affect production, and increase the cost of mining at particular mines for varying lengths of time. These conditions or events include:

•  unplanned equipment failures, which could interrupt production and require us to expend significant sums to repair our equipment, which is integral to the mining of coal;

•  geological conditions, such as variations in the quality of the coal produced from a particular seam, variations in the thickness of coal seams and variations in the amounts of rock and other natural materials that overlie the coal that we are mining; and

•  weather conditions.

Major disruptions in operations at any of our mines over a lengthy period of time could adversely affect the profitability of our mines.

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If transportation for the coal produced by our Absaloka and Beulah Mines becomes unavailable, or if transportation becomes uneconomical for Absaloka coal, our revenues could suffer.

The Absaloka Mine’s customers take delivery of our coal over rail lines operated by BNSF. Transportation costs represent a significant portion of the total cost of coal, and the cost of transportation is a critical factor in a customer’s purchasing decision. Increasing world demand for coal has increased demand for locomotives, rail cars, and rail capacity. The unavailability or interruption of our ability to ship coal from the Absaloka Mine, and the lack of sufficient rail capacity would adversely affect the Absaloka Mine’s revenues.

The Beulah Mine ships lignite to the Heskett Station over a 74-mile rail line operated by BNSF. Disruptions of rail service over that line would affect the Beulah Mine’s revenues.

Our revenues could suffer if our customers reduce or suspend their coal purchases.

In 2008, we sold almost 100% of the coal we produced under long-term agreements. Four of our contracts, with the owners of the Colstrip 3&4 Units, Limestone Generating Station, Colstrip 1&2 Units, and Coyote Station, accounted for 28%, 20%, 11% and 10%, respectively, of our coal revenues for 2008. Approximately 75% percent of our tonnage in 2008 was sold to three power plants, Colstrip, Limestone, and Sherburne County, under several separate contracts. Interruption in the purchases by or operations of our principal customers, including the bankruptcy of any of our principal customers, could significantly affect our revenues. Unscheduled maintenance outages at our customers’ power plants, unseasonably moderate weather, or increases in the production of alternative clean-energy generation such as wind power could cause our customers to reduce their purchases. In addition, new environmental regulations could require our customer at the Jewett Mine to purchase more compliance coal, reducing or eliminating our sales to them. Four of our five mines are dedicated to supplying customers located adjacent to or near the mines, and these mines may have difficulty identifying alternative purchasers of their coal if their existing customers suspend or terminate their purchases. The reduction in the sale of our coal would adversely affect our operating results.

Disputes relating to our coal supply agreements could harm our financial results.

From time to time, we may have disputes with customers under our coal supply agreements. Our customers have or could claim monetary reimbursement or other damages related to any of the following: quality of the coal; disputes relating to pass-through expenses on cost-plus contracts; contract interpretation; coal delivery delays originating at our mines; disputed force majeure events and any number of other potential disputes pertaining to the operation of our various coal supply agreements. In addition, any dispute that rises to the level of litigation could cause us to pay significant legal fees. The payment of damages or litigation expenses or the failure of our customers to pay due to disputes under our coal supply agreements could negatively affect our operating revenues.

Our expenditures for heritage costs and postretirement medical benefits could be materially higher than we have predicted if our underlying assumptions prove to be incorrect.

We provide various postretirement medical benefits to current and former employees and their dependents. We estimate the amounts of these obligations based on assumptions described in Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates and Related Matters herein. See Note 8 to the Consolidated Financial Statements for more detail. We accrue amounts for these obligations, most of which are unfunded, and we pay as costs are incurred. If our assumptions change, the amount of our obligations could increase, and if our assumptions are inaccurate, we could be required to expend greater amounts than we anticipate. We regularly revise our estimates, and the amount of our accrued obligations is subject to change. An increase in our heritage costs and/or postretirement medical benefit obligations could cause us to be unable to pay our obligations as they come due.

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If the cost of obtaining new reclamation bonds and renewing existing reclamation bonds continues to increase or if we are unable to obtain additional bonding capacity, our operating results could be negatively affected.

Federal and state laws require that we provide bonds to secure our obligations to reclaim lands used for mining. We must post a bond before we obtain a permit to mine any new area. These bonds are typically renewable on a yearly basis and have become increasingly expensive. Bonding companies are requiring that applicants collateralize increasing portions of their obligations to the bonding company. In 2008, we paid approximately $2.6 million in premiums for reclamation bonds and were required to use $10.3 million in cash to collateralize 92% of the face amount of the new bonds obtained in 2008. We anticipate that, as we permit additional areas for our mines in 2009 and 2010, our bonding requirements will increase significantly and our collateral requirements will increase as well. Any capital that we provide to collateralize our obligations to our bonding companies is not available to support our other business activities. If the cost of our reclamation bonds continues to increase, our results of operations could be negatively affected. Additionally, if we are unable to obtain additional bonding capacity due to cash flow constraints, we will be unable to begin mining operations in newly permitted areas. Our inability to begin operations in new areas will hamper our ability to efficiently meet our current customer contract deliveries, expand operations, and increase revenues.

We face competition for sales to new and existing customers, and the loss of sales or a reduction in the prices we receive under new or renewed contracts would lower our revenues.

Approximately one-third of the coal tonnage that we will produce in 2009 will be sold under contracts to power plants that take delivery of our coal from common carrier railroads. Contracts covering 80% of those rail tons are scheduled to expire by the end of 2010. As a general matter, plants that take coal by rail can buy their coal from many different suppliers. We will face significant competition, primarily from mines in the Southern Powder River Basin of Wyoming, in negotiating the renewal of our long-term contracts with our rail-served customers, and for contracts with new rail-served customers. Many of our competitors are larger and better capitalized than we are and have coal with a lower sulfur and ash content than our coal. As a result, our competitors may be able to adopt more aggressive pricing policies for their coal supply contracts than we can. If our existing customers fail to renew their contracts with us on terms that are at least equivalent to those in effect today, or if we are unable to replace our existing contracts with contracts of equal size and profitability from new customers, our revenues will decline.

Approximately two-thirds of the coal tonnage that we will sell in 2009 will be delivered under long-term contracts to power plants located adjacent to our mines. We will face somewhat less competition to renew these contracts upon their expiration, both because of the transportation advantage we enjoy by being located adjacent to these customers and because most of these customers would be required to invest additional capital to obtain rail access to alternative sources of coal. Our Jewett Mine is an exception because our customer has already built rail unloading and associated facilities that are being used to receive coal from the Southern Powder River Basin as permitted under our contract with that customer. That customer can choose to reduce our contract tons or terminate our contract in order to purchase competing coal.

Our mining operations are extensively regulated, which imposes significant costs on us, and delays in receiving permits or future regulations and developments could increase those costs or limit our ability to produce and sell coal.

Federal, state and local authorities regulate the coal mining industry with respect to matters such as employee health and safety, permitting and licensing requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Numerous governmental permits and approvals are required for mining operations. We are required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment. The costs, liabilities and requirements associated with these regulations may be costly and time-consuming, may delay commencement or continuation of exploration or production and may adversely

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affect our financial results. The possibility exists that new legislation and/or regulations and orders related to the environment or employee health and safety may be adopted and may materially adversely affect our mining operations, our cost structure and/or our customers’ ability to use coal. New legislation or administrative regulations (or judicial interpretations of existing laws and regulations), including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs. These factors and legislation, if enacted, could have a material adverse effect on our financial condition and results of operations.

Concerns about the environmental impacts of coal combustion, including perceived impacts on global climate change, are resulting in increased regulation of coal combustion in many jurisdictions, and interest in further regulation, which could significantly affect demand for our products.

Global climate change continues to attract considerable public and scientific attention. Widely publicized scientific reports in 2007, such as the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, have also created widespread concern about the impacts of human activity, especially fossil fuel combustion, on global climate change. In turn, considerable and increasing government attention in the United States is being paid to global climate change and to reducing greenhouse gas emissions, particularly from coal combustion by power plants. Legislation was introduced in Congress in 2006 and 2007 to reduce greenhouse gas emissions in the United States and additional legislation is likely to be introduced in the future. The new administration has expressed its intent to legislate further the emission of greenhouse gases. In addition, a growing number of states in the United States are taking steps to reduce greenhouse gas emissions from coal-fired power plants. The U.S. Supreme Court’s recent decision in Massachusetts v. EPA ruled that the EPA improperly declined to address carbon dioxide impacts on climate change in a recent rulemaking. Although the specific rulemaking related to new motor vehicles, the reasoning of the decision could affect other federal regulatory programs, including those that directly relate to coal use. Enactment of laws and passage of regulations regarding greenhouse gas emissions by the United States or some of its states, or other actions to limit carbon dioxide emissions, could result in electric generators switching from coal to other fuel sources.

Most recently, the Environmental Protection Agency’s Environmental Appeals Board ruled that the EPA had no valid reason for refusing to limit carbon dioxide emissions from new coal-fired power plants. The decision means that all new and proposed coal plants nationwide must go back and address their carbon dioxide emissions. Further developments in connection with legislation, regulations or other limits on greenhouse gas emissions and other environmental impacts from coal combustion in the United States could have a material adverse effect on our results of operations, cash flows and financial condition.

In the event of a carbon tax or other imposed cost, such as a cap-and-trade system, ROVA may be unable to pass these costs through under its power purchase agreement with Dominion. However, due to ROVA’s coal supply agreements, any imposed carbon tax would be passed through to ROVA from the coal suppliers. Essentially all of our coal supply agreements at our mining operations contain similar pass-through provisions that pass through to us the costs of government-imposed carbon taxes; however, their application would depend upon the final regulatory provisions.

While we believe that our core coal customers’ plants would continue for the foreseeable future to operate as base-load generators, their levels of coal burn could be reduced. We sell coal to a few small, older power plants that could be at risk of significant reduction in coal burn or closure as a result of imposed carbon costs. The imposition of a carbon tax or similar regulation could, in certain situations, lead to the shut down of coal-fired power plants, which would materially and adversely affect our coal and power plant revenues.

We have significant reclamation and mine closure obligations. If the assumptions underlying our accruals are materially inaccurate, or if we are required to cover reclamation obligations that have been assumed by our customers, we could be required to expend greater amounts than we currently anticipate, which could negatively affect our operating results in future periods.

As the permittee, we are generally responsible under federal and state regulations for the ultimate reclamation of the mines we operate. In some cases, our customers have assumed these liabilities by contract

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and have posted bonds or have funded escrows to secure their obligations. We estimate our future liabilities for reclamation and other mine-closing costs from time to time based on a variety of assumptions. If our assumptions are incorrect, we could be required in future periods to spend more on reclamation and mine-closing activities than we currently estimate. Likewise, if our customers default on the unfunded portion of their contractual obligations to pay for reclamation, we could be forced to make these expenditures ourselves and the cost of reclamation could exceed any amount we might recover in litigation.

We estimate that our gross reclamation and mine-closing liabilities, which are based upon projected mine lives, current mine plans, permit requirements and our experience, were $222.7 million (on a present value basis) at December 31, 2008. Of these December 31, 2008, liabilities, our customers have assumed $81.2 million by contract. Responsibility for the final reclamation amounts may change in certain circumstances. We estimate that our obligation for final reclamation that was not the contractual responsibility of others was $141.5 million at December 31, 2008. We held final reclamation deposits of approximately $69.7 million at December 31, 2008, to provide for these obligations. The remainder of the $141.5 million of estimated obligations must be recovered in the price of coal sold.

Our revenues could be affected by unscheduled outages at the power plants we supply or own or if the scheduled maintenance outages at the power plants we supply or own last longer than anticipated.

Scheduled and unscheduled outages at the power plants that we supply could reduce our coal sales and revenues. We cannot anticipate if or when unscheduled outages may occur. Our operating results could be negatively affected by unscheduled outages at ROVA or if scheduled outages at ROVA last longer than we anticipate.

A decrease in the availability or increase in costs of key supplies, capital equipment or commodities such as diesel fuel, steel, explosives and tires could affect our financial results.

Our mining operations require a reliable supply of replacement parts, explosives, fuel, tires, steel-related products and lubricants. If the cost of any of these inputs increased significantly, or if a source for these supplies or mining equipment were unavailable to meet our replacement demands, our financial results could be negatively affected. Recent consolidation of suppliers of explosives has limited the number of sources for these materials. Further, our purchases of some items of mining equipment are concentrated with one principal supplier. Over the past few years, industry-wide demand growth has exceeded supply growth for certain surface mining equipment and other capital equipment as well as off-the-road tires. As a result, lead times and costs for some items have increased significantly.

If we experience unanticipated increases in the capital expenditures we expect to make over the next several years, our liquidity could suffer.

Some of our contracts provide for our customers to reimburse us for our capital expenditures on a depreciation and amortization basis, plus in some instances, a stated return-on-investment. Other contracts provide reimbursement of capital expenditures in full as such expenditures are incurred. Other contracts feature set prices that adjust only for changes in a general inflation index or set of indices. When we spend capital at our operations, it affects our near term liquidity in most instances and if capital is spent where the customer is not specifically obligated to reimburse us, that capital could be at risk if market conditions and contract duration do not match up to the investment.

Provisions of our certificate of incorporation, bylaws, Delaware law and our stockholder rights plan may have anti-takeover effects that could prevent a change of control of our company that stockholders may consider favorable, and the market price of our common stock may be lower as a result.

Provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our bylaws impose various procedural and other requirements that could make it more difficult for stockholders to bring about some types of corporate actions. In addition, a change of control may be delayed or deterred as a result

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of our stockholder rights plan, which was initially adopted by our Board of Directors in early 1993 and amended and restated in February 2003 and further amended in May 2007 and March 2008. Our ability to issue preferred stock in the future may influence the willingness of an investor to seek to acquire our company. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control.

Future sales of our common stock by our major stockholder may depress our share price and influence our management policies.

Tontine Associates, which owns approximately 16% of our common stock, has publicly stated that it has begun to explore alternatives for the disposition of shares of our common stock. We have granted Tontine Associates and its various affiliated entities registration rights with respect to our common stock it holds, which we intend to register in the near future. Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. In addition, if Tontine Associates were to sell its entire holdings to one person, that person could have significant influence over our management policies.

Our ability to operate effectively and achieve our strategic goals depends on maintaining satisfactory labor relations.

A significant portion of the workforce at each of our mines, except Jewett, is represented by labor unions. While we believe that our relationships with our employees at the mines are satisfactory, the nature of collective bargaining is such that there is a risk of a disruption in operations when any collective bargaining agreement reaches its expiration date unless the employees who are covered by the agreement have accepted a renewal or extension. The primary collective bargaining agreement at the Rosebud Mine expired in February 2009, and the employees are currently working without a contract while a renewal of the contract is being negotiated. The inability to renew this agreement could lead to a strike, which could temporarily impair our ability to supply coal to our customers and thus could adversely affect our results of operations. While labor strikes are generally a force majeure event in long-term coal supply agreements, thereby exempting the mine from its delivery obligations, the loss of revenue for even a short time could have a material adverse effect on our financial results.

Our financial results may be impacted by the different interpretations and application of accounting literature in the mining industry.

The mining industry has limited industry specific accounting literature; therefore, differences in practice exist in the interpretation and application of accounting literature to mining specific issues. The practice of capitalizing or recording an expense for certain specific mining costs leads to differences in accounting practices among mining companies. The materiality of such expenditures can vary greatly relative to a given company’s respective financial position and results of operations. As differences in the mining industry accounting are reviewed, a restatement of our financial results may be necessary if mining interpretations differ from our current accounting practices. A restatement of our financials could cause investors to lose confidence in our reported financial information.

We have formed a limited liability company to utilize potential Indian Coal Production Tax Credits, or ICTC’s. Under certain circumstances, the transaction may be cancelled and we may be required to return payments received from the third party.

Our WRI subsidiary entered into a series of transactions, including the formation of a limited liability company, the LLC, with an unaffiliated investor, in order to take advantage of certain available tax credits, which we had not been able to fully utilize. Entering into the transaction with the investor that could utilize these credits would enable us to monetize the ICTC’s and increase our cash flows. We requested and have received a private letter ruling, or PLR, from the IRS providing that the ICTC’s will be available under the specific scenario described whereby we subleased the right to mine a fixed amount of coal from our Absaloka Mine to the LLC. The investor is the other member of the limited liability company and has begun paying us

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for its membership interest through an initial cash payment of $4.0 million and payments under promissory notes, which are subject to contingencies as to timing and amount. If the PLR is deemed unacceptable by the investor or one of our lenders, the transaction may not go forward, and any payments received in respect of the membership interest will be refunded to the investor. We paid to the Crow Tribe $1.25 million on closing of the transaction in October 2008, which we will not be able to recoup if the PLR is not approved by the investor or one of our lenders.

Even though we have received the PLR, there are certain issues that may be raised by the IRS in a subsequent audit of the tax returns of the members of the LLC. In the unlikely event that a subsequent audit disqualifies the tax credits as approved in the PLR, we will be required to return to the investor previously received payments under the notes, and the transaction would effectively be cancelled. If such a subsequent audit disallows the allocation of the tax credits, we may retain the previously received payments under the notes, but the transaction would effectively be cancelled from the date of the disallowance. We will pay to the Crow Tribe 33% of the expected $58.8 million of payments we will receive from the investor. The Crow Tribe is only required to reimburse us under very limited circumstances. As a result, in the unlikely event that the IRS disallows or disqualifies the tax credit we would be unable to recoup a total of up to $20.7 million of total payments forecast to be paid to the Crow Tribe.

While unlikely, we face the risk that the IRS will withdraw the PLR at any time, resulting in the disallowance of the ICTC’s. Such withdrawal can be retroactive to the date of original issuance. In addition, at any time, the IRS could challenge a material fact upon which the ICTC’s were based and claim the transaction no longer or never did comply with the factual scenario presented to the IRS in the request for a private letter ruling. Ultimately, the IRS could disallow the tax credits in such a situation. Should the ICTC’s be disallowed due to any of the above risks, WRI would be required to return to the investor previously received payments under the notes, and the transaction would effectively be cancelled.

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ITEM 1B — UNRESOLVED STAFF COMMENTS.

None

ITEM 2 — PROPERTIES.

We operate mines in Montana, Texas, and North Dakota. All of these mines are surface mines. These properties contain coal reserves and coal deposits. A coal reserve is that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Coal deposits do not qualify as coal reserves until, among other things, we conduct a final comprehensive evaluation based upon unit cost per ton, recoverability, and other material factors and conclude that it is legally and economically feasible to mine the coal.

We had an estimated 422.6 million tons of proven and probable coal reserves as of December 31, 2008. Montana, Texas, and North Dakota each use a permitting process approved by the Office of Surface Mining. Our mines have chosen to permit coal reserves on an incremental basis and currently have sufficient permitted coal to meet production, given the current rates of mining and demand, for the periods shown in the table below. Based on our current knowledge of the permitting processes at each of our mines and the environmental issues associated with these reserves, we believe that, except for the large amount of cash collateral required to post a bond, there are no matters hindering our ability to obtain any mining permits in the future.

Our reserve estimates are prepared by our engineers and geologists and are reviewed and updated periodically. Total recoverable reserve estimates change to reflect mining activities, analysis of new engineering and geological data, changes in reserve holdings and other factors.

Our reserve estimates are predicated on information obtained from our ongoing drilling program. We compile data from individual drill holes in a computerized drill-hole database from which the depth, thickness and, where core drilling is used, the quality of the coal are determined. The density of the drill pattern determines whether the reserves will be classified as proven or probable. We periodically update our reserve estimates to reflect production of coal from the reserves and new drilling or other data received. Accordingly, reserve estimates will change from time to time to reflect mining activities, analysis of new engineering and geological data, changes in reserve holdings, modification of mining methods and other factors.

Our estimate of the economic recoverability of our reserves is based upon a comparison of unassigned reserves to assigned reserves currently in production in the same geologic setting to determine an estimated mining cost. These estimated mining costs are compared to existing market prices for the quality of coal expected to be mined and taking into consideration typical contractual sales agreements for the region and product. Where possible, we also review production by competitors in similar mining areas. Only reserves expected to be mined economically are included in our reserve estimates. Finally, our reserve estimates include reductions for recoverability factors to estimate the volume of saleable product.

We periodically engage independent mining and geological consultants to review the models and procedures we use in preparing our internal estimates of coal reserves according to standard classifications of reliability. We used consultants in 2008 to review our models and procedures.

All of our final reclamation obligations are secured by bonds as required by the respective state agencies. Contemporaneous reclamation activities are performed at each mine in the normal course of operations and coal production.

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The following table provides information about our mines as of December 31, 2008:

	Absaloka	Rosebud	Jewett	Beulah	Savage
	Mine	Mine	Mine	Mine	Mine
Owned by	Westmoreland Resources, Inc.	Western Energy Company	Texas Westmoreland Coal Co.	Dakota Westmoreland Corporation	Westmoreland Savage Corporation
Location	Big Horn County, MT	Rosebud and Treasure Counties, MT	Leon, Freestone and Limestone Counties, TX	Mercer and Oliver Counties, ND	Richland County, MT
Coal reserves (thousands of tons)(1)
Proven	80,873	205,000	55,256	47,268	7,282
Probable	—	—	—	26,939	—
Permitted reserves (thousands of tons)	9,758	131,000	55,256	16,243	1,473
2008 production (thousands of tons)	6,391	12,827	6,494	3,046	359
Estimated life of permitted reserves(2)	2010	2019	2018	2010	2013
Lessor	Crow Tribe	Federal Govt; State of MT; Great Northern Properties	Private parties; State of Texas	Private parties; State of ND; Federal Govt	Federal Govt; Private parties
Lease term	Through exhaustion	Varies	Varies	2009-2019	Varies
Current production capacity (thousands of tons)	7,500	13,300	7,000	3,400	400
Coal type	Sub-bituminous	Sub-bituminous	Lignite	Lignite	Lignite
Acres disturbed by mining	4,513	16,800	16,118	5,125	556
Acres for which reclamation is complete	2,760	7,583	11,921	3,605	209
Major customers	Xcel Energy, Western Fuels Assoc., Midwest Energy, Rocky Mountain Power	Colstrip 1&2 owners, Colstrip 3&4 owners, Minnesota Power	NRG Texas Power LLC	Otter Tail, MDU, Minnkota, Northwestern Public Service	MDU, Sidney Sugars
Delivery method	Rail/Truck	Truck/Rail/ Conveyor	Conveyor	Conveyor / Rail	Truck
Approx. heat content (BTU/lb.)(3)	8,687	8,529	6,587	7,002	6,553
Approx. sulfur content(%)(4)	0.68	0.74	0.79	0.76	0.55
Year current complex opened	1974	1968	1985	1963	1958
Total tons mined since inception (thousands of tons)	162,122	409,572	174,000	96,769	13,798

(1) Reserves are defined by SEC Industry Guide 7 as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven and probable coal reserves are defined by SEC Industry Guide 7 as follows:

Proven (Measured) Reserves — Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so close and the geographic character is so well defined that size, shape, depth and mineral content of reserves are well-established.

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Probable (Indicated) Reserves — Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

(2)	Approximate year in which permitted reserves would be exhausted, based on current mine plan and production rates. Our Jewett Mine’s permit is expected to be renewed in 2009, but effectively covers all of the Mine’s reserves for the entire life of the mine. The Absaloka Mine permit expires in 2013.
(3)	Approximate heat content applies to the coal mined in 2008.
(4)	Approximate sulfur content applies to the tons mined in 2008.

We lease all our coal properties except at the Jewett Mine, where some reserves are controlled through fee ownership. We believe that we have satisfied all conditions that we must meet in order to retain the properties and keep the leases in force.

We are a party to federal leases administered by the U.S. Department of the Interior that cover 16,292 acres located at our Rosebud, Beulah and Savage Mines. Each of these leases continues indefinitely, provided there is diligent development of the property and continued operation of the related mines. Production royalties on federal leases are set by statute at 12.5% of the gross proceeds of coal mined and sold for surface mines.

We are a party to two leases with the Crow Tribe covering 18,406 acres of land that makes up our Absaloka Mine. We entered into a lease in 1974 for 14,746 acres that has a primary term of ten years, which can be extended indefinitely as long as coal is produced in paying quantities. We entered into a second lease with the Crow Tribe in 2004 for 3,660 acres that has a primary term of ten years, which term can be extended by mining operations for an additional period of twenty-five years. In 2008, in connection with a transaction to monetize future ICTC’s, WRI subleased the leases with the Crow Tribe to Absaloka Coal, LLC, an affiliate, granting Absaloka Coal, LLC the right to mine specified quantities of coal through September 2013.

We are a party to numerous private leases with various parties that cover reserves at our Jewett, Rosebud, Beulah and Savage Mines. The terms of our private leases are normally extended by active production at or near the end of the lease term. Our private leases run for an average term of twenty years and have options for renewal.

All of WRI’s property is fully encumbered by a first lien under the revolving credit facility with First Interstate Bank and a second lien under the Note Purchase Agreement with Tontine Associates. In addition, all of WML’s property is fully encumbered pursuant to its fixed rate term debt and revolving debt that was issued in June 2008.

Other

Our power plant subsidiary owns the 180-megawatt and 50-megawatt coal-fired plants, ROVA I and ROVA II, located in Weldon, North Carolina. All of our power plant subsidiary’s property, including ROVA I and ROVA II, are fully encumbered pursuant to the Second Amended and Restated Loan Agreement with Prudential Investment Management, Inc.

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ITEM 3 — LEGAL PROCEEDINGS.

From time to time, our subsidiaries or we are involved in legal proceedings arising in the ordinary course of business. While the following discussion highlights our significant legal proceedings, we believe we have recorded adequate reserves for these liabilities and that there is no individual case pending that is likely to have a material adverse effect on our financial condition, results of operations or cash flows.

Severance Benefits Payable to Former CEO

On May 9, 2008, we filed a declaratory judgment complaint in the District Court, El Paso County, Colorado, against Christopher K. Seglem, who was terminated as Chairman, CEO and President of Westmoreland in May 2007, seeking a declaratory judgment from the court as to the correct amount to pay Mr. Seglem pursuant to the 1993 Executive Severance Policy, or severance policy. On June 10, 2008, Mr. Seglem filed counterclaims, alleging that he is owed a total of at least $3.8 million pursuant to the severance policy. The matter is currently set for trial on May 18, 2009.

Royalty Claims by Minerals Management Service and Related Tax Claims by Montana Department of Revenue

The U.S. Minerals Management Service, or MMS, and the Montana Department of Revenue, or MDR, have each asserted numerous transportation and gross inequity claims against Western Energy Company, or WECO, for federal coal royalties and state taxes allegedly due and owing on payments received by WECO from customers.

Transportation Claims

The MMS and MDR claim that revenues earned by WECO under the Transportation Agreement with its customers are, in reality, payments for the production of coal, and therefore royalty and tax bearing. MDR has issued assessments for tax years 1998 through 2004. The total amount claimed under audit (assessed and unassessed) as of December 31, 2008, was $32.9 million.

On October 23, 2008, WECO and its customers jointly settled all claims with the MDR for the periods prior to December 31, 2007, for a total of $1.7 million, with WECO responsible for less than $0.1 million of that amount and the customers responsible for the balance. WECO and its customers also reached a joint settlement with the MDR for periods subsequent to December 31, 2007, which resulted in a total amount of approximately $0.6 million owed to the MDR for 2008, with WECO’s portion representing less than $0.1 million and the customers paying the balance. WECO’s additional expense for state taxes resulting from this settlement for the years 2009 through 2019 are expected to be less than $0.1 million per year.

The MMS claims are for four different audit periods: October 1991 through December 1995, January 1996 through December 2001, January 2002 through December 2004 and January 2005 through the present. An informal settlement agreement has been reached with MMS whereby WECO will pay the sum of $12.2 million to resolve all issues surrounding these transportation claims for the assessed periods through December 31, 2007, and will pay future royalties on the transportation proceeds in accordance with the past methodology of MMS. The customers have agreed to reimburse WECO 80% of the settlement amount and to pay 80% of future royalty payments owed to MMS. WECO’s exposure for additional federal coal royalties for the years 2009 through 2019 will be approximately $0.1 million per year. We expect to finalize the agreement for this matter by the end of March 2009.

Gross Inequity Claim

On April 29, 2004, MMS issued a demand for a royalty payment in connection with a settlement agreement dated February 21, 1997, between WECO and its customer, Puget Sound Energy, which reduced the price of coal paid by Puget Sound. WECO filed a notice of appeal with MMS. A settlement agreement has been reached in principle with MMS whereby WECO will pay the assessed amount of approximately

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$1.7 million including $0.6 million of accrued interest. The agreement is expected to be finalized in 2009. Puget Sound Energy has agreed to reimburse WECO for all of the settlement costs.

Additionally, WECO was informed in 2005 that the MDR has issued a claim for state coal royalties of approximately $0.2 million related to the Puget Sound Energy payments. WECO believes that Puget Sound Energy is responsible for this royalty claim pursuant to the terms of the settlement agreement.

McGreevey Litigation

In 2002, we were served with a complaint in a case styled McGreevey et al. v. Montana Power Company et al. in the U.S. District Court in Billings, Montana. The plaintiffs are former stockholders of Montana Power who filed their first complaint on August 16, 2001. The plaintiffs seek to rescind the sale by Montana Power of its generating, oil and gas, and transmission businesses, and the sale by Entech of its coal business to us or to compel the purchasers to hold these businesses in trust for the shareholders. The McGreevey plaintiffs contend that they were entitled to approve the sale by Entech to us even though they were not shareholders of Entech. On April 20, 2006, a Memorandum and Order was entered by the United States District Court for the District of Montana Butte Division, which confirmed the Judge’s decision to stay the case while it awaits a decision from the Delaware Bankruptcy Court in the Entech bankruptcy case on two key issues. The first issue is whether we are a successor in interest to Montana Power Company — Touch America or Northwestern. The second issue is whether any claim based on failure of the corporate board to submit sale of certain assets (including those purchased by us) to a vote of the shareholders is a derivative action belonging to the corporation, or a direct action belonging to disaffected shareholders.

Although the stays noted above remain in place, the Delaware bankruptcy court recently ruled on one issue pertinent to our case, finding that the claims the McGreevey plaintiffs assert against the officers and directors of Touch America are derivative and belong to the Touch America trustees. The Montana court is aware of this ruling, and is arranging a mediated settlement conference in McGreevey to attempt to revive in some form the tentative settlement reached over two years ago. We have not accrued a reserve for this matter.

Customer Reclamation Claims

WECO received a claim dated October 16, 2008, from the six Colstrip 3&4 buyers seeking a refund of approximately $9.9 million for alleged inappropriate charges. The buyers assert that they were charged for base reclamation work in Area C of the Rosebud Mine when those charges were actually for final reclamation, which would be WECO’s responsibility under the terms of the coal supply agreement. The refund sought by the buyers includes alleged overpayments for final reclamation work plus taxes and royalties on that overpayment.

WECO believes that these charges to the buyers were proper because the challenged work was for base reclamation, which is the buyers’ responsibility under the coal supply agreement. If the buyers prevail and all of the challenged work is determined to be final reclamation rather than base reclamation, WECO’s financial responsibility will be reduced from $9.9 million claimed by two factors. First, approximately $3.5 million of the buyers’ claim concerns an overpayment of taxes and royalties that WECO should be able to offset against future taxes and royalties. Second, one of the six buyers, Puget Sound Energy, Inc., has funded an account that WECO is authorized to use to pay approximately 17% of all final reclamation costs in Area C, which with respect to the challenged work would be approximately $1.1 million. The total net refund to the customers after taxes and royalty overpayments would be approximately $6.4 million, of which $1.1 million could be paid by customer-funded accounts which are now restricted. No reserve has been accrued by us for this matter.

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ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of our stockholders during the fourth quarter of 2008.

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PART II

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is listed and traded on the NYSE Alternext US under the symbol WLB. As of March 1, 2009, there were 1,288 holders of record of our common stock.

The following table shows the range of sales prices for our common stock for the past two years, as reported by the American Stock Exchange through December 1, 2008, and by the NYSE Alternext US from December 2, 2008, through the end of 2008.

	Sales Prices
	Common Stock
2007	High		Low
First Quarter	$	23.40	$	17.83
Second Quarter		28.75		18.90
Third Quarter		28.65		16.30
Fourth Quarter		21.00		12.14
2008
First Quarter		16.47		9.81
Second Quarter		21.51		13.31
Third Quarter		24.50		13.62
Fourth Quarter		15.73		5.30

Dividend Policy

We issued Depositary Shares, each representing one quarter of a share of our Series A Convertible Exchangeable Preferred Stock, on July 19, 1992. We suspended dividend payments on the Depositary Shares in July 2006. The quarterly dividends, which are accumulated through and including January 1, 2009, amount to $17.2 million in the aggregate ($107.53 per preferred share or $26.88 per Depositary Share).

There are statutory and contractual restrictions limiting the payment of preferred stock dividends under Delaware law, the state where we are incorporated. Under Delaware law, we are permitted to pay dividends only to the extent that our shareholders’ equity exceeds the par value of our preferred stock ($160,000 at December 31, 2008). As we are currently reporting a deficit in our shareholders’ equity, we are currently prohibited from paying preferred stock dividends. In addition, we issued notes in March 2008, which prohibit the payment of the preferred dividends so long as the notes are outstanding. We are prohibited from paying dividends on our common stock until we pay the accumulated preferred dividend in full.

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Stock Performance Graph

This performance graph compares the cumulative total stockholder return on our Common Stock for the five-year period December 31, 2003, through December 31, 2008, with the cumulative total return over the same period of the AMEX Market Index and a peer group index, which consists of Arch Coal Inc., CONSOL Energy Inc., Massey Energy Co., Peabody Energy Corp. and Alliance Resources Partners. These comparisons assume an initial investment of $100.00 and reinvestment of dividends.

December 31,	2003		2004		2005		2006		2007		2008
Westmoreland Coal Co.		100		174		131		112		79		63
Peer Group Index		100		167		280		252		441		177
Amex Market Index		100		115		126		141		159		95

The information included under the heading Stock Performance Graph in Item 5 of this Annual Report on Form 10-K is “furnished” and not “filed” and shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Equity Compensation Plans

Information regarding our equity compensation plans and the securities authorized for issuance thereunder is incorporated by reference to Item 12.

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ITEM 6 — SELECTED FINANCIAL DATA.

Westmoreland Coal Company and Subsidiaries

Five-Year Review

Consolidated Statements of Operations Information	2008			2007			2006(1)			2005			2004
	(In thousands; except per share data)
Revenues	$	509,696		$	504,217		$	444,407		$	373,744		$	332,389
Income (loss) from operations		(16,035	)		(5,882	)		4,617			(3,630	)		(2,900	)
Loss from continuing operations		(48,567	)		(23,518	)		(13,104	)		(12,945	)		(11,108	)
Income from discontinued operations, net		—			1,725			406			—			—
Net loss before cumulative effect of accounting change		(48,567	)		(21,793	)		(12,698	)		(12,945	)		(11,108	)
Cumulative effect of accounting change, net		—			—			—			2,662			—
Net loss		(48,567	)		(21,793	)		(12,698	)		(10,283	)		(11,108	)
Less preferred stock dividend requirements		1,360			1,360			1,585			1,744			1,744
Less premium on exchange of preferred stock for common stock		—			—			791			—			—
Net loss applicable to common shareholders	$	(49,927	)	$	(23,153	)	$	(15,074	)	$	(12,027	)	$	(12,852	)
Per common share (basic and diluted):
Loss from continuing operations	$	(5.25	)	$	(2.71	)	$	(1.77	)	$	(1.77	)	$	(1.59	)
Net loss applicable to common shareholders	$	(5.25	)	$	(2.53	)	$	(1.72	)	$	(1.45	)	$	(1.59	)
Balance Sheet Information
Working capital deficit	$	(24,152	)	$	(94,674	)	$	(66,773	)	$	(20,138	)	$	(6,608	)
Net property, plant and equipment		443,400			442,426			431,452			211,157			204,557
Total assets		812,967			782,528			761,382			495,871			462,730
Total debt		269,153			271,448			306,007			112,243			117,259
Shareholders’ deficit(2)		(217,598	)		(177,257	)		(185,933	)		(30,208	)		(19,038	)

(1)	Effective June 29, 2006, we acquired a 50% interest in a partnership, which owns the 230-megawatt ROVA power plants from a subsidiary of E.ON U.S. LLC. The acquisition increased our ownership interest in the partnership to 100%.
(2)	Effective December 31, 2006, we adopted the provisions of Statement of Financial Accounting Standards 158, or SFAS 158. Upon adoption of the Standard, we recorded an increase in stockholders’ deficit of $129.8 million to reflect on our balance sheet the underfunded status of our pension and postretirement benefit plans.

No cash dividends were declared on common shares for the five years ended December 31, 2008.

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ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS.

Overview

We are an energy company organized as a Delaware corporation in 1910. We mine coal, which is used to produce electric power, and we own power-generating plants.

We own five mines, which are all located in the United States and supply power plants. Several of these power plants are located adjacent to our mines, and we sell virtually all our coal under multi-year contracts. Due to the generally longer duration and terms of our contracts, we enjoy relatively stable demand compared to competitors who sell more of their production on the spot market and under short-term contracts.

We sold 29.3 million tons of coal in 2008, less than 3% of all the coal produced in the United States. We were the tenth largest coal producer in the United States, ranked by tons of coal mined in 2008.

In addition to our mining operations, we own the Roanoke Valley power plants, or ROVA. ROVA consists of two coal-fired units with a total generating capacity of 230 megawatts. ROVA supplies power pursuant to long-term contracts.

Results of Operations

Items that Affect Comparability of Results

For 2008 and each of the prior two years, our results have included restructuring charges and special items that significantly affected net loss. The pretax income (expense) components of restructuring charges and special items were as follows (in thousands):

Year Ended December 31,	2008			2007			2006
Interest expense attributable to beneficial conversion feature	$	(8,146	)		—			—
Loss on extinguishment of WML debt		(3,834	)		—			—
Loss on extinguishment of ROVA debt		(1,344	)		—			—
Settlement of coal royalty dispute		(2,635	)		—			—
Gain on sale of interest in Ft. Lupton power project		876			—			—
Combined benefit fund settlement and interest		—			6,389			—
Gain on sale of mineral interests		—			5,641			5,060
Gain on the sale of power operations and maintenance business		—			483			—
Absaloka Mine operating contract termination fee		—			(813	)		—
Inventory impairment		—			(1,128	)		—
Restructuring charges		(2,009	)		(4,523	)		—
Total impact of restructuring charges and special items	$	(17,092	)		6,049			5,060

Items recorded in 2008

•  We recorded $8.1 million of expense related to the beneficial conversion feature in the convertible notes we issued in March 2008, as the conversion price was lower than the fair market value of our common stock at the time of issuance (see Note 7 for a more detailed discussion).

•  We refinanced both our WML and ROVA debt during 2008 and as a result recorded losses of $3.8 million and $1.3 million, respectively, for the extinguishment of debt (see Note 7).

•  We recorded $2.6 million in net expense related to two coal royalty claims as we reached an agreement with the U.S. Minerals Management Service and the Montana Department of Revenue to settle two long-standing disputes (see Note 19).

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•  On July 2, 2008, we received $0.9 million for our royalty interest in the gas-fired Ft. Lupton project and recognized a gain of $0.9 million on the sale (see Note 14).

•  In 2007, we initiated a restructuring plan in order to reduce the overall cost structure of the Company. As a result, in 2008 and 2007 we recorded restructuring charges of $2.0 million and $4.5 million, respectively. Most of the restructuring charges related to termination benefits, outplacement costs, and lease costs related to the consolidation of corporate office space (see Note 2).

Items recorded in 2007

•  During 2007, we reached a settlement with the Combined Benefit Fund, or CBF, for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. We recorded the settlement as a $5.8 million reduction in heritage health benefit expenses and $0.6 million in interest income.

•  In 2007, we sold a royalty interest in a Wyoming mine for $12.7 million. The sale of the royalty interest resulted in a gain of approximately $5.6 million.

•  In 2007, we sold our power operation and maintenance business to North American Energy Services, or NAES, for $0.8 million. The sale of the power operation and maintenance business resulted in a gain of $0.5 million during 2007.

•  In 2007, WRI reached an agreement to settle its contract disputes with Washington Group International, Inc., or WGI, who had been the contract operator and 20% owner of the mine. As part of the settlement agreement, WRI assumed operation of the Absaloka Mine and recorded a contract termination fee of $0.8 million related to the buyout of the WGI operating contract. Later in 2007, we purchased WGI’s 20% interest to become the sole owner of WRI.

•  Pursuant to our Jewett Mine’s new coal sale agreement with its customer entered into in 2007, we developed a new mine plan. As a result of the new mine plan, we wrote off $1.1 million of inventory associated with equipment which will not be utilized under the new mine plan.

Items recorded in 2006

•  In 2006, we sold our interests in two coal bed methane leases in southern Colorado and recognized a $5.1 million gain on the sale.

2008 Compared to 2007

Summary

Our 2008 sales increased to $509.7 million compared with $504.2 million in 2007. This increase was primarily driven by a $4.7 million increase in our power segment revenues related to an increase in megawatt hours sold and favorable price increases. Our 2008 coal segment sales increased by $0.9 million, as a decrease in tons sold and the impact of decreased prices under our new coal sales contract at our Jewett Mine were offset by a 2% overall favorable price increase as well as pass-through revenues recognized upon the settlement of our coal royalty claims.

Our 2008 net loss applicable to common shareholders increased to $49.9 million compared with a net loss in 2007 of $23.2 million. Excluding the $17.1 million of 2008 expenses and the $6.0 million of 2007

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income from restructuring and special items (discussed in Items that Affect Comparability of Our Results), our net loss increased by $3.6 million. The primary factors, in aggregate, driving this increase in net loss were:

•  A $3.4 million decrease in our coal segment operating income driven by:

•  A $3.1 million increase in 2008 depreciation, depletion, and amortization expenses resulting from increased depletion expenses from asset retirement cost assets, which increased at the end of 2007 due to updated engineering studies, and capital expenditures at the mines;

•  reduced tonnages sold; and

•  increases in fuel and other commodity costs in 2008.

•  A $1.7 million increase in power segment operating income resulting primarily from the execution of our restructuring plan and resulting cost savings.

•  A $1.1 million increase in our 2008 heritage costs largely driven by a $3.2 million increase in our 2008 workers compensation expenses due to a decrease in the discount rate used and unfavorable claims experience.

•  A $1.8 million decrease in our corporate expenses related to the execution of our restructuring plan and our cost control efforts.

•  A $0.7 million increase in income tax expense resulting from increases in state income taxes and a provision for a state income tax claim.

•  A $1.7 million decrease in income from discontinued power operations and maintenance businesses sold in 2007.

Coal Segment

The following table shows comparative coal revenues, operating income and production, and percentage changes between periods:

	Year Ended December 31,
					Increase/
					(Decrease)
	2008		2007		$			%
	(In thousands)
Revenues	$	419,806	$	418,870	$	936			0.2	%
Operating income		15,211		18,723		(3,512	)		(18.8	)%
Tons sold — millions of equivalent tons		29.3		30.0		(0.7	)		(2.3	)%

Our 2008 coal revenues increased to $419.8 million in 2008, compared with $418.9 million in 2007. This increase occurred as a 0.7 million decrease in tons sold during 2008 was offset by a 2% overall increase in pricing due to increases in commodity based indices and contract renewals as well as pass-through revenues recognized upon the settlement of our coal royalty claims.

Our coal segment’s operating income decreased to $15.2 million in 2008, down from $18.7 million in 2007. Excluding special items consisting of a $2.6 million charge for the 2008 settlement of a coal royalty dispute, a $0.8 million termination fee paid in 2007 for our Absaloka Mine operating contract, a $1.1 million dollar inventory impairment in 2007, and restructuring charges (all discussed in Items that Affect Comparability of Our Results), our coal segment’s operating income decreased by $3.4 million. The decrease in operating income was driven by the following items:

•  A $3.1 million increase in 2008 depreciation, depletion, and amortization expenses resulting from increased depletion expenses from asset retirement cost assets, which increased at the end of 2007 due to updated engineering studies, and capital expenditures at the mines;

•  reduced tonnages sold; and

•  increases in fuel and other commodity costs in 2008.

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Power Segment

The following table shows comparative power revenues, operating income and production and percentage changes between periods:

	Year Ended December 31,
					Increase/
					(Decrease)
	2008		2007		$		%
	(In thousands)
Revenues	$	89,640	$	84,953	$	4,687		5.5	%
Operating income		16,920		14,150		2,770		19.6	%
Megawatts hours — thousands		1,641		1,590		51		3.2	%

Our 2008 power segment revenues increased to $89.6 million compared to $85.0 million in 2007. These revenues increased due to an increase in megawatt hours sold as we had a large unexpected shutdown in 2007 and improved operating performance in 2008. Additionally, we had a 5% favorable price increase, which was driven by increases in inflation indices.

Our power segment’s operating income was $16.9 million in 2008, compared with $14.1 million in 2007. Excluding the special items consisting of a $0.9 million gain in 2008 on the sale of our royalty interest in Ft. Lupton, a $0.5 million gain on the sale of our power operations and maintenance businesses in 2007, and a $0.7 million restructuring charge in 2007 (all discussed in Items that Affect Comparability of Our Results), our power segment’s operating income increased by $1.7 million. This increase was primarily driven by the execution of our restructuring plan we initiated in 2007 and the resulting cost savings.

Heritage

The following table shows comparative detail of the heritage segment’s operating expenses and percentage changes between periods:

	Year Ended December 31,
							Increase/
							(Decrease)
	2008			2007			$			%
	(In thousands)
Health care benefits	$	25,588		$	28,252		$	(2,664	)		(9.4	)%
Combined benefit fund payments (credits)		3,470			(2,156	)		(5,626	)		260.9	%
Workers’ compensation benefits		4,417			1,175			3,242			275.9	%
Black lung benefits (credits)		(23	)		318			(341	)		(107.2	)%
Selling and administrative costs		2,045			1,034			1,011			97.8	%
Gain on sale of assets		(25	)		—			(25	)		—
Heritage segment operating loss	$	(35,472	)	$	(28,623	)	$	(6,849	)		23.9	%

Our 2008 heritage costs were $35.5 million compared to $28.6 million in 2007. Excluding the $5.8 million combined benefit fund credit we recognized in 2007 (discussed in Items that Affect Comparability of Our Results), our heritage expenses increased by $1.1 million. This increase was primarily driven by a $3.2 million increase in our workers compensation expenses due to a decrease in our discount rate as well as unfavorable claims experience. Favorable health care benefit experience was offset by increased administrative costs primarily due to the resolution of legal claims and consultant costs related to future cost containment efforts.

Corporate

Our corporate segment’s operating expenses totaled $12.7 million in 2008 compared to $10.1 million in 2007. Excluding the restructuring charges of $1.8 million and $3.1 million, respectively, in 2008 and 2007,

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and the $5.6 million gain on the 2007 sale of mineral rights (discussed in Items that Affect Comparability of Our Results), our corporate segment operating expenses decreased by $1.8 million. This decrease was driven primarily by the execution of our restructuring plan and the resulting cost savings.

Other income (expense), income tax expense, discontinued operations and preferred dividends

Our 2008 other expense increased to $31.6 million compared with $17.4 million of expense in 2007. This increase was predominately driven by special item expenses including $8.1 million of interest on the beneficial conversion feature associated with our convertible debt issued in 2008 and the $3.8 million and $1.3 million losses on the extinguishment of our mining and power debt, respectively, as we refinanced them in 2008 (all discussed in Items that Affect Comparability of Our Results).

Our 2008 income tax expense was $0.9 million compared with $0.2 million in 2007. This increase resulted primarily from increases in state income taxes and a provision for a state income tax claim, which increased our expense.

Income from discontinued operations was $1.7 million in 2007.

2007 Compared to 2006

Summary

Our 2007 sales increased to $504.2 million compared with $444.4 million in 2006. This increase was primarily driven by a $34.4 million increase in our power revenues related to our 2006 acquisition of the remaining ROVA ownership interest, and a $25.4 million increase in our coal revenues due to increased tons and favorable pricing.

Our 2007 net loss applicable to common shareholders increased to $23.2 million compared to a net loss applicable to common shareholders in 2006 of $15.1 million. Excluding the $6.0 million and $5.1 million of income, respectively, from restructuring and special items for 2007 and 2006 (discussed in Items that Affect Comparability of Our Results), our net loss applicable to shareholders increased by $9.1 million. The primary factors, in aggregate, driving this increase in net loss applicable to shareholders were:

•  a $12.0 million decrease in our coal segment operating profit driven by increases in our coal segment depletion expenses, lease costs, administrative costs, and operating and maintenance costs;

•  $2.5 million increase in power segment operating income following the ROVA acquisition;

•  $0.7 million increase in our black lung expenses due to the benefit recorded in 2006;

•  decrease in income tax expense resulting from a $2.1 million North Carolina state tax assessment recorded in 2006;

•  $1.3 million increase in our 2007 income from our discontinued power operations and maintenance business as we owned this business for a longer duration in 2007 than in 2006; and

•  $1.4 million charge in 2006 for the exchange of preferred stock for common stock, net of the corresponding decrease in our 2007 preferred stock dividends resulting from the exchange.

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Coal Segment

The following table shows comparative coal revenues, operating income and production and percentage changes between periods:

	Year Ended December 31,
					Increase/
					(Decrease)
	2007		2006		$			%
	(In thousands)
Revenues	$	418,870	$	393,482	$	25,388			6.5	%
Operating income		18,723		33,370		(14,647	)		(43.9	)%
Tons sold — millions of equivalent tons		30.0		29.4		0.6			2.0	%

Our 2007 coal revenues increased to $418.9 million in 2007, compared with $393.5 million in 2006. This increase was driven by a 0.6 million increase in tons sold during 2007, and a 4% increase in pricing due to favorable contract renewals during the year.

Our coal segment’s operating income decreased to $18.7 million in 2007, down from $33.4 million in 2006. Excluding special items consisting of a $1.1 million inventory impairment charge, $0.8 million Absaloka Mine contract termination fee, and a $0.7 million of restructuring charge (discussed in Items that Affect Comparability of Our Results), the coal segment’s operating income decreased by $12.0 million. The decrease in operating income was driven by the following items:

•  A $4.0 million increase in 2007 depreciation, depletion, and amortization expenses resulting from increased depletion expenses for asset retirement cost assets, which increased at the end of 2006 due to updated engineering studies, and capital expenditures at the mines;

•  $2.0 million of costs resulting from an amendment to our Crow Tribe lease agreement;

•  $1.3 million increase in administrative costs as a result of increases in legal and professional fees and information technology costs; and

•  significant increases in the various mines’ operating and maintenance costs.

Power Segment

The following table shows comparative power revenues, operating income and production and percentage changes between periods:

	Year Ended December 31,
					Increase/
					(Decrease)
	2007		2006		$			%
	(In thousands)
Revenues	$	84,953	$	43,244	$	41,709			96.5	%
Operating income		14,150		11,906		2,244			18.8	%
Megawatt hours — thousands		1,590		1,639		(49	)		(3.0	)%

Our 2007 power segment revenues increased to $85.0 million compared to $43.2 million in 2006. These revenues increased as a result of the ROVA acquisition and consolidation which was effective July 1, 2006.

Our power segment’s operating income was $14.2 million in 2007 compared with $11.9 million in 2006. Excluding the $0.7 million restructuring charge in 2007 and the $0.5 million gain on the sale of our power operations and maintenance business (discussed in Items that Affect Comparability of Our Results), our power segment’s operating income increased by $2.5 million. This increase was driven by our ROVA acquisition and the consolidation of a full year of ROVA operations in 2007.

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Heritage

The following table shows comparative detail of the heritage segment’s operating expenses and percentage changes between periods:

	Year Ended December 31,
							Increase/
							(Decrease)
	2007			2006			$			%
	(In thousands)
Health care benefits	$	28,252		$	28,295		$	(43	)		(0.2	)%
Combined benefit fund payments (credits)		(2,156	)		3,611			(5,767	)		(159.7	)%
Workers’ compensation benefits		1,175			1,336			(161	)		(12.1	)%
Black lung benefits (credit)		318			(421	)		739			175.5	%
Selling and administrative costs		1,034			186			848			455.9	%
Heritage segment operating loss	$	(28,623	)	$	(33,007	)	$	(4,384	)		13.3	%

Our 2007 heritage costs were $28.6 million compared to $33.0 million in 2006. Our heritage expenses increased by $1.4 million excluding the $5.8 million CBF gain (discussed in Items that Affect Comparability of Our Results). This increase was primarily driven by $0.3 million in black lung expense in 2007 compared to a black lung benefit of $0.4 million recorded in 2006. The benefit in 2006 resulted from favorable actuarial projections, which decreased our obligations. Our heritage selling and administrative expenses also increased as a result of legal fees incurred for claims.

Corporate

Our 2007 corporate segment’s operating loss was $10.1 million in 2007 compared to $7.7 million in 2006. Excluding the restructuring charge of $3.1 million, and the gains on the sale of mineral rights (discussed in Items that Affect Comparability of Our Results), corporate segment operating loss changed by less than $0.1 million.

Other income (expense), income tax expense, discontinued operations, and preferred dividends

Our 2007 other expense increased to $17.4 million compared with $15.3 million of expense in 2006. This increase resulted from the acquisition of ROVA and the recording of a full year of ROVA interest expense in 2007 and was partially offset by a decrease in interest expense from our mining debt due to reduced debt levels in 2007.

Our 2007 income tax expense was $0.2 million compared with $2.4 million in 2006. This decrease resulted primarily from a $2.1 million North Carolina state tax assessment recorded in 2006.

Our 2007 income from discontinued operations was $1.7 million compared with $0.4 million in 2006. This increase related to the $0.5 million gain on the sale of our power operations and maintenance business in 2007, as well as the fact that we owned this business for a longer period of time in 2007 than in 2006.

In 2007, our preferred stock dividend requirements were $1.4 million compared with $1.6 million in 2006. This decrease resulted from a 2006 reduction in the number of preferred shares outstanding as a result of the exchange of our common stock for preferred stock in 2006. We also recorded a $0.8 million premium on the exchange in 2006.

Significant Anticipated Variances between 2008 and 2009

Our outlook for 2009 is based on information presently available and contains certain assumptions regarding future economic conditions. Differences in actual economic conditions compared with our assumptions could have a material impact on our 2009 results.

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Special items and restructuring charges in 2008 are discussed in Items that Affect Comparability of Results. We do not expect these items to reoccur in 2009, and in addition, we project the following significant variances will occur in 2009. In the aggregate, we expect these events will allow us to improve upon both our operating results and our cash flows in 2009:

•  We expect our overall tons delivered to decrease from 2008 sales tonnages due to anticipated reductions in customer demand and overall economic conditions. We expect this decrease in tons sold to be offset with cost savings generated by productivity and efficiency improvements;

•  We expect a decrease in our power segment revenues and increased maintenance expenses resulting from a planned maintenance shutdown at one of our ROVA plants that is required every five years;

•  In May 2009, the fixed capacity payment that we receive for each megawatt-hour of electricity that ROVA produces will step down to a lower rate which continues through the end of the power sales agreement in 2019. This decrease will result in a reduction in cash receipts, but will have no impact on our revenues as we begin recognition of previously deferred revenues;

•  We expect our Indian Coal Production Tax Credit transactions to generate approximately $7.0 to $8.0 million of additional earnings and cash flows upon the approval of the private letter ruling by the Investor and one of our lenders;

•  We expect an increase in our depreciation expense as a result of increased capital investments made during 2008 at our mining operations. We expect to make additional capital investments during 2009 in the range of $40.0 to $50.0 million to improve our mining operations and increase productivity. We expect these capital investments to be funded through our mine’s operating cash flows or, if necessary, the mine’s existing credit facilities;

•  We expect a decrease in corporate professional fees as we incurred significant expenses in 2008 related to our financial statement restatement;

•  We expect a reduction in our repayments of long-term debt resulting from the refinancing in 2008 of our coal and power debt. We are not required to make principal payments on our WML debt until 2011;

•  We expect an increase in our restricted investments and bond collateral as we enter new mining areas during 2009 and expect to use approximately $5.0 to $10.0 million in cash collateral to secure our reclamation bonds; and

•  We expect to have an increase in our required pension plan contributions resulting from the decline in the value of our pension investments and our loan covenants, which require us to maintain a 90% funding status. We expect to contribute approximately $11.3 million to our funded pension plans in 2009.

Financial Implications of the Indian Coal Production Tax Credit Transactions

On October 16, 2008, WRI entered into a series of transactions with a financial institution, or Investor, designed to enable WRI to take advantage of Indian Coal Production Tax Credits, or ICTC’s, generated by its mining operations.

In these transactions, WRI formed a limited liability company, Absaloka Coal LLC, which it owned jointly with a newly formed subsidiary, WRI Partners, Inc., to mine and sell coal from the Absaloka Mine. Absaloka Coal LLC then entered into a sublease from WRI of the coal leases from the Crow Tribe, entitling Absaloka Coal LLC to mine up to 40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to Absaloka Coal LLC all of its contracts to sell coal to third parties.

On October 16, 2008, WRI sold its interest in Absaloka Coal LLC to the Investor for consideration consisting of an initial payment of $4.0 million, $34.0 million of fixed principal and interest payments, and contingent payments based on 90% of the credits allocated to the Investor in excess of the fixed payments. Based on current forecasts of the Absaloka Mine’s coal sales, the total consideration to be paid by the Investor

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to WRI is projected to be approximately $62.8 million through December 31, 2012. WRI expects to share approximately $19.4 million of this consideration with the Crow Tribe as royalties. We paid a $1.25 million fee to the Crow Tribe in the fourth quarter of 2008 to secure the Tribe’s approval of the sublease.

The Investor will be entitled to 99% of Absaloka Coal LLC’s earnings and related distributions until it has received a 10% return on its initial $4.0 million cash investment, after which it will receive 5% of earnings and distributions.

On October 3, 2008, WRI requested a private letter ruling, or PLR, request with the IRS concerning various issues relating to the validity of the ICTC’s. In March 2009, we received a PLR confirming the availability of the ICTC’s under the specific scenario described whereby we subleased the right to mine a fixed amount of coal from our Absaloka Mine to the LLC. All payments on the promissory notes and $2.0 million of the cash received at closing were, or will be, placed into escrow until the approval of the PLR by the Investor and one of our lenders. If the PLR is deemed unacceptable to the Investor or one of our lenders, the transaction is rescinded and all payments made to date will be returned to the Investor. Upon approval of the PLR and the release of the cash payments from escrow, we will recognize the fixed and contingent payments from the Investor as they are received as income in our consolidated financial statements. In addition, the initial payment of $4.0 million and the $1.25 million fee paid to the Crow Tribe will be recognized ratably through 2012 based on tons sold. However, until the Investor and one of our lenders deem the PLR acceptable, income recognition of all proceeds from the Investor have been and will continue to be deferred.

As part of the purchase agreement, WRI has an option to purchase the Investor’s entire membership interest after October 16, 2013, and Investor is entitled to withdraw at any time from Absaloka Coal LLC. In these events, or on dissolution of the LLC, WRI would be required to pay the Investor the appraised value of its capital account balance.

WRI is the sole manager of Absaloka Coal LLC and has entered into a contract mining agreement with Absaloka Coal LLC under which it receives an amount equal to all of its mining costs plus a fee per ton of coal mined. Westmoreland Coal Sales Company acts as the exclusive sales agent on behalf of Absaloka Coal LLC under a sales agency agreement and receives a fee for its services based on the tons of coal sold.

Liquidity and Capital Resources

We have suffered recurring losses from operations, have a working capital deficit and a net capital deficiency that raise substantial doubt about the ability of us to continue as a going concern. The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the uncertainty about the ability of us to continue as a going concern. The report from our independent registered certified public accounting firm on our consolidated financial statements for the year ended December 31, 2008, includes an explanatory paragraph reciting these factors that raise substantial doubt about our ability to continue as a going concern.

We are a holding company and conduct our operations through our subsidiaries, which generally have obtained separate financing. As a holding company, we have significant cash requirements to fund our ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the Parent are from distributions from our principal operating subsidiaries. Each of WML, ROVA and WRI has a credit agreement that contains covenants applicable to that subsidiary. Only the WRI agreement permits dividends to be paid by WRI to us without restriction.

The major factors impacting our liquidity are as follows.

•  Our significant level of debt and limitations under our current debt agreements on the ability of WML and ROVA to pay dividends to us.

As of December 31, 2008, our total gross indebtedness was approximately $269.2 million, the principal components of which are: $148.1 million of WML term and other debt; $81.4 million of

37

ROVA term debt; $22.5 million under WRI’s revolving line of credit, term and other debt; and $15.8 million of convertible notes.

Limitations in the WML and ROVA debt agreements require the maintenance of reserve accounts and limit the ability of those subsidiaries to distribute funds to us based on changes in reserve account balances and the subsidiaries’ operating results. Accordingly, these subsidiaries may not be able to pay dividends to us in the amounts and in the time periods required for us to pay our heritage health benefit costs, pension contributions and corporate expenses.

Ultimately, if our subsidiaries’ operating cash flows are insufficient to support their operations and provide dividends to us in the amounts and time periods required to pay our expenses, and we are unable to obtain external financing at sufficient levels to pay such obligations, the parent will be unable to meet its obligations as they come due.

•  Our heritage health benefit and pension obligations, which must be funded by distributions from our operating subsidiaries.

Our WCC Parent Company’s heritage health benefit costs consist primarily of payments for postretirement medical and workers’ compensation benefits. We are also obligated to pay premiums to the Combined Benefit Fund, or CBF. The most recent actuarial valuations of our postretirement medical benefit obligations, which pertain primarily to former employees who worked in our Eastern mines and are guaranteed life-time benefits under the federal Coal Act, indicated that our postretirement medical benefit payments would increase annually through 2016 and then decline to zero over the next approximately sixty years as the number of eligible beneficiaries declines.

We also sponsor defined benefit pension plans for our full-time employees. In 2008, we experienced a significant decrease in the value of our pension investments. After making $4.9 million of contributions during 2008, the total value of our pension assets still decreased to $40.8 million at December 31, 2008, as compared to $51.0 million at December 31, 2007.

Both the parent company and our subsidiaries will be required to make supplemental pension contributions due to the decrease in the value of our pension investments. Under the covenants of our WML term debt, we are required to ensure that by September 15 of each year, the value of our pension plan assets is at least 90% of our actuarially determined pension liability. In order to achieve the 90% funding status required by loan covenants, we will be required to contribute approximately $11.3 million to our funded pension plans during 2009.

The following table shows the payments we made towards our heritage health benefits and pension obligations in 2008 and the expected payments for 2009:

	2008		2009
	Actual		Expected
	Payments		Payments
	(In millions)
Postretirement medical benefits (net of subsidy)	$	17.0	$	19.1
Pension contributions		4.9		11.3
CBF premiums		3.5		3.2
Workers’ compensation benefits		1.0		1.0

•  Cash collateral requirements for additional reclamation bonds in new mining areas.

Federal and state laws require that we provide bonds to secure our obligations to reclaim lands used for mining. We must post a bond before we obtain a permit to mine any new area. These bonds are typically renewable on a yearly basis and have become increasingly expensive. Bonding companies are requiring that applicants collateralize increasing portions of their obligations to the bonding company. In 2008, we paid approximately $2.6 million in premiums for reclamation bonds and were required to use $10.3 million in cash to collateralize 92% of the face amount of the new bonds obtained in 2008. We anticipate that, as we permit additional areas for our mines in 2009 and 2010,

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our bonding requirements will increase significantly and our collateral requirements will increase as well. Any capital that we provide to collateralize our obligations to our bonding companies is not available to support our other business activities. If the cost of our reclamation bonds continues to increase, our results of operations could be negatively affected. Additionally, if we are unable to obtain additional bonding capacity due to cash flow constraints, we will be unable to begin mining operations in newly permitted areas. Our inability to begin operations in new areas will hamper our ability to efficiently meet our current customer contract deliveries, expand our operations, and maintain or increase our revenues.

Liquidity Improvements and Strategic Alternatives

In 2008, we took the following steps to improve our liquidity:

•  On March 4, 2008, we completed the sale of $15.0 million in senior secured convertible notes to an existing shareholder;

•  On March 17, 2008, Westmoreland Partners, our wholly owned subsidiary, completed a refinancing of ROVA’s debt. The refinancing paid off all outstanding bank borrowings, bond borrowings, and the ROVA acquisition loan, and eliminated the need for the irrevocable letters of credit, which supported the bond borrowings;

•  On June 26, 2008, WML completed a refinancing of its term debt. On that date, WML entered into a note purchase agreement with institutional investors under which it sold $125.0 million of secured notes with principal payments beginning in 2011. Also on June 26, 2008, WML amended its Revolving Credit Agreement with its lenders and increased the facility to $25.0 million through 2013. We are not required to make principal payments on our WML debt until 2011;

•  On October 16, 2008, WRI entered into a series of transactions in order to monetize the Indian Coal Production Tax Credits available to it. If the private letter ruling received from the IRS on the transactions is approved by the Investor and one of our lenders, we could realize net cash flows of up to $37.1 million before taxes through 2012. See Note 16 Indian Coal Production Tax Credits; and

•  On November 20, 2008, WRI’s $20.0 million revolving credit facility was extended through November 19, 2009.

These steps reduced our consolidated working capital deficit by $70.5 million from December 31, 2007, to December 31, 2008.

The maturities of long-term debt and the revolving credit facilities due in 2009 are $44.5 million, of which $10.3 million relates to the WRI revolving credit facilities. The remaining $34.2 million due in 2009 is payable by our subsidiaries, and is expected to be funded by cash provided by the operations of those subsidiaries.

In addition to these efforts, we are pursuing additional alternatives in our efforts to continue to improve our liquidity during 2009:

•  We are in initial discussions with a potential buyer regarding the sale of certain assets, but it is not certain such a sale could be completed in the time required to meet our cash needs;

•  We are pursuing and evaluating potential sale-leaseback transactions for certain facilities and equipment at our Absaloka Mine;

•  We are pursuing alternatives to meet future reclamation bond requirements as we enter new mining areas with reduced amounts of cash collateral;

•  We are attempting to improve our liquidity by improving the operating performance of our mines. We believe that increases in tons produced and sold, improvements in productivity, and our continued focus on cost control at our mining operations during 2009 should improve our liquidity; and

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•  We are looking at various alternatives to reduce our required 2009 pension contributions, including modifying elections available to us in determining the required contribution, contributing shares of our common stock to the plan in lieu of cash, amending our pension plans, and negotiating revised covenants with our lenders.

There can be no assurance that we will be successful in completing any of the contemplated transactions on terms acceptable to us, or at all, or the other actions we contemplate will be successful in improving our cash flows or our liquidity.

The significant assumptions that underlie the forecasts prepared by us for 2009 include the following:

•  The private letter ruling received from the IRS is approved by the Investor and one of our lenders and the ICTC monetization transactions proceed in accordance with their terms;

•  Our operating cash flow at WRI significantly increases over 2008 levels as a result of actions taken to improve the operating performance of the mine;

•  WRI’s revolving line of credit is renewed or refinanced when it matures in November 2009;

•  We are able to defer or reduce our bonding requirements in 2009; and

•  We are able to reduce the cash contributions we are required to make to our pension plans in 2009.

If our assumptions prove to be accurate, we should have adequate liquidity to meet our currently projected cash requirements through 2009, although by a small margin. Our 2009 assumptions are subject to a number of uncertainties, many of which are beyond our control, and we may face economic issues that we have not been able to foresee. However, we anticipate that we will require significant additional capital resources to meet our projected cash requirements for 2010.

Historical Sources and Uses of Cash

The following is a summary of cash provided by or used in each of the indicated types of activities:

	Years Ended December 31,
	2008			2007
	(In thousands)
Cash provided by (used in):
Operating activities	$	55,245		$	82,516
Investing activities		(6,588	)		(43,259	)
Financing activities		(28,452	)		(46,259	)

Cash provided by operating activities decreased $27.3 million in 2008 compared to 2007 primarily as a result of a $26.8 million increase in our net loss, which was offset with $8.9 million of non-cash interest expense and $3.2 million of non-cash losses for extinguishment of debt and other than temporary investment impairments. In 2008, the Company’s operating cash flows were also negatively impacted by $3.5 million in severance payments associated with our restructuring plan. Our 2007 operating cash flows benefitted from $5.6 million of cash received from the black lung trust fund and $10.0 million of cash for a reserve dedication fee from a customer.

Cash used in investing activities decreased $36.7 million in 2008 compared to 2007. This decrease was primarily the result of the reduction in restricted investments and bond collateral from the ROVA and WML debt refinancings. In addition, investing cash flows for 2007 included $16.9 million paid in connection with the acquisition of WGI’s minority interest at our Absaloka Mining operations and our assumption of the mine’s operations. This 2007 payment was offset by $12.7 million of proceeds received from the sale of our royalty interest at our Caballo Mine.

Cash used in financing activities decreased by $17.8 million in 2008, compared to 2007. The decrease is a result of the ROVA and WML debt refinancings, which primarily represented the long-term borrowings in

40

2008 of $205.4 million, which was offset by $219.8 million of debt payments. In 2007, $61.2 million of long-term debt payments were made with only $9.1 million of corresponding borrowings.

The Company’s working capital deficit at December 31, 2008, decreased by $70.5 million to approximately $24.2 million compared to a $94.7 million deficit at December 31, 2007. The increase in working capital was primarily a result of the ROVA and WML debt refinancing which have increased cash and cash equivalents by $20.2 million and reduced current installments of long-term debt by $52.5 million and amounts outstanding under the Company’s revolving lines of credit by $3.9 million.

Cash Balances and Available Credit

Consolidated cash and cash equivalents at December 31, 2008, included (in thousands):

WML	$	31,117
ROVA		5.664
Westmoreland Risk Management		1,864
Westmoreland Coal Company (Parent)		956
Westmoreland Resources, Inc.		340
Total consolidated cash and cash equivalents	$	39,941

Lines of Credit

Amounts outstanding and availability under the revolving lines of credit of our subsidiaries at December 31, 2008, are as follows (in millions):

	Total Line		Amounts		Letters of
	of Credit		Outstanding		Credit		Availability
WML	$	25.0	$	—	$	1.9	$	23.1
WRI		20.0		10.3		—		9.7
ROVA		6.0		—		—		6.0
	$	51.0	$	10.3	$	1.9	$	38.8

The average borrowings on our $20.0 million WRI revolver during 2008 were $10.4 million. WML’s average balance on its $25.0 million revolving line of credit was $4.1 million. We had no borrowings in 2008 on ROVA’s revolver.

The cash and available credit at WML and ROVA are available to us through quarterly distributions. However, the loan agreements of WML and ROVA require debt service accounts and impose timing and other restrictions on the ability of ROVA and WML to distribute funds to us. WRI can distribute cash drawn from its revolving line of credit to us through dividends. Because the WRI loan agreement imposes fewer restrictions on the ability of WRI to make distributions to us, WRI has been a significant source of liquidity for us. The cash at Westmoreland Risk Management, our captive insurance subsidiary, is available to us through dividends, subject to maintaining a statutory minimum level of capital.

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Contractual Obligations and Commitments

The following table presents information about our contractual obligations and commitments as of December 31, 2008. Some of the amounts below are estimates. We discuss these obligations and commitments elsewhere in this filing.

	Payments Due by Period
													After
	Total		2009		2010		2011		2012		2013		2013
	(In thousands of dollars)
Long-term debt obligations (principal and interest)	$	329,989		57,199		28,431		33,429		36,634		53,382		120,914
Capital lease obligations (principal and interest)		34,301		7,368		6,607		5,808		5,254		4,867		4,397
Operating lease obligations		17,250		5,385		4,557		4,389		1,988		630		301
Purchase obligations		173,074		27,929		27,929		27,929		27,929		27,929		33,429
Other long-term liabilities(1)		1,262,211		53,013		52,342		60,858		48,813		51,169		996,016
Totals	$	1,816,825		150,894		119,866		132,413		120,618		137,977		1,155,057

(1) Represents long-term liabilities relating to our postretirement health benefit plans, defined benefit pension plans, workers compensation liabilities, and mine reclamation costs.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition, results of operations, liquidity and capital resources is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Generally accepted accounting principles, or GAAP, require that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Postretirement Medical Benefits and Pension Obligations

Our most significant long-term obligations are the obligations to provide postretirement medical benefits, pension benefits, workers’ compensation and pneumoconiosis (black lung) benefits. We provide these benefits to our current and former employees and their dependents. Detailed information related to these liabilities is included in Notes 8 and 9 to our consolidated financial statements.

We have significant long-term liabilities for our employees’ postretirement medical benefit costs and defined benefit pension plans. These liabilities are recorded on our consolidated balance sheets in amounts equal to the actuarially determined funded status of the plans. Our obligations for postretirement benefit costs and workers’ compensation obligations are not funded. Our pension obligations are required to be funded in accordance with the provisions of federal law and covenants of our loan agreements. The expense for the year ended December 31, 2008, for the pension and postretirement liabilities totaled $29.2 million, while payments were $21.5 million.

Each of these liabilities is actuarially determined and we use various actuarial assumptions including the discount rate and future cost trends, to estimate the costs and obligations for these items. Our discount rate for postretirement medical and pension benefits are determined by utilizing a hypothetical bond portfolio model, which approximates the future cash flows necessary to service our liabilities. This model is calculated using a yield curve that is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.

42

We make assumptions related to future trends for medical care costs in the estimates of retiree health care and work-related injuries and illnesses obligations. Our medical trend assumption is developed by annually examining the historical trend of our cost per claim data. In addition, we make assumptions related to future compensation increases and rates of return on plan assets in the estimates of pension obligations.

If our assumptions do not materialize as expected, actual cash expenditures and costs that we incur could differ materially from our current estimates. Moreover, regulatory changes could increase our obligation to satisfy these or additional obligations. Our most significant employee liability is postretirement health care. Health care cost trend rates have a significant effect on the expense and liability amounts reported for health care plans. Below we have provided a sensitivity analysis to demonstrate the significance of the health care cost trend rate assumptions in relation to reported amounts.

	Postretirement Benefits
Health Care Cost Trend Rate	1% Increase		1% Decrease
	(In thousands)
Effect on service and interest cost components	$	1,930	$	(1,636	)
Effect on postretirement benefit obligation	$	28,938	$	(24,682	)

Asset Retirement Obligations, Reclamation Costs and Reserve Estimates

Our asset retirement obligations primarily consist of cost estimates for reclamation of surface land and support facilities at both surface mines and power plants in accordance with federal and state reclamation laws as defined by each mining permit. Asset retirement obligations are determined for each mine using various estimates and assumptions including, among other items, estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage, the timing of these cash flows, and a credit-adjusted, risk-free rate. As changes in estimates occur (such as mine plan revisions, changes in estimated costs, or changes in timing of the reclamation activities), the obligation and asset are revised to reflect the new estimate after applying the appropriate credit-adjusted, risk-free rate. If our assumptions do not materialize as expected, actual cash expenditures and costs that we incur could be materially different from currently estimated. Moreover, regulatory changes could increase our obligation to perform reclamation and mine closing activities. Asset retirement obligation accretion for the year ended December 31, 2008, was $9.5 million, and costs incurred totaled $7.4 million. See additional information regarding our asset retirement obligations in Note 11 to our consolidated financial statements.

Certain of our customers have either agreed to reimburse us for reclamation expenditures as they are incurred or have pre-funded a portion of the expected reclamation costs. These funds will serve as sources for use in final reclamation activities and directly reduce our reclamation expenses as we record a receivable for these future receipts.

Income Taxes and Deferred Income Taxes

As of December 31, 2008, we had significant deferred tax assets. Our deferred tax assets include federal and state regular net operating losses, or NOLs, alternative minimum tax, or AMT, credit carryforwards, Indian Coal Production Tax Credits, or ICTC’s, carryforwards, charitable contribution carryforwards, and net deductible reversing temporary differences related to on-going differences between book and taxable income.

We believe we will be taxed under the AMT system for the foreseeable future due to the significant amount of statutory tax depletion in excess of book depletion expected to be generated by our mining operations. As a result, we have determined that a valuation allowance is required for all of our regular federal net operating loss carryforwards, AMT credit carryforwards, ICTC carryforwards and its contributive carryforwards since they are not available to reduce AMT income in the future.

In addition, we have determined that since our net deductible temporary differences will not reverse for the foreseeable future, and we are unable to forecast that we will have taxable income when they do reverse, a full valuation allowance is required for these deferred tax assets.

43

We have also recorded a full valuation allowance for all but $1.4 million of our state net operating losses, since we believe that it is more likely than not that they will not be realized. No valuation allowance is being provided on $1.4 million of deferred tax assets because we believe that it is more likely than not that these net operating losses will be used to offset FIN No. 48 liabilities presented in the financial statements.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. SFAS 160 establishes accounting and reporting standards for (1) noncontrolling interests in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. SFAS 160 requires noncontrolling interests (minority interests) to be reported as a separate component of equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (January 1, 2009 for us). Early adoption is not allowed. We will adopt the provisions of SFAS No. 160 on January 1, 2009, and will recast prior periods’ financial statements to show noncontrolling interest (minority interest) as a separate component of shareholders’ equity. We are in the process of determining the effect the adoption of SFAS 160 will have on our financial statements.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, which replaces SFAS 141. SFAS 141(R) modifies the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This statement also provides guidance for the recognition and measurement of goodwill acquired in a business combination and for determination of required disclosures that will enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009, for us). At this time, we do not expect the adoption of this standard to have any impact on our financial statements.

In December 2008, the FASB issued FSP SFAS 132(R)-1 Employers’ Disclosures about Postretirement Benefit Plan Assets. This FSP amends the disclosure requirements for employer’s disclosure of plan assets for defined benefit pensions and other postretirement plans. The objective of this FSP is to provide users of financial statements with an understanding of how investment allocation decisions are made, the major categories of plan assets held by the plans, the inputs and valuation techniques used to measure the fair value of plan assets, significant concentration of risk within the company’s plan assets, and for fair value measurements determined using significant unobservable inputs a reconciliation of changes between the beginning and ending balances. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 (December 31, 2009, for us). We are in the process of determining the effect the adoption of FSP SFAS 132(R)-1 will have on the disclosures in our financial statements.

In May 2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Concurrent with the adoption of FSP APB 14-1, we will be adopting the guidance in EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock. EITF 07-5 was issued June 2008 by the FASB and clarifies how to determine whether certain instruments or features are indexed to an entity’s own stock. Both the FSP and the EITF are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years (January 1, 2009, for us). We will adopt the provisions of FSP APB 14-1 and EITF 07-5 on January 1, 2009, and will be required to retroactively apply

44

their provisions. Upon adoption, we will make an adjustment to the opening balance of retained earning to reclassify from debt to equity the value of the equity component of our convertible notes. At this time, it is impractical to quantify the effect of the adoption of this standard on our financial statements.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. Surety bonds and letters of credit are issued by financial institutions to third parties to assure the performance of our obligations relating to reclamation, workers’ compensation obligations, postretirement health benefit obligations, and other obligations. Liabilities related to these arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

We use a combination of surety bonds and letters of credit to secure our financial obligations for reclamation, workers’ compensation, postretirement health benefit and other obligations as follows as of December 31, 2008 (in thousands):

					Post
			Workers’		Retirement
	Reclamation		Compensation		Health Benefit
	Obligations		Obligations		Obligations		Other		Total
Surety bonds	$	213,493	$	10,303	$	9,032	$	12,915	$	245,743
Letters of credit		—		—		—		8,556		8,556
	$	213,493	$	10,303	$	9,032	$	21,471	$	254,299

45

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk, including the effects of changes in commodity prices and interest rates as discussed below.

Commodity Price Risk

We produce and sell commodities — principally coal and electric power — and purchase commodities — principally diesel fuel, coal, steel and electricity.

We produce and sell coal through our subsidiaries WML and Westmoreland Coal Sales Company, as well as through our WRI subsidiary who subleased the right to mine and sell coal to an affiliated entity, and we produce and sell electricity and steam through our power plant subsidiary. Nearly all of our coal production and all of our electricity and steam production are sold through long-term contracts with customers. These long-term contracts reduce our exposure to changes in commodity prices. These contracts typically contain price escalation and adjustment provisions, pursuant to which the price for our coal may be periodically revised. The price may be adjusted in accordance with changes in broad economic indicators, such as the consumer price index, commodity-specific indices, such as the PPI-light fuel oils index, and/or changes in our actual costs. Contracts may also contain periodic price reopeners or renewal provisions, which give us the opportunity to adjust the price of our coal to reflect developments in the marketplace.

From time to time, we enter into derivative instruments on the notional amount of the contract to manage a portion of our exposure to the price volatility of diesel fuel used in our operations. In a typical commodity swap agreement, we receive the difference between a fixed price per gallon of diesel fuel and a price based on an agreed upon published, third-party index if the index price is greater than the fixed price. If the fixed price is greater than the index price, we pay the difference on the notional amount of the contract. At December 31, 2008, we were not a party to any derivative instruments.

Interest Rate Risk

We and our subsidiaries are subject to interest rate risk on our debt obligations. The debt obligations shown in the table below are indexed to either the prime rate or LIBOR. Based on balances outstanding as of December 31, 2008, a change of one percentage point in the prime interest rate or LIBOR would increase or decrease interest expense on an annual basis by the amount shown below (in thousands):

	Effect of 1% increase
	or 1% decrease
Revolving lines of credit	$	100
WRI’s term debt		75
ROVA’s term debt		50

The estimated fair values at December 31, 2008, of our long-term debt with fixed interest rates are as follows (in thousands):

	Carrying Value		Fair Value
Practicable to estimate fair value	$	204,231	$	180,601
Not practicable to estimate fair value		15,789		—

It was not practicable to estimate the fair value of our convertible debt as we have not yet obtained or developed the valuation model necessary to make the estimate, and the cost of obtaining an independent valuation appears excessive relative to the materiality of the instrument to us. The convertible debt has a carrying value of $15.8 million, an interest rate of 9.0% per annum and is payable in full on March 4, 2013. At December 31, 2008, the notes are convertible into 1,578,845 shares of our common stock, par value $2.50 per share, at a conversion price of $10.00 per share.

Our heritage health benefit expenses are also impacted by interest rate changes because postretirement medical benefit, pension, workers compensation, and pneumoconiosis obligations are recorded on a discounted basis.

46

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Financial Statements	Page
Consolidated Balance Sheets		48
Consolidated Statements of Operations		49
Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss		50
Consolidated Statements of Cash Flows		51
Notes to Consolidated Financial Statements		52
Report of Independent Registered Public Accounting Firm		95

47

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

	December 31,
	2008			2007
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	39,941		$	19,736
Receivables:
Trade		58,141			52,732
Contractual third party reclamation receivables		14,256			—
Other		17,815			2,630
		90,212			55,362
Inventories		24,654			28,798
Restricted investments and bond collateral		2,001			20,118
Other current assets		5,062			3,829
Total current assets		161,870			127,843
Property, plant and equipment:
Land and mineral rights		83,874			83,048
Capitalized asset retirement cost		121,741			126,532
Plant and equipment		446,714			410,379
		652,329			619,959
Less accumulated depreciation, depletion and amortization		208,929			177,533
Net property, plant and equipment		443,400			442,426
Excess of trust assets over pneumoconiosis benefit obligation		2,239			2,216
Advanced coal royalties		3,311			3,881
Reclamation deposits		69,707			65,613
Restricted investments and bond collateral, less current portion		45,302			56,386
Contractual third party reclamation receivables, less current portion		66,918			68,811
Deferred income taxes		1,420			—
Intangible assets, net of accumulated amortization $4.8 million at December 31, 2008 and $2.6 million at December 31, 2007, respectively		10,823			12,519
Other assets		7,977			2,833
Total Assets	$	812,967		$	782,528
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Current installments of long-term debt	$	34,186		$	86,719
Revolving lines of credit		10,300			14,200
Accounts payable and accrued expenses		141,536			121,598
Total current liabilities		186,022			222,517
Long-term debt, less current installments		224,667			170,529
Workers’ compensation, less current portion		11,801			8,566
Postretirement medical costs, less current portion		266,675			270,569
Pension and SERP obligations, less current portion		38,862			23,748
Deferred revenue, less current portion		80,907			52,345
Asset retirement obligations, less current portion		205,572			193,027
Other liabilities		16,059			18,484
Total liabilities		1,030,565			959,785
Shareholders’ deficit:
Preferred stock of $1.00 par value
Authorized 5,000,000 shares; issued and outstanding 160,130 shares at December 31, 2008 and 2007		160			160
Common stock of $2.50 par value
Authorized 20,000,000 shares; issued and outstanding 9,690,018 shares at December 31, 2008 and 9,427,203 shares at December 31, 2007		24,223			23,567
Other paid-in capital		96,196			85,352
Accumulated other comprehensive loss		(119,367	)		(116,093	)
Accumulated deficit		(218,810	)		(170,243	)
Total shareholders’ deficit		(217,598	)		(177,257	)
Commitments and contingent liabilities
Total Liabilities and Shareholders’ Deficit	$	812,967		$	782,528

See accompanying Notes to Consolidated Financial Statements.

48

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Operations

	Years Ended December 31,
	2008			2007			2006
	(In thousands)
Revenues:
Coal	$	419,806		$	418,870		$	393,482
Energy		89,640			84,953			43,244
Independent power projects — equity in earnings		250			394			7,681
		509,696			504,217			444,407
Cost and expenses:
Cost of sales — coal		350,038			345,395			311,629
Cost of sales — energy		59,757			54,951			28,376
Depreciation, depletion and amortization		41,387			38,123			29,340
Selling and administrative		40,513			44,813			42,409
Restructuring charges		2,009			4,523			—
Heritage health benefit expenses		33,452			27,589			32,821
Gain on sales of assets		(1,425	)		(5,295	)		(4,785	)
		525,731			510,099			439,790
Operating income (loss)		(16,035	)		(5,882	)		4,617
Other income (expense):
Interest expense		(23,130	)		(24,638	)		(19,234	)
Interest expense attributable to beneficial conversion feature		(8,146	)		—			—
Loss on extinguishment of debt		(5,178	)		—			—
Interest income		5,125			8,152			6,089
Minority interest		—			(1,194	)		(2,244	)
Other income (loss)		(284	)		243			73
		(31,613	)		(17,437	)		(15,316	)
Loss from continuing operations before income taxes		(47,648	)		(23,319	)		(10,699	)
Income tax expense from continuing operations		919			199			2,405
Loss from continuing operations		(48,567	)		(23,518	)		(13,104	)
Discontinued operations:
Income from discontinued operations, net of income tax expense of less than $0.1 million in 2007 and 2006		—			1,725			406
Net loss		(48,567	)		(21,793	)		(12,698	)
Less preferred stock dividend requirements		1,360			1,360			1,585
Less premium on exchange of preferred stock for common stock		—			—			791
Net loss applicable to common shareholders	$	(49,927	)	$	(23,153	)	$	(15,074	)
Loss per share from continuing operations:
Basic and diluted	$	(5.25	)	$	(2.71	)	$	(1.77	)
Income per share from discontinued operations:
Basic and diluted	$	—		$	0.19		$	0.05
Net loss per share applicable to common shareholders:
Basic and diluted	$	(5.25	)	$	(2.53	)	$	(1.72	)
Weighted average number of common shares outstanding
Basic and diluted		9,512			9,166			8,748

See accompanying Notes to Consolidated Financial Statements.

49

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Statement of Shareholders’ Deficit and Comprehensive Loss

Years Ended December 31, 2006, 2007 and 2008

	Class A Convertible								Accumulated						Total
	Exchangeable								Other						Shareholders’
	Preferred			Common		Other Paid-In			Comprehensive			Accumulated			Equity
	Stock			Stock		Capital			Loss			Deficit			(Deficit)
	(In thousands)
Balance at December 31, 2005 (205,083 preferred shares and 8,413,312 common shares outstanding)	$	205		$	21,033	$	75,344		$	(11,409	)	$	(115,381	)	$	(30,208	)
Common stock issued as compensation (89,939 shares)		—			225		2,339			—			—			2,564
Common stock options exercised (174,732 shares)		—			437		561			—			—			998
Dividends declared		—			—		—			—			(387	)		(387	)
Exchange of preferred shares for common stock (336,095 shares)		(45	)		840		(4	)		—			(791	)		—
Cumulative effect of change in accounting for deferred overburden removal costs		—			—		—			—			(16,805	)		(16,805	)
Adjustment for funded status of pension and postretirement medical benefit plans upon adoption of SFAS 158		—			—		—			(129,821	)		—			(129,821	)
Cumulative effect of adjustment upon adoption of SAB 108		—			—		—			—			(2,388	)		(2,388	)
Adjustment for stock appreciation rights previously classified as a liability upon adoption of SFAS 123(R)		—			—		1,006			—			—			1,006
Net loss		—			—		—			—			(12,698	)		(12,698	)
Minimum pension liability		—			—		—			1,744			—			1,744
Settlement of interest rate swap agreement		—			—		—			62			—			62
Comprehensive loss																(10,892	)
Balance at December 31, 2006 (160,130 preferred shares and 9,014,078 common shares outstanding)		160			22,535		79,246			(139,424	)		(148,450	)		(185,933	)
Common stock issued as compensation (118,209 shares)		—			295		2,742			—			—			3,037
Common stock options exercised (294,916 shares)		—			737		2,019			—			—			2,756
Warrant issued in connection with loan extension		—			—		1,122			—			—			1,122
Warrant repriced in lieu of consent fee		—			—		223			—			—			223
Net loss		—			—		—			—			(21,793	)		(21,793	)
Adjustments to accumulated actuarial losses of pension and postretirement medical benefit plans		—			—		—			12,878			—			12,878
Amortization of accumulated actuarial losses and transition obligations		—			—		—			10,453			—			10,453
Comprehensive income																1,538
Balance at December 31, 2007 (160,130 preferred shares and 9,427,203 common shares outstanding)		160			23,567		85,352			(116,093	)		(170,243	)		(177,257	)
Common stock issued as compensation (221,933 shares)		—			554		2,242			—			—			2,796
Common stock options exercised (40,882 shares)		—			102		101			—			—			203
Warrant repriced in lieu of registration requirement		—			—		355			—			—			355
Beneficial conversion feature on convertible debt		—			—		8,146			—			—			8,146
Net loss		—			—		—			—			(48,567	)		(48,567	)
Adjustments to accumulated actuarial losses of pension plans		—			—		—			(17,589	)		—			(17,589	)
Amortization of accumulated actuarial losses of pension plans		—			—		—			351			—			351
Adjustments to accumulated actuarial losses, prior service costs and transition obligations of postretirement medical benefit plans		—			—		—			5,533			—			5,533
Amortization of accumulated actuarial losses, prior service costs and transition obligations of postretirement medical benefit plans		—			—		—			8,319			—			8,319
Unrealized loss on available-for-sale securities		—			—		—			(788	)		—			(788	)
Other than temporary impairment of available-for-sale securities recognized in earnings		—			—		—			900			—			900
Comprehensive loss																(51,841	)
Balance at December 31, 2008 (160,130 preferred shares and 9,690,018 common shares outstanding)	$	160		$	24,223	$	96,196		$	(119,367	)	$	(218,810	)	$	(217,598	)

See accompanying Notes to Consolidated Financial Statements.

50

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from operating activities:
Net loss	$	(48,567	)	$	(21,793	)	$	(12,698	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred power sales revenue		28,774			27,587			14,545
Equity in earnings of independent power projects		(250	)		(394	)		(7,681	)
Cash distributions from independent power projects		250			394			1,307
Provision for obsolete inventory		184			1,128			—
Depreciation, depletion and amortization		41,387			38,123			29,340
Accretion		9,528			9,844			7,854
Amortization of intangible assets and liabilities, net		598			(2,043	)		493
Restructuring charges		2,009			4,523			—
Share-based compensation		2,733			2,467			2,963
Loss (gain) on sales of assets from continuing operations		(1,425	)		(5,295	)		(4,785	)
Non-cash interest expense		8,934			—			—
Amortization of deferred financing costs		839			1,362			1,626
Warrant repriced in lieu of consent fee		—			223			—
Warrant repriced in lieu of registration requirement		355			—			—
Loss on extinguishment of debt		2,292			—			—
Other than temporary impairments of investments		900			—			—
Minority interest		—			1,194			2,244
Gain on sales of assets of discontinued operations		—			(483	)		—
Changes in operating assets and liabilities:
Receivables, net		(6,240	)		7,635			(15,244	)
Inventories		3,960			(3,140	)		(5,751	)
Excess of trust assets over pneumoconiosis benefit obligation		(23	)		5,616			(369	)
Deferred income taxes		(1,420	)		—			—
Accounts payable and accrued expenses		2,001			(1,231	)		12,119
Deferred coal revenue		403			9,539			(165	)
Income tax payable		2,186			(567	)		1,887
Accrual for workers’ compensation		3,316			(16	)		195
Asset retirement obligations		(889	)		(3,584	)		(14,751	)
Accrual for postretirement medical costs		10,021			12,460			12,377
Pension and SERP obligations		(2,116	)		581			3,598
Other assets and liabilities		(4,495	)		(1,549	)		(708	)
Cash provided by continuing operations		55,245			82,581			28,396
Cash provided by (used in) discontinued operations		—			(65	)		1,038
Net cash provided by operating activities		55,245			82,516			29,434
Cash flows from investing activities:
Additions to property, plant and equipment		(31,320	)		(30,412	)		(20,852	)
Decrease (increase) in restricted investments and bond collateral and reclamation deposits		24,319			(9,978	)		(10,527	)
ROVA acquisition, net of cash resulting from the ROVA consolidation of $21.9 million		—			—			(7,714	)
Net proceeds from sales of assets		2,641			13,332			5,171
Receivable from customer for property and equipment purchases		(2,228	)		—			—
Acquisition of Absaloka Mining operations, net		—			(16,905	)		—
Cash used in continuing investing activities		(6,588	)		(43,963	)		(33,922	)
Proceeds from the sale of discontinued operations		—			704			—
Net cash used in investing activities		(6,588	)		(43,259	)		(33,922	)
Cash flows from financing activities:
Bank overdrafts		(5,043	)		2,292			3,734
Borrowings from long-term debt		205,377			9,145			31,453
Repayments of long-term debt		(219,785	)		(61,164	)		(25,955	)
Borrowings on revolving lines of credit		169,600			219,900			196,900
Repayments on revolving lines of credit		(173,500	)		(218,700	)		(184,400	)
Debt issuance costs		(5,304	)		(148	)		(1,453	)
Exercise of stock options		203			2,756			998
Dividends paid to shareholder of subsidiary		—			(340	)		(880	)
Dividends paid on preferred shares		—			—			(387	)
Net cash provided by (used in) financing activities		(28,452	)		(46,259	)		20,010
Net increase (decrease) in cash and cash equivalents		20,205			(7,002	)		15,522
Cash and cash equivalents, beginning of year		19,736			26,738			11,216
Cash and cash equivalents, end of year	$	39,941		$	19,736		$	26,738
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	22,226		$	23,215		$	16,649
Income taxes		2,227			853			713
Non-cash transactions:
Accrued purchases of property and equipment		2,715			946			—
Capital leases		14,859			17,942			1,567

See accompanying Notes to Consolidated Financial Statements.

51

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Westmoreland Coal Company, or the Company, or Westmoreland, or WCC, is an energy company. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from its mines in Montana, North Dakota and Texas; and the ownership of power plants in North Carolina. The Company’s activities are primarily conducted through wholly owned subsidiaries, which generally have obtained separate financing.

Liquidity

The Company has suffered recurring losses from operations, has a working capital deficit and a net capital deficiency that raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the uncertainty about the ability of the Company to continue as a going concern.

WCC is a holding company (the Parent) and conducts its operations through subsidiaries, which generally have obtained separate financing. As a holding company, it has significant cash requirements to fund its ongoing heritage health benefit costs, pension contributions, and corporate overhead expenses. The principal sources of cash flow to the Parent are from distributions from its principal operating subsidiaries. Each of WML, ROVA and WRI has a credit agreement that contains covenants applicable to that subsidiary. Only the WRI agreement permits dividends to be paid by WRI to WCC without restriction.

The major factors impacting the Company’s liquidity are as follows:

•  The Company’s significant level of debt and limitations under its current debt agreements on the ability of WML and ROVA to pay dividends to the Company.

As of December 31, 2008, the Company’s total gross indebtedness was approximately $269.2 million, the principal components of which are: $148.1 million of WML term and other debt; $81.4 million of ROVA term debt ; $22.5 million under WRI’s revolving line of credit, term and other debt; and $15.8 million of convertible notes.

Limitations in the WML and ROVA debt agreements require the maintenance of reserve accounts and limit the ability of those subsidiaries to distribute funds to the Parent based on changes in reserve account balances and the subsidiaries’ operating results. Accordingly, these subsidiaries may not be able to pay dividends to the Parent in the amounts and in the time periods required for it to pay its heritage health benefit costs, pension contributions and corporate expenses.

•  The Company’s heritage health and pension obligations, which must be funded by distributions from the Company’s operating subsidiaries.

The Parent’s heritage health benefit costs consist primarily of payments for postretirement medical and workers’ compensation benefits. It is also obligated to pay premiums to the Combined Benefit Fund, or CBF. It also sponsors defined benefit pension plans for our full-time employees. In 2008, the Company experienced a significant decrease in the value of its pension investments. Both the Parent and its subsidiaries will be required to make supplemental pension contributions due to the decrease in the value of the Company’s pension investments. Under the covenants of the WML term debt, the Company is required to ensure that by September 15 of each year, the value of the Company’s pension plan assets is at least 90% of the actuarially determined pension liability. In order to achieve this 90% funding status required by loan covenants, the Company will be required to contribute approximately $11.3 million to its funded pension plans during 2009.

52

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

•  Cash collateral requirements for additional reclamation bonds in new mining areas.

Federal and state laws require that the Company provide bonds to secure its obligations to reclaim lands used for mining. The Company must post a bond before it can obtain a permit to mine any new area. These bonds are typically renewable on a yearly basis and have become increasingly expensive. Bonding companies are requiring that applicants collateralize increasing portions of their obligations to the bonding company. The Company anticipates that, as it permits additional areas for its mines in 2009 and 2010, its bonding requirements will increase significantly and the collateral requirements will increase as well.

In 2008, the Company took the following steps to improve its liquidity:

•  On March 4, 2008, the Company completed the sale of $15.0 million in senior secured convertible notes to an existing shareholder;

•  On March 17, 2008, Westmoreland Partners, its wholly owned subsidiary, completed a refinancing of ROVA’s debt. The refinancing paid off all outstanding bank borrowings, bond borrowings, and the ROVA acquisition loan, and eliminated the need for the irrevocable letters of credit, which supported the bond borrowings;

•  On June 26, 2008, WML completed a refinancing of its term debt. On that date, WML entered into a note purchase agreement with institutional investors under which it sold $125.0 million of secured notes with principal payments beginning in 2011. Also on June 26, 2008, WML amended its Revolving Credit Agreement with its lenders and increased the facility to $25.0 million through 2013. The Company is not required to make principal payments on its WML debt until 2011;

•  On October 16, 2008, WRI entered into a series of transactions in order to monetize the Indian Coal Production Tax Credits available to it. If the private letter ruling received from the IRS on the transactions is approved by the Investor and one of its lenders, the Company could realize net cash flows of up to $37.1 million before taxes through 2012. See Note 16 Indian Coal Production Tax Credits; and

•  On November 20, 2008, WRI’s $20.0 million revolving credit facility was extended through November 19, 2009.

These steps reduced the Company’s consolidated working capital deficit by $70.5 million from December 31, 2007 to December 31, 2008.

The maturities of long-term debt and the revolving credit facilities due in 2009 are $44.5 million, of which $10.3 million relates to the WRI revolving credit facilities. The remaining $34.2 million due in 2009 is payable by its subsidiaries, and is expected to be funded by cash provided by the operations of those subsidiaries.

In addition to these efforts, the Company is pursuing additional alternatives in its efforts to continue to improve its liquidity during 2009:

•  The Company is in initial discussions with a potential buyer regarding the sale of certain assets, but it is not certain such a sale could be completed in the time required to meet its cash needs;

•  The Company is pursuing and evaluating potential sale-leaseback transactions for certain facilities and equipment at its Absaloka Mine;

•  The Company is pursuing alternatives to meet future reclamation bond requirements as it enters new mining areas with reduced amounts of cash collateral;

53

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

•  The Company is attempting to improve its liquidity by improving the operating performance of its mines. The Company believes that increases in tons produced and sold, improvements in productivity, and its continued focus on cost control at its mining operations during 2009 should improve its liquidity; and

•  The Company is looking at various alternatives to reduce its required 2009 pension contributions, including modifying elections available to it in determining the required contribution, contributing shares of its common stock to the plan in lieu of cash, amending its pension plans, and negotiating revised covenants with its lenders.

There can be no assurance that the Company will be successful in completing any of the contemplated transactions on terms acceptable to it, or at all, or the other actions the Company contemplates will be successful in improving its cash flows or its liquidity.

The significant assumptions that underlie the forecasts prepared by the Company for 2009 include the following:

•  The private letter ruling received from the IRS is approved by the Investor and one of its lenders and the ICTC monetization transactions proceed in accordance with their terms;

•  The Company’s operating cash flow at WRI significantly increases over 2008 levels as a result of actions taken to improve the operating performance of the mine;

•  WRI’s revolving line of credit is renewed or refinanced when it matures in November 2009;

•  The Company is able to defer or reduce its bonding requirements in 2009; and

•  The Company is able to reduce the cash contributions it is required to make to its pension plans in 2009.

If the Company’s assumptions prove to be accurate, it should have adequate liquidity to meet its currently projected cash requirements through 2009, although by a small margin. The Company’s 2009 assumptions are subject to a number of uncertainties, many of which are beyond its control, and it may face economic issues that it has not been able to foresee. However, the Company anticipates that it will require significant additional capital resources to meet its projected cash requirements for 2010.

Consolidation Policy

The Consolidated Financial Statements of Westmoreland Coal Company includes the accounts of the Company and its subsidiaries, after elimination of intercompany balances and transactions.

Under certain criteria as provided for in Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51, the Company may consolidate a partially owned affiliate when it has less than a 50% ownership. Under FIN 46(R), the party exposed to the majority of the risks and rewards associated with the variable interest entity, or VIE, is the VIE’s primary beneficiary and must consolidate the entity.

Based upon the criteria set forth in FIN 46(R), the Company has determined that at December 31, 2008, it was the primary beneficiary in a VIE in which it holds less than a 50% ownership. As a result, the Company has consolidated Absaloka Coal LLC, a VIE, within the coal segment.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported

54

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Coal Revenues

The Company recognizes coal sales revenue at the time title passes to the customer in accordance with the terms of the underlying sales agreements and after any contingent performance obligations have been satisfied. Coal sales revenue is recognized based on the pricing contained in the contracts in place at the time that title passes and any retroactive pricing adjustments to those contracts are recognized as revised agreements are reached with the customers and any performance obligations included in the revised agreements are satisfied.

Power Revenues

ROVA supplies power under long-term power sales agreements. Under these agreements, ROVA invoices and collects capacity payments based on kilowatt-hours produced if the units are dispatched or for the kilowatt-hours of available capacity if the units are not fully dispatched.

The Company has applied the provisions of EITF 01-08, Determining Whether an Arrangement Contains a Lease to the power sales agreements. A portion of the capacity payments under the agreements is considered an operating lease under EITF 01-08. The Company is recognizing amounts invoiced under the power sales agreements as revenue on a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be received over the remaining term of the power sales agreements. Under this method of recognizing revenue, $28.8 million and $27.6 million of amounts invoiced during 2008 and 2007, respectively, have been deferred from recognition until 2009 and beyond.

Discontinued Operations

The Company classifies items within discontinued operations in the consolidated statements of operations when the operations and cash flows of a particular component (defined as operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity) of the Company have been (or will be) eliminated from the ongoing operations of the Company as a result of a disposal transaction, and the Company will no longer have any significant continuing involvement in the operations of that component. Discontinued operations, net of taxes, for the years ended December 31, 2007 and 2006, reflected $1.7 million of income and $0.4 million of income, respectively, related to the Company’s power operation and maintenance business prior to its sale to North American Energy Services in August 2007.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost, which approximate fair value. Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Inventories

Inventories, which include materials and supplies as well as raw coal, are stated at the lower of cost or market. Cost is determined using the average cost method.

Property, Plant and Equipment

Property, plant and equipment are carried at cost and include expenditures for new facilities and those expenditures that substantially increase the productive lives of existing plant and equipment. Maintenance and repair costs are expensed as incurred. Mineral rights and development costs are depleted based upon estimated

55

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

recoverable proven and probable reserves. Plant and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives, ranging from three to 40 years. The Company assesses the carrying value of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to fair value. When an asset is retired or sold, its cost and related accumulated depreciation and depletion are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss. Fully depreciated plant and equipment still in use is not eliminated from the accounts.

Coal reserves are recorded at cost, or at fair value in the case of acquired businesses. Included in the book value of coal reserves are mineral rights for leased coal interests, including advanced royalties.

Deferred Financing Costs

The Company capitalizes costs incurred in connection with borrowings or establishment of credit facilities and issuance of debt securities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or term of the credit facility using the effective interest method. These amounts are recorded in Other assets in the accompanying Consolidated Balance Sheets.

Income Taxes

The Company accounts for deferred income taxes using the asset and liability method. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Company’s financial statements based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, as well as net operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company establishes a valuation allowance against its net deferred tax assets to the extent the Company believes that it is more likely than not that it will not realize the net deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of the appropriate type of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

FIN No. 48 Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN No. 48, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company includes interest and penalties in income tax expense.

Postretirement Health Care Benefits

The Company accounts for postretirement benefits other than pensions in accordance with SFAS No. 106, which requires the costs of benefits to be provided to be accrued over the employees’ period of active service. These costs are determined on an actuarial basis. As a result of the adoption of SFAS No. 158 on December 31, 2006, the Company’s consolidated balance sheet reflects the unfunded status of postretirement benefit obligations.

56

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Pension Plans

The Company sponsors non-contributory defined benefit pension plans accounted for in accordance with SFAS No. 87, which requires that the cost to provide the benefits be accrued over the employees’ period of active service. These costs are determined on an actuarial basis. SFAS No. 158 amended SFAS No. 87 and as a result of the adoption of SFAS No. 158 on December 31, 2006, the Company’s consolidated balance sheet reflects the unfunded status of the defined benefit pension plans.

Workers’ Compensation Benefits

The Company is self-insured for workers’ compensation claims incurred prior to 1996. The liabilities for workers’ compensation claims are actuarially determined estimates of the ultimate losses incurred based on the Company’s experience. Adjustments to the probable ultimate liabilities are made annually based on subsequent developments and experience and are included in operations at the time of the revised estimate.

Black Lung Benefits

The Company is self-insured for federal and state pneumoconiosis (black lung) benefits for former employees and has established an independent trust to pay these benefits. The Company accounts for these benefits on the accrual basis in accordance with SFAS 112 Employers’ Accounting for Postemployment Benefits. The present value of the accumulated black lung obligation is calculated annually by an independent actuary. The overfunded status of the Company’s obligation is included as Excess of trust assets over pneumoconiosis benefit obligation in the accompanying Consolidated Balance Sheets. Actuarial gains and losses are recognized in the period in which they arise.

Asset Retirement Obligations

SFAS 143, Accounting for Asset Retirement Obligations, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company’s asset retirement obligation, or ARO, liabilities primarily consist of estimated costs related to reclaiming surface land and support facilities at its mines in accordance with federal and state reclamation laws as established by each mining permit.

The Company estimates its ARO liabilities for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. Cost estimates are escalated for inflation, and then discounted at the credit-adjusted risk-free rate. The Company records an ARO asset associated with the initial recorded liability. The ARO asset is amortized based on the units of production method over the estimated recoverable, proven and probable reserves at the related mine, and the ARO liability is accreted to the projected settlement date. Changes in estimates could occur due to revisions of mine plans, changes in estimated costs, and changes in timing of the performance of reclamation activities.

Reclamation Deposits and Contractual Third Party Reclamation Receivables

Certain of the Company’s customers have either agreed to reimburse the Company for reclamation expenditures as they are incurred or have pre-funded a portion of the expected reclamation costs. Amounts received from customers and held on deposit are recorded as reclamation deposits. Amounts that are reimbursable by customers are recorded as third party reclamation receivables when the related reclamation obligation is recorded.

57

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Financial Instruments

Pursuant to SFAS 107, Disclosures about Fair Value of Financial Instruments, the Company is required to disclose the fair value of financial instruments where practicable. The carrying amounts of cash equivalents, accounts receivable and accounts payable reflected on the balance sheets approximate the fair value of these instruments due to the short duration to their maturities. The fair value of long-term debt is based on the interest rates available to the Company for debt with similar terms and maturities.

Held-to-maturity financial instruments consist of non-derivative financial assets with fixed or determinable payments and a fixed term, which the Company has the ability and intent to hold until maturity, and, therefore, accounts for them as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned.

The Company reviews its securities routinely for other-than-temporary impairment. The primary factors used to determine if an impairment charge must be recorded because a decline in value of the security is other than temporary include (i) whether the fair value of the investment is significantly below its cost basis, (ii) the financial condition of the issuer of the security, (iii) the length of time that the cost of the security has exceeded its fair value and (iv) the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. Other-than-temporary impairments are recorded as a component of Other income (expense).

Accumulated Other Comprehensive Income (Loss)

The following is a summary of accumulated other comprehensive income (loss) for the years ending December 31, 2006, 2007 and 2008:

				Minimum								Accumulated
				Liability			Pension and			Available for		Other
	Financial			Pension			Postretirement			Sale		Comprehensive
	Derivatives			Adjustments			Benefits			Securities		Loss
							(In thousands)
Balance at January 1, 2006	$	(62	)	$	(11,347	)	$	—		$	—	$	(11,409	)
2006 activity		62			1,744			—			—		1,806
Statement No. 158 adoption		—			9,603			(139,424	)		—		(129,821	)
Balance at December 31, 2006		—			—			(139,424	)		—		(139,424	)
2007 activity		—			—			23,331			—		23,331
Balance at December 31, 2007		—			—			(116,093	)		—		(116,093	)
2008 activity		—			—			(3,386	)		112		(3,274	)
Balance at December 31, 2008	$	—		$	—		$	(119,479	)	$	112	$	(119,367	)

Intangible Assets and Liabilities

The Company accounts for intangible assets and liabilities in accordance with SFAS 141, Business Combinations, and SFAS 142, Goodwill and other Intangible Assets. SFAS 141 requires that all business combinations initiated after June 30, 2001, be accounted for using the purchase method of accounting and identifiable intangible assets or liabilities acquired in a business combination be recognized and reported separately from goodwill. The Company has determined that its most significant acquired identifiable intangible assets are sales and purchase agreements. The majority of these intangible assets and liabilities are amortized on a straight-line basis over the respective period of the sales and purchase agreements, while the remainder are amortized on a unit-of-production basis.

58

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS 123(R)), which the Company adopted using the modified prospective option on January 1, 2006. Under SFAS No. 123(R), share-based compensation expense is generally measured at the grant date and recognized as expense over the vesting period of the entire award.

Earnings (Loss) per Share

Basic earnings (loss) per share have been computed by dividing the net income (loss) applicable to common shareholders by the weighted average number of shares outstanding during each period. Diluted earnings (loss) per share is computed by including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding convertible notes, stock options, stock appreciation rights, restricted stock and warrants. No such items were included in the computation of diluted loss per share in 2008, 2007 or 2006 because the Company incurred a loss from continuing operations in each of these periods and the effect of inclusion would have been anti-dilutive.

The effect of the approximately 1.6 million shares issuable pursuant to the convertible debt securities outstanding at December 31, 2008, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation. In addition, the effect of approximately 0.9 million, 0.8 million and 1.1 million of stock options, stock appreciation rights, restricted stock and warrants outstanding at December 31, 2008, 2007 and 2006, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation.

Reclassifications

Certain amounts in prior periods have been reclassified to conform with the presentation of 2008, with no effect on previously reported net loss or stockholders’ deficit.

Accounting Pronouncements Adopted

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value, and expanding disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FSP SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removes certain leasing transactions from the scope of SFAS No. 157, and FSP SFAS 157-2, Effective Date of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the FASB also issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. On January 1, 2008, the Company adopted without material impact on its financial position or results of operations the provisions of SFAS No. 157 related to financial assets and liabilities and to nonfinancial assets and liabilities measured at fair value on a recurring basis. Beginning January 1, 2009, the Company will adopt the provisions for nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include, nonfinancial

59

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

long-lived assets measured at fair value for impairment assessment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business combination. The Company does not expect the provisions of SFAS No. 157 related to these items to have a material impact on its financial position or results of operations.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115. SFAS 159 provides all entities with an option to report selected financial assets and liabilities at fair value. SFAS 159 was effective for financial statements issued for fiscal years beginning after November 15, 2007 (January 1, 2008, for the Company). The Company did not elect to measure any financial assets or liabilities at fair value under SFAS 159.

Accounting Pronouncements Issued and Not Yet Adopted

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB 51. SFAS 160 establishes accounting and reporting standards for (1) noncontrolling interests in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. SFAS 160 requires noncontrolling interests (minority interests) to be reported as a separate component of equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (January 1, 2009, for the Company). Early adoption is not allowed. The Company will adopt the provisions of SFAS No. 160 on January 1, 2009, and will recast prior periods’ financial statements to show noncontrolling interest (minority interest) as a separate component of shareholders’ equity. The Company is in the process of determining the effect the adoption of SFAS 160 will have on its financial statements.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, which replaces SFAS 141. SFAS 141(R) modifies the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This statement also provides guidance for the recognition and measurement of goodwill acquired in a business combination and for determination of required disclosures that will enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009, for the Company). At this time, the Company does not expect the adoption of this standard to have any impact on its financial statements.

In December 2008, the FASB issued FSP SFAS 132(R)-1 Employers’ Disclosures about Postretirement Benefit Plan Assets. This FSP amends the disclosure requirements for employer’s disclosure of plan assets for defined benefit pensions and other postretirement plans. The objective of this FSP is to provide users of financial statements with an understanding of how investment allocation decisions are made, the major categories of plan assets held by the plans, the inputs and valuation techniques used to measure the fair value of plan assets, significant concentration of risk within the company’s plan assets, and for fair value measurements determined using significant unobservable inputs a reconciliation of changes between the beginning and ending balances. FSP SFAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 (December 31, 2009, for the Company). The Company is in the process of determining the effect the adoption of FSP SFAS 132(R)-1 will have on the disclosures in its financial statements.

60

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In May 2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Concurrent with the adoption of FSP APB 14-1, the Company will be adopting the guidance in EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock. EITF 07-5 was issued June 2008 by the FASB and clarifies how to determine whether certain instruments or features are indexed to an entity’s own stock. Both the FSP and EITF are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years (January 1, 2009, for the Company). The Company will adopt the provisions of FSP APB 14-1 and EITF 07-5 on January 1, 2009, and will be required to retroactively apply their provisions. Upon adoption, the Company will make an adjustment to the opening balance of retained earning to reclassify from debt to equity the value of the equity component of its convertible notes.

2.  RESTRUCTURING

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on an analysis of the Company’s internal operations, its future customer commitments, its current and potential markets, and its financial projections for profitability. During 2007 and 2008, the Company recorded restructuring charges of $4.5 million and $2.0 million, respectively, which included $6.3 million of termination benefits and outplacement costs and $0.2 million of lease costs related to the consolidation of corporate office space and the closure of an office. The Company expects these charges to be paid out over the next two years.

The table below represents the restructuring provision activity during the year ended December 31, 2008 (in thousands):

	Beginning		Restructuring		Restructuring		Ending
Year	Balance		Charges		Payments		Balance
2008	$	3,600	$	2,009	$	3,520	$	2,089

3.  INVESTMENT IN POWER PLANTS

In 2006, Westmoreland Energy LLC, or WELLC, a wholly owned subsidiary of the Company, acquired the remaining ownership interest in ROVA. Prior to July 1, 2006, the Company owned a 50% interest in ROVA. The following is a summary of ROVA’s results of operations for the six months ended June 30, 2006:

	Six Months Ended
	June 30, 2006
	(In thousands)
Revenues	$	55,104
Operating Income		20,136
Net Income		14,512
WELLC’s share of earnings		7,315

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Notes to Consolidated Financial Statements — (Continued)

4.  INVENTORIES

Inventory consisted of the following at December 31, 2008 and 2007 (in thousands):

	December 31,
	2008		2007
Coal	$	1,697	$	1,889
Materials and supplies		22,957		26,909
Total	$	24,654	$	28,798

Materials and supplies are presented net of an allowance for slow-moving and obsolete inventories of $0.4 million and $0.2 million at December 31, 2008 and 2007, respectively.

5.  RESTRICTED INVESTMENTS AND BOND COLLATERAL

The Company’s restricted investments and bond collateral consist of the following:

	December 31,
	2008			2007
	(In thousands)
Corporate:
Workers’ compensation bonds	$	5,759		$	5,677
Postretirement health benefit bonds		2,193			1,247
Coal Segment:
Westmoreland Mining — debt reserve account		5,065			10,229
Westmoreland Mining — prepayment account		—			20,118
WRI Indian Coal Production Tax escrow		2,001			—
Reclamation bond collateral:
Rosebud Mine		13,489			1,728
Absaloka Mine		5,781			5,469
Beulah Mine		1,070			70
Jewett Mine		973			1,126
ROVA:
Debt protection account		8,391			28,981
Repairs and maintenance account		1,977			1,251
Ash reserve account		604			608
Total restricted investments and bond collateral		47,303			76,504
Less current portion		(2,001	)		(20,118	)
Total restricted investments and bond collateral, less current portion	$	45,302		$	56,386

Restricted investments and bond collateral of $47.3 million at December 31, 2008, consist of $26.1 million cash and cash equivalents, $11.0 million of time deposits, $6.6 million of federal agency bonds (government-backed securities), and $3.6 million of preferred stock.

All underlying financial instruments included in the restricted investment and bond collateral accounts have Level I inputs available regarding fair value measurements. Level I inputs are quoted prices in active markets for identical financial instruments that the Company has the ability to access at the fair value measurement date.

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Notes to Consolidated Financial Statements — (Continued)

The Company recorded an impairment of $0.6 million during 2008 as a result of other-than-temporary declines in the value of marketable securities included in restricted investments and bond collateral.

Funds in the restricted investment and bond collateral accounts are not available to meet the Company’s cash needs. For all of its restricted investments and bond collateral accounts, the Company can select from several investment options for the funds and receives the investment returns on these investments.

The Company has one bonding arrangement in which additional cash collateral must be contributed if market declines reduce the value of the underlying investments to below minimum funding requirements. For the year ended December 31, 2008, an additional $0.1 million was required to be deposited as a result of market declines.

Corporate

The Company is required to obtain surety bonds in connection with its self-insured workers’ compensation plan and certain health care plans. The Company’s surety bond underwriters require collateral to issue these bonds.

Coal Segment

Pursuant to the terms of the Note Purchase Agreement dated June 26, 2008, WML must maintain a debt service reserve account. The debt service reserve account is required to contain funds sufficient to pay the principal, interest, and collateral agent’s fees scheduled to be paid in the following six months. The debt service reserve account was fully funded at December 31, 2008. A prepayment account is not required under the terms of WML’s Note Purchase Agreement.

As of December 31, 2008, the Company had reclamation bond collateral in place for its active Absaloka, Rosebud, Jewett and Beulah Mines. These government-required bonds assure that coal-mining operations comply with applicable federal and state regulations relating to the performance and completion of final reclamation activities. The amounts deposited in the bond collateral account secure the bonds issued by the bonding company.

All payments received on the promissory notes and the $2.0 million of cash received at closing for the Indian Coal Production Tax Credit monetization transaction were, or will be, placed into escrow until the approval of the private letter ruling, or PLR, by the Investor and one of the Company’s lenders. Since December 31, 2008, $1.8 million of additional payments have been placed in escrow. See Note 16 Indian Coal Production Tax Credits.

ROVA

Pursuant to the terms of its new loan agreement with Prudential, ROVA must maintain debt protection accounts. ROVA is required to maintain three months of subsequent debt service, less the available balance of its revolving loan, in its debt protection accounts. The debt protection accounts were fully funded at December 31, 2008.

The loan agreement also requires ROVA to fund a repairs and maintenance account up to a maximum amount of $2.6 million. The funds for the repairs and maintenance account are required to be deposited every three months based on a formula contained in the agreement. The repairs and maintenance account was funded to $1.8 million at December 31, 2008.

The loan agreement also requires ROVA to fund an ash reserve account to $0.6 million. The ash reserve account was fully funded at December 31, 2008.

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Notes to Consolidated Financial Statements — (Continued)

Held-to-Maturity and Available-for-Sale Restricted Investments and Bond Collateral

The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities at December 31, 2008 and 2007, are as follows (in thousands):

	2008		2007
Amortized cost	$	6,638	$	21,515
Gross unrealized holding gains		389		147
Gross unrealized holding losses		—		(304	)
Fair value	$	7,027	$	21,358

Maturities of held-to-maturity securities are as follows at December 31, 2008 (in thousands):

	Amortized
	Cost		Fair Value
Due within one year	$	2,533	$	2,556
Due after five years to ten years		1,267		1,499
Due in more than ten years		2,838		2,972
	$	6,638	$	7,027

The Company has the intent and ability to hold these securities to maturity, and, therefore, accounts for them as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned.

The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities at December 31, 2008, are as follows (in thousands):

	2008
Cost basis	$	3,540
Gross unrealized holding gains		123
Gross unrealized holding losses		(86	)
Fair value	$	3,577

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

6.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following (in thousands):

	December 31,
	2008		2007
Trade	$	64,962	$	47,770
Production taxes		26,056		26,112
Postretirement medical benefits		18,176		18,114
Asset retirement obligations		17,136		13,470
Accrued severance and other liabilities		7,947		3,669
Income taxes		2,009		1,571
Deferred revenue		1,610		995
Interest		1,314		2,616
Workers’ compensation		1,037		956
Bank overdrafts		983		6,026
Pension and SERP obligations		306		299
Total accounts payable and accrued expenses	$	141,536	$	121,598

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

7.   LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding at December 31, 2008 and 2007, under the Company’s lines of credit and long-term debt consist of the following:

	Total Debt Outstanding
	December 31,
	2008		2007
	(In thousands)
Corporate debt:
Convertible notes	$	15,789	$	—
Westmoreland Mining debt:
Revolving line of credit		—		2,500
Term debt		125,000		—
Series B Notes		—		44,600
Series C Notes		—		20,375
Series D Notes		—		14,625
Capital lease obligations		22,091		13,256
Other term debt		964		794
Westmoreland Resources, Inc. debt:
Revolving line of credit		10,300		11,700
Term debt		6,375		8,500
Capital lease obligations		5,842		5,484
ROVA debt:
Revolving line of credit		—		—
Term debt		82,792		134,441
Acquisition bridge loan		—		15,173
Total debt outstanding	$	269,153	$	271,448

The ROVA term debt amounts include debt premiums of $1.4 million and $4.1 million at December 31, 2008 and 2007, respectively. The ROVA acquisition bridge loan included a debt discount of $0.9 million at December 31, 2007.

The maturities of all long-term debt and the revolving credit facilities outstanding at December 31, 2008, are (in thousands):

2009	$	43,994
2010		16,737
2011		22,470
2012		27,313
2013		47,877
Thereafter		109,390
	$	267,781

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The estimated fair values at December 31, 2008, of the Company’s long-term debt with fixed interest rates are as follows (in thousands):

	Carrying Value		Fair Value
Practicable to estimate fair value	$	204,231	$	180,601
Not practicable to estimate fair value		15,789		—

It was not practicable to estimate the fair value of the Company’s convertible debt as WCC has not yet obtained or developed the valuation model necessary to make the estimate, and the cost of obtaining an independent valuation appears excessive relative to the materiality of the instrument to the Company. The convertible debt has a carrying value of $15.8 million, an interest rate of 9.0% per annum and is payable in full on March 4, 2013. At December 31, 2008, the notes are convertible into 1,578,845 shares of the Company’s common stock, par value $2.50 per share, at a conversion price of $10.00 per share.

Corporate Revolving Line of Credit

On October 29, 2007, the Company’s $14.0 million revolving credit facility with First Interstate Bank was terminated and replaced with term debt and a new revolving credit facility at Westmoreland Resources, Inc. guaranteed by the Company.

Convertible Debt

On March 4, 2008, the Company completed the sale of $15.0 million in senior secured convertible notes to an existing shareholder pursuant to a Note Purchase Agreement. The notes bear interest at a rate of 9.0% per annum and are payable in full on March 4, 2013. Interest on the notes is payable in cash or in kind by increasing the principal amount of each note at the Company’s option, however, the aggregate principal amount of the notes may not exceed $18.8 million. The notes could have been initially converted into 1,500,000 shares of the Company’s common stock, par value $2.50 per share (“Common Stock”), at a conversion price of $10.00 per share. The number of shares of Common Stock into which the notes may be converted would increase in the circumstances specified in the Note Purchase Agreement, including the Company’s payment of interest on the notes in kind and the issuance of additional securities at a price less than the conversion price of the notes then in effect. The Company paid interest in kind through the issuance of additional notes during 2008, as a result of which 1,578,845 shares of Common Stock were issuable on conversion of the convertible notes, at December 31, 2008.

The convertible notes are secured by a second lien on the assets of WRI.

The Note Purchase Agreement contains affirmative and negative covenants. The notes may be declared immediately due and payable upon the occurrence of certain events of default, and the notes are immediately due and payable without declaration upon the occurrence of other events of default. As of December 31, 2008, the Company was in compliance with such covenants.

EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, states that a beneficial conversion feature arises when convertible debt is issued with a non-detachable conversion feature and when the conversion price is lower than the fair market value of the common stock at the time of issuance. EITF 98-5 also requires that the beneficial conversion feature be recorded to additional paid-in capital and expensed through the earliest conversion date. Since the notes were convertible immediately upon issuance, the total value of the beneficial conversion feature, or $8.1 million, was recorded as an expense during 2008.

In connection with the issuance of the convertible notes, the Company incurred $0.6 million of debt issuance costs, which primarily consisted of legal and other professional fees. The costs are classified within

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Other assets in the Consolidated Balance Sheets and are being amortized as interest expense using the effective interest method over the term of the debt.

Westmoreland Mining LLC

On June 26, 2008, WML completed a refinancing of its debt. The refinancing increased WML’s outstanding debt from $89.0 million to $125.0 million reduced WML’s restricted investments from $31.5 million to $5.0 million, and modified maturity dates and interest rates. The Company received a $8.5 million cash distribution from WML as part of the refinancing.

The WML refinancing provides for $125.0 million of fixed rate term debt. The term debt bears interest at 8.02% per annum, payable quarterly. The principal payments required for the term debt are $7.5 million in 2011, $14.0 million in 2012, $18.0 million in 2013, $18.0 million in 2014, $20.0 million in 2015, and $47.5 million thereafter. The term debt is payable in full on March 31, 2018.

The refinancing also amended the 2001 Revolving Credit Agreement, or the Revolver, by increasing the borrowing limit from $20.0 million to $25.0 million and extending the maturity date to June 26, 2013. WML has two interest rate options to choose from on the Revolver. The Base Rate option bears interest at a base rate plus 0.50% and is payable quarterly (3.8% per annum at December 31, 2008). The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 3.0% (4.9% per annum at December 31, 2008). In addition, a commitment fee of 0.50% of the average unused portion of the available Revolver is payable quarterly. No balance was outstanding on the Revolver at December 31, 2008. As of December 31, 2008, a letter of credit for $1.9 million was supported by WML’s revolver.

The term debt and Revolver are secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the term debt and the Revolver. WML is required to comply with certain loan covenants related to liquidity, indebtedness, and capital investments. As of December 31, 2008, WML was in compliance with such covenants.

As part of attaining the new term debt and amending the Revolver, WML incurred costs of $4.1 million, which were recorded within Other assets in the Consolidated Balance Sheets and are being amortized over the term of the debt.

As part of extinguishing its prior term debt and amending the Revolver, WML incurred “make whole” payments of $2.6 million. These payments, along with $1.2 million of unamortized deferred financing costs, were recorded as a loss on early extinguishment of debt during the second quarter of 2008.

WML engages in leasing transactions for equipment utilized in its mining operations. Certain leases qualify as capital leases and were recorded as an asset and liability at the net present value of the minimum lease payments at the inception of the leases. The present value of these lease payments at December 31, 2008, and 2007 was $22.1 million and $13.3 million, respectively, at a weighted average interest rate of 7.45% and 7.06%, respectively. WML had other term debt outstanding at December 31, 2008, and 2007 in the amount of $1.0 million and $0.8 million, respectively, with weighted average interest rates of 6.04% and 6.56%, respectively.

Westmoreland Resources, Inc.

On October 29, 2007, WRI executed a Business Loan Agreement, or Agreement, with First Interstate Bank, a Montana corporation. The Agreement provided WRI with term debt of $8.5 million and an initial revolving credit facility of $20.0 million. On November 20, 2008, the Agreement was amended and the $20.0 million revolving credit facility was extended to November 19, 2009. The term debt requires sixteen

68

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

quarterly payments of principal and interest with the final payment due September 20, 2011. Interest on the term debt is payable at the prime rate (3.25% per annum at December 31, 2008) and interest for the revolving credit facility is payable at prime subject to a 6% floor per annum and a 8% ceiling per annum (6% at December 31, 2008). The two debt instruments are collateralized by a first lien in WRI’s inventory, chattel paper, accounts and notes receivable, and equipment. WCC is the guarantor of the debt under the Agreement and its guaranty is secured by a pledge of WCC’s interest in WRI. The Agreement requires WRI to comply with certain covenants and minimum financial ratio requirements related to debt coverage, tangible net worth and capital expenditures. As of December 31, 2008, WRI was in compliance with such covenants. The balance outstanding on the revolving credit facility at December 31, 2008, was $10.3 million.

WRI leases equipment utilized in its operations at the Absaloka Mine. The present value of these lease payments at December 31, 2008 and 2007 was $5.8 million and $5.5 million, respectively, at a weighted average interest rate of 6.99% and 6.85%, respectively.

ROVA

On March 17, 2008, Westmoreland Partners, a wholly owned subsidiary of the Company, completed a refinancing of ROVA’s debt with The Prudential Insurance Company of America and Prudential Investment Management, Inc., or Prudential. The refinancing paid off all outstanding bank borrowings, bond borrowings, and the ROVA acquisition loan and eliminated the need for the irrevocable letters of credit, which supported the bond borrowings. The Company received a $5.0 million net cash distribution from ROVA as part of the refinancing.

The ROVA debt refinancing provided for approximately $107.0 million of fixed rate term debt with interest rates varying from 6.0% to 11.42%. The weighted average interest rate on the fixed rate term debt is 8.30% per annum. The principal payments required for the fixed rate term debt are $22.3 million in 2009, $9.4 million in 2010, $8.0 million in 2011 and $8.8 million in 2012. The term debt is to be fully repaid before the end of 2015.

The refinancing also provided for approximately $11.5 million in floating rate term debt with a final maturity no later than January 31, 2011. Interest on the floating rate term debt is payable quarterly at the three-month London Interbank Offering Rate, or LIBOR, plus 4.50% (5.93% per annum at December 31, 2008). Payments required on the floating rate debt are to be made from quarterly distributions from ROVA, if any, and will vary each quarter. The Company will not receive a distribution from ROVA until the principal balance of the floating rate debt is paid. The floating rate term debt was paid off in January 2009.

The refinancing provides for a $6.0 million revolving loan with a maturity of April 30, 2015. Interest on the revolving loan is payable quarterly at the three-month LIBOR rate plus 1.375% (2.80% per annum at December 31, 2008). In addition, a commitment fee of 1.375% of the unused portion of the available revolving loan is payable quarterly. No balance was outstanding on the revolving loan at December 31, 2008.

The fixed and the floating rate term debt as well as the revolving loan are secured by a pledge of the quarterly cash distributions from ROVA. ROVA is required to comply with certain loan covenants related to interest and fixed charge coverage. As of December 31, 2008, ROVA was in compliance with such covenants.

As part of the refinancing, Westmoreland Partners incurred costs of $2.2 million, which were recorded as a debt discount. The discount is being accreted over the term of the notes.

Unamortized debt discounts of $0.8 million and unamortized deferred financing costs of $0.3 million on the retired bank, bond, and acquisition borrowings, plus transaction costs of $0.2 million, were recorded as a loss on early extinguishment of debt during the first quarter of 2008.

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

8.   POSTRETIREMENT MEDICAL BENEFITS

Single-Employer Plans

The Company and its subsidiaries provide certain health care benefits for retired employees and their dependents either voluntarily or as a result of the Coal Act. Under the Coal Act, the Company is required to provide postretirement medical benefits for certain UMWA miners and their dependants by making payments into certain benefit plans. Substantially all of the Company’s current employees may also become eligible for these benefits if certain age and service requirements are met at the time of termination or retirement as specified in the related plan documents. These benefits are provided through self-insured programs. The Company follows SFAS 106 as amended by SFAS 158 and has elected to amortize its unrecognized, unfunded accumulated postretirement benefit obligation over a 20-year period. Prior service costs, actuarial gains and losses, and transition obligations are amortized over the average life expectancy of the plan’s participants.

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table sets forth the actuarial present value of postretirement medical benefit obligations and amounts recognized in the Company’s financial statements:

	December 31,
	2008			2007
	(In thousands)
Change in benefit obligations:
Net benefit obligation at beginning of year	$	288,683		$	300,066
Service cost		677			807
Interest cost		17,107			16,890
Plan participant contributions		79			129
Actuarial gain		(5,418	)		(14,375	)
Gross benefits paid		(17,554	)		(16,217	)
Federal subsidy on benefits paid		1,277			1,383
Net benefit obligation at end of year		284,851			288,683
Change in plan assets:
Employer contributions		16,197			14,704
Plan participant contributions		79			129
Benefits paid, net of federal subsidy		(16,276	)		(14,833	)
Fair value of plan assets at end of year		—			—
Funded status at end of year	$	(284,851	)	$	(288,683	)
Amounts recognized in the balance sheet consist of:
Current liabilities	$	(18,176	)	$	(18,114	)
Noncurrent liabilities		(266,675	)		(270,569	)
Accumulated other comprehensive loss		87,256			101,109
Net amount recognized	$	(197,595	)	$	(187,574	)
Amounts recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	55,853		$	64,999
Prior service cost		17,875			19,200
Transition obligation		13,528			16,910
	$	87,256		$	101,109

The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows:

	December 31,
	2008	2007
Discount rate	6.05%	6.10%
Measurement date	December 31, 2008	December 31, 2007

The present value of the actuarially determined liability for postretirement medical costs decreased approximately $3.8 million between December 31, 2007 and 2008 principally because of changes in mortality, termination, and retirement experience.

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The transition obligation, net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic pension cost in 2009 are $3.4 million, $2.5 million, and $1.3 million, respectively.

The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.

The components of net periodic postretirement benefit cost are as follows:

	Years Ended December 31,
	2008		2007		2006
			(In thousands)
Components of net periodic benefit cost:
Service cost	$	677	$	807	$	951
Interest cost		17,107		16,890		16,907
Amortization of:
Transition obligation		3,613		4,849		3,381
Prior service cost		1,325		1,325		1,239
Actuarial loss		3,381		3,381		6,127
Total net periodic benefit cost	$	26,103	$	27,252	$	28,605

The weighted-average assumptions used to determine net periodic benefit cost were as follows:

	December 31,
	2008	2007	2006
Discount rate	6.10%	5.55%	5.75%
Measurement date	December 31, 2007	December 31, 2006	December 31, 2005

The following table shows the net periodic benefit costs that relate to current operations and former Eastern mining operations (in thousands):

	Years Ended December 31,
	2008		2007		2006
Former Eastern mining operations	$	24,553	$	25,478	$	26,914
Current operations		1,550		1,774		1,691
Total net periodic benefit cost	$	26,103	$	27,252	$	28,605

The costs for the former Eastern mining operations are included in Heritage health benefit expenses and the costs for current operations are included in Selling and administrative expenses.

The health care cost trend assumed on covered charges was 8.5% for 2009, reduced annually to an ultimate trend of 5.0% in 2016 and beyond. The assumed health care cost trend rates have a significant effect on the amounts reported for postretirement health care benefits. The effect of a one percent change on the

72

Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

health care cost trend rate used to calculate periodic postretirement medical costs and the related benefit obligation are summarized in the table below:

	Postretirement Benefits
	1% Increase		1% Decrease
	(In thousands)
Effect on service and interest cost components	$	1,930	$	(1,636	)
Effect on postretirement benefit obligation	$	28,938	$	(24,682	)

The following benefit payments and Medicare D reimbursements are expected by the Company:

	Postretirement		Medicare D
	Benefits		Reimbursements
	(In thousands)
2009	$	19,777	$	1,601
2010		20,914		1,695
2011		21,877		1,772
2012		22,595		1,864
2013		23,212		1,945
Years 2014 — 2018		120,567		10,486

Multiemployer Plan (Combined Benefit Fund)

The Company makes payments to the UMWA Combined Benefit Fund, or CBF, which is a multiemployer health plan neither controlled by nor administered by the Company. The CBF is designed to pay health care benefits to UMWA workers (and dependents) who retired prior to 1976. The Company is required by the Coal Act to make monthly premium payments into the CBF. These payments are based on the number of the Company’s UMWA employees who retired prior to 1976, and the Company’s pro-rata assigned share of UMWA retirees whose companies are no longer in business. The Company expenses payments to the CBF when they are due. Payments in 2008, 2007 and 2006 were $3.5 million, $3.6 million and $3.6 million, respectively.

During the first quarter of 2007, the Company reached a settlement with the CBF for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. The Company received $2.9 million of the reimbursement and $0.6 million in interest during the first quarter of 2007, and received the remaining $2.9 million reimbursement plus interest of less than $0.1 million during the second quarter of 2007. The Company recorded the settlement in 2007 as a $5.8 million reduction in heritage health benefit expenses and $0.6 million in interest income.

Workers’ Compensation Benefits

The Company was self-insured for workers’ compensation benefits prior to January 1, 1996. Since 1996, the Company has purchased third-party insurance for workers’ compensation claims. Amounts charged to operations for self-insured workers compensation benefits were $4.4 million, $1.2 million, and $1.3 million in 2008, 2007 and 2006, respectively. Payments for workers’ compensation benefits were $1.0 million, $1.0 million and $1.1 million in 2008, 2007 and 2006, respectively.

The discount rates used in determining the workers’ compensation benefit accruals are adjusted annually based on ten-year treasury bond rates. At December 31, 2008 and 2007, the rates were 2.5% and 4.50%, respectively.

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Pneumoconiosis (Black Lung) Benefits

The Company is self-insured for federal and state pneumoconiosis benefits for former employees and has established an independent trust to pay these benefits.

The following table sets forth the funded status of the Company’s black lung obligation:

	December 31,
	2008		2007
	(In thousands)
Actuarial present value of benefit obligation:
Expected claims from terminated employees	$	785	$	760
Amounts owed to existing claimants		13,300		13,697
Total present value of benefit obligation		14,085		14,457
Plan assets at fair value, primarily government-backed securities		16,324		16,673
Excess of trust assets over pneumoconiosis benefit obligation	$	2,239	$	2,216

The overfunded status of the Company’s obligation is included as Excess of trust assets over pneumoconiosis benefit obligation in the accompanying Consolidated Balance Sheets.

The discount rates used in determining the actuarial present value of the pneumoconiosis benefit obligation are based on corporate bond yields and are adjusted annually. At December 31, 2008 and 2007, the rates used were 5.90% and 6.10%, respectively.

9.   PENSION PLANS

Defined Benefit Pension Plans

The Company provides defined benefit pension plans for its full-time employees. Benefits are generally based on years of service and the employee’s average annual compensation for the highest five continuous years of employment as specified in the plan agreement. The Company’s funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations or loan covenants. Prior service costs and actuarial gains and losses are amortized over the expected future period of service of the plan’s participants using the corridor method.

Supplemental Executive Retirement Plan

The Company maintains a Supplemental Executive Retirement Plan, or SERP. The SERP is an unfunded non-qualified deferred compensation plan, which provides benefits to certain employees beyond the maximum limits imposed by the Employee Retirement Income Security Act and the Internal Revenue Code. The SERP plan is unfunded.

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The following table provides a reconciliation of the changes in the benefit obligations of the plans, and the fair value of assets of the qualified plans for the years ended December 31, 2008 and 2007, and the amounts recognized in the Company’s financial statements for both the defined benefit pension and SERP plans:

	Qualified Pension Benefits						SERP Benefits
	December 31,						December 31,
	2008			2007			2008			2007
				(In thousands)
Change in benefit obligation:
Net benefit obligation at beginning of year	$	71,828		$	67,411		$	3,234		$	2,506
Service cost		2,597			2,995			—			78
Interest cost		4,390			4,270			198			162
Actuarial (gain) loss		(805	)		(1,435	)		172			564
Benefits paid		(1,338	)		(1,413	)		(325	)		(76	)
Net benefit obligation at end of year		76,672			71,828			3,279			3,234
Change in plan assets:
Fair value of plan assets at the beginning of year		51,015			47,026			—			—
Actual return on plan assets		(13,817	)		1,737			—			—
Employer contributions		4,923			3,665			325			76
Benefits paid		(1,338	)		(1,413	)		(325	)		(76	)
Fair value of plan assets at end of year		40,783			51,015			—			—
Funded status at end of year	$	(35,889	)	$	(20,813	)	$	(3,279	)	$	(3,234	)
Amounts recognized in the accompanying balance sheet consist of:
Current liability	$	—		$	—		$	(306	)	$	(299	)
Noncurrent liability		(35,889	)		(20,813	)		(2,974	)		(2,935	)
Accumulated other comprehensive loss		31,605			14,517			617			467
Net amount recognized at end of year	$	(4,284	)	$	(6,296	)	$	(2,663	)	$	(2,767	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	31,605		$	14,517		$	592		$	432
Prior service costs		—			—			25			35
	$	31,605		$	14,517		$	617		$	467

The accumulated benefit obligation for all pension plans was $71.2 million and $64.9 million at December 31, 2008 and 2007, respectively. The accumulated benefit obligation differs from the benefit obligation in that it does not include an assumption about future compensation increases.

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The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows:

	Qualified Pension Benefits		SERP Benefits
	December 31,		December 31,
	2008	2007	2008	2007
Discount rate	6.10%	6.20% - 6.30%	6.10%	6.30%
Expected return on plan assets	7.70%	8.50%	N/A	N/A
Rate of compensation increase	4.00% - 7.50%	4.00% - 7.50%	4.00% - 7.50%	4.00% - 7.50%
Measurement date	December 31, 2008	December 31, 2007	December 31, 2008	December 31, 2007

The net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2009 is $2.4 million.

The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.

The components of net periodic benefit cost are for years ended December 31, 2008, 2007 and 2006:

	Qualified Pension Benefits									SERP Benefits
	December 31,									December 31,
	2008			2007			2006			2008		2007		2006
							(In thousands)
Components of net periodic benefit cost:
Service cost	$	2,597		$	2,995		$	3,062		$	—	$	78	$	70
Interest cost		4,390			4,270			3,979			198		162		141
Expected return on plan assets		(4,416	)		(4,104	)		(3,638	)		—		—		—
Amortization of:
Prior service cost		—			—			4			10		10		10
Actuarial loss		340			888			1,387			11		—		—
Total net periodic pension cost	$	2,911		$	4,049		$	4,794		$	219	$	250	$	221

The following table provides the assumptions used to determine net periodic benefit cost for years ended December 31, 2008, 2007 and 2006:

	Qualified Pension Benefits			SERP Benefits
	December 31,			December 31,
	2008	2007	2006	2008	2007	2006
Discount rate	6.20% - 6.30%	5.85% - 5.95%	5.70%	6.30%	5.95%	5.70%
Expected return on plan assets	8.50%	8.50%	8.50%	N/A	N/A	N/A
Rate of compensation increase	4.00% - 7.50%	4.20%	4.20%	4.00% - 7.50%	4.00% - 7.50%	4.20%
Measurement date	December 31, 2007	December 31, 2006	December 31, 2005	December 31, 2007	December 31, 2006	December 31, 2005

These costs are included in the accompanying statement of operations in Selling and administrative expenses.

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The weighted-average asset allocation of the Company’s qualified pension trusts at December 31, 2008 and 2007, were as follows:

	Allocation of Plan Assets at
	December 31,						Target
	2008			2007			Allocation
Asset category Cash and equivalents		2	%		—		0% - 25%
Equity securities		64	%		70	%	40% - 75%
Debt securities		33	%		28	%	0% - 50%
Other		1	%		2	%	0% - 10%
Total		100	%		100	%

The Company’s investment goals are to maximize returns subject to specific risk management policies. The Company sets the expected return on plan assets based on historical trends and forecasts provided by its third-party fund managers. Its risk management policies permit investments in mutual funds, and prohibit direct investments in debt and equity securities and derivative financial instruments. The Company addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.

The Company will be required to make supplemental pension contributions due to the decrease in the value of its pension investments. Additionally, as part of the WML refinancing, the Company is required by the loan covenants to ensure that by September 15 of each year, the value of its pension plan assets are at least 90% of its actuarially-determined pension liability. The Company was required to make an additional pension contribution of approximately $1.9 million in 2008 to achieve this 90% funding status required by loan covenants. The Company expects to contribute approximately $11.3 million to its funded pension plans during 2009, including the additional contribution to achieve the 90% funding status.

The following benefit payments are expected to be paid from its pension plan assets:

	Pension
	Benefits
	(In thousands)
2009	$	1,624
2010		2,003
2011		2,397
2012		2,864
2013		3,388
Years 2014 — 2018		25,545

The benefits expected to be paid are based on the same assumptions used to measure the Company’s pension benefit obligation at December 31, 2008, and include estimated future employee service.

10.   HERITAGE HEALTH BENEFIT EXPENSES

The caption Heritage health benefit expenses used in the Consolidated Statements of Operations refers to costs of benefits the Company provides to its former Eastern mining operation employees as well as other

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

administrative and legal costs associated with providing those benefits. The components of these expenses are (in thousands):

	Years Ended December 31,
	2008			2007			2006
Health care benefits	$	25,588		$	28,252		$	28,295
Combined benefit fund payments (credit)		3,470			(2,156	)		3,611
Workers’ compensation benefits		4,417			1,175			1,336
Black lung benefits (credit)		(23	)		318			(421	)
Total	$	33,452		$	27,589		$	32,821

11.   ASSET RETIREMENT OBLIGATIONS, RECLAMATION DEPOSITS AND CONTRACTUAL THIRD PARTY RECLAMATION RECEIVABLE

Asset Retirement Obligation

Changes in the Company’s asset retirement obligations during 2008 and 2007 were (in thousands):

	Years Ended December 31,
	2008			2007
Asset retirement obligations — beginning of year (including current portion)	$	206,497		$	184,062
Accretion		15,278			13,408
Settlements (final reclamation performed)		(7,403	)		(6,772	)
Losses on settlements		—			209
Changes due to amount and timing of reclamation		8,336			15,590
Asset retirement obligations — end of year	$	222,708		$	206,497
Less current portion		(17,136	)		(13,470	)
Asset retirement obligations — less current portion	$	205,572		$	193,027

The Company estimates that the cost of final reclamation for its mines and ROVA when they are closed in the future will total approximately $450.1 million, with a present value of $222.7 million. As permittee, the Company or its subsidiaries are responsible for the total amount. The financial responsibility for a portion of final reclamation of the mines when they are closed has been transferred by contract to certain customers, while other customers have provided guarantees or funded escrow accounts to cover final reclamation costs. Costs of reclamation of mining pits prior to mine closure are recovered in the price of coal shipped.

As of December 31, 2008, the Company had $213.5 million in surety bonds outstanding to secure reclamation obligations.

Contractual Third Party Reclamation Receivables

The Company has recognized as an asset $81.2 million as contractual third party reclamation receivables, representing the present value of obligations of certain customers to reimburse the Company for a portion of the asset retirement costs at the Company’s Rosebud, Jewett and Absaloka Mines.

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The asset retirement obligation, contractual third party reclamation receivable, and reclamation deposits for each of the Company’s mines and ROVA at December 31, 2008, are summarized below (in thousands):

			Contractual
	Asset		Third-Party
	Retirement		Reclamation		Reclamation
	Obligation		Receivable		Deposits
Rosebud	$	125,625	$	16,162	$	69,707
Jewett		64,415		64,415		—
Absaloka		15,487		597		—
Beulah		14,463		—		—
Savage		2,227		—		—
ROVA		491		—		—
Total	$	222,708	$	81,174	$	69,707

Reclamation Deposits

Reclamation deposits of $69.7 million at December 31, 2008, consist of $27.1 million of federal agency bonds (government-backed securities), $24.7 million of cash and cash equivalents, $15.1 million of time deposits, and $2.8 million of preferred stock.

All underlying financial instruments included in the reclamation deposit accounts have Level I inputs available regarding fair value measurements. Level I inputs are quoted prices in active markets for identical financial instruments that the Company has the ability to access at the fair value measurement date.

The Company recorded an impairment of $0.3 million during 2008 as a result of other-than-temporary declines in the value of marketable securities included in reclamation deposits.

Held-to-Maturity and Available-for-Sale Reclamation Deposits

The amortized cost, gross unrealized holding gains and losses and fair value of held-to-maturity securities at December 31, 2008 and 2007, are as follows (in thousands):

	2008			2007
Amortized cost	$	27,178		$	59,052
Gross unrealized holding gains		1,132			482
Gross unrealized holding losses		(21	)		(307	)
Fair value	$	28,289		$	59,227

Maturities of held-to-maturity securities are as follows at December 31, 2008 (in thousands):

	Amortized Cost		Fair Value
Due in five years or less	$	3,119	$	3,201
Due after five years to ten years		4,574		4,924
Due in more than ten years		19,485		20,164
	$	27,178	$	28,289

The Company has the intent and ability to hold these securities to maturity, and, therefore, accounts for them primarily as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts calculated on the effective interest method. Interest income is recognized when earned.

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The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities at December 31, 2008, are as follows (in thousands):

	2008
Cost basis	$	2,695
Gross unrealized holding gains		75
Gross unrealized holding losses		—
Fair value	$	2,770

12.   STOCKHOLDERS’ EQUITY

Preferred and Common Stock

The Company has two classes of capital stock outstanding, common stock, par value $2.50 per share, and Series A Convertible Exchangeable Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”). Each share of Series A Preferred Stock is represented by four Depositary Shares. The full amount of the quarterly dividend on the Series A Preferred Stock is $2.125 per preferred share or $0.53 per Depositary Share.

The Company is currently reporting a deficit in shareholders’ equity. As a result, the Company is prohibited from paying preferred stock dividends because of the statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only to the extent that shareholders’ equity exceeds the par value of the preferred stock ($160,000 at December 31, 2008).

The quarterly dividends, which are accumulated through and including January 1, 2009, amount to $17.2 million in the aggregate ($107.53 per preferred share or $26.88 per Depositary Share). Under the terms of the Series A Preferred Stock, the Company can redeem preferred shares at any time for the redemption value of $25.00 plus accumulated dividends paid in cash, however, the Company’s convertible note purchase agreement prohibits the Company from paying dividends on or redeeming preferred or common stock so long as the convertible notes are outstanding.

Warrants

In June 2007, the Company exercised its option to extend the term on the ROVA acquisition loan for three more years. In conjunction with the extension of the loan, the Company issued a warrant to purchase 150,000 shares of the Company’s common stock to the acquisition loan lender at a premium of 15% to the then current stock price, or $31.45 per share. In October 2007 (but effective as of August 20, 2007), in consideration for the lender’s consent to the sale of the Company’s power operations and maintenance businesses, the Company canceled the warrant issued in June and issued the lender a new warrant to purchase 150,000 shares of the Company’s common stock at a price of $25.00 per share. The new warrant is exercisable through August 2010. The fair value of the original warrant of approximately $1.1 million was recorded as a discount to the principal amount of the loan. Approximately $0.2 million relating to the increase in the fair value of the repriced warrant was accounted for as a consent fee and expensed in 2007.

The ROVA acquisition loan agreement was amended as of October 1, 2007, and contained a requirement for WCC to use its best efforts to file a registration statement with the SEC to register the warrant and the shares underlying the warrant by February 28, 2008. WCC did not file that registration statement with the SEC by that date because it did not complete the restatement of its financial statements for the year ended December 31, 2006, until March 17, 2008. Since it was unable to register the warrant with the SEC, WCC was therefore obligated to cancel the existing warrant and issue a new warrant to purchase 165,000 shares of the Company’s stock at a price of $20.00 per share. This new warrant, like the prior warrant, contained

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Westmoreland Coal Company and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

customary anti-dilution protections. The Company’s March 4, 2008, issuance of convertible debt triggered the anti-dilution provisions in the warrant. The modified warrant now entitles the holder thereof to purchase 172,234 shares at an exercise price of $19.16 per share.

During 2008, the increase in the fair value of the warrant as a result of the modification was approximately $355,000, which was recorded as additional interest expense, with a corresponding adjustment to additional paid in capital. The fair value of the warrant before the modification and the modified warrant was estimated using the Black-Scholes pricing model with the following assumptions:

Value of Each

Warrants

Number of Shares

Risk-Free

Expected Life

Share Covered by

Issued

included in Warrant

Dividend Yield

Volatility

Rate

(in years)

Warrant

2008

172,234

None

41

%

2.82

%

3.0

$

4.76

Restricted Net Assets

While WCC has obligations to pay pension and postretirement medical benefits, to fund corporate expenditures and to pay interest on the convertible notes, no operations are conducted at WCC. Accordingly, WCC has no source of revenue and is dependant on distributions from its subsidiaries to pay its costs. The loan agreements of WML and ROVA require debt service accounts and impose timing and other restrictions on the ability of WML and ROVA to distribute funds to WCC. Because the WRI loan agreement imposes fewer restrictions on the ability of WRI to make distributions to WCC, WRI has been a significant source of liquidity for WCC.

At December 31, 2008, there were approximately $114.4 million of net assets at WCC’s subsidiaries that were not available to be transferred to WCC in the form of dividends, loans, or advances due to restrictions contained in the credit facilities of these subsidiaries.

13.   INCENTIVE STOCK OPTIONS, STOCK APPRECIATION RIGHTS, AND PERFORMANCE UNITS

As of December 31, 2008, the Company had stock options, SARs and restricted stock outstanding from five stock incentive plans. These plans permit the Company to grant to employees incentive stock options, or ISOs, non-qualified stock options, SARs and restricted stock. These plans generally contemplate that non-employee directors will receive equity awards with a value of $60,000 when initially elected or appointed to the Board and equity awards with a value of $30,000 after each annual meeting.

The maximum number of shares that could be issued under these plans is 2,200,000.

The Company recognizes share-based compensation expense in accordance with SFAS No. 123(R), which it adopted on January 1, 2006. Compensation cost arising from share-based arrangements for December 31, 2008, 2007 and 2006, is shown in the following table (in thousands):

	Year Ended December 31,
	2008			2007			2006
Recognition of fair value of SARs, stock options and restricted stock over vesting period	$	1,227		$	766		$	814
Matching contributions to the Company’s 401(k) plan		1,569			2,271			1,750
Compensation expense (credit) for performance units based on performance of the Company’s stock price		(63	)		(570	)		399
Total share-based compensation expense	$	2,733		$	2,467		$	2,963

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The Company used the Black-Scholes option pricing model to determine the fair value of options and SARs on the date of grant. The Company utilized U.S. Treasury yields as of the grant date for its risk-free interest rate assumption and expected volatilities are based on historical stock price movement and other factors. The Company utilized historical company data to develop its dividend yield and expected option life assumptions. The following assumptions were used for the years ended December 31, 2008, 2007 and 2006:

	December 31,
	2008	2007	2006
Assumptions (weighted average):
Risk-free interest rate	3.62%	4.56%	5.20%
Expected dividend yield	None	None	None
Expected volatility	50%	51%	52%
Expected life (in years)	7.0	7.0	7.0

Restricted Stock

The Company may issue restricted stock, which requires no payment from the employee. Restricted stock typically vests ratably over two to three years. Compensation expense is based on the fair value on the grant date and is recorded ratably over the vesting period.

A summary of restricted stock award activity for the year ended December 31, 2008, is as follows:

				Weighted Average
				Grant-Date
	Common Shares			Fair Value
Non-vested at December 31, 2007		6,220		$	19.29
Granted		108,184			15.99
Vested		(11,488	)		18.28
Non-vested at December 31, 2008		102,916			15.94

Weighted average grant-date fair value is shown in the table above for 2007 and 2008. No restricted stock shares were granted in 2006.

The unamortized compensation expense for restricted stock awards at December 31, 2008, was $1.3 million. In January 2009, 100,000 of the non-vested shares were cancelled reducing the total unamortized compensation expense to less than $0.1 million.

SARs

SARs generally vest over three years, expire ten years from the date of grant, and may not have a base price that is less than the market value of the stock on the date of grant. Upon vesting, the holders may exercise the SARs and receive a number of shares of common stock having a value equal to the increase in the value of the common stock between the grant date and the exercise date. The Company’s policy is to issue new shares as these SARs are exercised.

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Information with respect to SARs granted and outstanding for the year ended December 31, 2008, is as follows:

						Weighted
						Average
						Remaining
						Contractual
				Weighted Average		Life		Aggregate
	SARs			Base Price		(in years)		Intrinsic Value
Outstanding at January 1, 2008		310,266		$	21.98
Exercised		(8,700	)		19.37
Expired or forfeited		(94,499	)		22.12
Outstanding at December 31, 2008		207,067		$	22.03		6.6	$	—
SARs exercisable at December 31, 2008		184,921		$	21.70		6.5	$	—

No SARs were granted during 2008 or 2007. The weighted average grant-date fair value per SAR granted in 2006 was $14.18.

The intrinsic value of SARs exercised was less than $0.1 million, $0.3 million and $0.1 million for 2008, 2007 and 2006, respectively.

The amount of unamortized compensation expense for SARs outstanding at December 31, 2008, was $0.2 million, which is expected to be recognized over the next year.

Stock Options

Incentive stock options generally vest over three years, expire ten years from the date of grant, and may not have an option or base price that is less than the market value of the stock on the date of grant. The Company’s policy is to issue new shares as these options are exercised.

Information with respect to stock option activity for the year ended December 31, 2008, is as follows:

						Weighted
						Average
						Remaining
						Contractual
	Stock			Weighted Average		Life		Aggregate
	Options			Exercise Price		(in years)		Intrinsic Value
Outstanding at January 1, 2008		343,366		$	16.92
Granted		181,750			21.40
Exercised		(40,882	)		4.94
Expired or forfeited		(96,510	)		22.52
Outstanding at December 31, 2008		387,724		$	18.89		6.6	$	27,125
Options exercisable at December 31, 2008		212,974		$	16.83		4.2	$	27,125

The weighted average grant-date fair value per option granted in 2008 and 2007 was $11.84 and $13.55, respectively. No options were granted in 2006.

The intrinsic value of stock options exercised was $0.5 million, $3.4 million and $3.5 million in 2008, 2007 and 2006, respectively.

The amount of unamortized compensation expense for options outstanding at December 31, 2008, was $1.7 million, which is expected to be recognized over approximately three years. The unamortized compensation expense was reduced by $0.2 million due to the forfeiture of options in January 2009.

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Westmoreland Coal Company and Subsidiaries

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Performance Units

As of December 31, 2008, the Company had performance units outstanding under its Performance Unit Plan, which expires in June 2009. The value of the performance units is payable to the participants upon vesting in cash, or at the option of the Company, in shares of common stock. The value, calculated using a Binomial Lattice Model, is based in part on the appreciation of the Company’s common stock and its performance relative to the average of two stock market indices. The performance units vest over a three-year period. The units granted are accounted for as a liability-based award, since the Company has historically settled the awards in cash and intends to settle the outstanding awards in cash. During 2008 and 2007, the Company recognized a benefit of less than $0.1 million and $0.6 million, respectively. The Company recognized $0.4 million of expense for this plan for 2006. The amount of unamortized compensation expense for this plan was less than $0.1 million at December 31, 2008. No payments were made under this long-term incentive plan in 2008 or 2007.

14.   OTHER EVENTS

Sale of Coal Royalty Interest

On February 27, 2007, the Company sold its royalty interest in a property at Peabody Energy Corporation’s Caballo Mine in Wyoming to Natural Resource Partners L.P. for $12.7 million. The sale of the royalty interest resulted in a gain of approximately $5.6 million during the first quarter of 2007.

Reserve Dedication Fee

In the first quarter of 2007, the Company recorded $10.0 million of deferred revenue for the receipt of a reserve dedication fee from a customer upon entering into an extension of a coal supply agreement. This deferred revenue will be recognized from 2010 through 2019, as deliveries of the reserved coal are made over the period of extension of the supply agreement.

Sale of Ft. Lupton Project

On July 2, 2008, Westmoreland received $0.9 million for its 4.49% royalty interest in the gas-fired Ft. Lupton project. This transaction occurred as a result of an ownership change in the partnership in which the Company held its interest in the Ft. Lupton project. The new partner exercised its option to acquire Westmoreland’s interest in this project. The Company recognized a gain of $0.9 million on the sale during the third quarter of 2008.

15.   DERIVATIVE INSTRUMENTS

From time to time, the Company enters into derivative instruments on the notional amount of the contract to manage a portion of its exposure to the price volatility of diesel fuel used in its operations. In a typical commodity swap agreement like those to which the Company was party, the Company receives the difference between a fixed price per gallon of diesel fuel and a price based on an agreed upon published, third-party index if the index price is greater than the fixed price. If the fixed price is greater than the index price, the Company pays the difference on the notional amount of the contract.

The Company accounted for these derivative instruments on a mark-to-market basis through earnings. The unrealized loss for year ended December 31, 2006, was recorded in Cost of sales.

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The Consolidated Financial Statements as of December 31, 2008 and 2007 do not reflect any cumulative unrealized gains or losses on these contracts since they were fully settled during 2007. Information regarding derivative instruments for 2007 and 2006 is as follows (in thousands):

	Years Ended December 31,
	2007			2006
Unrealized derivative loss beginning of the year	$	(336	)	$	—
Change in fair value		1,092			(530	)
Realized gain (loss) on settlements		(756	)		194
Unrealized loss on derivatives at end of year	$	—		$	(336	)

16.   INDIAN COAL PRODUCTION TAX CREDITS (ICTC’s)

In August 2005, the Energy Policy Act of 2005 was enacted. Among other provisions, it contains a tax credit for the production of coal owned by Indian tribes. The credit is $1.50 per ton from 2006 through 2009 and $2.00 per ton from 2010 through 2012, with both amounts escalating for inflation. The credit may be used against regular corporate income tax for all years and against alternative minimum taxes for the initial four-year period after the placed in service date of the facility. The Absaloka Mine produces coal that qualifies for this credit.

In July 2008, WRI finalized an agreement with the Crow Tribe covering the treatment of the tax credit in determining royalties payable to the Tribe under its lease agreement with the Tribe. The Company recorded $0.7 million and $2.0 million, respectively as cost of sales in 2008 and 2007, to reflect the amount payable to the Crow Tribe as a result of this agreement.

On October 16, 2008, WRI entered into a series of transactions with a financial institution, or Investor, designed to enable WRI to take advantage of ICTC’s generated by its mining operations.

In these transactions, WRI formed a limited liability company, Absaloka Coal LLC, which it owned jointly with a newly formed subsidiary, WRI Partners, Inc., to mine and sell coal from the Absaloka Mine. Absaloka Coal LLC then entered into a sublease from WRI of the coal leases from the Crow Tribe, entitling Absaloka Coal LLC to mine up to 40.0 million tons of coal at the Absaloka Mine through 2012. WRI also assigned to Absaloka Coal LLC all of its contracts to sell coal to third parties.

On October 16, 2008, WRI sold its interest in Absaloka Coal LLC to the Investor for consideration consisting of an initial payment of $4.0 million, $34.0 million of fixed principal and interest payments, and contingent payments based on 90% of the credits allocated to the Investor in excess of the fixed payments. Based on current forecasts of the Absaloka Mine’s coal sales, the total consideration to be paid by the Investor to WRI is projected to be approximately $62.8 million through December 31, 2012. WRI expects to share approximately $19.4 million of this consideration with the Crow Tribe as royalties. The Company paid a $1.25 million fee to the Crow Tribe in the fourth quarter of 2008 to secure the Tribe’s approval of the sublease.

The Investor will be entitled to 99% of Absaloka Coal LLC’s earnings and related distributions until it has received a 10% return on its initial $4.0 million cash investment, after which it will be entitled to 5% of earnings and distributions.

On October 3, 2008, WRI requested a private letter ruling, or PLR, request with the IRS concerning various issues relating to the validity of the ICTC’s. In March 2009, the Company received a PLR confirming the availability of the ICTC’s under the specific scenario described whereby WRI subleased the right to mine a fixed amount of coal from the Company’s Absaloka Mine to the LLC. All payments on the promissory notes and $2.0 million of the cash received at closing were, or will be, placed into escrow until the approval of the

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PLR by the Investor and one of its lenders. If the PLR is deemed unacceptable to the Investor or one of its lenders, the transaction is rescinded and all payments made to date will be returned to the Investor. Upon the approval of the PLR and the release of the cash payments from escrow, WCC will recognize the fixed and contingent payments from the Investor as they are received as income in its consolidated financial statements. In addition, the initial payment of $4.0 million and the $1.25 million fee paid to the Crow Tribe will be recognized ratably through 2012 based on tons sold. However, until the Investor, and one of its lenders deem the PLR acceptable, all proceeds from the Investor have been deferred.

As part of the purchase agreement, WRI has an option to purchase the Investor’s entire membership interest after October 16, 2013, and Investor is entitled to withdraw at any time from Absaloka Coal LLC. In these events, or on dissolution of the LLC, WRI would be required to pay the Investor the appraised value of its capital account balance.

WRI is the sole manager of Absaloka Coal LLC has entered into a contract mining agreement with Absaloka Coal LLC under which it receives an amount equal to all of its mining costs plus a fee per ton of coal mined. Westmoreland Coal Sales Company acts as the exclusive sales agent on behalf of Absaloka Coal LLC under a sales agency agreement and receives a fee for its services based on the tons of coal sold.

17.   INCOME TAX

Income tax expense attributable to net loss before income taxes consists of:

	Years Ended December 31,
	2008		2007		2006
			(In thousands)
Current:
Federal	$	—	$	—	$	—
State		919		199		2,405
Income tax expense	$	919	$	199	$	2,405

Income tax expense attributable to net loss before income taxes differed from the amounts computed by applying the statutory Federal income tax rate of 34% to pre-tax income as a result of the following:

	2008			2007			2006
				(In thousands)
Computed tax benefit at statutory rate	$	(16,200	)	$	(7,292	)	$	(3,490	)
Increase (decrease) in tax expense resulting from:
Tax depletion in excess of book		(2,643	)		(4,079	)		(2,677	)
Non-deductible interest expense		3,156			—			—
Minority interest adjustment		288			465			875
State income taxes, net		(3,214	)		(857	)		1,920
Non-taxable earnings of offshore insurance subsidiary		(293	)		(309	)		(273	)
Adjustments to deferred tax assets and liabilities attributable to prior years		684			—			1,043
Change in valuation allowance for net deferred tax assets		24,628			18,855			15,089
Indian Coal Production Tax Credits		(5,893	)		(6,593	)		(10,167	)
Other, net		406			9			85
Income tax expense	$	919		$	199		$	2,405

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007, are presented below:

	2008			2007
	(In thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	59,360		$	58,230
State net operating loss carryforwards		12,154			16,578
Alternative minimum tax credit carryforwards		8,750			2,607
Charitable contribution carryforwards		52			—
Indian Coal Production Tax Credit carryforwards		23,471			16,749
Accruals for the following:
Workers’ compensation		5,007			3,714
Postretirement benefit and pension obligations		126,385			122,138
Incentive plans		4			378
Asset retirement obligations		64,277			60,495
Deferred revenues		27,654			16,432
Other accruals		8,039			7,007
Total gross deferred assets		335,153			304,328
Less valuation allowance		(257,932	)		(231,794	)
Net deferred tax assets		77,221			72,534
Deferred tax liabilities:
Property, plant and equipment, differences due to depreciation and amortization		(70,792	)		(67,330	)
Excess of trust assets over pneumoconiosis benefit obligation		(873	)		(864	)
Change in accounting method		(3,228	)		(3,872	)
Other		(908	)		(468	)
Total gross deferred tax liabilities		(75,801	)		(72,534	)
Net deferred tax asset	$	1,420		$	—

As of December 31, 2008, the Company had significant deferred tax assets. The deferred tax assets include federal and state regular net operating losses, or NOLs, alternative minimum tax, or AMT, credit carryforwards, ICTC carryforwards, charitable contribution carryforwards, and net deductible reversing temporary differences related to on-going differences between book and taxable income.

The Company believes it will be taxed under the AMT system for the foreseeable future due to the significant amount of statutory tax depletion in excess of book depletion expected to be generated by its mining operations. As a result, Westmoreland has determined that a valuation allowance is required for all of its regular federal net operating loss carryforwards, AMT credit carryforwards, ICTC carryforwards and its contribution carryforwards since they are not available to reduce AMT income in the future.

In addition, the Company has determined that since its net deductible temporary differences will not reverse for the foreseeable future, and it is unable to forecast that it will have taxable income when they do reverse, a full valuation allowance is required for these deferred tax assets, other than the deferred tax asset relating to our FIN No. 48 liability.

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The Company has also recorded a full valuation allowance for all but $1.4 million of its state net operating losses, since it believes that it is more likely than not that they will not be realized. No valuation allowance is being provided on $1.4 million of deferred tax assets because the Company believes that it is more likely than not that these state net operating losses will be used to offset FIN No. 48 liabilities presented in the financial statements.

As of December 31, 2008, the Company has available Federal net operating loss carryforwards to reduce future regular taxable income, which expire as follows:

Expiration Date	Regular Tax
	(In thousands)
2010	$	19,540
2011		36,479
2012		449
2018		28
2019		88,429
after 2019		29,668
Total	$	174,593

As of December 31, 2008, the Company has an estimated $23.5 million in ICTC carryforwards that are available to offset the Company’s regular tax and AMT liabilities. As of December 31, 2008, the Company also has available an estimated $267.0 million in State net operating loss carryforwards to reduce future taxable income.

The Company adopted FIN No. 48 Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, as of January 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Upon adoption of FIN No. 48, the Company did not identify any uncertain tax positions and no tax reserve was recorded as of January 1, 2007. The Company has elected under FIN No. 48 to recognize interest and penalties related to income tax matters in income tax expense.

For the year ended December 31, 2008, Westmoreland recorded a long-term FIN No. 48 liability related to uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended
	December 31, 2008
	(In thousands)
Balance of unrecognized tax benefits at January 1, 2008	$	—
Additions for tax positions related to current year		1,748
Balance of unrecognized tax benefits at December 31, 2008	$	1,748

As of December 31, 2008, the Company had less than $0.1 million of accrued interest and penalties included in the long-term tax liability, which was recognized in 2008.

The Company files tax returns in the U.S. federal jurisdiction and in various U.S. state jurisdictions, and is subject to examination by taxing authorities in all of these jurisdictions. From time to time, the Company’s tax returns are reviewed or audited by various U.S. state taxing authorities. The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company’s financial position, results of operations or liquidity. It is reasonably possible that the amount of unrecognized tax benefits related to certain of the Company’s tax positions will increase or decrease in the next twelve months as audits or reviews are initiated and settled. At this time, an estimate of

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the range of a reasonably possible change cannot be made. With few exceptions, the Company is not subject to income tax examinations by U.S. federal or state jurisdictions for fiscal years prior to 2004.

18.   COMMITMENTS

Coal Reserve Lease Obligations

The Company leases certain of its coal reserves from third parties and pays royalties based on either a per ton rate or as a percentage of revenues received. Royalties charged to expense under all such lease agreements amounted to $35.7 million, $39.2 million and $35.5 million in the years end December 31, 2008, 2007 and 2006, respectively.

Real Property and Equipment Lease Obligations

The Company has operating lease commitments expiring at various dates, primarily for real property and equipment. Rental expense under operating leases during the years ending December 31, 2008, 2007 and 2006, totaled $4.9 million, $5.2 million and $6.3 million, respectively.

Minimum future rental obligations existing under these operating leases at December 31, 2008, are as follows (in thousands):

	Lease
	Obligations
2009	$	5,385
2010		4,557
2011		4,389
2012		1,988
2013 and thereafter		931

Coal Supply Agreements

Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal Corporation, or TECO. If Westmoreland Partners continues to purchase coal under these contracts at the current volume and pricing, then Westmoreland Partners would be obligated to pay TECO $27.9 million in each of the years of 2009, 2010, 2011, 2012, 2013 and an aggregate of $33.4 million after 2013.

Long-Term Sales Contracts

The following table presents an estimate of the sales tonnages under the Company’s existing long-term contracts. Many of the contracts provide for the supply of customer requirements rather than fixed tonnages. Where provided, the Company has used its customers’ projections of their requirements. Where not provided, the Company has used estimates based on historic levels. The tonnages in the table below represent estimated

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sales tonnage under existing, executed contracts and generally exclude pending or anticipated contract renewals or new contracts. These projections reflect customers’ scheduled major plant outages, if known.

	Projected Sales
	Tonnage Under
	Existing Long-
	Term Contracts
	as of December 31,
	2008
	(In millions of tons)
2009		28.0
2010		26.4
2011		22.0
2012		19.4
2013		19.3
Thereafter		86.9
Total		202.0

19.   CONTINGENCIES

Severance Benefits Payable to Former CEO

On May 9, 2008, WCC filed a declaratory judgment complaint in the District Court, El Paso County, Colorado, against Christopher K. Seglem, who was terminated as Chairman, CEO and President of the Company in May 2007, seeking a declaratory judgment from the court as to the correct amount to pay Mr. Seglem pursuant to the 1993 Executive Severance Policy, or severance policy. On June 10, 2008, Mr. Seglem filed counterclaims, alleging that he is owed a total of at least $3.8 million pursuant to the severance policy. The matter is currently set for trial on May 18, 2009.

The Company provided a reserve of $3.0 million for this matter and has made payments of $1.4 million to Mr. Seglem during 2008. As of December 31, 2008, the remaining liability was approximately $1.6 million.

Royalty Claims by Minerals Management Service and Related Tax Claims by Montana Department of Revenue

The U.S. Minerals Management Service, or MMS, and the Montana Department of Revenue, or MDR, have each asserted numerous transportation and gross inequity claims against Western Energy Company, or WECO, for federal coal royalties and state taxes allegedly due and owing on payments received by WECO from customers.

Transportation Claims

The MMS and MDR claim that revenues earned by WECO under the Transportation Agreement with its customers are, in reality, payments for the production of coal, and therefore royalty and tax bearing. MDR has issued assessments for tax years 1998 through 2004. The total amount claimed under audit (assessed and unassessed) as of December 31, 2008, was $32.9 million.

On October 23, 2008, WECO and its customers jointly settled all claims with the MDR for the periods prior to December 31, 2007, for a total of $1.7 million, with WECO responsible for less than $0.1 million of that amount and the customers responsible for the balance. WECO and its customers also reached a joint settlement with the MDR for periods subsequent to December 31, 2007, which resulted in a total amount of approximately $0.6 million owed to the MDR for 2008, with WECO’s portion representing less than

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$0.1 million and the customers paying the balance. WECO’s additional expense for state taxes resulting from this settlement for the years 2009 through 2019 are expected to be less than $0.1 million per year.

The MMS claims are for four different audit periods: October 1991 through December 1995, January 1996 through December 2001, January 2002 through December 2004 and January 2005 through the present. An informal settlement agreement has been reached with MMS whereby WECO will pay the sum of $12.2 million to resolve all issues surrounding these transportation claims for the assessed periods through December 31, 2007, and to pay future royalties on the transportation proceeds in accordance with the past methodology of MMS. The customers have agreed to reimburse WECO 80% of the settlement amount and to pay 80% of future royalty payments owed to MMS. WECO’s additional exposure for federal coal royalties for the years 2009 through 2019 is approximately $0.1 million per year. The Company expects to finalize the agreement for this matter by the end of March 2009.

The Company recorded an estimated $12.8 million expense and liability for the total estimated exposure for all periods through December 31, 2008. Correspondingly, the Company recorded a $10.2 million of revenue and a receivable for the estimated customer portion of the settlement for all periods through December 31, 2008.

Gross Inequity Claim

On April 29, 2004, MMS issued a demand for a royalty payment in connection with a settlement agreement dated February 21, 1997, between WECO and its customer, Puget Sound Energy, which reduced the price of coal paid by Puget Sound. WECO filed a notice of appeal with MMS. A settlement agreement has been reached in principle with MMS whereby WECO will pay the assessed amount of approximately $1.7 million, including $0.6 million of accrued interest. The agreement is expected to be finalized in 2009. Puget Sound Energy has agreed to reimburse WECO for all of the settlement costs.

Additionally, WECO was informed in 2005 that the MDR has issued a claim for state coal royalties of approximately $0.2 million related to the Puget Sound Energy payments. WECO believes that Puget Sound Energy is responsible for this royalty claim pursuant to the terms of the settlement agreement.

The Company recorded an estimated $1.9 million of expense and a corresponding liability for the total estimated exposure for all periods through December 31, 2008. Correspondingly, the Company recorded an estimated $1.9 million of revenue and a corresponding receivable for the customer portion of the settlement for all periods through December 31, 2008.

McGreevey Litigation

In 2002, the Company was served with a complaint in a case styled McGreevey et al. v. Montana Power Company et al. in the U.S. District Court in Billings, Montana. The plaintiffs are former stockholders of Montana Power who filed their first complaint on August 16, 2001. The plaintiffs seek to rescind the sale by Montana Power of its generating, oil and gas, and transmission businesses, and the sale by Entech of its coal business or to us to compel the purchasers to hold these businesses in trust for the shareholders. The McGreevey plaintiffs contend that they were entitled to approve the sale by Entech to WCC even though they were not shareholders of Entech. On April 20, 2006, a Memorandum and Order was entered by the United States District Court for the District of Montana Butte Division, which confirmed the Judge’s decision to stay the case while it awaits a decision from the Delaware Bankruptcy Court in the Entech bankruptcy case on two key issues. The first issue is whether WCC is a successor in interest to Montana Power Company — Touch America or Northwestern. The second issue is whether any claim based on failure of the corporate board to submit sale of certain assets (including those purchased by WCC) to a vote of the shareholders is a derivative action belonging to the corporation, or a direct action belonging to disaffected shareholders.

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Although the stays noted above remain in place, the Delaware bankruptcy court recently ruled on one issue pertinent to our case, finding that the claims the McGreevey plaintiffs assert against the officers and directors of Touch America are derivative and belong to the Touch America trustees. The Montana court is aware of this ruling, and is arranging a mediated settlement conference in McGreevey to attempt to revive in some form the tentative settlement reached over two years ago.

The Company has not accrued a reserve for this matter.

Customer Reclamation Claims

WECO received a claim dated October 16, 2008, from the six Colstrip 3&4 buyers seeking a refund of approximately $9.9 million for alleged inappropriate charges. The buyers assert that they were charged for base reclamation work in Area C of the Rosebud Mine when those charges were actually for final reclamation, which would be WECO’s responsibility under the terms of the coal supply agreement. The refund sought by the buyers includes alleged overpayments for final reclamation work plus taxes and royalties on that overpayment.

WECO believes that these charges to the buyers were proper because the challenged work was for base reclamation, which is the buyers’ responsibility under the coal supply agreement. If the buyers prevail and all of the challenged work is determined to be final reclamation rather than base reclamation, WECO’s financial responsibility will be reduced from $9.9 million claimed by two factors. First, approximately $3.5 million of the buyers’ claim concerns an overpayment of taxes and royalties that WECO should be able to offset against future taxes and royalties. Second, one of the six buyers, Puget Sound Energy, Inc., has funded an account that WECO is authorized to use to pay approximately 17% of all final reclamation costs in Area C, which with respect to the challenged work would be approximately $1.1 million. The total net refund to the customers after taxes and royalty overpayments would be approximately $6.4 million, of which $1.1 million could be paid by customer-funded accounts which are now restricted.

No reserve has been accrued for this matter.

20.   BUSINESS SEGMENT INFORMATION

Segment information is presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information. This standard is based on a management approach, which requires segmentation based upon the Company’s internal organization and reporting of revenue and operating income based upon internal accounting methods.

The Company’s operations are classified into four segments: coal, power, heritage and corporate. The coal segment includes the production and sale of coal from Montana, North Dakota and Texas. The power segment includes its ROVA operations and the Ft. Lupton interest, which was sold in July 2008. The heritage segment includes costs of benefits the Company provides to former Eastern mining operation employees as well as other administrative and legal costs associated with providing those benefits. The corporate segment primarily consists of corporate office and business development expenses. Certain reclassifications of 2007 and 2006 segment information have been made to conform to the 2008 presentation.

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Summarized financial information by segment for 2008, 2007 and 2006 is as follows:

	Coal		Power		Heritage			Corporate			Consolidated
					(In thousands)
December 31, 2008
Revenues	$	419,806	$	89,890	$	—		$	—		$	509,696
Restructuring charges		155		—		—			1,854			2,009
Operating income (loss)		15,211		16,920		(35,472	)		(12,694	)		(16,035	)
Total assets		557,245		239,083		5,301			11,338			812,967
Capital expenditures		29,534		1,711		—			75			31,320
December 31, 2007
Revenues		418,870		85,347		—			—			504,217
Restructuring charges		729		698		—			3,096			4,523
Operating income (loss)		18,723		14,150		(28,623	)		(10,132	)		(5,882	)
Total assets		493,414		276,399		4,068			8,647			782,528
Capital expenditures		28,677		1,645		—			90			30,412
December 31, 2006
Revenues		393,482		50,925		—			—			444,407
Operating income (loss)		33,370		11,906		(33,007	)		(7,652	)		4,617
Total assets		449,569		290,723		9,794			11,296			761,382
Capital expenditures		17,189		2,855		—			808			20,852

The Company derives its revenues from a few key customers. The customers from which more than 10% of total revenue has been derived and the percentage of total revenue from those customers is summarized as follows:

	2008			2007			2006
				(In thousands)
Customer A — coal	$	131,859		$	109,390		$	112,470
Customer B — coal		80,581			102,417			88,510
Customer C — power		88,651			84,841			43,205
Customer D — coal(1)		—			52,041			—
Percentage of total revenue		60	%		69	%		54	%

(1) The revenue from Customer D did not exceed 10% in 2008 or 2006.

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21.   QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 2008 and 2007 is as follows:

	Three Months Ended
	March 31			June 30			September 30			December 31
	(In thousands; except per share data)
2008:
Revenues	$	131,594		$	113,423		$	141,305		$	123,374
Operating income (loss)		2,280			(9,027	)		2,326			(11,614	)
Net loss applicable to common shareholders		(11,464	)		(18,281	)		(3,493	)		(16,689	)
Basic and diluted loss per common share	$	(1.21	)	$	(1.92	)	$	(0.37	)	$	(1.75	)
2007:
Revenues	$	125,075		$	123,253		$	130,232		$	125,657
Operating income (loss)		12,063			(7,333	)		(3,441	)		(7,171	)
Net income (loss) applicable to common shareholders		7,365			(11,278	)		(7,370	)		(11,870	)
Basic earnings (loss) per common share	$	0.81		$	(1.23	)	$	(0.81	)	$	(1.27	)
Diluted earnings (loss) per common share	$	0.79		$	(1.23	)	$	(0.81	)	$	(1.27	)

94

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Westmoreland Coal Company:

We have audited the consolidated balance sheets of Westmoreland Coal Company and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westmoreland Coal Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP

Denver, Colorado

March 13, 2009

95

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

This item is not applicable.

ITEM 9A — CONTROLS AND PROCEDURES.

(a)   Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting refers to a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

•  pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our board of directors; and

•  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2008, using the framework set forth in the report of the Treadway Commission’s Committee of Sponsoring Organizations or COSO, Internal Control — Integrated Framework. The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In conducting the aforementioned evaluation, we determined that the three material weaknesses in our internal control over financial reporting at December 31, 2007, have been fully remediated.

Based upon management’s evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Act of 1934, were effective as of December 31, 2008.

(b)   Changes in Internal Control over Financial Reporting

Management has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.

96

(c)   Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Westmoreland Coal Company:

We have audited Westmoreland Coal Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A(a)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company has maintained effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2008 and our report dated March 13, 2009 expressed an unqualified opinion on those financial statements.

KPMG LLP

Denver, Colorado

March 13, 2009

97

(d)   Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, management performed, with the participation of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), an evaluation of the effectiveness of the company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon that evaluation, the CEO and the CFO concluded that, as of December 31, 2008, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

98

ITEM 9B — OTHER INFORMATION.

None

99

PART III

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by Item 10 will be included under the headings Proposal 1 — Election of Directors by the Holders of Common Stock, Proposal 2 — Election of Directors by the Holders of Series A Preferred Stock, Executive Officers, Corporate Governance and Section 16(a) Beneficial Ownership Reporting Compliance in our definitive proxy statement for our Annual Meeting of Stockholders to be held May 14, 2009, and such required information is incorporated herein by reference.

ITEM 11 — EXECUTIVE COMPENSATION.

The information required by Item 11 will be included under the headings Corporate Governance, Compensation Discussion and Analysis, Executive Compensation and Compensation and Benefits Committee Report in our definitive proxy statement for our Annual Meeting of Stockholders to be held May 14, 2009, and such required information is incorporated herein by reference.

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 12 will be included under the headings Beneficial Ownership of Securities and Equity Compensation Plan Information in our definitive proxy statement for our Annual Meeting of Stockholders to be held May 14, 2009, and such required information is incorporated herein by reference.

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 13 will be included under the headings Certain Transactions and Corporate Governance in our definitive proxy statement for our Annual Meeting of Stockholders to be held May 14, 2009, and such required information is incorporated herein by reference.

ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by Item 14 will be included under the heading Auditors in our definitive proxy statement for our Annual Meeting of Stockholders to be held May 14, 2009, and such required information is incorporated herein by reference.

PART IV

ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

1. The financial statements filed herewith are: the Consolidated Balance Sheets of the Company and subsidiaries as of December 31, 2008 and December 31, 2007, and the related Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2008, together with the Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements, and the report of the independent registered public accounting firm thereon which are contained in Item 8.

2. The following financial statement schedules are filed herewith:

Report of Independent Registered Public Accounting Firm

Schedule I — Condensed Financial Statements of Parent Company

The following financial statements of subsidiaries not consolidated and 50 percent or less owned persons are filed herewith:

Financial statements of Westmoreland-LG&E Partners for the six months ended June 30, 2006, with the Independent Auditors Reports thereon.

3. The exhibits listed in the Exhibit Index starting on page 118 are filed with or incorporated by reference in this Annual Report on Form 10-K.

100

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTMORELAND COAL COMPANY

/s/  Keith E. Alessi

Name:     Keith E. Alessi

Title:  Chief Executive Officer and President

(A Duly Authorized Officer)

Date: March 13, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  Keith E. Alessi Keith E. Alessi	Chief Executive Officer, President, and Director	March 13, 2009
/s/  Kevin A. Paprzycki Kevin A. Paprzycki	Chief Financial Officer and Principal Accounting Officer	March 13, 2009
/s/  Michael R. D’Appolonia Michael R. D’Appolonia	Director	March 13, 2009
/s/  Thomas J. Coffey Thomas J. Coffey	Director	March 13, 2009
/s/  Richard M. Klingaman Richard M. Klingaman	Director	March 13, 2009
/s/  William M. Stern William M. Stern	Director	March 13, 2009

101

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Westmoreland Coal Company:

Under date of March 13, 2009, we reported on the consolidated balance sheets of Westmoreland Coal Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2008, which are included in the December 31, 2008, Annual Report on Form 10-K of Westmoreland Coal Company. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement Schedule I. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

The audit report on the consolidated financial statements of Westmoreland Coal Company and subsidiaries referred to above contains an explanatory paragraph that states that as described in Note 1 to the consolidated financial statements, 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 regard 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.

KPMG LLP

Denver, Colorado

March 13, 2009

102

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED BALANCE SHEET

(Parent Company Information — See Notes to Consolidated Financial Statements)

	December 31,
	2008			2007
	(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	956		$	306
Receivables:
Other		526			—
		526			—
Other current assets		449			366
Total current assets		1,931			672
Property, plant and equipment:
Plant and equipment		2,077			5,507
Less accumulated depreciation, depletion and amortization		1,412			4,537
Net property, plant and equipment		665			970
Restricted investments		7,952			6,926
Investment in subsidiaries and power projects, including intercompany balances		122,295			150,086
Other assets		3,137			3,973
Total Assets	$	135,980		$	162,627
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	2,996		$	4,557
Bank overdrafts		548			—
Workers’ compensation		1,037			956
Pension and SERP obligations		306			299
Postretirement medical benefits		16,809			17,151
Other current liabilities		2,083			2,473
Total current liabilities		23,779			25,436
Long-term debt		15,789			—
Workers’ compensation, less current portion		11,800			8,566
Related party payable		23,200			26,887
Postretirement medical costs, less current portion		245,897			256,232
Pension and SERP obligations, less current portion		32,379			21,849
Other liabilities		734			914
Shareholders’ deficit:
Preferred stock		160			160
Common stock		24,223			23,567
Other paid-in capital		96,196			85,352
Accumulated other comprehensive loss		(119,367	)		(116,093	)
Accumulated deficit		(218,810	)		(170,243	)
Total shareholders’ deficit		(217,598	)		(177,257	)
Total Liabilities and Shareholders’ Deficit	$	135,980		$	162,627

103

WESTMORELAND COAL COMPANY

SCHEDULE I — CONDENSED STATEMENT OF OPERATIONS

(Parent Company Information — See Notes to Consolidated Financial Statements)

	Years Ended December 31,
	2008			2007			2006
	(Amounts in thousands)
Operating costs and expenses:
Depreciation and amortization	$	381		$	330		$	477
Selling and administrative		12,585			11,629			12,932
Restructuring charges		1,854			2,655			—
Heritage health benefit expenses		32,104			25,788			32,821
Loss (gain) on sales of assets		1			(5,641	)		25
		46,925			34,761			46,255
Operating loss		(46,925	)		(34,761	)		(46,255	)
Other income (expense):
Interest expense		(9,385	)		(615	)		(877	)
Interest income		532			1,255			457
Other income (loss)		66			1,086			(78	)
		(8,787	)		1,726			(498	)
Loss before income taxes and income of consolidated subsidiaries		(55,712	)		(33,035	)		(46,753	)
Equity in income of subsidiaries and earnings of power projects, net		7,172			11,054			34,064
Loss from continuing operations before income taxes		(48,540	)		(21,981	)		(12,689	)
Income tax benefit (expense)		(27	)		188			(9	)
Net loss	$	(48,567	)	$	(21,793	)	$	(12,698	)

104

WESTMORELAND COAL COMPANY
SCHEDULE I — CONDENSED STATEMENT OF CASH FLOWS
(Parent Company Information — See Notes to Consolidated Financial Statements)

	Years Ended December 31
	2008			2007			2006
	(Amounts in thousands)
Cash flows from operating activities:
Net loss	$	(48,567	)	$	(21,793	)	$	(12,698	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in income of subsidiaries and earnings of independent power projects		(7,172	)		(11,054	)		(34,064	)
Depreciation and amortization		381			330			477
Gain on sales of assets		1			(5,641	)		25
Share-based payment expense or compensation		2,733			2,467			2,564
Non-cash interest expense		8,934			—			—
Amortization of deferred financing costs		78			—			—
Warrant repriced		355			—			—
Changes in operating assets and liabilities:
Receivables, net		(526	)		293			(20,099	)
Accounts payable and accrued expenses		(1,499	)		(2,846	)		1,483
Other assets and liabilities		516			37,723			12,421
Net cash used by operating activities		(44,766	)		(521	)		(49,891	)
Cash flows from investing activities:
Distributions received from subsidiaries		35,525			11,745			14,381
Additions to property, plant and equipment		(75	)		(91	)		—
Change in restricted investments and bond collateral		(914	)		3,300			—
Net proceeds from sales of assets		—			12,700			(784	)
Net cash provided by investing activities		34,536			27,654			13,597
Cash flows from financing activities:
Change in book overdrafts		548			—			—
Net borrowings (repayments) on revolving lines of credit		—			(8,500	)		8,000
Borrowings of long-term debt		15,000			—			—
Debt issuance costs		(623	)		—			—
Repayments of long-term debt		—			(5,000	)		—
Loans from (to) subsidiaries		(4,248	)		(16,211	)		27,119
Exercise of stock options		203			2,756			998
Dividends on preferred shares		—			—			(387	)
Net cash provided by (used in) financing activities		10,880			(26,955	)		35,730
Net increase (decrease) in cash and cash equivalents		650			178			(564	)
Cash and cash equivalents, beginning of year		306			128			692
Cash and cash equivalents, end of year	$	956		$	306		$	128

105

Westmoreland — LG&E Partners

Financial Statements & Supplementary Data

106

WESTMORELAND-LG&E PARTNERS

Statement of Operations and Comprehensive Income

For the six months ended June 30, 2006

	June 30,
	2006
	(In thousands)
Revenues:
Energy	$	55,104
		55,104
Cost and expenses:
Cost of sales		22,777
Cost of sales — affiliate		4,005
Depreciation, depletion and amortization		5,484
Selling and administrative		2,303
Selling and administrative — affiliate		399
		34,968
Operating income		20,136
Other income (expense):
Interest expense		(6,619	)
Interest income		995
Other		—
		(5,624	)
Revenues:		14,512
Other comprehensive income
Unrealized gain on derivative financial instrument		126
Total comprehensive income	$	14,638

107

WESTMORELAND-LG&E PARTNERS

Statement of Partners’ Capital

For the six months ended June 30, 2006

							Unrealized
				LG&E			Gain
	Westmoreland-			Roanoke			(Loss) on
	Roanoke			Valley			Derivative
	Valley L.P.			L.P.			Instrument			Total
				(In thousands)
Balance as of December 31, 2005		50,932			45,837			(126	)		96,643
Net Income		7,320			7,192			—			14,512
Partner distributions		(946	)		(855	)		—			(1,801	)
Unrealized gain on derivative instrument		—			—			126			126
Balance as of June 30, 2006	$	57,306		$	52,174		$	—		$	109,480

See accompanying Notes to Financial Statements.

108

WESTMORELAND-LG&E PARTNERS

Statement of Cash Flows

For the six months ended June 30, 2006

	June 30,
	2006
	(In thousands)
OPERATING ACTIVITIES:
Net income	$	14,512
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		5,115
Amortization		369
Ash monofill amortization		—
Decrease (increase) in accounts receivable		6,302
Decrease (increase) in fuel inventories		517
Decrease (increase) in prepaid expenses		(57	)
Increase (decrease) in accounts payable and accrued liabilities		(11,027	)
Increase (decrease) in interest payable		48
Net cash provided by operating activities		15,779
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment		(186	)
Increase in restricted assets		(377	)
Net cash used in investing activities		(563	)
FINANCING ACTIVITIES:
Repayment of notes payable		(12,944	)
Partner distributions		(1,801	)
Net cash used in financing activities		(14,745	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		471
CASH AND CASH EQUIVALENTS — Beginning of year		21,430
CASH AND CASH EQUIVALENTS — End of year	$	21,901
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	6,670

109

WESTMORELAND — LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS

110

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization — Westmoreland-LG&E Partners (the “Venture”), a Virginia general partnership, was formed to own and operate two cogeneration facilities (the “Facilities”) located in Weldon, North Carolina. The first facility, ROVA I, is a 180 megawatt facility and the second facility, ROVA II, is a 50 megawatt facility adjacent to ROVA I. The Facilities share certain coal handling, electrical distribution, and administrative equipment. The Facilities produce electric power and steam by burning coal. The steam is sold to a local industrial plant for use in its manufacturing process. ROVA I and ROVA II operate as exempt wholesale generators as determined by the Federal Energy Regulatory Commission. ROVA I commenced commercial operation on May 29, 1994 (Commercial Operations Date). ROVA II commenced commercial operation on June 1, 1995 (Commercial Operations Date).

On June 29, 2006, Westmoreland Coal Company acquired a 50% partnership interest in the venture from a subsidiary of E.ON U.S. LLC, or E.ON, — formerly LG&E Energy LLC. The transaction increases Westmoreland’s interest in the Venture to 100%. As part of the same transaction, Westmoreland acquired certain additional assets from LG&E Power Services LLC, a subsidiary of E.ON, consisting primarily of contracts under which Westmoreland will now operate and provide maintenance services to ROVA and four power plants in Virginia. For accounting purposes, the acquisition was assumed to have been completed effective June 30, 2006.

Subsequent to the acquisition, the partners in the Venture are Westmoreland-Roanoke Valley, L.P., or Westmoreland L.P., a limited partnership between Westmoreland Energy LLC, or WELLC, as the sole limited partner, and WELLC-Roanoke Valley, Inc., a wholly owned subsidiary of WELLC, as the sole general partner, and Westmoreland North Carolina Power LLC, a wholly owned subsidiary of WELLC. The partner previous to the acquisition was LG&E Roanoke Valley L.P., or LG&E L.P.,, a limited partnership between LG&E Power Roanoke Incorporated, an indirect wholly owned subsidiary of LG&E Power Inc., or LPI, as the sole limited partner, and LG&E Power 16 Incorporated, an indirect wholly owned subsidiary of LPI, as the sole general partner. Under the terms of the General Partnership Agreement (“Partnership Agreement”), after priority allocations to Westmoreland L.P., all income, loss, tax deductions and credits, and cash distributions were allocated approximately 50% to Westmoreland L.P. and 50% to Westmoreland North Carolina Power LLC.

Power Sales Agreement — The Venture has entered into two Power Purchase and Operating Agreements (“Power Agreements”) with North Carolina Power Company, a division of Dominion Virginia Power Company, or DVP, for the sale of all energy produced by the Facilities. Each Power Agreement is for an initial term of 25 years from the respective Commercial Operations Date. Revenue is recognized for these Power Agreements as amounts are invoiced.

Under the terms of ROVA I Power Agreement, the energy price consists of an Energy Purchase Price (“ROVA I Energy Price”) and a Purchased Capacity Unit Price (“ROVA I CUP”). ROVA I Energy Price is billed for each kilowatt-hour delivered and is comprised of a Base Fuel Compensation Price (“ROVA I Fuel Price”) and an Operating and Maintenance Price (“ROVA I O&M Price”). ROVA I Fuel Price is adjusted quarterly and ROVA I O&M Price is adjusted annually based upon the Gross Domestic Product Implicit Price Deflator Index (“GDPIPD”). ROVA I CUP is determined by dividing the sum of the applicable capacity components (the Fixed Capacity Component and the O&M Capacity Component) by a three-year rolling average capacity factor (“Average Capacity Factor”) expressed in cents per kilowatt-hour. Annually, on April 1, the O&M Capacity Component is adjusted by the percentage change in the GDPIPD. The Venture recognizes revenue based on the billed ROVA I Energy Price and ROVA I Delivered Capacity expressed in kilowatt-hours multiplied by ROVA I CUP. In addition, a notional, off-balance sheet account (the “Tracking Account”) has been established to accumulate differences in actual capacity versus the three-year rolling average capacity to facilitate calculation of Capacity Purchase Payment Adjustments. If the Actual Capacity Factor for any year is less than the Average Capacity Factor, the Tracking Account is decreased and the Venture will recognize

111

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS — (Continued)

additional revenue from the Capacity Purchase Payment Adjustment to the extent of the positive balance in the Tracking Account. If the Actual Capacity Factor for any year is greater than the Average Capacity Factor, the Tracking Account is increased, but no additional revenue is recognized. As of June 30, 2006, the Tracking Account contained a positive balance of $829,022, which is not included in the financial statements.

Under the terms of ROVA II Power Agreement, the energy price consists of an Energy Purchase Price (“ROVA II Energy Price”) and a Purchased Capacity Price (“ROVA II Capacity Price”). ROVA II Energy Price is billed for each kilowatt-hour delivered, reduced by 2.25% for line losses, and is comprised of a Base Fuel Compensation Price (“ROVA II Fuel Price”) and an Operating and Maintenance Price (“ROVA II O&M Price”). ROVA II Fuel Price is adjusted quarterly and ROVA II O&M Price is adjusted annually based upon the GDPIPD. ROVA II Capacity Price is based on the Dispatch Level, Dependable Capacity, and Net Electrical Output, and is comprised of a fixed amount per kilowatt-hour plus a variable amount per kilowatt-hour, which is adjusted annually based upon the GDPIPD. The Venture recognizes revenue based on the billed ROVA II Energy Price and ROVA II Capacity Price.

Energy Services Agreement — The Venture has entered into an Energy Services Agreement (“Energy Agreement”) with Patch Rubber Company for the sale of steam produced by the Facilities. The Energy Agreement is for an initial term of 15 years from the later of ROVA I Initial Delivery Date or ROVA II Initial Delivery Date with three five-year renewal options. Under the terms of the Energy Agreement, the volume of steam delivered determines payments to the Venture. The prices of delivered steam are increased annually based upon the Gross National Product Implicit Price Deflator Index, or GNPIPD, beginning January 1, 1991, except that such increase shall not exceed 3% per year. The Venture recognizes revenue on steam sales based on the volume of steam delivered.

Cash Equivalents — The Venture considers all highly liquid securities purchased with an original maturity of three months or less to be cash equivalents.

Fuel Inventories — Fuel inventories, which consist primarily of coal, are valued at the lower of cost or market. Cost is determined by the moving weighted average method.

Property, Plant, and Equipment — Depreciation is provided on a straight-line method over the estimated useful lives of the assets except for the ash monofills. The ash monofills are amortized on a cost per ton basis multiplied by tons sent to each monofill. The ash monofills were built as disposal sites for the ash generated during operations.

Loan Origination Fees — Loan origination fees incurred in conjunction with obtaining the construction and term loan, institutional loan, and bond financing have been capitalized. These costs are being amortized by the effective-interest method over the lives of the notes and bonds.

Restricted Assets — Restricted assets represent cash deposits to the Debt Protection Account, or DPA, the Ash Reserve Account, or Ash, and the Repair and Maintenance Account, or R&M, as required by the Credit Agreement. The maximum Ash balance is $600,000. The maximum R&M balance is $2,200,000 through January 31, 2004, and $2,600,000 thereafter until January 31, 2010. See Note 2 Long-Term Debt.

Intangible Asset — The Venture paid $215,973 to construct a steam host physically located on the property of Patch Rubber Company. The Venture has rights to use the system through October 2006. These costs have been amortized on a straight-line basis over a period of nine years.

Major Maintenance — The Venture expenses major maintenance costs as incurred.

Income Taxes — The Venture is a partnership and, as such, does not record or pay income taxes. Each Venture partner reports its respective share of the Venture’s taxable income or loss for income tax purposes.

Derivatives — Statement of Financial Accounting Standards, or SFAS, 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments

112

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS — (Continued)

and Certain Hedging Activities, SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, requires that all derivatives be recognized in the financial statements as either assets or liabilities and that they be measured at fair value. Changes in fair value are recorded as adjustments to the assets or liabilities being hedged in Other Comprehensive Income (Loss), or in current earnings, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented and the effectiveness of the hedge.

In connection with the adoption of SFAS.133, SFAS 138 and SFAS 149, the Venture classified its Interest Rate Exchange Agreements (“Swap Agreements”) as cash flow hedges. The swap agreement was terminated as of June 30, 3006.

Asset Retirement Obligation — In August 2001, FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, and the Venture adopted this statement effective January 1, 2003. Statement No. 143 addresses financial accounting for legal obligations associated with the retirement of long-lived assets and requires the Venture to recognize the fair value of an asset retirement obligation in the period in which that obligation is incurred. The Venture capitalizes the present value of estimated retirement costs as part of the carrying amount of long-lived assets.

Use of Estimates — Financial statements prepared in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Reclassification — Certain prior period amounts have been reclassified to conform to the current period presentation.

2.   LONG-TERM DEBT

On December 18, 1991, the Venture entered into the Credit Agreement (“Tranche A”) with a consortium of banks (the “Banks”) and an Institutional Lender for the financing and construction of ROVA I facility. On December 1, 1993, the Credit Agreement was amended and restated (“Tranche B”) to allow for the financing and construction of the ROVA II facility. Under the terms of the Credit Agreement, the Venture is permitted to borrow up to $229,887,000 from the Banks (“Bank Borrowings”), $120,000,000 from an Institutional Lender (“Institutional Borrowings”), and $36,760,000 in tax-exempt facility revenue bonds (“Bond Borrowings”) under two Indenture Agreements with the Halifax County, North Carolina, Industrial Facilities and Pollution Control Financing Authority (“Financing Authority”). The borrowings are evidenced by promissory notes and are secured by land, the facilities, the Venture’s equipment, inventory, accounts receivable, certain other assets and the assignment of all material contracts. The Credit Agreement requires interest on the Bank borrowings at rates set at varying margins in excess of the Banks’ base rate, London Interbank Offering Rate, or LIBOR, or certificate of deposit rate, or CD, for various terms from one day to one year in length, each to be selected by the Venture when amounts are borrowed. Interest payments for all elections are generally due at the end of the applicable interest period. However, if such interest period extends beyond a quarterly date, then interest is due on each quarterly date and at the end of the applicable interest period.

At the Tranche A Conversion Date (January 31, 1995), Westmoreland L.P. and LG&E L.P. contributed a combined total of $8,571,224 (“Tranche A Equity Funding”) to the Venture to reduce the principal amount of the outstanding Tranche A Bank Borrowings. The remaining principal balance of the Tranche A Bank Borrowings converted into a term loan (“Tranche A Term Loan”). Principal payments under the Tranche A Term Loan are based upon fixed percentages, ranging from 0.75% to 7.55% of the Tranche A Term Loan, and are paid in 38 semiannual installments ranging from $850,000 to $4,250,000.

113

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS — (Continued)

At the Tranche B Conversion Date (October 19, 1995), Westmoreland L.P. and LG&E L.P. contributed a combined total of $9,222,152 (“Tranche B Equity Funding”) to the Venture to reduce the principal amount of the outstanding Tranche B Bank Borrowings. The remaining principal balance of the Tranche B Bank Borrowings converted into a term loan (“Tranche B Term Loan”). Principal payments under the Tranche B Term Loan are based upon fixed percentages, ranging from 0.68% to 7.87% of the Tranche B Term Loan, and are paid in 40 semiannual installments ranging from $294,000 to $6,510,000.

Under the terms of the Credit Agreement, interest on the Tranche A Institutional Borrowings is fixed at 10.42% and interest on the Tranche B Institutional Borrowings is fixed at 8.33%.

In accordance with the Indenture Agreement, the Financing Authority issued $29,515,000 of 1991 Variable Rate Demand Exempt Facility Revenue Bonds (“1991 Bond Borrowings”) and $7,245,000 of 1993 Variable Rate Demand Exempt Facility Revenue Bonds (“1993 Bond Borrowings”). The 1991 Bond Borrowings and the 1993 Bond Borrowings are secured by irrevocable letters of credit in the amounts of $30,058,400 and $7,378,387, respectively, which were issued to the respective Trustee by the Banks. The weighted average interest rate for the outstanding Bond Borrowings was 4.09% for the six months ended June 30, 2006. The 1991 Bond Indenture Agreement requires repayment of the 1991 Bond Borrowings in four semi-annual installments of $1,180,600, $1,180,600, $14,757,500, and $12,396,300. The first installment of the 1991 Bond Borrowings is due in January 2008. The 1993 Indenture Agreement requires repayment of the 1993 Bond Borrowings in three semi-annual installments of $1,593,900, $1,811,250, and $3,839,850. The first installment is due in July 2009.

On January 17, 1992, the Venture entered into Interest Rate Exchange Agreements (“Swap Agreements”) with the Banks, which were created for the purpose of securing a fixed interest rate of 8.03% on approximately 63.3% of the Tranche A Bank Borrowings. These Swap Agreements have been classified as cash flow hedges. In return, the Venture receives a variable rate based on LIBOR, which averaged 4.75% during the first six months of 2006. Under the terms of the Swap Agreements, the difference between the interest at the rate selected by the Venture at the time the funds were borrowed and the fixed interest rate is paid or received quarterly. Swap interest incurred under this agreement was $124,606 for the six months ended June 30, 2006.

To ensure performance under the Power Agreement, irrevocable letters of credit in the amounts of $4,500,000 and $1,476,000 were issued to DVP by the Banks on behalf of the Venture for ROVA I and ROVA II, respectively. The fees associated with the letters of credit totaled $53,342 for the six months ended June 30, 2006.

The debt agreements contain various restrictive covenants primarily related to construction of the Facilities, maintenance of the property, and required insurance. Additionally, the financial covenants include restrictions on incurring additional indebtedness and property liens, paying cash distributions to the partners, and incurring various commitments without lender approval. At June 30, 2006, the Venture was in compliance with the various covenants.

Pursuant to the terms of the Credit Agreement, the Venture must maintain a debt protection account, or DPA. On November 30, 2000, Amendment 6 to the Credit Agreement (“Amendment 6”) was negotiated with the Banks and the full funding level was increased to $22.0 million and an additional $2.0 million was funded. Beginning in 2002, additional funding of $1.1 million per year is required through 2008. In 2009, $6.7 million of the $9.7 million contributed from 2000-2008 will be available for partnership distribution. In 2010, the remaining $3 million will be available for partnership distribution and the full funding level reverts back to $20,000,000.

Balances held in the DPA are available to be used to meet shortfalls of debt service requirements. If the balance in the DPA falls below the required balance, the cash flow from the Facilities must be paid into the DPA until the deficiency is corrected. There were no deficiencies at June 30, 2006.

114

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS — (Continued)

The Credit Agreement requires the Venture to maintain an R&M account. Pursuant to Amendment 6, the Venture was required to increase its maximum funding level from $1.5 million to $2.2 million by January 31, 2004. See Note 1 Restricted Assets. The maximum funding level increased to $2.6 million from January 31, 2004, through January 31, 2010, after which date it reverts back to $2.2 million.

Under the terms of the Credit Agreement, the Venture must maintain an Ash Reserve Account. Pursuant to Amendment 6, the funding level of the Ash Reserve Account was reduced from $1,000,000 to $600,000. See Note 1 Restricted Assets. Also, a provision was made for the funds to be used for debt protection after the funds in the DPA and R&M are exhausted. Should the funds be used for debt protection, or should the Venture receive written notice from the Banks’ independent engineer that construction of a new ash monofill will be required, the funding level will immediately increase to $1,000,000.

Future principal payments on long-term debt at June 30, 2006, are as follows:

Years	Total
	(In thousands)
2006	$	12,650
2007		27,695
2008		32,268
2009		31,233
2010		15,306
Thereafter		51,500
	$	170,652

3.   COMMITMENTS AND CONTINGENCIES

Coal Supply Agreement — The Venture has entered into two Coal Supply Agreements (“Coal Agreements”) with TECO Coal Corporation, or TECO. Under the terms of the Coal Agreements, TECO entered into a subcontract with Kentucky Criterion Coal Company, or KCCC, an affiliate of WELLC, to provide 79.5% of the coal requirements under the Coal Agreements. On December 16, 1994, WELLC sold the assets of KCCC to Consol of Kentucky, Inc., or Consol. TECO consented to the assignment of the subcontract with KCCC to Consol. Each Coal Supply Agreement is for an initial term of 20 years from the respective Commercial Operations Date with two five-year renewal options. Under the terms of the Coal Agreements, the Venture must purchase a combined minimum of 512,500 tons of coal each contract year (“Minimum Quantity”). In the event the Venture fails to purchase the Minimum Quantity in any contract year, the Venture may be liable for actual and direct damages incurred by TECO, up to a maximum of $5 per ton for each ton short for ROVA I or 20% of the current base price for each ton short for ROVA II. The base price is adjusted annually on July 1 of each contract year based upon the GNPIPD. The average cost of coal per ton, including transportation cost, for the six months ended June 30, 2006, was $49.62. Coal purchases from TECO for the six months ended June 30, 2006, were $10,390,453.

Lime Supply Agreement — The Venture has entered into two Lime Supply Agreements (“Lime Agreements”) with O. N. Minerals (Chemstone) Corporation. The Lime Agreements were for an initial term of five years from the respective commercial operations dates and have been extended through December 31, 2008. Under the terms of the Lime Agreements, the Venture must purchase the greater of 100% of the Facility’s requirement or 10,000 tons of pebble lime per year for ROVA I and 4,500 tons of hydrated lime per year for ROVA II. The base price is increased annually over the life of the Lime Agreements.

The average lime cost per ton, including transportation cost, for the six months ended June 30, 2006, was $98.15. Total purchases and transportation under the agreements were $1,237,210 for the six months ended June 30, 2006. See Rail Transportation Agreement below for information about contract terms and conditions.

115

WESTMORELAND-LG&E PARTNERS

NOTES TO FINANCIAL STATEMENTS — (Continued)

Rail Transportation Agreement — The Coal Rail Transportation Agreement (“Coal Rail Agreement”) is for an initial term of 20 years from the commercial date of ROVA I, with two five-year renewal options. Under the terms of the Coal Rail Agreement, the base rate per ton is adjusted annually for the life of the Coal Rail Agreement. Additionally, the Venture must utilize CSX Transportation, or CSX, for up to 95% of the coal received by the Facility on an annual basis. Failure to comply with this requirement may result in liquidated damages based on the difference between the 95% contract requirement and tons actually received. Total charges under the Coal Rail Agreement for the six months ended June 30, 2006, were $5,959,700.

The Venture has entered into a Rail Transportation Agreement for the transportation of lime to the Facilities with CSX. The Lime Rail Transportation Agreement (“Lime Rail Agreement”), as amended, extends through June 10, 2008. Under the terms of the Lime Rail Agreement, the base rate per ton is adjusted annually, as determined in the Lime Rail Agreement, each June 11. Additionally, the Venture must utilize CSX for up to 95% of the lime received by ROVA I on an annual basis. Failure to comply with this requirement may result in liquidated damages based on the difference between the 95% contract requirement and the tons actually received. See Lime Supply Agreement above.

Property Tax Audit — The Venture is located in Halifax County, North Carolina and is the County’s largest taxpayer. In 2002, the County hired an independent consultant to review and audit personal property tax returns for the previous five years. In May 2002, the County advised the Venture that its returns were being scrutinized for potential underpayment and undervaluation of the property subject to tax. The Venture responded that its valuation was consistent with an agreement reached with the County in 1996. On November 5, 2002, the County assessed the Venture $4.6 million for the years 1997 to 2001. The Venture filed a protest with the Property Tax Commission. On May 26, 2004, the Tax Commission denied the Venture’s protest and issued an order consistent with the County’s assessment. The Venture appealed the Tax Commission’s decision to the North Carolina Court of Appeals on June 24, 2004. In December 2005, the Venture received an adverse ruling from the North Carolina Court of Appeals. The Venture did not appeal this ruling. At December 31, 2005, the Venture has recorded a liability of $10.6 million for this contingency in accounts payable and accrued liabilities on the balance sheet for the tax years 1996 to 2005. During the first quarter of 2006, the Venture paid $7.1 million, including penalties and interest, for the 1996 to 2001 tax years. During the second quarter of 2006, the Venture settled all outstanding personal property assessments for years 2000 to 2005, including interest and penalties, for approximately $3.7 million. Because the Venture had previously accrued for the assessments in its financial statements, there was no material impact on the Venture’s financial statements in the first six months of 2006 as a result of the settlement.

4.   RELATED-PARTY TRANSACTIONS

The Venture entered into an operating agreement with LG&E Power Services LLC, (the “Operator”), an affiliate of LPI, for the operation and maintenance of the Facility and administration of the Venture’s day-to-day operations expiring 25 years after the Commencement Date. The agreement provides for the reimbursement of payroll and other direct costs incurred by the Operator in performance of the agreement, reimbursement of the Operator’s overhead and general and administrative costs based on stated percentages of the reimbursable payroll costs, and a fixed fee. Reimbursed costs and fees incurred under the agreement were $3,090,014 for the six months ended June 30, 2006.

The Venture incurred various costs that were paid to LPI and its affiliates, primarily relating to venture management fees, financial management, engineering, environmental services, and internal legal fees on behalf of the Venture. Fees incurred totaled $263,923 for the six months ended June 30, 2006.

The Venture incurred various costs that were paid to WELLC primarily relating to venture accounting fees and cost accounting services. Fees paid totaled $135,550 for the six months ended June 30, 2006.

The Venture incurred maintenance costs, which were paid to Westmoreland Technical Services, Inc., or WTS. These costs totaled $915,132 for the six months ended June 30, 2006.

116

Report of Independent Registered Public Accounting Firm

To the Partners of

Westmoreland-LG&E Partners:

We have audited the accompanying statements of operations and comprehensive loss, partners’ capital, and cash flows for the six months ended June 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Westmoreland-LG&E Partners for the six months ended June 30, 2006, in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Denver, Colorado

March 30, 2007

117

EXHIBIT INDEX

				Incorporated by Reference
Exhibit					File			Filed
Number			Exhibit Description	Form	Number	Exhibit	Filing Date	Herewith
	3	.1	Restated Certificate of Incorporation	S-1	333-117709	3.1	7/28/2004
	3	.2	Certificate of Correction to the Restated Certificate of Incorporation	8-K	001-11155	3.1	10/21/2004
	3	.3	Certificate of Amendment to the Restated Certificate of Incorporation	8-K	001-11155	3.1	9/07/2007
	3	.4	Certificate of Amendment to the Restated Certificate of Incorporation	8-K	001-11155	3.2	9/07/2007
	3	.5	Amended and Restated Bylaws	8-K	001-11155	3.1	4/11/2008
	4	.1	Certificate of Designation of Series A Convertible Exchangeable Preferred Stock	10-K	001-11155	3(a)	3/15/1993
	4	.2	Indenture between Westmoreland Coal Company (“WCC”) and Fidelity Bank National Association relating to the Exchange Debentures	S-1	333-117709	4.2	7/28/2004
	4	.3	Form of Exchange Debenture	S-1	333-117709	4.3	7/28/2004
	4	.4	Deposit Agreement among WCC, First Chicago Trust Company of New York and the Holders	S-1	333-117709	4.4	7/28/2004
	4	.5	Common Stock certificate	S-2	33-1950	4(c)	12/04/1985
	4	.6	Preferred Stock certificate	S-2	33-47872	4.6	5/13/1992
	4	.7	Form of Depository Receipt	S-1	333-117709	4.5	7/28/2004
	4	.8	Amended and Restated Rights Agreement, dated February 7, 2003, between WCC and EquiServe Trust Company, N.A.	8-K	001-11155	4.1	02/07/2003
	4	.9	First Amendment to Amended and Restated Rights Agreement dated May 2, 2007, between WCC and Computershare Trust Company	8-A	001-11155	(l)	05/04/2007
	4	.10	Second Amendment to Amended and Restated Rights Agreement dated March 4, 2008, between WCC and Computershare Trust Company	8-A	001-11155	(l)	03/06/2008
	4	.11	Warrant dated August 20, 2007, in favor of SOF Investments, L.P.	10-K	001-11155	4.11	03/31/2008
Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements will be furnished to the Securities and Exchange Commission upon request.
	10	.1*	1995 Long-Term Incentive Stock Plan	Sch. 14A	001-11155	App. 3	04/28/1995
	10	.2*	2000 Nonemployee Directors’ Stock Incentive Plan	10-K	001-11155	10(j)	03/05/2001
	10	.3*	First Amendment to 2000 Nonemployee Directors’ Stock Incentive Plan	10-Q	001-11155	10.2	08/14/2003
	10	.4*	2000 Long-Term Incentive Stock Plan	Sch. 14A	001-11155	Annex A	04/20/2000
	10	.5*	Amended and Restated 2000 Performance Unit Plan					X
	10	.6*	2002 Long-Term Incentive Stock Plan	Sch. 14A	001-11155	Annex A	04/23/2002

118

				Incorporated by Reference
Exhibit					File			Filed
Number			Exhibit Description	Form	Number	Exhibit	Filing Date	Herewith
	10	.7*	Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors (“2007 EIP”)					X
	10	.8*	Form of Incentive Stock Option Agreement under the 2007 EIP	10-Q	001-11155	10.1	05/09/2008
	10	.9*	Form of Nonstatutory Stock Option Agreement for directors under the 2007 EIP	10-Q	001-11155	10.2	05/09/2008
	10	.10*	Form of Nonstatutory Stock Option Agreement for persons other than directors under the 2007 EIP	10-Q	001-11155	10.3	05/09/2008
	10	.11*	Form of Restricted Stock Agreement for directors with time-based vesting under the 2007 EIP					X
	10	.12*	Form of Restricted Stock Agreement for directors under the 2007 EIP					X
	10	.13*	Form of Restricted Stock Agreement for employees under the 2007 EIP					X
	10	.14*	Severance Policy dated January 1, 2009					X
	10	.15	Amended Coal Mining Lease between Westmoreland Resources, Inc. (“WRI”) and Crow Tribe dated November 26, 1974, as amended in 1982	10-Q	0-752	10(a)	05/15/1992
	10	.16	Amendment to Amended Coal Mining Lease between the Crow Tribe and WRI dated December 2, 1994					X
	10	.17	Exploration and Option to Lease Agreement between the Crow Tribe and WRI dated February 13, 2004 (Confidential materials omitted and filed separately with the SEC. Confidential treatment requested.)					X
	10	.18	Master Agreement dated January 4, 1999, between WCC, WRI, Westmoreland Energy, Inc., Westmoreland Terminal Company, and Westmoreland Coal Sales Company, the UMWA 1992 Benefit Plan and its Trustees, the UMWA Combined Benefit Fund and its Trustees, the UMWA 1974 Pension Trust and its Trustees, the United Mine Workers of America, and the Official Committee of Equity Security Holders	8-K	001-11155	99.2	02/04/1999
	10	.19	Amended and Restated Coal Supply Agreement dated August 24, 1998, among The Montana Power Company, et al and Western Energy Company	10-Q/A	001-11155	10.1	07/25/2007
	10	.20	Coal Transportation Agreement dated July 10, 1981, among the Montana Power Company, et al and Western Energy Company	10-Q/A	001-11155	10.2	07/25/2007

119

				Incorporated by Reference
Exhibit					File			Filed
Number			Exhibit Description	Form	Number	Exhibit	Filing Date	Herewith
	10	.21	Amendment No. 1 to the Coal Transportation Agreement dated September 14, 1987, among The Montana Power Company, et al and Western Energy Company	10-Q/A	001-11155	10.3	07/25/2007
	10	.22	Amendment No. 2 to the Coal Transportation Agreement dated August 24, 1998, among The Montana Power Company, et al and Western Energy Company	10-Q/A	001-11155	10.4	07/25/2007
	10	.23	Third Amendment and Restatement of the Power Purchase and Operating Agreement between Westmoreland-LG&E Partners and Virginia Electric and Power Company for ROVA I	10-Q	001-11155	10.2	11/06/2006
	10	.24	Second Amendment and Restatement of the Power Purchase and Operating Agreement between Westmoreland-LG&E Partners and Virginia Electric and Power Company for ROVA II	10-Q	001-11155	10.3	11/06/2006
	10	.25	Amended and Restated Lignite Supply Agreement dated September 28, 2007, between NRG Texas Power LLC and Texas Westmoreland Coal Co.	10-Q	001-11155	10.1	03/17/2008
	10	.26	First Amendment to Amended and Restated Lignite Supply Agreement dated June 26, 2008, between Texas Westmoreland Coal Co. and NRG Texas Power LLC	8-K	001-11155	10.9	06/26/2008
	10	.27	Guaranty Agreement dated September 28, 2007, by WCC for the benefit of NRG Texas Power LLC	10-K	001-11155	10.43	03/31/2008
	10	.28	Business Loan Agreement dated October 29, 2007, between WRI and First Interstate Bank	8-K	001-11155	10.1	11/02/2007
	10	.29	Amendment to Business Loan Agreement and Commercial Security Agreement dated October 16, 2008, between First Interstate Bank and WRI	8-K	001-11155	10.5	10/21/2008
	10	.30	Amendment No. 2 to Business Loan Agreement dated November 20, 2008, between First Interstate Bank, WCC and WRI	8-K	001-11155	10.1	11/24/2008
	10	.31	Change in Terms Agreement dated November 20, 2008, between WRI and First Interstate Bank	8-K	001-11155	10.2	11/24/2008
	10	.32	Second Amended and Restated Loan Agreement, dated February 11, 2008, among Westmoreland Partners and Prudential	10-K	001-11155	10.45	03/31/2008
	10	.33	Second Amended and Restated Assignment and Security Agreement, dated February 11, 2008, between Westmoreland Partners and Prudential	10-K	001-11155	10.46	03/31/2008

120

				Incorporated by Reference
Exhibit					File			Filed
Number			Exhibit Description	Form	Number	Exhibit	Filing Date	Herewith
	10	.34	Third Amended and Restated General Partner Security and Limited Guaranty Agreement, dated Feb. 11, 2008, among Westmoreland-Roanoke Valley, L.P., Westmoreland-North Carolina Power, LLC and Prudential	10-K	001-11155	10.47	03/31/2008
	10	.35	Senior Secured Convertible Note Purchase Agreement dated March 4, 2008 among WCC and various Tontine entities	8-K	001-11155	10.1	03/06/2008
	10	.36	Registration Rights Agreement dated March 4, 2008, among WCC and various Tontine entities	8-K	001-11155	10.2	03/06/2008
	10	.37	Guaranty dated March 4, 2008, from WRI in favor of Tontine Partners, LP and Tontine Capital Partners, LP	8-K	001-11155	10.3	03/06/2008
	10	.38	Security Agreement dated March 4, 2008, between WRI and Tontine Capital Associates, LP	8-K	001-11155	10.4	03/06/2008
	10	.39	Pledge Agreement dated March 4, 2008, among WCC, WRI and Tontine Capital Associates, LP	8-K	001-11155	10.5	03/06/2008
	10	.40	Note Purchase Agreement dated June 26, 2008 among Westmoreland Mining LLC (“WML”), various of its subsidiaries and institutional investors	8-K	001-11155	10.1	06/26/2008
	10	.41	Continuing Agreement of Guaranty and Suretyship dated June 26, 2008 from various WML subsidiaries for the benefit of the noteholders	8-K	001-11155	10.2	06/26/2008
	10	.42	Security Agreement dated June 26, 2008 among WML, various WML subsidiaries and U.S. Bank NA	8-K	001-11155	10.3	06/26/2008
	10	.43	Pledge Agreement dated June 26, 2008 among WCC, WML and U.S. Bank NA, for the benefit of the noteholders	8-K	001-11155	10.4	06/26/2008
	10	.44	Amended and Restated Credit Agreement dated June 26, 2008 among WML, various WML subsidiaries and PNC Bank, NA	8-K	001-11155	10.5	06/26/2008
	10	.45	Amended and Restated Continuing Agreement of Guaranty and Suretyship dated June 26, 2008 from various WML subsidiaries in favor of PNC Bank, NA	8-K	001-11155	10.6	06/26/2008
	10	.46	Amended and Restated Security Agreement dated June 26, 2008 among WML, various WML subsidiaries, and U.S. Bank NA	8-K	001-11155	10.7	06/26/2008
	10	.47	Amended and Restated Pledge Agreement dated June 26, 2008 among WCC, WML and U.S. Bank NA	8-K	001-11155	10.8	06/26/2008
	10	.48	Membership Interest Purchase Agreement among WRI, WRI Partners, Inc., Absaloka Coal, LLC and Feedstock Investments IV, LLC dated October 16, 2008	8-K	001-11155	10.1	10/21/2008

121

				Incorporated by Reference
Exhibit					File			Filed
Number			Exhibit Description	Form	Number	Exhibit	Filing Date	Herewith
	10	.49	Form of Fixed Payment Note	8-K	001-11155	10.3	10/21/2008
	10	.50	Form of Contingent Payment Note	8-K	001-11155	10.4	10/21/2008
	10	.51	Crow Tribal Lands Coal Lease between the Crow Tribe and WRI dated February 13, 2004					X
	21	.1	Subsidiaries of WCC					X
	23	.1	Consent of KPMG LLP					X
	23	.2	Consent of KPMG LLP					X
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)					X
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)					X
	32		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350					X

122

EX-10.5

EXHIBIT 10.5

AMENDED 2000 PERFORMANCE UNIT PLAN

Article I — Purpose

Section 1.1 The purpose of the Plan is to provide a financial incentive for key executives to encourage and reward desired performance that will further the growth, development and financial success of Westmoreland Coal Company (the “Company”), to align the interests of the Company’s key executives and shareholders and to enhance the Company’s ability to maintain a competitive position in attracting and retaining qualified personnel who contribute, and are expected to contribute, materially to the success of the Company.

Article II — Definitions

Section 2.1 Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates.

“Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity in which the Company has at least twenty percent (20%) of the combined voting power of the entity’s outstanding voting securities, in each case as designated by the Board as being a participating employer in the Plan.

“Assigned Value” shall mean the value assigned by the Committee, in its sole and absolute discretion, to a Performance Unit which is valued other than by reference to the Fair Market Value of the Common Stock, for the attainment of each of Threshold Performance, Target Performance and Maximum Performance in any Performance Period.

“Award” shall mean a Performance Unit granted under the Plan to a Participant by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish that are not inconsistent with the provisions of this Plan.

“Award Certificate” shall mean any written acknowledgment or other instrument or document evidencing any Award and describing the anticipated time, manner and method of payment of fully vested Awards at the end of the Performance Period, which is signed by or acknowledged by the Company.

“Award Notification” shall mean any written acknowledgment or other instrument or document that provides notice of a Participant’s selection by the Committee to receive an Award, which is signed or acknowledged by the Company.

“Base Value” shall mean the average of the Daily Price of the Common Stock for the twenty (20) consecutive trading days on which one or more trades occurs immediately preceding the commencement of the Performance Period.

“Board” shall mean the Board of Directors of the Company.

“Cause” shall mean (i) the engaging by the Participant in willful conduct or misconduct that is injurious to the Company or its Subsidiaries or Affiliates, or (ii) the embezzlement or misappropriation of funds or property of the Company or its Subsidiaries or Affiliates by the Participant, or the final conviction of the Participant of a felony or the entrance of a plea of guilty or nolo contendere by the Participant to a felony, or (iii) any behavior that brings the employee into public disrepute, contempt, scandal or ridicule or that reflects unfavorably upon the reputation or high moral or ethical standards of the Company. For purposes of this paragraph, no act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant without reasonable belief that the Participant’s action or omission was in the best interest of the Company. Any determination of Cause shall be made by the Committee, in its sole discretion, and shall be final and binding on a Participant.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Committee” shall mean a committee of the Board composed of not less than two Non-Employee Directors, all of whom shall be “nonemployee directors” with respect to the Plan within the meaning of Section 16 and all of whom may be “outside directors” for purposes of Section 162(m) of the Code. The members of the Committee shall be appointed by and serve at the pleasure of the Board. In the absence of a resolution of the Board determining otherwise, “Committee” shall mean the Compensation and Benefits Committee of the Board.

“Common Stock” shall mean the common stock of the Company, par value $2.50 per share, and any equity security of the Company issued or authorized to be issued in the future, but excluding any preferred stock and any warrants, options or other rights to purchase common Stock.

“Common Stock Appreciation” shall mean the difference between the Fair Market Value of the Common Stock and the Base Value of a Performance Unit at the expiration of the Performance Period for that Performance Unit.

“Company” shall mean Westmoreland Coal Company or any successor thereto.

“Covered Officer” shall mean at any date (i) any individual who, with respect to the previous tax year of the Company, was a “covered employee” of the company within the meaning of Code Section 162(m), excluding any such individual whom the Committee, in its discretion, reasonably expects not to be a “covered employee” with respect to the current tax year of the Company and (ii) any individual who was not a “covered employee” under Code Section 162(m) for the previous tax year of the Company, but whom the Committee, in its discretion, reasonably expects to be a “covered employee” with respect to the current tax year of the Company or with respect to the tax year of the Company in which any applicable Award will be paid.

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“Daily Price” shall mean the average of the highest and lowest sale price occurring during any given trading day on which the Common Stock of the Company is traded.

“Disability” shall mean the disability of a Participant under the terms of the then effective long term disability plan of the Company.

“Employee” shall mean any employee (as defined in accordance with Section 3401(c) of the Code) of the Company or an Affiliate or Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan.

“Employer” shall mean the Company or an Affiliate or Subsidiary, whichever at the time employs the Employee.

“Fair Market Value” shall mean the average of the Daily Price of the Common Stock for the last twenty (20) consecutive trading days of a Performance Period on which one or more trades of Common Stock occurs.

“Maximum Award” shall mean the Award payable under the Plan for Maximum Performance in any Performance Period.

“Maximum Performance” shall mean the Performance Goals established for any Performance Period, the attainment of which is necessary for the payment of the Maximum Award of a Target Award with an Assigned Value for that Performance Period.

“Non-Employee Director” shall mean a member of the Board who is not an Employee or officer of the Company or any of its Subsidiaries or Affiliates.

“Participant” shall mean an Employee who is selected to participate in the Plan.

“Performance Goals” shall mean performance goals or objectives established by the Committee for each Performance Period pursuant to this Plan, the attainment of which is necessary for the payment of an Award to a Participant at the completion of the Performance Period. Performance Goals may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Affiliate, Subsidiary, or division, department or function within the Company, Affiliate or Subsidiary in which the Participant is employed. Any Performance Goals applicable to the Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code shall be limited to specified levels of, or increases in, the Company’s, Affiliate’s or Subsidiary’s market share, sales, costs, return on equity, earnings per share, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, earnings growth, return on capital, return on assets, total shareholder return and/or increase in the Fair Market Value of the Common Stock , measurements of safety performance or any combination thereof. Each Performance Goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders’ equity and/or Shares outstanding, or to

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assets or net assets. Except in the case of Performance Goals related to an Award intended to qualify under Section 162(m) of the Code, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Goals unsuitable, the Committee, after the commencement of a Performance Period, may modify such Performance Objectives, in whole or in part, as the Committee deems appropriate and equitable.

“Performance Period” shall mean the period of time specified in an Award Notification to be used in measuring the degree to which the Performance Goals relating to Performance Units granted under that Award Notification have been met; provided, however, that for purposes of the initial Performance Period of the Plan, Performance Period shall mean the period commencing on July 1, 2000 and ending June 30, 2003.

“Performance Unit” shall mean a right that is (i) denominated in cash or Common Stock, (ii) valued, as determined by the Committee, either in accordance with the achievement of such Performance Goals during such Performance Periods as the Committee shall establish or with reference to the Fair Market Value of the Common Stock, and (iii) payable at such time and in such form as the Committee shall determine in accordance with the terms and conditions of Article VI hereof.

“Plan” shall mean the 2000 Performance Unit Plan, as amended from time to time.

“Retirement” shall mean the Termination of Employment of a Participant from the employ or service of the Company or any of its Affiliates or Subsidiaries in accordance with the terms of the applicable Company retirement plan, or if a Participant is not covered by any such plan, the Termination of Employment of a Participant on or after the earliest to occur of the following:

          (a) the attainment by the Participant of the age of 65 or the achievement of five years of employment or service with the Company, whichever occurs later; or

          (b) the attainment by the Participant of the age of 62 and twenty years of employment or service with the Company.

“Section 16” shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time.

“Section 162(m)” shall mean Section 162(m) of the Code and the rules promulgated thereunder or any successor provision thereto as in effect from time to time.

“Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

“Target Award” shall mean the Award payable under the Plan for Target Performance in any Performance Period.

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“Target Performance” shall mean the Performance Goals established for any Performance Period, the attainment of which is necessary for the payment of a Target Award with an Assigned Value for that Performance Period.

“Termination of Employment” shall mean the time when the employee-employer relationship between a Participant and the Employer is terminated for any reason, with or without Cause, including, but not by way of limitation, a termination by resignation or discharge, but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of a Participant by the Employer; (ii) at the discretion of the Committee, terminations which result in a temporary severance of the employee-employer relationship; and (iii) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Employer with the former Employee. Notwithstanding the foregoing, the Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment. However, notwithstanding any provision of this Plan, the Employer has an absolute and unrestricted right to terminate an Employee’s employment at any time for any reason whatsoever, with or without Cause.

“Threshold Performance” shall mean the level of attainment of a Performance Goal necessary for the payment of any Award with an Assigned Value upon the completion of any Performance Period for that Award.

Article III — Plan Administration

Section 3.1 Subject to the authority and powers of the Board in relation to the Plan as hereinafter provided, the Plan shall be administered by the Committee; provided, however, that the Committee may not exercise any authority otherwise granted to it hereunder if such action would have the effect of increasing the amount of any Award payable hereunder to any Covered Officer. All determinations by the Committee shall be made by the affirmative vote of a majority of its members, but any determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. All decisions by the Committee pursuant to the provisions of the Plan and all orders or resolutions of the Board pursuant thereto shall be final, conclusive and binding on all persons, including but not limited to the Participants, the Company and its Affiliates and Subsidiaries and their respective equity holders, heirs, successors and personal representatives.

Section 3.2 The Committee, on behalf of the Participants, shall have full authority to interpret and enforce this Plan in accordance with its terms and shall have all powers necessary for the accomplishment of that purpose, including, but not by way of limitation, the following powers:

          (a) To select the Participants;

          (b) To make Awards to Participants with respect to each Performance Period, subject to the terms and conditions set forth in the Plan.;

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          (c) To establish the terms and conditions under which any Award granted hereunder may be earned and paid, subject to the terms and conditions set forth in the Plan, including, without limitation, the Performance Period, Assigned Value (if any) and vesting schedule of each Award;

          (d) To establish the terms and conditions of any Award Certificate evidencing an Award granted hereunder, subject to the terms and conditions set forth in the Plan;

          (e) To interpret, construe, approve and adjust all terms, provisions, conditions and limitations of this Plan;

          (f) To decide any questions arising as to the interpretation or application of any provision of the Plan;

          (g) To prescribe forms and procedures to be followed by Employees for participation in the Plan, or for other occurrences in the administration of the Plan;

          (h) To adopt such rules and regulations for the administration of the Plan not inconsistent with the terms of the Plan as it may deem appropriate in its sole and absolute discretion; and

          (i) To waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate an Award theretofore granted, prospectively or retroactively; provided, however, that any such waiver, amendment, alteration, suspension, discontinuance or termination that would adversely affect the rights of any Participant or holder or beneficiary of any vested Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

Section 3.3 No member of the Committee shall be liable for anything done or omitted to be done by him or by any member of the Committee in connection with the performance of any duties under this Plan, except for his own willful misconduct or as expressly provided by statute.

Section 3.4 All actions which may be taken by the Committee hereunder may also be taken by the Board except for actions with regard to any Award intended to qualify under Section 162(m) of the Code which would cause such Award not to qualify under said section.

Article IV-Participation

Section 4.1 Subject to the provisions of the Plan, the Committee may from time to time select any Employee who is a salaried employee of the Company or of an Affiliate or Subsidiary to be granted Awards under the Plan. Eligible Employees hired by the Company after the commencement of a Performance Period may be granted Performance Units hereunder for the Performance Period which commenced in the twelve (12) month period preceding the date on which the Employee became employed by the Company. No Employee shall at any time have the right (a) to receive an Award upon the expiration of a Performance Period which commenced prior to the twelve (12) month period preceding the date on which they became an employee (b)

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to be selected as a Participant in the Plan for any Performance Period, (c) if selected as a Participant in the Plan, to be entitled to an Award, or (d) if selected as a Participant in one Performance Period, to be selected as a Participant in any subsequent Performance Period.

Article V — Awards

Section 5.1 For Performance Units measured by an Assigned Value, the Committee shall establish Performance Goals for such Performance Units, including the Threshold Performance, Target Performance and Maximum Performance, within 90 days of the commencement of a Performance Period, and an Award for that Performance Period shall subject to the provisions of Article VI be paid or otherwise deliverable upon the completion of the Performance Period solely on account of the attainment of such Performance Goals. The degree to which the Company achieves such Performance Goals and the business needs and circumstances of the Company at the time of payment of any Award shall serve as the basis for the Committee’s determination of the Award payable to a Participant upon the completion of a Performance Period. Awards will be prorated for Company performance results occurring between stated performance levels. For Performance Units measured by an Assigned Value, Company performance below the Threshold Performance in any Performance Period will result in the forfeiture of such Performance Units awarded for that Performance Period, without any Award payment.

Section 5.2 Awards payable at the expiration of a Performance Period shall be the product of (a) the number of Performance Units in the Award and (b) the Common Stock Appreciation, if the Performance Units are measured by the Fair Market Value of the Common Stock, or the appropriate Assigned Value based upon Company performance, if the Performance Units are measured by Assigned Value.

Section 5.3 In the case of all Awards measured by Assigned Value, no Participant may receive in any one fiscal year an Award under the Plan of an amount greater than $2.5 million. In the case of all Awards measured by Common Stock Appreciation, no Participant may receive in any one fiscal year an Award under the Plan of a number of Performance Units greater than 500,000.

Section 5.4 The Company shall maintain a bookkeeping account for each Participant recording the current value of Performance Units awarded hereunder. Each Participant shall receive an annual statement reflecting the number of Performance Units awarded to that Participant hereunder, the number of Performance Units which have vested as of the date of the statement, and the Base Value or Assigned Value, as appropriate, assigned to each Performance Unit.

Section 5.5 At the Committee’s discretion, the effect of one-time charges and extraordinary, nonrecurring events unrelated to the performance of a Participant such as asset write-downs, litigation judgments or settlements, changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses may be disregarded for purposes of determining the attainment of Performance Goals.

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Article VI — Payment of Awards

Section 6.1 Upon completion of each Performance Period, the Committee shall review Company performance results as compared to the established Performance Goals for that Performance Period, and shall certify (either by written consent or as evidenced by the minutes of a meeting) the specified Performance Goals achieved for the Performance Period (if any) and direct which Award payments are payable under the Plan, if any.

Section 6.2 Vested Performance Units may be paid in a lump sum or in installments over any period of time not to exceed 10 years following the close of the Performance Period or, in accordance with terms established by the Committee, on a deferred basis. The Committee shall have sole and absolute authority and discretion to determine the time and manner in which Awards, if any, shall be paid under this Plan. The anticipated time and manner of payment will be as set forth in the Award Certificate; provided, however, that the Committee reserves the right, based on business needs and circumstances of the Company at any time prior to actual payment of any portion of an award, to modify or amend the terms and manner of payment. The following provisions may, at the discretion of the Committee, apply to any Award:

     (a) Form of Payment: Payment of vested Awards may be made in cash, or at the option of the Committee, in whole or in part in Company Common Stock from any shareholder approved Stock Incentive Plan, and may be subject to such restrictions as the Committee shall determine.

     (b) Vesting: Except as provided in subsection (d) below, Participants shall vest in Performance Units in equal one-third increments on the anniversary date of an Award.

     (c) Voluntary or Involuntary Termination: In the event of a Participant’s Involuntary Termination of Employment Without Cause by the Company, the Participant shall be entitled to payment for all vested Performance Unit Awards in accordance with the terms and conditions of the Award Certificate. Notwithstanding anything to the contrary set forth elsewhere in this Plan, in the event of the Participant’s Termination of Employment for Cause prior to the close of a Performance Period by the Company, its Affiliate or Subsidiary, or by the Participant for reasons other than Retirement, death or Disability, then the Participant shall forfeit all Awards, whether vested or not, for which the Performance Period has not ended.

     (d) Retirement, Death or Disability: In the event of the death, Retirement or Disability of a Participant prior to the close of a Performance Period, a pro rata portion of the Participant’s outstanding Performance Units shall vest based on the number of full months which have elapsed in each Performance Period as of the date of the Participant’s death, Retirement or Disability.

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Section 6.3 The Committee shall not have discretion or authority to increase the amount payable hereunder pursuant to an Award in a manner inconsistent with the requirements for qualified performance-based compensation under Code Section 162(m).

Section 6.4 Notwithstanding any other provision of the Plan or any to the contrary, Performance Units which vest on or after January 1, 2005 will be paid in installments over five (5) years following the close of the Performance Period The first such payment shall be made within ninety (90) days after the end of the Performance Period and each successive installment to be on the anniversary of the first payment. While the provisions of Section 6.2 providing discretion in the Committee to modify such payment shall not be effective after 2004 and the provisions of Section 9.2 shall be effective with respect to payment of all Units under Article VI which become vested after 2004.

Article VII — Amendment, Modification, Suspension or Termination of the Plan

Section 7.1 The Board may at any time terminate or suspend the Plan, in whole or in part, and from time to time, amend or modify the Plan, provided that, except as otherwise provided in the Plan, no such amendment, modification, suspension or termination shall adversely affect the rights of any Participant under any vested Award previously earned but not yet paid to such Participant without the consent of such Participant. In the event of such termination, in whole or in part, of the Plan, the Committee may, subject to the foregoing, direct the payment to Participants of any amounts specified in Article V and theretofore not paid out, prior to the respective dates upon which payments would otherwise be made hereunder to such Participants, and in a lump sum or installments as the Committee shall prescribe with respect to each such Participant. Notwithstanding the foregoing, any such payment to a Covered Officer must be discounted to reflect the present value of such payment using a rate equal to the average yield of a 5-year treasury security for the month prior to the month in which the payment is made. The Board may at any time and from time to time delegate to the Committee any or all of its authority under this Article VII.

Article VIII — Adjustments

Section 8.1 The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock of the Company) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.

Section 8.2 In the event of any consolidation or merger of the Company with another corporation or entity or the adoption by the Company of a plan of exchange affecting the Common Stock of the Company or any distribution to holders of Company Common Stock of

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securities or property (other than normal cash dividends or dividends payable in Company Common Stock), or a capital reorganization or reclassification or other transaction involving a significant increase or decrease in the capitalization of the Company, the Committee shall make such adjustment or other provision as it may deem equitable, including adjustments to the Base Value assigned to outstanding Awards, to give proper effect to such event.

Article IX — General Provisions

Section 9.1 Unless otherwise determined by the Committee and provided in the Award Certificate, no Award or any other benefit under this Plan shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution. Any attempted assignment of an Award or any other benefit under this Plan in violation of this Section 9.1 shall be null and void. A Participant may designate in writing a beneficiary (including the trustee or trustees of a trust) who shall upon the death of such Participant be entitled to receive all amounts payable under the provisions of Section 6.2 to such Participant. A Participant may rescind or change any such designation at any time. No transfer of an Award by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall be furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer.

Section 9.2 The Company shall have the right to withhold applicable taxes from any Award payment and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes.

If and to the extent any portion of any payment, compensation or other benefit provided to Participant in connection with Participant’s separation from service (as defined in Section 409A of the Code (“Section 409A”)) is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, as determined by the Company in accordance with its procedures, such portion of the payment shall not be paid before the day that is six months plus one day after the date of separation from service as determined under Section 409A (the “New Payment Date”), except as Section 409A may then permit. The aggregation of any payments that otherwise would have been paid to Participant during the period between the date of separation from service and the New Payment Date shall be paid to Participant in a lump sum on such New Payment Date, and any remaining payment shall be paid on their original schedule.

For purposes of this Plan, each amount to be paid shall be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the “short term deferral period” as defined in Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Neither the Company nor the Participant shall have the right to accelerate or defer the delivery of any such payments except specifically permitted or required by Section 409A. This Plan is intended to comply with the provisions of Section 409A and the

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Plan shall, to the extent practicable, be construed in accordance therewith. Terms defined in the Plan shall the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, the Company makes no representations or warranty and shall have no liability to any Participant or any other person if any provisions of or payments under this Plan are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of that section.

Section 9.3 No Employee or other person shall have any claim or right to be granted an Award under this Plan, and there is no obligation for uniformity of treatment of Participant or holders or beneficiaries of Awards. Neither the Plan nor any action taken thereunder shall be construed as giving an Employee any right to be retained in the employ of the Company or an Employer and the right of the Company or Employer to dismiss or discharge any such Participant is specifically reserved. The benefits provided for Participants under the Plan shall be in addition to, and shall in no way preclude, other forms of compensation to or in respect of such Participants. No Participant shall have any lien on any assets of the Company or an Employer by reason of any Award made under this Plan.

Section 9.4 At the discretion of the Committee, the Award payments under this Plan may be considered compensation under any deferred compensation plan adopted by the Company after the effective date of this Plan.

Section 9.5 Each Award hereunder shall be evidenced by an Award Certificate that shall be delivered to the Participant and may specify the terms and conditions of the Award and any rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award Certificate, the terms of the Plan shall prevail.

Section 9.6 This Plan and all determinations made and actions taken pursuant thereto, shall be governed by and construed in accordance with, the laws of the State of Colorado, without giving effect to conflicts of laws principles.

Section 9.7 If any provision of the Plan or any Award is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Participant or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Participant or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

Section 9.8 Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any subsidiary or affiliate of the Company and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any subsidiary or affiliate of the

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Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any subsidiary or affiliate.

Section 9.9 This Plan shall be binding upon and inure to the benefit of the Company, its successor and assigns and each Participant and his legal representatives.

Article X — Term of the Plan

Section 10.1 The Plan shall be effective as of June 1, 2000 and shall remain effective until May 31, 2010.

Section 10.2 No new Awards shall be granted under the Plan after the termination of the Plan. Unless otherwise expressly provided in the Plan or in an applicable Award Certificate, any Award granted hereunder may, and the authority of the Board or Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the termination of the Plan for so long as Awards remain outstanding under the Plan.

IN WITNESS WHEREOF, the Company has executed this Plan this 4th day of December, 2008, but effective as of July 1, 2000.

	Westmoreland Coal Company
	By
	Title:
ATTEST:

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EX-10.7

EXHIBIT 10.7

WESTMORELAND COAL COMPANY

AMENDED 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.

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”.

     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”); provided, however, that the term “Company” shall be limited to include only entities that are eligible issuers of service recipient stock (as defined in Treas. Reg. Section 1.409A-1(b)(5)(iii)(E)), or the applicable successor regulations for Awards that would otherwise be subject to Section 409A, unless the Board of Directors determines otherwise.

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.

     (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.”

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     (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

     (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

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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) to the extent provided for in the applicable Nonstatutory Stock Option agreement or approved by the Board in its sole discretion, by delivery of a notice of “net exercise” to the Company, as a result of which the Participant would receive (A) the number of shares of Common Stock underlying the Option so exercised reduced by (B) the number of shares of Common Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise;

          (5) to the extent provided for in the applicable Incentive Stock Option agreement or approved by the Board in its sole discretion, by delivery of a notice of “net exercise” to the Company, as a result of which the Participant would receive the number of

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shares of Common Stock underlying the Option so exercised reduced by the number of shares of Common Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise; provided, however, that such provision shall only be operative in an Incentive Stock Option agreement to the extent that the inclusion of the provision will not cause the Option to fail to qualify as an Incentive Stock Option under the applicable Code rules;

          (6) payment of such other lawful consideration as the Board may determine; or

          (7) 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.

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.

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          (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 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.

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     (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 of and/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

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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 in a manner consistent with Section 409A, 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 cash and/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 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) the sub-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

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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 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

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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 of Rule 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 complies with clauses (x) and (y) of subsection (C) of this definition; and provided, further, that

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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 shall not 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

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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 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

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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 Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Form 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.

     (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.

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     (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.

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     (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.

          (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, vesting and/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, depreciation and/or amortization,

     (B) earnings before operating income or profit,

     (C) operating efficiencies,

     (D) return on equity, assets, capital, capital employed, or investment,

     (E) after tax operating income,

     (F) net income,

     (G) earnings or book value per share,

     (H) cash flow(s),

     (I) total sales or revenues or sales or revenues per employee,

     (J) production (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

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     (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.

          (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.

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     (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, excluding choice-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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EX-10.11

EXHIBIT 10.11

WESTMORELAND COAL COMPANY

Restricted Stock Agreement
Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

     Name of Recipient:

     Number of shares of restricted
     common stock awarded:

     Grant Date:

     Westmoreland Coal Company (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement. Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

WESTMORELAND COAL COMPANY
By:
	Name:
	Title:

Accepted and Agreed:

Name:

WESTMORELAND COAL COMPANY

Restricted Stock Agreement
Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

     The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

     1. Issuance of Restricted Shares.

          (a) The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of Recipient’s service as a member of the Company’s board of directors (the “Board”).

          (b) As promptly as practicable following the Grant Date, the Company shall issue one or more certificates in the name of the Recipient for the Restricted Shares. Such certificate(s) shall initially be held on behalf of the Recipient by the Secretary of the Company. Following the vesting of any Restricted Shares pursuant to Section 2 below, the Secretary shall, if requested by the Recipient, deliver to the Recipient a certificate representing the vested Restricted Shares. The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

     2. Vesting.

          (a) Vesting Schedule. Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule: ___% of the total number of Restricted Shares shall vest on the [first anniversary] of the Grant Date and ___% of the total number of Restricted Shares shall vest at the end of each successive ___-month period following the [first anniversary] of the Grant Date, through and including the ___anniversary of the Grant Date. Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

          (b) Acceleration of Vesting. Notwithstanding the foregoing vesting schedule, (i) upon the occurrence of a Reorganization Event or a Change in Control Event (as such terms are defined in the 2007 Plan), all unvested Restricted Shares shall be treated in accordance with Sections 10(b) and 10(c) of the 2007 Plan and (ii) all unvested Restricted Shares shall vest effective immediately prior to the death or Disability (as defined below) of the Recipient. For purposes of this Agreement, “Disability” means: (A) the term “Disability” as used in the Company’s long-term disability plan, if any; or (B) if clause (A) is not applicable, a physical or mental infirmity which impairs the Recipient’s ability to substantially perform his or her duties for a period of 180 consecutive days.

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     3. Forfeiture of Unvested Restricted Shares Upon Termination of Service.

     If the Recipient’s service as a member of the Board terminates under circumstances other than as provided in Section 2(b) above, all of the Restricted Shares that are unvested as of the time of such termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination, unless the Company’s Board of Directors, in its sole discretion, approves the vesting of such shares of Restricted Shares. The Recipient hereby authorizes the Company to take any actions necessary or appropriate to cancel any certificate(s) representing forfeited Restricted Shares and transfer ownership of such forfeited Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company. The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited.

     4. Restrictions on Transfer.

     The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares: to or for the benefit of any spouse, parents, children, step-children, grandchildren, legal dependents and any other relatives approved by the Compensation and Benefits Committee (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Recipient and/or Approved Relatives, provided that such Restricted Shares shall remain subject to this Agreement (including without limitation the forfeiture provisions set forth in Section 3 and the restrictions on transfer set forth in this Section 4) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

     5. Restrictive Legends.

     All certificates representing Restricted Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under applicable law:

“These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

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     6. Rights as a Shareholder. Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall (i) have the right to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders and (ii) be entitled to all ordinary cash dividends paid with respect to the Restricted Shares. If any 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.

     7. Provisions of the Plan.

     This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.

     8. Tax Matters. The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares, and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares. The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares. The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

     9. Miscellaneous.

          (a) Authority of Compensation and Benefits Committee. In making any decisions or taking any actions with respect to the matters covered by this Agreement, the Compensation and Benefits Committee shall have all of the authority and discretion, and shall be subject to all of the protections, provided for in the Plan. All decisions and actions by the Compensation and Benefits Committee with respect to this Agreement shall be made in the Compensation and Benefits Committee’s discretion and shall be final and binding on the Recipient.

          (b) No Right to Continued Service. The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued service as a member of the Board, this Agreement does not constitute an express or implied promise of continued service or confer upon the Recipient any rights with respect to continued service on the Board.

          (c) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

          (d) Recipient’s Acknowledgments. The Recipient acknowledges that he or she has read this Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and the Plan.

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EX-10.12

EXHIBIT 10.12

WESTMORELAND COAL COMPANY

Restricted Stock Agreement
Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

Name of Recipient:

Number of shares of restricted common stock awarded:

Grant Date:

     Westmoreland Coal Company (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement. Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

WESTMORELAND COAL COMPANY
By:
	Name:
	Title:

Accepted and Agreed:

Name:

WESTMORELAND COAL COMPANY

Restricted Stock Agreement
Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

     The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

     1. Issuance of Restricted Shares.

          (a) The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of Recipient’s service as a member of the Company’s board of directors (the “Board”).

          (b) As promptly as practicable following the Grant Date, the Company shall issue one or more certificates in the name of the Recipient for the Restricted Shares. Such certificate(s) shall initially be held on behalf of the Recipient by the Secretary of the Company. The Recipient agrees that the Restricted Shares shall be subject to the restrictions on transfer set forth in Section 2 of this Agreement. Following the lapsing of such restrictions on transfer, the Secretary shall, if requested by the Recipient, deliver to the Recipient a certificate representing the Restricted Shares for which such restrictions have lapsed.

     2. Restrictions on Transfer.

     The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until the first anniversary of the Grant Date, except that the Recipient may transfer such Restricted Shares: to or for the benefit of any spouse, parents, children, step-children, grandchildren, legal dependents and any other relatives approved by the Compensation and Benefits Committee (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Recipient and/or Approved Relatives, provided that such Restricted Shares shall remain subject to this Agreement and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

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     3. Restrictive Legends.

     All certificates representing Restricted Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under applicable law:

“These shares of stock are subject to restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

     4. Rights as a Shareholder. Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall (i) have the right to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders and (ii) be entitled to all ordinary cash dividends paid with respect to the Restricted Shares. If any 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 as the shares of Restricted Stock with respect to which they were paid.

     5. Provisions of the Plan.

     This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.

     6. Tax Matters. The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares, and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares. The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition and/or disposition of the Restricted Shares.

     7. Miscellaneous.

          (a) Authority of Compensation and Benefits Committee. In making any decisions or taking any actions with respect to the matters covered by this Agreement, the Compensation and Benefits Committee shall have all of the authority and discretion, and shall be subject to all of the protections, provided for in the Plan. All decisions and actions by the Compensation and Benefits Committee with respect to this Agreement shall be made in the Compensation and Benefits Committee’s discretion and shall be final and binding on the Recipient.

          (b) No Right to Continued Service. The Recipient acknowledges and agrees that this Agreement does not constitute an express or implied promise of continued service or confer upon the Recipient any rights with respect to continued service on the Board.

3

          (c) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

          (d) Recipient’s Acknowledgments. The Recipient acknowledges that he or she has read this Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and the Plan.

4

EX-10.13

EXHIBIT 10.13

WESTMORELAND COAL COMPANY

Restricted Stock Agreement
Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

Name of Recipient:

Number of shares of restricted
common stock awarded:

Grant Date:

          Westmoreland Coal Company (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement. Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

WESTMORELAND COAL COMPANY
By:
	Name:
	Title:

Accepted and Agreed:

Name:

WESTMORELAND COAL COMPANY

Restricted Stock Agreement

Granted under the 2007 Equity Incentive Plan for Employees and Non-Employee Directors

     The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

     1. Issuance of Restricted Shares.

          (a) The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of [Recipient’s acceptance of employment with the Company and of services to be rendered] [employment services rendered and to be rendered] by the Recipient to the Company.

          (b) As promptly as practicable following the Grant Date, the Company shall issue one or more certificates in the name of the Recipient for the Restricted Shares. Such certificate(s) shall initially be held on behalf of the Recipient by the Secretary of the Company. Following the vesting of any Restricted Shares pursuant to Section 2 below, the Secretary shall, if requested by the Recipient, deliver to the Recipient a certificate representing the vested Restricted Shares. The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

     2. Vesting.

          (a) Vesting Schedule. Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule: ___% of the total number of Restricted Shares shall vest on the [first anniversary] of the Grant Date and ___% of the total number of Restricted Shares shall vest at the end of each successive ___-month period following the [first anniversary] of the Grant Date, through and including the ___anniversary of the Grant Date. Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

          (b) Acceleration of Vesting. Notwithstanding the foregoing vesting schedule, all unvested Restricted Shares shall vest effective immediately prior to (i) a Change in Control Event (as defined in the Plan) or (ii) the death, Disability (as defined below) or Qualifying Retirement (as defined below) of the Recipient.

          (c) Definitions. For purposes of this Agreement:

               (i) “Disability” means: (A) if the Recipient’s employment with the Company is subject to the terms of an employment agreement between the Recipient and the Company, which employment agreement includes a definition of “Disability”, the term

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“Disability” as used in this Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; (B) in the absence of such an agreement, the term “Disability” as used in the Company’s long-term disability plan, if any; or (C) if neither clause (A) nor clause (B) is applicable, a physical or mental infirmity which impairs the Recipient’s ability to substantially perform his or her duties for a period of 180 consecutive days.

               (ii) A “Qualifying Retirement” means retirement by the Recipient after satisfaction of the conditions in either clause (A) or clause (B): (A) the Recipient has both (1) attained the age of 55 and (2) completed at least ten years of employment with the Company; or (B) the sum of the Recipient’s age plus the number of years he or she has been employed by the Company equals or exceeds 75 years.

     3. Forfeiture of Unvested Restricted Shares Upon Employment Termination.

     In the event that the Recipient ceases to be employed by the Company for any reason or no reason, with or without cause (except as provided in Section 2(b) above), all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment. The Recipient hereby authorizes the Company to take any actions necessary or appropriate to cancel any certificate(s) representing forfeited Restricted Shares and transfer ownership of such forfeited Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company. The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited. If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

     4. Restrictions on Transfer.

     The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares: to or for the benefit of any spouse, parents, children, step-children, grandchildren, legal dependents and any other relatives approved by the Compensation and Benefits Committee (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Recipient and/or Approved Relatives, provided that such Restricted Shares shall remain subject to this Agreement (including without limitation the forfeiture provisions set forth in Section 3 and the restrictions on transfer set forth in this Section 4) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement. The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

3

     5. Restrictive Legends.

     All certificates representing Restricted Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under applicable law:

“These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

     6. Rights as a Shareholder. Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall (i) have the right to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders and (ii) be entitled to all ordinary cash dividends paid with respect to the Restricted Shares. If any 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.

     7. Provisions of the Plan.

     This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.

     8. Tax Matters.

          (a) Acknowledgments; Section 83(b) Election. The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares. The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares. The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

          (b) Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares. On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding cannot exceed the Company’s minimum statutory withholding obligations (based on

4

minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Recipient may, at the option of the Recipient, satisfy such tax withholding obligations by transferring to the Company, on each date on which Restricted Shares vest under this Agreement, such number of Restricted Shares that vest on such date as have a fair market value (calculated using the last reported sale price of the common stock of the Company on the American Stock Exchange on the trading date immediately prior to such vesting date) equal to the amount of the Company’s tax withholding obligation in connection with the vesting of such Restricted Shares. To effect such delivery of Restricted Shares, the Recipient hereby authorizes the Company to take any actions necessary or appropriate to cancel any certificate(s) representing such Restricted Shares and transfer ownership of such Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company.

     9. Miscellaneous.

          (a) Authority of Compensation and Benefits Committee. In making any decisions or taking any actions with respect to the matters covered by this Agreement, the Compensation and Benefits Committee shall have all of the authority and discretion, and shall be subject to all of the protections, provided for in the Plan. All decisions and actions by the Compensation and Benefits Committee with respect to this Agreement shall be made in the Compensation and Benefits Committee’s discretion and shall be final and binding on the Recipient.

          (b) No Right to Continued Employment. The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

          (c) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

          (d) Recipient’s Acknowledgments. The Recipient acknowledges that he or she has read this Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and the Plan.

5

EX-10.14

EXHIBIT 10.14

	Number: GP- 04	Page 1 of 5
	Revision Date: December 31, 2008
WESTMORELAND COAL COMPANY	Supersedes Policy Dated 7/26/04 and GP-04 dated 5/21/07
Manual of Policies:	Approved Issuing Officer:
COMPENSATION Title: SEVERANCE POLICY	Original signed as Policy # GPC-001 on file in Corporate Office
	Name: D.L. Lobb
	Title: CEO & President

1.	POLICY STATEMENT
	It is the policy of the Westmoreland Coal Company, (“the Company”, or “Westmoreland”) to pay severance benefits under certain specific circumstances, as defined by this policy, to certain non-union employees who are involuntarily terminated for reasons other than cause and under certain conditions described herein. The purpose of severance is to aid employees for hardships incurred upon loss of employment. This policy applies to non-union employees of Westmoreland Coal Company and all of its direct and indirect subsidiaries (each such entity, an “Employer” for its employees, and each such employee, an “Employee” or “you”).
2.	FUTURE OF THE POLICY
	Although the Company currently expects to continue the provisions of this policy at its sole discretion, the Company reserves the right to change or amend at any time, any and all terms and conditions of this policy, or to terminate this policy in its entirety, upon six (6) months notice to employees covered under this policy. Furthermore, the Company reserves the right to interpret and construe the provisions of this Policy, including the determination of the eligibility for and amount of benefits under the Policy, to the fullest extent permissible by law.
3.	ELIGIBILITY
	You are an “Eligible Employee” if:

o You are an active full-time employee of the Employer, scheduled to work at least 40 hours per week, AND

o Your employment terminates due to:

1.	Involuntary termination that is not for Cause, including but not limited to, permanent layoff, permanent reduction in force, or termination of employment due to lack of work or job elimination; or
2.	The sale of a facility or division or segment of business unless, following such sale, you are subsequently employed by the purchaser of the facility or division or segment of business; or
3.	A position being relocated in which the distance between the relocated place of employment and your residence is at least fifty (50) miles greater than the distance between your former place of employment and your residence, and you do not continue employment at the relocated place of employment. AND

o You have a position on the date your employment terminates that is listed in the Position or Classification section of the attached Addendum; AND

o Within 30 days following your termination with Employer you do not receive an offer of Similar Employment from the Employer or any of its affiliates or subsidiaries, or (i) your employment is terminated by the Employer as a result of or in relation to a sale of the Employer or any of its assets, business unit(s), or divisions(s), subsidiaries or affiliates or the contracting out or outsourcing of any function within the Employer, and (ii) you do not receive an offer of Similar Employment from the purchasing, contracting, or outsourcing party or a successor thereto. “Similar Employment” means a position with pay and Working Conditions that are reasonably comparable to that of your last position with the Company. For purposes of the Policy, “Working Conditions” do not include employee benefits. An Employee is not eligible for severance benefits hereunder, if that an Employee does not accept the Similar Employment; AND

Title:	No.	Date Issued:	Supersedes	Page 2 of 5
SEVERANCE POLICY	GP — 04	12/31/08	Policy IV-19
			Dated 10/1/94
			and GP-04 dated
			5/21/07

o You sign, return to the Company and do not revoke the Release Agreement (“Release Agreement”) within the time frames specified in that document or a letter accompanying same in a form satisfactory to the Company.

4.	INELIGIBILITY
	The following are NOT Eligible Employees:

o Employees who are covered by a collective bargaining agreement that does not provide for participation in this Policy.

o Seasonal, Part-time and/or Temporary workers (as reflected in the Employer’s payroll system) and independent contractors.

o Employees whose employment is terminated due to the employee’s resignation, death, or disability (as defined in the Company’s applicable long-term disability Policy).

o Employees whose employment is terminated for Cause, as defined herein.

o For Cause: Gross or willful misconduct that is injurious to the Company, or its direct or indirect subsidiaries or affiliates, which includes but is not limited to an act or acts constituting embezzlement, misappropriation of funds or property of such entities, larceny, fraud, gross negligence, crime or crimes resulting in a felony conviction, moral turpitude or behavior that brings the Employee into public disrepute, contempt, scandal or ridicule or that reflects unfavorably upon the reputation or high moral or ethical standards of the Company (or the Employer) or violation of Company (or Employer) policy including but not limited to the policies set forth on Code of Business Conduct and Fitness for Duty; willful misrepresentation to the Company’s or an Employer’s directors, officers, managers, supervisors, employees or third parties; or failure to meet the duties of care and loyalty to the Company or the Employer. For purposes of this paragraph, failure to act on the participant’s part shall be considered “willful” if done by the participant without a reasonable belief that the omission was in the best interest of the Company or the Employer.

o Any Employee who refuses to sign, revokes or subsequently breaches the Release Agreement.

o Any Employee who is in material violation of company policy or in material breach of statutory or common law duties that the Employee owes to the Employer.

o Any Employee who is not otherwise an Eligible Employee, as provided above.

5.	DETERMINATION AND PAYMENT OF SEVERANCE PAYMENTS
	If you are an Eligible Employee, you may be eligible to receive severance benefits that consist of three parts:

o Severance Compensation

o Medical, Vision, and Dental Benefit Continuation

o Outplacement Assistance

5.1.

Severance Compensation: Severance compensation will be calculated based upon your Position or Classification on the date your employment terminates and completed Years of Service as set forth in the attached Addendum.

For purposes of calculating severance compensation, base pay means your “weekly base pay” in effect for the payroll period during which employment with your Employer is terminated. Overtime, bonuses, commissions, incentive pay and any taxable or nontaxable fringe benefit or payment will be excluded. “Weekly base pay” means 40 hours multiplied by your base hourly rate only for hourly Employees, and your annual base salary divided by 52 for exempt Employees. Your “monthly base pay” is computed by multiplying your “weekly base pay” by 52 and then dividing that number by 12. “Year of Service” means each completed full year of continuous service with the Company or any other Employer from your date of hire. Partial Years of Service will not be included in calculating your severance compensation.

Title:	No.	Date Issued:	Supersedes	Page 3 of 5
SEVERANCE POLICY	GP — 04	12/31/08	Policy IV-19
			Dated 10/1/94
			and GP-04 dated
			5/21/07

	In addition, your severance benefit under the Severance Policy will be reduced (but not below zero) by all amounts of severance pay or similar pay to which you may be entitled to under any other Company Severance Policy, benefits mandated by state or federal law, payment in lieu of WARN notification or any individual written employment agreement or other written agreement relating to payment upon separation from employment or change of control of the Company.
	Severance payments will be paid in equal installments on the normal payroll schedule or in a lump-sum payment as determined solely by the Employer (except that for payments to a CEO/President of an Employer, the determination shall be made by the Employer’s board of directors, excluding the CEO/President if a board member) and shall be net of any tax, medical or other required withholdings. Severance payments shall commence upon the Employee’s “separation of service” within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (“Code”) from the Employer; provided, however, any payments that would otherwise be made in the case of a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, within six (6) months after such Employee’s separation from service (but only with respect to payments that would otherwise be subject to additional tax under Code Section 409A), shall be delayed until the date of such Employee’s separation from service or, if applicable, expiration of the six (6) month period (or, if earlier, the date of death of the Employee).
	No severance payments will be made later than two years after the separation from service or without the return of an executed and non-revoked Release Agreement.
5.2.	Medical, Dental, and/or Vision Benefit Continuation: If you have medical, dental, and/or vision coverage provided by or through the Employer upon your termination of employment, these coverages will terminate at the end of the month following the date your employment terminates. You and your dependents have the right to continue your benefits under COBRA. If you choose to continue your benefits under COBRA, the Employer will share in the cost of the established COBRA rate through the period specified in the attached Addendum based on your Position or Classification on the date your employment terminates. You will be responsible to share the cost of the COBRA rate by paying an equivalent of the established employee premium rate through your specific severance period. The Employer reserves the right to pay you a lump-sum value of the established COBRA rate equal to the length of your specified severance period in lieu of paying the Employer share of cost, in which case you will then be required to pay the full COBRA rate for any continued coverage, and the lump sum payment to you will be taxable income to you. At the end of your specified severance period, you will be responsible for the entire COBRA rate (both employee and Employer portions) through the remaining COBRA period.
	Additionally, the benefit continuation benefit applies only to medical, dental, and vision benefits under Employer-sponsored Plans. It is not provided for the cost of any flexible spending account coverage (which in certain circumstances is also subject to COBRA) or other benefits (for example life insurance or long term disability benefits.) Except for the limited continuation of health coverage discussed here, other employee benefit plans and arrangements of the Employer stop when your employment terminates in accordance with the standard rules of such Plans and arrangements.
5.3.	Outplacement Assistance. You will be able to obtain outplacement assistance services from an outplacement firm selected by the Employer for a specified period of time, as indicated in the Addendum, based on your Position or Classification on the date your employment terminates. You must begin such outplacement assistance within three (3) months of your employment termination to receive this benefit.

6.	CONDITIONS TO PAYMENT OF BENEFITS
	As a condition of your entitlement to severance benefits under the Severance Policy, you must agree in writing to release the Company and others associated with the Company from any and all legal claims, except those preserved by public policy, associated with your employment by the Employer by signing and not revoking the Release Agreement.
	Your severance benefits will be paid in equal installments or in a lump-sum payment, solely determined by the Company, after the expiration of any applicable waiting periods set forth in the Release Agreement and starting within two (2) pay periods of said waiting period and never to exceed two (2) years (unless payment is delayed as provided in Section 5.1 herein). Your severance benefits will be subject to all applicable tax

Title:	No.	Date Issued:	Supersedes	Page 4 of 5
SEVERANCE POLICY	GP — 04	12/31/08	Policy IV-19
			Dated 10/1/94
			and GP-04 dated
			5/21/07

and other withholdings. No deductions will be made as contributions to the Westmoreland Coal Company Savings and Retirement 401(k) Policy. As provided above, you will not be paid severance benefits if you are in material violation of applicable Company policies or you are in violation of any other legal or contractual obligation you may owe the Employer, including without limitation the Release Agreement. To the extent that an Eligible Employee is or has been covered by any other Company or Employer severance Policy(ies) or arrangement(s), this Severance Policy expressly supersedes and replaces any and all such Policy(ies) or arrangement(s) (other than an individual written employment agreement or other written agreement relating to payment upon separation from employment, including change of control agreements) the terms of which will supersede this Policy to the extent such terms are inconsistent herewith.

If you become re-employed with the Company or another Employer in any category of employment prior to your completion of the severance compensation period, your severance benefits under the Severance Policy resulting from the termination will cease, and if you received a lump sum, you will be required to reimburse the Company for the remaining pro-rated amount of severance in accordance with your identified severance period as referenced in the attached Addendum. You again will be subject to the terms of this Policy.

If a court of competent jurisdiction, including without limitation a United States Bankruptcy Court, limits the amount or ability of the Company to pay benefits hereunder, neither the Company, its subsidiaries, affiliates, or successors and their respective employees, officers, directors, shareholders, and agents will have any liability therefore. Likewise, regardless of whether benefits described hereunder are in certain jurisdictions deemed to be wages or compensation, no employee, officer, director, shareholder, or agent of the Company or its subsidiaries, affiliates or successors assumes any liability for the payment of benefits hereunder.

7.	SURVIVABILITY OF PAYMENTS
	The commitments under this Policy shall survive, to the extent permissible by law, upon the bankruptcy, insolvency, liquidation or dissolution of the Company.

Title:	No.	Date Issued:	Supersedes	Page 5 of 5
SEVERANCE POLICY	GP — 04	12/31/08	Policy IV-19
			Dated 10/1/94
			and GP-04 dated
			5/21/07

ADDENDUM
WESTMORELAND COAL COMPANY SEVERANCE POLICY FOR NON-UNION EMPLOYEES
DECEMBER 31, 2008

			Outplacement	Health Benefit
Level	Position or Classification*	Severance Compensation	Assistance	Cost Share
1	o CEO/President o Chief Financial Officer o General Counsel o Vice Presidents of a Functional Area o Controller o Such other positions not listed above that participate in the Annual Incentive Plan at levels 1 and 2 (40% — 100%)	Twelve (12) months of monthly base pay as defined in this document	9 month program	12 months
2	o Directors of a Functional Area o Assistant General Counsel o Such other positions not listed above which participate in the Annual Incentive Plan at Level 3 (30%)	Nine (9) months of monthly base pay; plus one week of base pay for each year of service, not to exceed a maximum of 12 months of monthly base pay as defined in this document.	6 month program	9 months
3	o Senior Managers of a Functional Area o Such other positions not listed above which participate in the Annual Incentive Plan at Level 4 (20%)	Six (6) months of monthly base pay; plus one week of base pay for each year of service, not to exceed a maximum of 12 months of monthly base pay as defined in this document.	3 month program	6 months
4	o Other Management Personnel or key contributors o Such other positions not list above which participate in the Annual Incentive Plan at Level 5 (15%)	One (1) month of monthly base pay as defined in this document plus one (1) week of weekly base pay as defined in this document for each year of service not to exceed 26 weeks	2 week program	Equal to Severance Compensation
5	Other Exempt Salaried Personnel who are Individual Contributors	One (1) month of monthly base pay as defined in this document + 1 week of weekly base pay as defined in this document for each year of service not to exceed 26 weeks	2 day program	Equal to Severance Compensation
6	Non-Exempt or Hourly Personnel	One (1) week of weekly base pay as defined in this document per Year of Service — 2 week minimum not to exceed 26 weeks	2 day program	1 month

EX-10.16

EXHIBIT 10.16

AMENDMENT TO AMENDED COAL MINING LEASE
OF
INDIAN LANDS

     THIS IS AN AMENDMENT to the amended coal mining lease of Indian lands between the Crow Tribe of Indians of the Crow Reservation (“Lessor”) and Westmoreland Resources, Inc. (“Lessee”), which was entered into on the 26^th day of November, 1974.

     THIS AMENDMENT results from the scheduled renegotiation of the royalty rates set forth in said Amended Coal Lease pursuant to Section II.b., page 3 of said Amended Lease.

     WHEREAS, the parties to said Lease have renegotiated the royalty rate to be paid by Lessee to Lessor under said Lease, and have agreed to the royalty rate set forth below, and further agree that said negotiations and the resulting royalty agreement fully conform with the requirements of said Amended Coal Lease, and any subsequent amendments thereto,

     NOW, THEREFORE, the parties agree that said Amended Lease and any amendments thereto shall be amended by this Agreement to provide that the royalty payable by Lessee to Lessor pursuant to said Lease for the period from December 1, 1994, to November 30, 2004, shall be as follows:

1. Northern States Power: Lessor shall receive a royalty of 6% of the f.o.b. mine price for all coal purchased by Northern States Power during the ten year period noted above.

2. Existing Contracts: Other than Northern States Power, there are three existing contracts, Western Fuels Association, Inc. (“WF”), Otter Tail Power (“OTP”) Contract, and Wisconsin Electric Power Co. (“WEPCO”). The royalty rate for WEPCO’s 1995 tonnage will be 12.5% of the f.o.b. mine price less all production taxes. The WF and OTP contracts have minimum and maximum annual tonnage requirements. The royalty rate for the WF’s and OTP’s minimum annual tonnage requirements, 700,000 and 1,200,000 respectively, will be 12.5% of the f.o.b. mine price less all production taxes. For tonnage in excess of the minimum, the royalty rate will be 6% of the f.o.b. mine price.

3. New Term Contracts (i.e., contracts for a term longer than one year): There will be a three-tier royalty structure depending on the f.o.b. mine price when the contract is signed for coal sale contracts bid and signed after December 1, 1994.

a.	For f.o.b. mine price less than $6.00 per ton: The royalty rate will be 6% of the f.o.b. mine price.
b.	For f.o.b. mine price between $6.00 and $6.50 per ton: The royalty rate will be 8% of the f.o.b. mine price.

c.	For f.o.b. mine price over $6.50 per ton: The royalty rate will be 12.5% of the f.o.b. mine price less production taxes.
d.	Inflation index: The Consumer Price Index – Urban (CPI-U) will be used to adjust the prices in a, b, and c above annually. The base CPI-U will be the November, 1994 index. In November of each subsequent year the CPI-U for November will be determined and the percentage change from the base calculated. The percentage change added to one (1.0) will be multiplied times the prices in a, b, and c above to determine the prices in these sub-sections for the subsequent year.
e.	Spot sales (one year or less): The royalty rate for spot sales will be 12.5% of the f.o.b. mine price less production taxes.

The parties agree that the royalty rates set forth above shall become effective on December 1, 1994, and continue thereafter for the term set forth above, regardless of the date of the signatures provided for below. The parties further agree that the terms of the Amended Coal Lease referenced first above relating to renegotiation, and/or arbitration to arrive at a new royalty rate for the ten year period succeeding the ten year period provided for by this Amendment shall remain in full force and effect.

Dated this 2^nd day of December, 1994.

CROW TRIBE OF THE CROW
INDIAN RESERVATION

Attest:

Dennis Big Horn, Sr.	Clara Nomee
Secretary Crow Tribal Council	Chairman of the Crow Tribe of Indians

EX-10.17

EXHIBIT 10.17

Confidential materials omitted and filed separately with the SEC. Asterisks denote omissions.

EXPLORATION AND OPTION TO LEASE AGREEMENT

     This EXPLORATION AND OPTION TO LEASE AGREEMENT (hereinafter “Exploration Agreement”), made and entered on this 13^th of February, 2004, between the CROW TRIBE OF INDIANS, Crow Agency, Montana 59022, (hereinafter “Crow Tribe”), and WESTMORELAND RESOURCES, INC., a corporation organized under the laws of the State of Delaware, with its principal place of business at P.O. Box 449, Hardin, Big Horn County, Montana (hereinafter “Westmoreland”).

RECITALS

A.	The Crow Tribe owns, and is in possession of, mineral properties underlying land commonly referred to as the “South Extension” as shown on Exhibit “B.” The Crow Tribe also owns some limited surface interests in the South Extension.
B.	The Crow Tribe represents the South Extension contains evidence of coal deposits of value and offers potential for the development of coal.
C.	The proper exploration and evaluation of the coal deposits, and their proper development and sale, will require the expenditure of large sums of capital and adequate time.
D.	Westmoreland is able and willing to furnish the capital required for the development of the coal deposits located in the Mining Area, but only in accordance with, and subject to, the conditions set forth in this Exploration Agreement.
E.	The Minerals Management Service of the United States Department of the Interior has made demand on Westmoreland for payment of additional royalties and interest on revenue received by Westmoreland from Northern States Power (now Xcel) relating to the 1986 NSP Coal Reserve Option payments. The parties desire to settle said claim as provided herein.
F.	Westmoreland currently mines coal owned by the Crow Tribe pursuant to the Amended Coal Mining Lease Indian Lands (“Tract III Lease”) entered into on November 26, 1974, and subsequently amended. The terms of the Tract III Lease may be amended by this Exploration Agreement if certain contingencies occur.
G.	The Crow Tribe wishes to obtain the assistance of Westmoreland in connection with the Crow Tribe’s desire to obtain an aerial photographic survey of the Crow Reservation.
H.	The Crow Tribe wishes to expand the amount of surface rights owned by the Tribe within the boundaries of the Crow Reservation.
I.	This Agreement and the Coal Lease are entered into pursuant to the Indian Mineral Development Act of 1982.

1

Confidential materials omitted and filed separately with the SEC. Asterisks denote omissions.

     THEREFORE, based on the foregoing, and for good and valuable consideration, the parties represent, covenant, state, and agree as follows:

SECTION 1 DEFINITIONS

     1.1 Allotted Land: All allotted trust land, as well as all allotted fee land, owned by individual Crow Indians whether or not subject to federal restraints on alienation.

     1.2 Regional Director: The Regional Director of the Bureau of Indian Affairs, Rocky Mountain Regional Office, Billings, Montana, or any of that individual’s successors.

     1.3 Carrier: Trucks, railroads, conveyor belts, pipelines, or any instrumentality or machinery used to deliver Coal after sale.

     1.4 Coal: Any combustible carbonaceous rock, whether classified as anthracite, bituminous, subbituminous, or lignite, as defined by ASTM Standard D-388-77, along with all substances mixed with Coal.

     1.5 Coal Delivery or Delivered Coal: Coal loaded into a Carrier at the load out facility operated by Westmoreland on the Tract III Lease for movement to another location for commercial use.

     1.6 Coal Lease: The document attached hereto as Exhibit A, which was executed concurrently with execution of this Exploration Agreement, by the Crow Tribe and Westmoreland.

     1.7 Crow Indian: An individual who is properly enrolled as a member of the Crow Tribe.

     1.8 Crow Reservation: All lands lying within the exterior boundaries of the Crow Indian Reservation in the state of Montana. For the purposes of this Exploration Agreement, the “Crow Reservation” is further divided into: (i) Allotted Land; (ii) Tribal Land; and (iii) Fee Land, as those terms are defined herein.

     1.9 Exercise Date: The date on which Westmoreland exercises its option to lease pursuant to Section 3.2.

     1.10 Exploration Agreement: This document and the exhibits and attachments hereto.

     1.11 Exploration Rights: The exclusive right to enter in and upon the Prospect Area or Mining Area for the purpose of conducting drilling, exploration, environmental testing, monitoring, data gathering, and other incidental rights relating thereto, including the right to remove and test samples of Coal. These Exploration Rights shall be limited in scope and only pertain to Coal exploration.

2

Confidential materials omitted and filed separately with the SEC. Asterisks denote omissions.

     1.12 Facilities Area: The area within the Tract III Lease that will be utilized and is necessary for the production of Coal under this Exploration Agreement, including, but not limited to, haul roads, access roads, buildings, water drainage courses, dams, ponds, water wells and storage facilities, Coal processing facilities, railroads, sidetracks, switches, storage facilities, conveyors, and other structures and improvements.

     1.13 Fee Land: Any land except Tribal Land and/or Allotted Land.

     1.14 Mining Activities: All functions and activities, whether performed on or off the Crow Reservation, required to prepare for and conduct the mining, preparation, transportation, and marketing of Coal, by any method, from the Mining Area covered by this Exploration Agreement; including, but not limited to:

a.	Pre-development drilling, sampling, testing, and data gathering activities;
b.	Environmental and permitting activities;
c.	Design, construction, and operation of the mine and related facilities such as buildings, power lines, access roads, railroads, and other transportation facilities;
d.	Hauling Coal, Coal processing, or delivery to a Carrier and all equipment, machinery, and workers related thereto;
e.	Related administrative activities;
f.	Termination activities; and
g.	Reclamation.

     1.15 Mining Area: The tract of the South Extension Area selected and identified pursuant to Section 8 of this Exploration Agreement.

     1.16 Mining Permits: All permits, plans, licenses, and approvals required by the Surface Mining Control and Reclamation Act of 1977; the Clean Air Act of 1990; the Federal Water Pollution Control Act, as amended; and all other applicable governmental permits, plans, approvals, and licenses required in order to conduct Mining Activities as contemplated by this Exploration Agreement.

     1.17 Operating Subsidiary: A wholly owned subsidiary of Westmoreland to which Westmoreland may sublease or assign all or a portion of the lands leased pursuant to this Exploration Agreement and the Mining Area.

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     1.18 Prospect Area: The area of land identified on the map or maps attached hereto as Exhibit B.

     1.19 Secretary of Interior or Secretary: The Secretary of Interior of the United States or his duly authorized representative.

     1.20 South Extension: An area of land on the Crow Reservation south of the existing Tract III Lease, shown on Exhibit “B.”

     1.21 Superintendent: The Superintendent of the Bureau of Indian Affairs at Crow Agency, Montana.

     1.22 Ton: A measure of weight of 2000 pounds avoirdupois.

     1.23 Tract III Lease: The existing Coal Mining Lease (United States Department of the Interior Bureau of Indian Affairs, Contract No. 1420-0252-4088, Tract 3, Sale 3), together with all amendments and exhibits thereto, entered into between the Crow Tribe and Westmoreland.

     1.24 Tribal Attorney: An attorney retained by the Crow Tribe to represent and act as the legal representative for the Crow Tribe with regard to this Exploration Agreement.

     1.25 Tribal Land: All land, whether now owned or hereafter acquired, held in trust by the United States of America for the Crow Tribe, as well as all Fee Land owned by the Crow Tribe, including Fee Land subject to federal restrictions on alienation.

     1.26 Tribal Coal: All Coal, any interest in which is owned by the Crow Tribe, whether held in fee or in trust by the United States for the benefit of the Crow Tribe, or in fee subject to a restriction on alienation.

     1.27 Trust Land: All land held in trust by the United States of America for individual Crow Indians or for the Crow Tribe.

SECTION 2 EXPLORATION LICENSE

     2.1 Grant. The Crow Tribe grants to Westmoreland, for a term commencing on the date of approval of this Exploration Agreement by both parties and ending on April 1, 2005 (unless extended pursuant to Section 5.4), Exploration Rights in and on the Prospect Area for all Tribal Land and Tribal Coal located within the Prospect Area. Approval by the Crow Tribe shall be given by signature of the Chairman and approval as provided in Section 5.1. Approval by Westmoreland shall be upon approval by its Board and execution of this Agreement by its executive.

     2.2 Exploration Rights. Westmoreland, as licensee, shall have the right to exercise all Exploration Rights, including the right to drill, prospect, explore, test, develop, and work at its own discretion and at its own expense, on all or any part of the Prospect Area on the condition all work

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and all improvements made by Westmoreland on the Prospect Area, or any part of the Crow Reservation, under the terms of this Exploration Agreement and during the period of this Exploration Agreement, shall be done in a miner-like and proper manner, so that the Prospect Area shall be carefully operated and the minerals contained in the Prospect Area may be sampled and evaluated in an economical and environmentally responsible manner.

a.	Roads. Westmoreland may use existing roads, if any, on the South Extension and may construct and maintain at its own expense any additional roads within the Prospect Area that are necessary in carrying on prospecting and exploration work. The Crow Tribe consents to the construction and use of such roads and will cooperate in obtaining any needed consents or approvals from any government entity, including the BIA.
b.	No Public Right. The public shall obtain no rights to any roads constructed by Westmoreland, nor shall Westmoreland be obliged to maintain said roads for use by any other person, or permit any other persons to use them, and on termination of this Exploration Agreement, or if at any time it becomes unnecessary for Westmoreland to use any roads for conducting authorized operations, the right to use and any obligation to maintain the roads shall cease and, subject to any need to use roads to complete reclamation, all rights shall revest in the surface owner.
	Installations made by Westmoreland in connection with roads may be removed by Westmoreland.
c.	Removal and Reclamation. Installations made by Westmoreland in connection with roads may be removed by Westmoreland. If Westmoreland does not exercise its option, and subject to all terms and conditions of its governmental permits, Westmoreland will reclaim and restore all roads and related installations it has constructed, except to the extent that the surface owners (including the Crow Tribe) wish them to remain in place.

     2.3 Licensing and Permits. Prior to exercising the exploration rights set forth in this Exploration Agreement, Westmoreland shall obtain all necessary licenses and permits from the federal government. The parties recognize that time is of the essence in Westmoreland’s ability to conduct exploration within the Prospect Area, and it is contemplated that Westmoreland will be able to obtain a federal approval of a prospecting permit for the limited purpose of conducting those exploration activities immediately after the Crow Tribe’s approval of this Agreement, and prior to federal approval pursuant to the requirements of the IMDA. The Crow Tribe shall cooperate fully with Westmoreland in Westmoreland’s attempt to obtain all requisite licenses and permits, and the Crow Tribe shall impose no charges for same.

     2.4 Exploration Results. Upon exercise of its option to lease as provided for in Section 3 of this Exploration Agreement, or if Westmoreland elects not to lease, Westmoreland shall provide

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one copy each to the Crow Tribe, MMS, and the Regional Director of logs, tests, and other raw data obtained through the exploration efforts of Westmoreland on the Prospect Area, which the Crow Tribe, MMS, and the Regional Director agree to keep strictly confidential. If Westmoreland elects not to lease, all data developed hereunder shall be provided to the Crow Tribe as additional consideration for the right of first refusal provided in Section 3.3. Westmoreland shall not provide or disclose the data to any other party. The data provided to the Tribe may be used without restriction by the Tribe and its consultants for planning a Tribally-owned mine or provided by the Tribe to other potential lessors, developers, operators, or partners at the Tribe’s sole discretion.

     2.5 Reservation of Right to Grant Additional Exploration Licenses. The Crow Tribe retains the right to grant exploration rights for minerals other than Coal, on the Prospect Area designated by Westmoreland, but the parties agree any exploration rights so granted shall not interfere with the exploration rights of Westmoreland. Any exploration rights granted to parties other than Westmoreland covering the Prospect Area shall provide that activities conducted pursuant to such rights are subordinate to the exploration rights of Westmoreland and thus shall not interfere with Westmoreland’s exploration rights and shall further provide any selection of a mining (including drilling for hydrocarbons) area by such third parties shall be made only after Westmoreland has selected its Mining Area in accordance with Section 8 of this Exploration Agreement, and after selection, Westmoreland shall have the exclusive use of said Mining Area. To the extent practicable, Westmoreland shall conduct its exploration activities so as not to diminish the quantity or value of the Tribe’s Coal or coal bed methane resources in seams that Westmoreland does not intend to mine under this Agreement.

SECTION 3 OPTION TO LEASE

     3.1 Exclusive Option to Lease. Westmoreland shall have the exclusive option to lease the Crow Tribe’s Coal in the Prospect Area. Said option shall be exercised, if at all, upon completion of Westmoreland’s exploration and reserve analysis in the Prospect Area or no later than April 1, 2005, unless Westmoreland elects the extension provided in provision 5.4 of this Exploration Agreement.

     3.2 Exercise of Option. If Westmoreland elects to exercise the option granted and receive a Coal Lease to the Mining Area, it shall notify the Crow Tribe in a manner in accordance with provision 25.3 of this Exploration Agreement. On giving such notice, Westmoreland shall be entitled to receive, in accordance with and subject to the terms of this Exploration Agreement, a lease in the form of the Coal Lease attached hereto as Exhibit A. The Crow Tribe shall, on the receipt of the notice of Westmoreland’s intention to exercise its option, deliver the fully executed lease to Westmoreland.

     3.3 Conversion of Option into Right of First Refusal. The option to demand and receive a Coal Lease, if not exercised, shall convert into a right of first refusal for as long as Westmoreland operates the Absaloka Mine. If the Crow Tribe receives an offer to lease Coal in the Prospect Area from any party other than Westmoreland during the right of first refusal period, it

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must present to Westmoreland an offer to lease said Coal on the same terms as said offer, and Westmoreland shall have sixty (60) days within which to accept or reject.

          This right of first refusal shall not apply if, after Westmoreland fails to exercise its option, the Crow Tribe decides to develop the Coal in the Prospect Area itself, or through any entity or joint venture of which the Crow Tribes owns not less than one-half (i.e., a Tribally-owned mine); provided, however, that Westmoreland will be given the opportunity to bid on any general contract for operating a Tribally-owned mine in the Prospect Area.

          The Crow Tribe must inform any offeror no later than five (5) days after receiving any offer of Westmoreland’s right of first refusal.

     3.4 Machinery and Equipment. No equipment, tools, machinery, improvements, or personal property of any nature or description brought or placed in the property prior to the exercise of this option by Westmoreland for use in the work shall become a fixture.

          All the equipment, structures, improvements, and other property shall remain the property of Westmoreland, subject to removal by Westmoreland. If Westmoreland does not exercise this option, it shall be entitled to remove all equipment, tools, machinery, structures, improvements, and personal property from the property within ninety (90) days after the expiration of this option.

     3.5 Title of Owner. The Crow Tribe represents that it is the lawful owner of all minerals located in the Mining Area, as specifically described herein, and such Tribal Land as is located in the Mining Area. The Crow Tribe further represents the minerals covered by this Exploration Agreement are each free from all liens and encumbrances of every nature and description.

          During the period of this option, the Crow Tribe shall protect all of its property in the Mining Area from any and all liens except those arising from the acts of Westmoreland on the Mining Area.

          The Crow Tribe shall not encumber any of its property in the Mining Area or any part of it and shall furnish to Westmoreland satisfactory evidence of good title to same not less than ninety (90) days after any written request from Westmoreland to do so.

          Nothing herein shall be construed as prohibiting the Tribe from pledging or assigning payments due the Tribe under this Agreement, including lump sum payments, royalties, and taxes.

     3.6 Unavoidable Delays. Any time lost by Westmoreland in the event of Force Majeure, as that term is defined in Section 11 of this Exploration Agreement, shall not run against the time specified in this Exploration Agreement for exercise of this option.

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SECTION 4 SETTLEMENT WITH MMS

     As additional consideration for this Exploration Agreement, the parties agree to settle the matters recited in the Settlement Agreement attached hereto as Exhibit C by executing same and carrying out its terms.

     Except for the Exploration License granted in Section 2, the Crow Tribe’s performance of this Exploration and Option to Lease Agreement is contingent upon the Tribe’s receipt of the payment due under said Settlement Agreement as provided in Section 5.2 below.

SECTION 5 LUMP SUM PAYMENTS

     Payments. In consideration for the execution of this Exploration Agreement, as well as the grant of the rights and obligations contained in this Exploration Agreement, and the agreement to settle the MMS dispute per Section 4, Westmoreland shall make lump sum payments as follows:

     5.1 [*****] upon final approval of this Exploration Agreement, including the Coal Lease and the MMS Settlement Agreement. For purposes of this contingency, the term “final approval” shall mean binding approval of this Exploration Agreement and Coal Lease, and all exhibits and agreements attached thereto, by the Crow Tribe by signed approval of the Executive Branch of the governing body of the Crow Tribe of Indians and final and binding approval by the legislature of the Crow Tribe pursuant to Article V, Section 2(d), of the Constitution of the Crow Tribe. A true and correct copy of the Crow Tribal Legislative Act No. CLB 0402, enacted February 10, 2004, and approved February 12, 2004, approving this Exploration Agreement and the Coal Lease, and all exhibits and attachments, and authorizing the Executive of the Crow Government to execute said agreements on behalf of the Crow Tribe is attached hereto as Exhibit “D.”

          If Westmoreland elects not to exercise its option, or if this Exploration Agreement is not approved by the Secretary as provided in Section 21, then the [*****], paid pursuant to this, shall be treated as an advance of royalty and taxes under the existing Tract III Lease and shall be reimbursed pro rata over the next twenty-four (24) months following expiration of the term of the option.

     5.2 One Million Five Hundred Thousand Dollars and 0/100 ($1,500,000), following approval per Section 5.1, and upon approval and execution of the Settlement Agreement attached as Exhibit C, according to its terms, releasing Westmoreland from any further royalties, assessments, or taxes of any kind based on option payments received from Xcel Energy (formerly NSP), from the period from 1986 to 1999, as full, final and complete settlement of the MMS dispute. Following approval, execution, and payment as provided herein, the MMS Settlement Agreement shall survive any of the following: termination of this Exploration Agreement or the Coal Lease, or failure or refusal of the Secretary to approve same, and shall be permanent and binding according to its terms.

          This lump sum payment for the MMS Settlement Agreement is not contingent upon federal approval of this Exploration and Option to Lease Agreement or associated prospecting permit or Coal Mining Lease and is non-recoupable according to the terms of the Settlement Agreement, as long as it has been separately approved according to its terms.

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     5.3 If Westmoreland elects to exercise the option specified in Section 3 of this Exploration Agreement, Westmoreland shall pay the Crow Tribe the sum of [*****], which shall be paid, less any advance payment as provided in Section 5.4 below, within ten (10) days of exercising the option.

     5.4 Westmoreland may extend its exploration rights and the date for exercising its option from April 1, 2005, to June 1, 2006, by paying an additional [*****] to the Crow Tribe on or before April 1, 2005. If Westmoreland subsequently elects to exercise its right to mine, said [*****] shall be an advance on the consideration required for Westmoreland’s right to elect its option as specified in provision 5.3. If Westmoreland elects not to exercise its option, then [*****] of this payment shall be treated as an additional advancement on royalty and taxes under the existing Tract III Lease to be reimbursed over the next eight (8) quarters.

     5.5 With the exception of the contingencies outlined in Sections 5.1 and 5.4 of this Exploration Agreement, the above described lump sum payments shall not be recoupable against future royalties, taxes, or any other amounts Westmoreland owes the Crow Tribe.

     5.6 All lump sum payments to the Crow Tribe shall be made to the Superintendent in trust for the use and benefit of the Crow Tribe.

     5.7 All lump sum payments shall be paid by electronic funds transfer to an account or accounts designated by the Crow Tribe and approved by the Superintendent.

SECTION 6 AMENDMENT TO TRACT III LEASE

     6.1 Royalty Renegotiation. Lessor and Lessee agree that the royalty renegotiation provided for in the Tract III Lease, which is scheduled for November of 2004, shall be resolved as follows: Lessor and Lessee agree that the tax and royalty terms of the Coal Lease shall be amended into, and shall apply, to the Tract III Lease from and after December 1, 2004, for new Coal sales (new sales made or contracted after December 1, 2004). Current Tract III Lease Royalty Rates shall remain in effect on all sales made under contracts existing on December 1, 2004, through their term, or any price renegotiation date, whichever comes first, but Westmoreland shall agree that on such sales, the Crow Tribe will realize an overall royalty of not less than that provided in Article 7 of the Coal Lease.

     6.2 Extension of Tract III Lease. If Westmoreland exercises its option to lease under this Exploration Agreement, the parties recognize that Westmoreland must use its current Tract III Facilities Area for the efficient production of Coal from the Mining Area for the entire period during which Westmoreland conducts Mining Activities in the Mining Area. The parties further recognize that it is to their mutual interest and benefit to maintain Westmoreland’s Tract III facilities area beyond the end of the current projected Tract III production to provide the means for future production should market conditions warrant. Therefore, if Westmoreland exercises its option to lease hereunder, the Tract III Lease shall be amended to provide that Westmoreland shall have the

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option to extend the term of the Tract III Lease beyond production of Coal in paying quantities for a term equal to the term of the Coal Lease by the payment of One Dollar and 0/100 cents ($1.00) per acre per year as minimum royalty under the Tract III Lease.

     6.3 Tribal Employment. The Tribal employment provisions in Article 36 of the Coal Lease shall also apply to the Tract III Lease effective upon the Tribe’s approval of this Agreement.

     6.4 Amendment to Tract III Lease. The parties will amend the Tract III Lease to reflect the terms of this Section 6.

SECTION 7 PHOTOGRAPHIC SURVEY

     As additional consideration for the promises herein, following execution of this Exploration Agreement and approval by the Secretary, Westmoreland shall actively assist the Crow Tribe in its plan to obtain and create a photographic survey of the Crow Reservation. Westmoreland will provide technical advice and support to the Crow Tribe’s project manager. Westmoreland’s staff, time, and availability will be contingent upon and limited by Westmoreland’s own work load. In addition, Westmoreland will provide One Hundred Twenty-Five Thousand Dollars and 0/100 cents ($125,000.00) to the Crow Tribe to help fund this project. Said fund shall be available thirty (30) days after the date upon which final approval of this Exploration Agreement is granted by the Secretary. At the Tribe’s option and request at any time thereafter, the remaining balance of the fund shall be paid directly to the Tribe.

SECTION 8 SELECTION OF MINING AREA

     8.1 Mining Tract Designation. On or before the Exercise Date, Westmoreland shall select, from the Prospect Area, the Mining Area. Selection of the Mining Area shall not itself constitute exercise of the option, and the Mining Area may be amended by Westmoreland prior to the Exercise Date.

     8.2 Selection Notice. Westmoreland shall select the Mining Area by delivering to the Crow Tribe written notice, in the manner set forth herein, providing the legal description of the tract selected. The mining tract described in the notice shall constitute the Mining Area. The Mining Area shall be identified and by addendum attached to the Coal Lease.

SECTION 9 COAL LEASE

     9.1 Execution and Approval of Lease Form. The parties will execute and the Crow Tribe will approve the Coal Lease in the manner provided in Section 5.1 at the same time as this Exploration Agreement. In addition, the parties shall request that approval of the attached Coal Lease be simultaneous with approval of this Exploration Agreement by the Secretary. The parties agree to cooperate to seek approval of all terms of this Exploration Agreement and Coal Lease by the Secretary as expeditiously as possible. Approval of the Coal Lease is subject to the limitations in Section 21.6.

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     9.2 Effective Date of Lease. In the event Westmoreland elects to exercise its option to lease, the Coal Lease shall take effect thirty (30) days following Westmoreland’s notice of its election to lease.

     9.3 Limitation of Mining Area. Notwithstanding any provision in this Exploration Agreement or the Coal Lease, any grant of rights from the Crow Tribe to Westmoreland to use or lease land, or to explore for and/or mine Coal is limited to Tribal Land and Tribal Coal. To the extent there is other land and/or Coal located in the Prospect Area and/or the Mining Area, Westmoreland shall be responsible for obtaining any necessary right to enter, explore for, and mine Coal on said land or to use and occupy said land, including the acquisition of any necessary surface rights.

     9.4 Acreage Under Lease. Lessee currently leases Coal owned by Lessor outside the boundaries of the Crow Reservation pursuant to the terms of the Tract III lease. Lessee may identify and lease a Mining Area in excess of 2,560 acres, but not more than 3,400 acres, in a single, reasonably compact block. Approval of the Exploration Agreement and Coal Lease shall constitute consent of the Crow Tribe and approval by the Secretary of the Interior, pursuant to applicable law (including 25 C.F.R. §211.25) of: (a) Lessee holding both the Tract III lease and the Coal Lease; and (b) Lessee leasing more than 2,560 acres, but not more than 3,400 acres under the Coal Lease.

SECTION 10 ACQUISITION OF SURFACE RIGHTS

     10.1 The parties recognize that Exploration Rights and Mining Activities will require acquisition of surface rights and/or payment for use and/or damage to surface owners. The parties also recognize that without the ability to conduct Mining Activities in the Mining Area, the Crow Tribe will be unable to realize financial returns of significant benefit to the Crow people.

     10.2 Westmoreland will be solely responsible for the cost of paying surface property owners for interests acquired, including grants of ownership, easements, or leases, and for payment of any loss of use or surface damage incurred.

     10.3 The Crow Tribe will cooperate and reasonably assist Westmoreland in gaining access to the surface as required to conduct Mining Activities. The Crow Tribe acknowledges that, according to the law, custom, and usage of the Crow Tribe, it has the right, particularly within the boundaries of the Crow Reservation, but also elsewhere, to use and disturb the surface and subsurface of lands, including lands owned by others, to explore for and evaluate mineral deposits, to extract minerals owned by the Crow Tribe, and to convey these rights to a mineral lessee, subject only to the obligation of the Crow Tribe, or the mineral lessee as the case may be, to compensate the property owner for any loss of use or damage to the property. The Crow Tribe agrees to fully support Westmoreland’s efforts in accord with this principle, to obtain such surface rights as may be required to conduct Mining Activities under this Exploration Agreement, or to enforce said right to mine subject to said obligation to reasonably compensate surface owners for loss of use and damage to property.

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     10.4 If Westmoreland’s acquisition of surface title within the Crow Reservation would otherwise be prevented as a practical matter by the operation of Section 2 of the 1920 Crow Allotment Act, 41 Stat. 751, 752, and initial acquisition of such lands in the name of the Crow Tribe would lawfully avoid the impediment, the Tribe agrees to cooperate with Westmoreland by taking title to (and, as applicable, exchanging) such lands as are necessary for the purposes of this Agreement in its name and subject to Westmoreland’s rights to use and possess them or to use them for exchange purposes pursuant to Sections 16.2 and 16.3. Nothing in this Agreement shall affect any rights of individual Crow allottees or their heirs or successors arising under Section 2.

SECTION 11 FORCE MAJEURE

     11.1 Suspension of Obligations. In the event of Force Majeure, as defined in this section, the obligations of Westmoreland pursuant to this Exploration Agreement and the documents executed pursuant to this Exploration Agreement, including deadlines for exercising options, shall be suspended, and the term of this Exploration Agreement and all time periods provided for herein shall be extended during the period of Force Majeure, but for no longer period, except as otherwise provided by this Exploration Agreement. However, this provision shall not apply to the settlement with MMS addressed in Section 4.

     11.2 Definition. The term “Force Majeure”, as used in this Exploration Agreement, means any cause beyond the control of Westmoreland, including, but not limited to: acts of God, labor disputes, insurrections, riots, labor or material shortages, break downs of or damage to equipment or facilities, interruption of transportation of Coal, (including rail car shortages), embargoes, fires, explosions, floods, litigation of any nature preventing Westmoreland from exercising any rights outlined in this Exploration Agreement, the elements, casualties not attributable to Westmoreland, an administrative delay in a governmental agency (including Tribal Government), which is not caused by Westmoreland’s action, newly enacted or mandatory legislation or administrative regulations or changes in the interpretation thereof, orders of civil or military authority or of anybody having jurisdiction over the parties, the Prospect Area or the Mining Area, and extraordinary circumstances not attributable to and not reasonably foreseeable by a reasonably prudent operator, whether such situations affect Westmoreland directly or by reason of their effect on a subsidiary, customer, contractor, shipper, or supplier, which wholly or partly prevent the exercise of the Exploration Rights or the mining or delivery of Coal at a reasonable profit.

          The examples enumerated above are by way of example, and not limitation. Force Majeure shall not include any condition arising out of business risks such as fluctuations in prices, sales, or costs, including costs of compliance with requirements for environmental protection; commonly experienced delays in delivery of supplies or equipment; or inability to obtain sufficient sales.

     11.3 Mitigation. Westmoreland shall diligently attempt to remedy, as soon as possible, any Force Majeure and to mitigate its effects on the implementation of this Exploration Agreement

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and on the payments due the Crow Tribe hereunder; provided, that nothing contained herein shall require the settlement of strikes, lockouts, or other labor difficulties by Westmoreland contrary to its wishes, and the disposition or manner of handling or remedying any and all such labor difficulties is hereby expressly acknowledged to be entirely within the discretion of Westmoreland.

     11.4 Procedures. If a period of Force Majeure is incurred, Westmoreland will notify the Crow Tribe within thirty (30) days from the beginning of such period of Force Majeure. The notice will include descriptions of the circumstances that prevent Westmoreland’s performance and Westmoreland’s plans and efforts to remedy or mitigate the Force Majeure, and an estimate of the expected duration of the period of Force Majeure. When the period of Force Majeure has ended, Westmoreland will also notify the Crow Tribe. Notice of the commencement of and cessation of Force Majeure periods will be given to the Crow Tribe in writing in accordance with provision 25.3 of this Exploration Agreement. Notice shall also be given to the Regional Director and to the Tribal Attorney.

SECTION 12 CROW REPRESENTATIVES

     Authorized Representative. Crow Tribal Chairperson, who is recognized as such by the BIA, or the said Chairperson’s designee (“Designated Official”), shall be the sole party authorized to deal with Westmoreland on any matters related to this Exploration Agreement, excluding regulatory matters and any action taken or authorized by the Tribal Chairperson or the Designated Official shall be deemed to be action taken or authorized by the Crow Tribe unless the authority of the Tribal Chairperson or the Designated Official has been called into question or otherwise been diminished or withdrawn by a properly adopted Tribal resolution delivered to Westmoreland. Westmoreland may otherwise rely upon the authority of the Tribal Chairperson or the Designated Official in conducting any transactions, negotiations, or dealings involving the Crow Tribe, to the full extent of the Chairperson’s powers as head of the Executive Branch of the Crow Tribal Government as provided in Article IV of the Constitution and Bylaws of the Crow Tribe.

SECTION 13 EMPLOYMENT STANDARDS

     Employment Rights. Tribal employment rights are provided in Article 36 of the Coal Lease.

SECTION 14 ASSIGNMENT

     14.1 Assignment of Rights. Each right and obligation hereunder shall extend to and be binding upon, and every benefit hereof shall inure to the heirs, executors, administrators, successors, or assigns of the respective parties.

     14.2 Restriction on Assignment. Westmoreland agrees not to assign this Exploration Agreement, by an operating agreement or otherwise, not to sublet any portion of the lands under this Exploration Agreement except with the approval of the Crow Tribe and the Secretary, provided, however, such approval shall not be unreasonably withheld. It is further provided such approval

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shall not be required in the event the assignment or sublease is to an Operating Subsidiary of Westmoreland. Westmoreland shall, however, provide notice of such assignment to the Crow Tribe, the Tribal Attorney, and the Regional Director.

SECTION 15 CROW REGULATION

     15.1 Recognition of Tribal Sovereignty. Westmoreland recognizes the sovereignty of the Crow Tribe as established by treaty and recognized by federal law. The parties recognize the Crow Tribe, as a sovereign, is concerned with the protection of the health and general welfare of the Crow Tribe and its members, the quality of the environment, the protection, and conservation of tribal resources as well as concerns for the Crow Tribe’s unique cultural interests. The rights provided by this Section 15 are in addition to, and do not diminish, the rights provided in Section 18.

     15.2 Tribal Recognition of Competitive Nature of Mining. The Crow Tribe recognizes the competitive nature of mining and the need for Crow Tribal Coal to be competitive in the marketplace with other Coal mines located within and without Montana. The Crow Tribe also recognizes the Coal mined from the property covered by this Exploration Agreement will compete with low-cost incremental Coal production from existing operations, including non-tribal operations.

     15.3 Notification of Increased Government Costs. The Crow Tribe agrees that while it may adopt laws or regulations that affect the conduct of Westmoreland’s business and exploration and Mining Activities pursuant to this Exploration Agreement, such laws or regulations will not be effective, as to Westmoreland, until one hundred and twenty (120) days after Westmoreland has been provided with a copy of such regulation or law. Westmoreland shall then have the right to determine whether the law results in any increased governmental costs to Westmoreland.

a.

Definition. For purposes of this Exploration Agreement, “Governmental Costs” shall include all externally imposed costs on Westmoreland, including, but not limited to, costs incurred by an Operating Subsidiary and other costs associated with Mining Activities (excluding the costs of Westmoreland’s regular staff required for reporting to the Crow Tribe as a government), whether imposed by the Crow Tribe, the United States, or some other governmental entity.

b.

Governmental Costs, as used herein, shall not include state, county, local, or tribal taxes, which are addressed elsewhere in this Exploration Agreement.

     15.4 Objection Procedure. If Westmoreland determines the new law or regulation will increase Westmoreland’s total current Governmental Costs, Westmoreland shall notify the Crow Tribe, in writing, detailing the basis of Westmoreland’s belief. Westmoreland and the Crow Tribe shall thereafter meet within thirty (30) days after the Crow Tribe’s receipt of Westmoreland’s notice to discuss the matter. If, after that meeting, Westmoreland maintains its position and the Crow Tribe does not amend or modify the Tribal Law to remove Westmoreland’s objection, Westmoreland may seek arbitration regarding such law or regulation and its economic impact on Westmoreland.

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     15.5 Effect of Arbitrator’s Determination. If the arbitrators rule that the law does not increase Westmoreland’s Governmental Costs, then Westmoreland shall comply with such law, unless otherwise provided for herein, including Section 18. If the arbitrators determine the new law or regulation results in an increase in Governmental Costs, then Westmoreland shall comply with the new law or regulation but the Crow Tribe shall, at its option, either subsidize the increased Governmental Costs through a tribal tax credit or waive the applicability of the new law or regulation to the extent it results in Westmoreland’s Governmental Costs.

          If the arbitrators have not ruled within the one hundred and twenty (120) day period prior to the new tribal law or regulation taking effect, Westmoreland will comply with the new law or regulation as provided above until a ruling is made, provided, however, that in the event the arbitrators subsequently rule that the tribal law under review causes the total Governmental Costs of mining Crow Coal to increase, then Westmoreland shall be entitled to recover the difference in such costs incurred from the end of the one hundred and twenty day (120) period provided for above until the date the arbitrators’ ruling goes into effect. Such recovery shall be paid by the Crow Tribe by giving Westmoreland a deduction in tribal taxes due or to become due from Westmoreland.

     15.6 Arbitrators Standard of Review. In determining whether the tribal law under review causes the Governmental Costs of mining Crow Coal to increase, the arbitrators shall compare the Governmental Costs applicable to mining under this Exploration Agreement and the Coal Lease prior to enactment to said Governmental Costs after enactment. Such costs shall include, but not be limited to, fees, operating expenses, safety requirements and reclamation costs. In making this comparison, the arbitrators shall take into account all relevant factors they consider reasonable and necessary to permit a valid comparison. In addition, the arbitrator may consider any savings or reduction in Governmental Costs of mining Crow Coal which have resulted from the passage of other tribal laws, and those savings shall be utilized as offsets in considering the Governmental Costs associated with the tribal law under review.

     15.7 Prohibition Against Regulatory Takings. While making no representations as to the quality, quantity, or location of any Coal reserves subject to this Exploration Agreement, the Crow Tribe agrees it will take no action which precludes Westmoreland from mining Crow Coal covered by this Exploration Agreement where such Coal could otherwise be mined under state or federal law, nor will the Crow Tribe enact, as to Westmoreland, any law, ordinance, or regulation which would result in a regulatory taking of the rights and permits granted to Westmoreland under this Exploration Agreement. The Crow Tribe further agrees not to unreasonably withhold or delay any licenses, permits, or other concurrences required by Westmoreland pursuant to any law enacted by the Crow Tribe.

     15.8 Procedure. Arbitration shall be conducted in accord with Section 26, except as otherwise provided in this section.

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SECTION 16 TRIBAL LAND

     16.1 Conveyance of Tribal Land. Notwithstanding any provision of this Exploration Agreement or the Coal Lease to the contrary, no lease of coal or option to lease by the Crow Tribe provided for herein, shall be construed by any court or regulatory agency, for any purpose, as a conveyance of Tribal Land in fee. Any such conveyance shall be considered a conveyance of a possessory interest only, and shall in no way be construed to divest the Crow Tribe of its jurisdiction over its land and activities occurring thereon. Except as expressly and unequivocally provided in this Exploration Agreement and Coal Lease (including, without limitation, the limited waivers of sovereign immunity contained therein), the Crow Tribe retains all attributes of its sovereignty and jurisdiction over the lands encumbered by this Exploration Agreement or any right-of-way granted hereunder, and over any activities occurring thereon.

     16.2 Conveyance of Acquired Property. Westmoreland recognizes the Crow Tribe’s interest in obtaining title to property it may acquire within the boundaries of the Crow Reservation as part of its South Extension Project. Westmoreland agrees to convey to the Crow Tribe title to any property interest acquired within the boundary of the Crow Reservation pursuant to the Coal Lease at the conclusion of Mining Activities. Westmoreland shall retain the exclusive and entire right to use and possession of properties within the lease boundaries for the duration of its Mining Activities, including reclamation activities (through final bond release).

     16.3 Property Acquired to Trade. This provision will not prevent Westmoreland from acquiring property within the boundaries of the Crow Reservation for the purpose of swapping or trading for other property, to allow Westmoreland to acquire title to surface within the Mining Area. Property acquired by Westmoreland for that purpose, and eventually used for that purpose, shall not be conveyed to the Crow Tribe. Further, to facilitate acquisition of property needed for Mining Activities, Westmoreland may encumber any property it acquires within the Crow Reservation or any property acquired by it for or in the name of the Crow Tribe with access road easements in favor of Westmoreland (for Mining Activities) or private owners as may be needed to arrange land swaps or purchases, for acquisition by Westmoreland of surface rights needed for Mining Activities. Westmoreland will not increase the number of acres owned on the Crow Reservation in fee by non-tribal members.

SECTION 17 TRIBAL TAXES

     17.1 Tribal Severance and Gross Proceeds Taxes. The parties recognize the economic difficulties that will be encountered in developing a new mine in the proposed Mining Area which will be economically competitive in the marketplace, and that taxes on Coal mined hereunder have a negative effect on Westmoreland’s ability to market Tribal Coal and maximize the Crow Tribe’s royalties and Westmoreland’s profits. The parties further recognize this Exploration Agreement and the Coal Lease include provisions which will assist in making Crow Coal produced under the Exploration Agreement more marketable. Thus, except as otherwise provided in this Exploration Agreement or the Coal Lease, the parties hereto agree the activities of Westmoreland on the Crow Reservation pursuant to this Exploration Agreement shall only be subject to the Crow Tribe severance tax and gross proceeds tax calculated as provided in the Coal Lease and as further limited by its terms.

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     17.2 Exclusion of Additional Taxes. It is the intent of the Crow Tribe that the taxes provided for in this section and the Coal Lease shall be in lieu of all other ad valorem real or personal property taxes, or other taxes of any kind or character, including sales taxes, resource indemnity trust taxes, real, personal, or business property taxes, or income taxes the Crow Tribe might otherwise be empowered to levy against Westmoreland.

     17.3 Preemption. It is the intent of the parties that the taxes imposed by the Crow Tribe will preempt all state and local taxes, since it is the finding and conclusion of the parties hereto that any additional or dual taxes will place the Coal produced under this Exploration Agreement and Coal Lease at a competitive disadvantage in the marketplace, thus frustrating the Crow Tribe’s efforts to market Crow Coal and improve the Crow Reservation’s economy. In particular, the parties acknowledge Westmoreland is unwilling to enter into this Exploration Agreement and Coal Lease without the tax incentives and protections provided herein and in the Coal Lease, and that Coal cannot be mined profitably if Westmoreland is required to pay dual state and tribal taxes.

SECTION 18 JURISDICTIONAL DISPUTES

     If Westmoreland should, in good faith, question any tribal law or regulation on the basis the Crow Tribe does not have jurisdiction to pass such law, Westmoreland shall, subject to the other provisions of this Exploration Agreement, comply with such tribal law or regulation where there is no conflicting federal law, and such compliance shall continue until there is a determination by a court of competent jurisdiction that the Crow Tribe lacks jurisdiction to enforce such law. If there exists a conflict between the tribal law or regulation and a law or regulation of the United States or the state of Montana, Westmoreland shall comply with the tribal law unless Westmoreland obtains an opinion of counsel which provides Westmoreland with a good faith basis for believing that said law or regulation is preempted by conflicting state or federal law and that compliance with the conflicting state or federal law or regulation is appropriate. In such a situation, Westmoreland need only comply with the conflicting state or federal law or regulation until such time as a court of competent jurisdiction determines the state or federal law has no application to Westmoreland. Thereafter, Westmoreland shall, subject to other provisions of this Exploration Agreement, comply with the applicable tribal law or regulation.

SECTION 19 LIMITED WAIVER OF SOVEREIGN IMMUNITY

     The Crow Tribe specifically and unequivocally waives its sovereign immunity from suit and hereby consents to being named as a party in any litigation between Westmoreland, an Operating Subsidiary and the Crow Tribe involving the construction, execution, interpretation, validity, enforcement, performance, or any dispute arising under this Exploration Agreement and the Coal Lease, including any dispute concerning the rights, responsibilities, and obligations of the parties hereto relating to the mining of Crow Coal under this Exploration Agreement and the Coal Lease. It is agreed that this waiver of sovereign immunity is limited and extends only to Westmoreland and an Operating Subsidiary and to no other parties, and that the waiver is further limited to only those matters referenced in this provision.

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     This waiver shall be effective such that both parties shall comply with the binding arbitration provisions of the Exploration Agreement and Coal Lease and either party may have recourse to federal court to fully enforce the parties’ agreement to arbitrate and the arbitration result pursuant to the Federal Arbitration Act found at 9 U.S.C. § 1, et seq.

     This waiver of sovereign immunity is based upon the Crow Tribe’s opinion, belief and considered finding that the assertion of the Crow Tribe’s sovereign immunity in any dispute involving Westmoreland concerning this Exploration Agreement or the Coal Lease would be inappropriate. The parties expressly recognize this waiver shall not extend to or apply to any claim which might be brought against the Crow Tribe for punitive damages. Further, the parties expressly recognize this waiver shall not permit or authorize the sale or transfer of any property held by the United States in trust for the Crow Tribe. Except for an award of costs and attorneys’ fees of or for any arbitration proceedings, the Crow Tribe’s monetary liability resulting from any dispute arising under the referenced agreements and the waiver of sovereign immunity herein is limited to an award against the Tribe of offsets or withholding of future royalties and taxes otherwise payable by Westmoreland to the Crow Tribe, and/or injunctive relief providing for enforcement of Westmoreland’s right to explore, lease, and mine according to the referenced agreements.

     A true and correct copy of Crow Tribal Legislative Act No. CLB 0402, enacted February 10, 2004, and approved February 12, 2004, approving this limited waiver of sovereign immunity as to matters arising in conjunction with this Exploration Agreement and Coal Lease, is attached hereto as Exhibit “D.”

SECTION 20 AUTHORIZATIONS

     20.1 Crow Tribe Authorizations. The Crow Tribe warrants the execution of this Exploration Agreement has been validly authorized by the Crow Tribal Legislature and Executive Branch and that the execution by the Chairman of the Crow Tribe has been duly authorized and approved. A certified copy of a validly adopted resolution of the Crow Tribal Legislature approving this Exploration Agreement and Coal Lease and authorizing its execution by the officers whose signatures are set forth below is attached hereto as Exhibit D.

     20.2 Opinion of Tribal Attorney. The Tribal Attorney has, simultaneously with the execution of this Exploration Agreement, delivered to Westmoreland an opinion that this Exploration Agreement is duly authorized and validly executed by the Crow Tribe in accordance with the Tribal Constitution and Bylaws, which opinion is attached hereto as Exhibit E.

     20.3 Corporate Existence of Westmoreland. Westmoreland is a corporation duly incorporated, validly existing, and in good standing under the laws of the state of Delaware, is registered to do business in Montana, and its registration status in Montana is active and in good standing. Westmoreland has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

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     20.4 Authority. The execution and delivery by Westmoreland of this Agreement, and the performance by Westmoreland of its obligations hereunder, have been duly and validly authorized by Westmoreland and no other corporate action on the part of Westmoreland is necessary. Upon execution by the President of Westmoreland, and delivery by Westmoreland, and upon due execution by the Crow Tribe, and by governmental approval as provided herein, this Agreement shall be valid and binding upon Westmoreland and enforceable against Westmoreland in accordance with its terms.

     20.5 Opinion of Counsel of Westmoreland. The legal counsel of Westmoreland has simultaneously, with the execution of this Exploration Agreement, delivered to the Crow Tribe an opinion that this Exploration Agreement is duly authorized and validly executed by Westmoreland, which opinion is attached hereto as Exhibit F.

SECTION 21 APPROVAL BY SECRETARY AND BY THE TRIBE

     21.1 Approval by Crow Tribe. The Crow Tribe shall approve this and all attached and related exhibits and agreements in the manner provided in Section 5.1.

     21.2 Approval by the Secretary. Approval by the Secretary is required. Westmoreland and the Crow Tribe shall cooperate in seeking prompt approval of this Exploration Agreement and the Coal Lease and all other agreements and exhibits attached or incorporated therein. Failure to obtain approval of the Secretary shall result in cancellation of this Agreement or related agreements as provided herein. It is understood that after approval by the Crow Tribe, further approval of the MMS Settlement Agreement by the Secretary (including the MMS) shall be independent from the Secretary’s approval of the remainder of the Exploration and Option to Lease Agreement.

     21.3 Deadline for Secretarial Approval. The Secretary shall approve the agreements as provided in Section 21.2 within six (6) months of the date of the payment of the sum described in Section 5.1. If said approval does not occur within six (6) months, Westmoreland may, at its sole option, cancel this and all related agreements or extend the time provided for such secretarial approval. The parties anticipate and request that the separate approvals by the Secretary of the MMS Settlement Agreement (Exhibit C) and the Prospecting Permit referred to in Section 2.3 occur as soon after the Tribe’s approval of this Agreement as is reasonably practical.

     21.4 Payments Prior to Secretarial Approval. The payment described in Section 5.1 shall be made upon the approval described therein, but shall be refunded as provided therein if the Secretary does not provide approval as provided in this Section 21. The payment described in Section 5.2 shall not be refunded to Westmoreland if the Secretary does not provide approval of the Exploration Agreement and Coal Lease, as long as the MMS Settlement Agreement referenced in Section 5.2 has been fully approved according to its separate terms.

     21.5 Approval of This and Related Agreements. Approval of this Exploration Agreement by the Secretary, the Crow Tribe, and Westmoreland constitutes approval of all other agreements and exhibits attached or incorporated herein, specifically including the Coal Lease, and

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further secretarial approval of those agreements shall be unnecessary. It is the finding of the Secretary, by the approval of this Exploration Agreement, that such approval is in the best interests of the Crow Indian Tribe, and any regulations that are, in any way, inconsistent with the rights granted herein, are waived.

     21.6 Approval of Agreements Does Not Constitute Permission to Mine. The Secretary’s approval of the Exploration Agreement and the Coal Lease do not constitute approval or authorization of any surface disturbing activities from an environmental perspective. All parties acknowledge that future NEPA (National Environmental Policy Act, 42 U.S.C. § 4321, et seq.) compliance will be necessary for exploration/development, drilling, and mining. it is contemplated that future NEPA compliance will involve environmental analysis satisfactory to the BIA, BLM, and OSM prior to authorization and permitting for mining. Therefore, the approval provided by this section does not constitute issuance or approval of any required exploration, drilling, or mining permit or plan.

SECTION 22 FEDERAL TRUST AND SUPERVISION

     22.1 Federal Trust Responsibilities. While the mineral interests and certain lands covered by this Exploration Agreement and the Coal Lease are in trust or restricted status, all of Westmoreland’s obligations under this Exploration Agreement and the Coal Lease, and the obligations of its sureties, are to the United States as well as to the Crow Tribe, and all payments to the Crow Tribe provided herein or therein will be made to the Superintendent for the use and benefit of the Crow Tribe, and payments shall be made according to applicable federal regulations. Nothing contained in this Exploration Agreement or the Coal Lease shall operate to delay or prevent a termination of Federal trust responsibilities with respect to the lands covered by this Exploration Agreement or the Coal Lease; however, such termination shall not serve to abrogate this Mining Area Agreement or the Coal Lease.

     22.2 Relinquishment of Supervision. Should the Secretary, at any time during the term of this Exploration Agreement or the Coal Lease, relinquish supervision as to all or part of the lands covered by this Exploration Agreement or the Coal Lease, the relinquishment shall not bind Westmoreland until it has received from the Secretary thirty (30) days written notice of such relinquishment. After notice of relinquishment has been received, this Exploration Agreement and the Coal Lease are subject to the following further conditions:

a.	Payments. All payments payable after such notice attributable to tribally owned Coal relinquished from supervision shall be paid directly to the Crow Tribe.
b.	Effect on Bonding Requirements. If at the time supervision is relinquished by the Secretary as to all the tribally-owned Coal within the Mining Area or Facilities Area, Westmoreland has made all payments due under this Exploration Agreement or the Coal Lease and has fully performed all obligations to be performed up to the time of such relinquishment, then any

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bond given to secure the performance of this Exploration Agreement or the Coal Lease and on file in the office of the Bureau of Indian Affairs shall be cancelled and released.

If at the time of any such relinquishment of supervision by the Bureau, Westmoreland has not performed all obligations imposed upon it hereunder or under the Coal Lease, Westmoreland shall file with the Crow Tribe a bond (“New Bond”) in favor of the Crow Tribe in a principal amount equal to that immediately theretofore in force with the Bureau of Indian Affairs and conditioned upon the performance by Westmoreland of those undertakings provided for in the bond (“Old Bond”) immediately theretofore in force with the Bureau. The new Bond shall be continued in force until Westmoreland performs all obligations secured thereby, provided, however, that such New Bond shall not be required until the Old Bond filed with the Bureau has been released.

SECTION 23 DEFAULT

     23.1 Conditions of Default. The breach by Westmoreland or the Crow Tribe of any of the terms and conditions of this Exploration Agreement of the Coal Lease shall constitute a default hereunder.

     23.2 Default Procedures. If a party believes a default has occurred, it may notify the other party in writing of such alleged default, specifying its nature. The parties shall meet within thirty (30) days to attempt to agree in whether there is such a default and, if so, on an appropriate remedy. If the parties are unable to agree, the complaining party may, within sixty (60) days after giving notice of such default, begin arbitration proceedings as provided for in this Exploration Agreement.

a.

Non-Monetary Default. If the arbitrator decides that a non-monetary default has occurred, the defaulting party shall have one hundred and eighty (180) days after receipt of the decision finding a default to cure such default, provided, however, such one hundred and eighty (180) day period shall be extended to include any period during which the defaulting party prosecutes with diligence and to completion an attempt to cure such non-monetary default, if it cannot be cured within one hundred and eighty (180) days.

b.

Monetary Default. If the arbitrator decides a monetary default has occurred, the defaulting party shall have sixty (60) days after receipt of the decision finding such a default to cure that default. If such default is not cured as required, the complaining party, in addition to seeking other remedies available at law, may ask the arbitrator to impose penalties or sanctions; provided, any sanction that involves termination of all or part of this Exploration Agreement or the Coal Lease because such uncured default

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shall be effective only after a determination by the arbitrators that the defaulting party has acted willfully in failing to cure the default.

     23.3 Remedies for Westmoreland’s Default. If default by Westmoreland is not cured as required by the arbitrators, the Crow Tribe may request, and the arbitrators may order, a termination of this Exploration Agreement or the Coal Lease as to the Prospect Area or the Mining Area with respect to which the default occurred.

     23.4 Remedies of Secretary. The parties hereto expressly recognize this section does not limit the options of the Secretary, in the exercise of the Secretary’s trust responsibilities, under this Exploration Agreement.

SECTION 24 TERMINATION

     Termination Rights. At any time prior to the effective date of the Coal Lease as provided in Section 9.2 herein, Westmoreland may terminate this Exploration Agreement. In the event of termination, any payments made pursuant to Section 5 which are refundable in the event the option to lease is not exercised, shall be refunded according to the terms of Section 5.

SECTION 25 MISCELLANEOUS

     25.1 Operating Subsidiaries. Westmoreland may assign any portion of the Exploration Agreement or Coal Lease to an Operating Subsidiary, or sublease any portion of the Coal Lease to an Operating Subsidiary. Westmoreland guarantees the performance of any Operating Subsidiary to which any portion of the Exploration Agreement or Coal Lease is assigned or to which any lands covered therein are subleased.

     25.2 Waiver. No failure by either party to insist upon the strict performance of the terms or conditions of this Exploration Agreement or to exercise any right or remedy consequent upon the breach thereof, or to complain of any act or omission by the other party and no acceptance of full or partial payments during the continuance of such breach constitutes a waiver of any terms or conditions of this Exploration Agreement to be performed or observed by the parties.

     25.3 Notices. Unless otherwise specified, all notices, requests, statements, and other information shall be in writing and delivered to or sent by registered or certified mail, with return receipt requested, postage prepaid, to the address of the party as set out below, and shall be effective upon receipt.

          If to the Crow Tribe:

Chairperson
The Crow Tribe of Indians
Crow Tribal Council
Crow Agency, Montana 59022

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and

Crow Tribe Legal Department
P.O. Box 340
Crow Agency, MT 59022

          If to Westmoreland:

President
Westmoreland Resources, Inc.
P.O. Box 449
Hardin, MT 59034

and

General Counsel
Westmoreland Coal Company
2 North Cascade Avenue, Third Floor
Colorado Springs, CO 80903-1614

          And if to the Bureau of Indian Affairs:

Superintendent
Bureau of Indian Affairs
Crow Agency
P.O. Box 69
Crow Agency, MT 59022

     25.4 Applicable Law. This Exploration Agreement shall be construed in accordance with the laws of the state of Montana. It is the intention of the parties that this provision shall relate only to matters of contract construction, and that such provision shall in no way be construed to authorize the imposition of Montana regulatory law relative to Mining Activities undertaken by Westmoreland within the exterior boundaries of the Crow Reservation.

     25.5 Headings. The captions of sections and underlying provisions in this Exploration Agreement are for convenience of reference only and are not to be considered a part of the text or to be used to interpret any provision of this Exploration Agreement.

     25.6 Invalidity. If any court shall hold any part of this Exploration Agreement to be invalid, such holding shall not invalidate any other part of this Exploration Agreement.

     25.7 Legal Counsel. Each party acknowledges it has had the advice and representation of legal counsel in negotiating and entering into this Exploration Agreement, and the parties recognize that each party has been actively involved in drafting such Exploration Agreement.

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     25.8 Interest. Except as otherwise specifically provided, any sums payable under this Exploration Agreement which are not paid when due shall thereafter bear simple interest, from the date due until paid, at the fixed rate of prime plus two percent (2%).

     25.9 Transfer of Lands Subject to This Exploration Agreement. The Crow Tribe shall retain the right to sell, trade, transfer, or otherwise convey any surface it owns of the Prospect Area, Mining Area, or Facilities Areas, as the case may be. Any such conveyance shall, however, be subject at all times to the rights acquired by Westmoreland in such lands pursuant to this Exploration Agreement and the Coal Lease.

SECTION 26 ARBITRATION

     26.1 Exclusive Mechanism for Settlement of Disputes. Except as otherwise provided herein, all disputes as to the application or interpretation of this Exploration Agreement, or the breach, default, termination, or invalidity thereof, shall be settled by arbitration as provided for in this section. The arbitrators shall not have the authority to add to, delete from, or otherwise change this Exploration Agreement. The decision of the arbitrators shall be final and binding upon the parties. The Commercial Arbitration Rules of the American Arbitration Association shall be applicable, except as modified herein.

     26.2 Arbitration Process.

a.	Commencement of Arbitration. Arbitration shall be commenced by written notice of the existence of a dispute and a demand for arbitration.
b.	Selection of Arbitrators. In the event of arbitration, Westmoreland shall select one arbitrator, the Crow Tribe shall select one arbitrator, and those two arbitrators shall select a mutually satisfactory third arbitrator. Westmoreland and the Crow Tribe shall select their respective arbitrators within thirty (30) days of receipt of the arbitration demand. The two arbitrators the parties select shall select a third, or announce their inability to do so, within thirty (30) days of their selection. In the event the two arbitrators selected by the parties are unable to agree on a third arbitrator, the parties agree that they shall request the federal judge for the United States Federal District Court for the District of Montana to appoint a third arbitrator from lists provided by the parties.
c.	Arbitrator Requirements. All arbitrators shall be competent and professionally experienced in the technical and/or legal matters in dispute in the arbitration. The parties agree that none of the arbitrators shall be enrolled members of the Crow Tribe or employees, advisors, stockholders, or bondholders of Westmoreland or any organization affiliated with Westmoreland.

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d.	Schedule. Within thirty (30) days of selection of the full panel of arbitrators, the arbitrators will select a chairperson and hold a conference by telephone with representatives of the parties to calendar discovery, information or briefing submittal dates, a hearing date, and address such other issues as shall ensure an economical, efficient, and timely resolution of the dispute. The hearing shall be scheduled no more than one hundred eighty (180) days from the date of this conference. The arbitrators shall issue their decision no more than thirty (30) days following the hearing.
e.	Discovery. Deposition and written discovery shall be reasonably limited by the arbitrators to achieve economical resolution of the dispute. Except in exceptional circumstances, or by mutual agreement of the parties, two sets of not more than sixty (60) interrogatories and ten (10) document requests and depositions of opposing experts and no more than five (5) fact depositions shall be deemed adequate.
f.	Arbitration Hearings and Costs. Unless mutually agreed, arbitration hearings shall be held in Billings, Montana. At such hearings, the parties may present evidence and may cross-examine the witnesses of the other party. After hearing both parties, the arbitrator shall promptly make a decision in writing upon the question or questions submitted and serve a copy of such award upon each party hereto.
	The cost of arbitration proceedings shall initially be paid by the party requesting the arbitration, but if that party prevails in the proceedings, it shall be reimbursed by the other party. Any question of cost shall be determined by the arbitrators in the course of their decision and/or award.

     26.3 Procedure for Noncompliance. If either party fails to comply with the arbitrators’ decision, the other party shall file and serve a complaint against the party in noncompliance with the arbitrators’ decision in federal district court to enforce the arbitrator’s decision in accordance with that court’s rules of procedure.

     26.4 Recognition of Secretary’s Authority. The parties specifically recognize that the Secretary’s authority herein shall not be infringed upon or diminished pursuant to this section.

SECTION 27 SURVIVAL OF CONTRACT PROVISIONS

     27.1 Upon Termination. Upon termination of this Agreement pursuant to Section 24, or if the Agreement expires without exercise by Westmoreland of its option to lease, the obligations in Section 3.3 and Sections 4 and 5.2 survive; and the provisions of Sections 19 and 26 shall survive and be applicable to any disputes which may arise with respect to this Agreement.

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     27.2 Upon Exercise of Option. Upon exercise by Westmoreland of its option to lease provided herein, all provisions of this Exploration Agreement applicable to any activities related to the Coal Lease, including all Mining Activities, all efforts to acquire permits, property, surface rights or easement accesses, licenses, or any other activities necessary or convenient to engage in Mining Activities pursuant to the Coal Lease, including, without limitation, the definitions and Sections 4 and 10 through 26 survive and apply as provided herein and in the Coal Lease to the Coal Lease. Any conflict between the Exploration Agreement and the Coal Lease shall be resolved in favor of the Coal Lease. Further, Section 6 shall survive and amend the Tract III Lease as provided therein.

     IN WITNESS WHEREOF, the parties have executed this Exploration Agreement on the day and year first above mentioned.

		CROW TRIBE OF INDIANS
		Chairperson
ATTEST:		WESTMORELAND RESOURCES, INC.
By:
	Secretary	President & Chief Executive Officer
APPROVED:
	Secretary of Interior
	Date of Approval

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EX-10.51

EXHIBIT 10.51

COAL MINING LEASE — CROW TRIBAL LANDS — COAL LEASE

     This CROW TRIBAL LANDS COAL LEASE (hereinafter “Coal Lease”), made and entered into this 13^th day of February, 2004, to be effective thirty (30) days after the date upon which Westmoreland exercises its option under Section 3.2 of the Exploration Agreement (hereinafter referred to as the “Effective Date of this Coal Lease”), between the CROW TRIBE OF INDIANS, Crow Agency, Montana 59022 (hereinafter “Lessor”), and WESTMORELAND RESOURCES, INC., a corporation organized under the laws of the state of Delaware, with its principal place of business at P.O. Box 449, Hardin, Big Horn County, Montana (hereinafter “Lessee”).

W I T N E S S E T H:

     Lessor and Lessee, in consideration of these premises and for other valuable consideration herein provided, hereby agree as follows:

ARTICLE 1 INDIAN MINERAL DEVELOPMENT ACT

     This Lease is entered into pursuant to the terms of the Indian Mineral Development Act of 1982.

ARTICLE 2 INCORPORATION OF EXPLORATION AGREEMENT

     This Coal Lease is executed pursuant to and is expressly made subject to the terms and conditions of that certain Exploration and Option to Lease Agreement (herein the “Exploration Agreement”) executed contemporaneously with this Coal Lease by and between Lessor and Lessee. The definitions, terms, and conditions set forth in the Exploration Agreement, and all provisions listed in Section 27.2 thereof, are incorporated herein by reference. Where there is a conflict between the terms of the Exploration Agreement and this Coal Lease, the terms of this Coal Lease shall prevail.

ARTICLE 3 LEASE OF INDIAN LAND

     Lessor, for and in consideration of the payments described in the Exploration Agreement, and in consideration of the rents and royalties to be paid by Lessee to Lessor hereunder, does hereby grant, demise, lease, and let exclusively to Lessee, its successors and assigns, for the sole purpose of mining Coal, all of Lessor’s right, title, and interest in that tract of land (hereinafter the “Leased Premises”) identified as the Mining Area in accordance with the terms and conditions of Section 8 of the Exploration Agreement, and the use of the surface and subsurface overlying the same, in, under and upon the Leased Premises, together with the right to exercise and conduct Mining Rights and Mining Activities thereon and therein.

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ARTICLE 4 DEFINITION OF “MINING RIGHTS”

     “Mining Rights,” as used herein, shall mean all necessary or convenient rights and privileges incident to the mining, storing, processing, and shipping of Coal under this Coal Lease or any Coal acquired pursuant to Article 15, including, but not limited to, the right to mine, remove, transport, and process Coal in, on, or under the Leased Premises by any method; the right to market, sell, and ship coal removed; the right to use Tribal Lands leased hereunder to construct, maintain, and operate roadways, railroads, sidetracks, switches, haul ways, dams, substations, buildings, processing plants, tipples, water drainage courses and conveyors, and any other improvements or structures necessary or convenient to accomplish the purpose of this Coal Lease; the right to use and transport water developed by Lessee and any other water made available to the Lessee on the Leased Premises; the right to enter in accordance with applicable law upon the surface of the Leased Premises from time to time with tools, equipment, and machinery for the purpose of drilling, taking core samples, surveying, mapping, and performing environmental research; the right to pump and discharge water; the right to transport, without further charge, rent, or royalty, over and through the Leased Premises and over and through the Crow Reservation from the Leased Premises, personnel, materials, supplies, and Coal, including coal mined from other properties now or hereafter leased; the right to make such other use of the Leased Premises as shall be necessary and convenient for the mining, transporting, storage, and processing of Coal, Coal refuse, and by-products; the right to do all things necessary and convenient to satisfy all applicable legal requirements for environmental protection and reclamation during and after Mining Activities; the right to ingress and egress to the Leased Premises, including the right to construct, maintain, and operate access roads, power lines, telephone lines, pipelines, and railroads to and in the Leased Premises, the right to remove Lessee’s improvements, fixtures, and equipment at the conclusion of mining or reclamation, all without further charge, rent, or royalty, except as otherwise provided in the Exploration Agreement.

     Subject to the provisions of Article 17 of this Coal Lease, any rights-of-way across Crow Reservation land shall be granted in accordance with applicable federal laws and regulations governing rights-of-way across Indian land.

     The parties further agree that any off-lease Mining Rights to be exercised by the Lessee shall be reasonable and necessary and shall be utilized by Lessee in accordance with all applicable federal regulations, other than those waived by the Secretary where waiver is found to be in the best interests of the Lessor and is otherwise appropriate to effectuate the terms and conditions of this Coal Lease. The parties further agree that Lessee will take whatever measures it deems necessary to obtain whatever additional rights or interests may be necessary for the uses of lands described in this Article from the owner or owners of the surface estate other than the Lessor. The parties understand that the Lessor grants to the Lessee only those rights and interests in the surface estate within the Leased Premises that it owns or controls and will cooperate with Lessee in Lessee’s efforts to obtain additional surface rights as provided in the Exploration Agreement.

ARTICLE 5 COVENANT OF QUIET ENJOYMENT

     Lessor covenants that the Lessee, upon complying with the terms, conditions, covenants, and agreements hereof, shall have quiet and peaceful possession and enjoyment of the Leased Premises and the Mining Rights granted herein.

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ARTICLE 6 TERM

     This Coal Lease is granted for a primary term of ten (10) years from the Effective Date of this Coal Lease, and for so long thereafter as the Coal is being produced by Lessee in “Paying Quantities,” but the period for mining shall not exceed twenty-five (25) years from the date of the first Coal delivery from the Leased Premises, plus any adjustment for Force Majeure. As used in this Article, the term “Paying Quantities” means that, by midnight of the last day of the primary term of the Exploration Lease, the Lessee has commenced and thereafter continues the primary removal of Coal intended for sale and upon which royalties will be paid, subject to the provisions of Force Majeure contained in Article 31 of this Coal Lease.

     No Coal may be mined from the Leased Premises after the end of such twenty-five (25) year period, as extended by Force Majeure. However, after the end of the twenty-five (25) year period for mining or, when prior thereto, mining on the Leased Premises otherwise ceases, this Coal Lease shall continue for as long as is necessary to allow Lessor to conduct activities necessary or appropriate to reclaim the land, salvage equipment, and comply with applicable laws and regulations. Reclamation shall be deemed complete at time of final bond release. If, at the end of twenty-five (25) years, there is mineable Coal remaining within the Leased Premises that would be sterilized, bypassed, or forever forsaken by the termination of mining of Coal by Lessee, adjustments to this termination date may be made by the mutual consent of Lessor and Lessee.

ARTICLE 7 ROYALTY PAYMENTS

     7.1 Minimum Royalty. Lessee shall pay, or cause to be paid, a royalty to the Superintendent for the use and benefit of Lessor, on or before the twenty-fifth (25th) day of each calendar month during the term hereof on all Coal mined and shipped from the Leased Premises during the preceding calendar month. The amount of minimum royalty, hereinafter “Minimum Royalty,” paid shall be an amount per ton equal to 6.5% of the sales price per ton sold and delivered F.O.B. Mine at loadout into or onto a Carrier, hereinafter “Sales Price.” The Minimum Royalty of 6.5% may be increased as provided in provision 7.3 below.

     7.2 Additional Royalty. Lessee shall pay, or cause to be paid, an additional royalty to the Superintendent for the use and benefit of Lessor, on or before the twenty-fifth (25th) day of the calendar month following each calendar quarter during the term hereof on all Coal mined and shipped from the Leased Premises during the preceding calendar quarter. The amount of additional royalty shall be determined as follows:

a. Lessee shall determine the Sales Price less Minimum Royalty and any production taxes, hereinafter “Base Price.” The Base Price is determined using the formula and methodology set forth in Appendix A attached hereto. The production tax components shown in Appendix A are those currently in effect. If, in the future, taxes levied and payable change, taxes in effect at the time of sales will be included in the formula and methodology used in determining Base Price. The amount of additional royalty shall be equal to one-third (1/3) the increase in the Base Price per ton above $5.157 per ton,

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hereinafter “Initial Base Price.” The Initial Base Price was determined using the formula and methodology set forth in Appendix A for a Sales Price of $7.38 per ton.

b.

The Initial Base Price of $5.157 per ton is effective July 1, 2004, and will be adjusted quarterly thereafter on January 1, April 1, July 1, and October 1 during the term hereof, hereinafter the “Adjustment Date.” The Initial Base Price as adjusted shall be used to determine the additional royalty for the quarter preceding the Adjustment Date. The Initial Base Price shall be adjusted to reflect 85% of any increase in the “GDP-IPD” in accordance with the definitions, formula, and methodology set forth in Appendix B attached hereto and effective on the Adjustment Date.

c.

After April 1, July 1, October 1, and January 1 each year during the term hereof, the Lessee shall determine the Base Price for all Coal mined and shipped on a year-to-date basis during all of the previous quarters for the calendar year. The additional royalty due for all Coal mined and shipped on a year-to-date basis will then be computed. The additional royalty due for the previous quarter will then be equal to the total additional royalty as computed on a year-to-date basis less the additional royalty payments paid for all quarters during the current year prior to the quarter being paid. Appendix C hereto attached shows an example of the formula and methodology for determining the additional royalty payment for a quarter.

     7.3 Royalty Offset. If the amount of taxes payable to the Crow Tribe is reduced for any reason (including, but not limited to, a reduction in the Montana tax rates) after this Coal Lease takes effect, the Minimum Royalty provided in Article 7.1 and payable to the Crow Tribe shall be increased by an amount necessary to offset the reduction in taxes, so that the total taxes and royalty paid to the Crow Tribe equals the current taxes in existence in 2003, plus the royalty otherwise payable under this Coal Lease; provided, however, that the maximum royalty rate shall not exceed 12.5% of the Sales Price; and provided further that if Westmoreland notifies the Crow Tribe that the increased royalty will result in serious difficulty in marketing the coal, or loss of sales under current long term coal sales agreements, the Crow Tribe will negotiate in good faith on reducing the amount of increase in the royalty rate. If a tax increase occurs, following a tax reduction and royalty increase per this section, then there will be a commensurate royalty reduction, so that the total taxes and royalty paid remains as provided in the first sentence of this Section 7.3.

     7.4 Royalty Cap and Additional Royalty Adjustment. Notwithstanding Sections 7.1, 7.2, or 7.3, the total royalty paid to Lessor from the mining operations under this Coal Lease shall never exceed 12.5% of the Sale Price.

     7.5 Measure of Quantity for Royalty Payment. The quantity of all Coal mined and shipped by the Lessee shall be determined by railroad or truck scales, belt weightometers, or other means mutually agreed upon.

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     7.6 Royalty Payments. All royalty payments and reports shall be made according to the applicable federal regulations governing royalty payments for Indian coal. Where the express terms of this Agreement differ from any provisions of the applicable federal regulations, the terms of this Agreement shall control. This method of payment shall also apply to the Annual Rental and surface rental payable pursuant to Articles 9 and 10 of this Coal Lease, and to royalties payable under the Tract III Lease as provided in section 6.1 of the Exploration Agreement.

ARTICLE 8 TAX

     Lessee shall pay, or cause to be paid, to the Superintendent for the use and benefit of Lessor, a tax on its mining operations as follows:

     8.1 Exploration Agreement. All tax provisions in the Exploration Agreement, including, without limitation, Sections 15, 17, and 19, shall apply to all mining and Mining Activities undertaken pursuant to this Coal Lease.

     8.2 Tax Obligation and Calculation. On Coal mined and shipped from the Mining Area pursuant to this Coal Lease, Lessee will from time to time pay to the Lessor a tax equal to the Montana coal severance tax existing at the time the Exploration Agreement is executed and applicable to the mining of Coal generally within the state of Montana and a tax equal to the Montana state gross proceeds tax existing at that time and applicable to the mining of Coal generally within the state, less whatever amount is required to be paid in severance and gross proceeds taxes to the state of Montana or its political subdivisions. The tax shall be levied on the Sales Prices of Coal as defined in Section 7.1, less any applicable deductions.

          Compliance with the terms of this Coal Lease shall satisfy any obligation which Lessee may have now, or at any time hereafter, to pay any severance or other tax to Lessor pursuant to any tax ordinance which now exists or may be adopted by Lessor hereafter. Lessor shall not attempt to assess or collect any tax or other amount from Lessee except as provided for in this Coal Lease or the Exploration Agreement.

          Nothing in this Lease is to be construed as an admission that Montana has any right to tax coal on the Crow Reservation. In the event the Crow Tribe litigates this issue, Lessee will cooperate reasonably to provide information to the Lessor.

     8.3 Maximum Tax. The amount of tax payable to Lessor under provision 8.2 will not exceed the amount that otherwise would be payable by a Coal operator on non-tribal lands to Montana or its political subdivisions, giving effect to all allowable deductions and credits, if Lessor’s activities were fully taxable by Montana or its political subdivisions.

     8.4 Reporting and Payment. Lessee shall provide to the Lessor all of the information that Lessee may be, or otherwise would be, required to provide to the state of Montana or its political subdivisions in satisfaction of the requirements of Montana’s severance tax law and gross proceeds tax law at the same time that such information is, or otherwise would be, provided to the state of Montana or to its political subdivisions. Lessee shall pay any amounts due to the Lessor under this Article, and provide an accounting of, and explanation for, said amounts, at the same time

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that Montana’s severance and gross proceeds taxes are being, or otherwise would be, paid. The confidentiality provisions of Article 18 shall apply equally to this Article. All tax payments shall be made according to the applicable federal regulations governing royalty payments for Indian coal. Where the express terms of this Agreement differ from any provisions of the applicable federal regulations, the terms of this Agreement shall control.

     8.5 Changes in Rate of Tax.

a. Tax Reduction. In the event that either the Montana state severance tax or gross proceeds tax should be repealed or reduced below its current level, then amounts paid by Lessee under Section 8.2 shall be reduced accordingly. Further, an adjustment to royalty will be made in accord with Article 7. In addition, the parties shall have the rights provided herein below:

(1)	Lessor may require Lessee to negotiate with Lessor on the amount of severance and/or gross proceeds taxes, if any, which Lessee will pay to the Lessor by giving Lessee notice of an intent to renegotiate this provision with respect to a severance tax and/or gross proceeds tax within ninety (90) days (unless otherwise agreed) after the effective date of the act of the Montana legislature or after action of any Montana political subdivision effecting such reduction.
(2)	Unless otherwise agreed, negotiations shall commence within thirty (30) days after Lessee’s receipt of the Lessor’s notice of intent to renegotiate.
(3)	Lessee’s obligation to pay a severance and/or a gross proceeds tax to Lessor under this Coal Lease shall be suspended during the period of renegotiation from the last day of the month in which the intent to renegotiate is received by Lessor. If tax rates are established by agreement as a result of renegotiation, then Lessee shall pay Lessor a tax or taxes based on those rates retroactive to the time of suspension of payment under this Coal Lease.

b. Procedure for Renegotiation Impasse. In the event Lessor and Lessee are unable to reach an agreement on the amount of taxes to be paid to the Lessor within sixty (60) days of the commencement of negotiations provided for in 8.5a.(1) (excluding time required to seek approval of any such agreement at the next meeting of Lessor’s Tribal Legislature), then, unless otherwise agreed, either Lessor or Lessee may resolve the issue of the proper amount of taxes payable by Lessee to Lessor under this Coal Lease through binding arbitration. The arbitration procedure shall be that provided in the Exploration Agreement at Section 26. The arbitrators shall be asked to arrive at a reasonable rate of severance and gross proceeds tax which, when combined with the royalty received by the Crow Tribe, accomplishes the following goals: provision to Westmoreland of a reasonable profit and rate of return on its investment, when compared with similar (including non-tribal) mining operations located within Lessee’s market area; while providing a reasonable return to the Crow Tribe from the mining of its mineral assets in the form of royalty and severance and gross proceeds taxes.

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ARTICLE 9 ANNUAL RENTAL

     Lessee shall pay, or cause to be paid, for the use and benefit of Lessor, in advance, beginning with the date of approval of this Coal Lease by the Secretary, as annual rental, One Dollar and 0/100 ($1.00) per acre for the first lease year, and subsequently One Dollar and 0/100 ($1.00) per acre per year, payable in advance on or before the first day of each lease year, for each and every year during the continuance of this Coal Lease. The rent is not to be credited on royalties accruing to Lessor under this Coal Lease. If this Coal Lease is surrendered or cancelled, no part of any advance rental shall be refunded to Lessee, nor shall the surrender or cancellation relieve Lessee from the obligation to pay the advance rental when it becomes due, on any portion of the Lease that is retained.

ARTICLE 10 SURFACE LEASE

     Lessee shall pay a separate surface rental on all surface property owned by Lessee within the Mining Area of one dollar and 0/100 cents ($1.00) per acre per year.

ARTICLE 11 PREVENTION OF WASTE

     Lessee shall carry on development and operations in a workmanlike manner and agrees to the following: to neither commit nor suffer waste to be committed upon the land leased; to comply with applicable laws of the United States; and to surrender and return promptly the premises upon the termination of this Coal Lease to whoever is lawfully entitled thereto. If Lessee is in compliance with applicable federal laws and regulations and mining in accord with approved mining plans and permits, including the Resource Recovery and Protection Plan, it shall be deemed to be in full compliance with its obligation to prevent waste and to mine in a workmanlike manner.

     If the payments agreed upon in this Coal Lease have been made and the other lease terms and applicable regulations have been complied with, the office fixtures and records, personal property, tools, pumping and drilling equipment, boilers, engines and mining machinery, facilities and equipment, and all other personal property and improvements on the leased land (except the Lessor’s property) may be removed by the Lessee as soon as practicable after the Coal Lease expires by forfeiture or otherwise.

ARTICLE 12 FORESTS, CROPS, AND GRAZING

     The Lessor agrees that with respect to any surface property rights acquired by Lessee in the Leased Land, or acquired by Lessee for Lessor as provided in Article 15, Lessee may remove any timber, crop, or improvements to the extent convenient for Mining Activities without compensation for same to Lessor.

     With respect to any surface owned by the Tribe and under lease pursuant to this Agreement, Lessee will reasonably compensate the Tribe for any forest, crops, or grazing damage or removal in the year it occurs, and for any diminution in value due to mining assessed as of the completion of final reclamation (i.e., final bond release).

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ARTICLE 13 ENVIRONMENTAL PROTECTION AND SURFACE RESTORATION

     Lessee’s mining operations shall be conducted in accord with all applicable federal laws regarding protection of the environment, reclamation, and restoration of mined areas. Westmoreland’s compliance with said laws shall constitute full compliance with any obligation Westmoreland has to the Crow Tribe concerning pollution, pollution control or abatement, environmental protection, control or abatement, mining procedures, reclamation, reclamation procedures, results, mining plans, protection of persons or property, and any other issue addressed by said laws or regulations. The parties recognize the Crow Tribe’s legal position that the State of Montana lacks jurisdiction to regulate Westmoreland’s activities under this Agreement that occur on or affect lands within the exterior boundaries of the diminished Reservation (which include all of the Prospect Area and Mining Area), while the State asserts jurisdiction to regulate Westmoreland’s activities outside the boundaries of the diminished Reservation (including Westmoreland’s existing mining operations on Tract III within the “ceded strip”).

     The Lessee shall comply with all applicable requirements of the law, including the Surface Mining Control and Reclamations Act of 1977, and all regulations promulgated thereunder, including those codified at 30 CFR part 750.

     Lessee recognizes that the Crow Tribe may seek and be granted legal authority pursuant to federal law (including future acts of Congress) to operate and administer certain environmental regulatory programs within the Crow Indian Reservation that would otherwise be operated or administered by federal agencies, including, but not limited to, SMCRA and the Clean Water Act. Lessee will not take any actions opposing the Tribe’s efforts to obtain such authority. If at any time in the future the Crow Tribe gains the legal right and ability to regulate those activities described above in this Article 13, and desires to establish and undertake such regulation, Lessee agrees to negotiate in good faith to amend this Agreement to allow such regulation of its activities upon such terms as shall guarantee: (a) no net increase in Lessee’s costs; (b) no duplication, overlap, inconsistency, or conflict with, between, or among competing laws and regulations issued and applied by any other government with the right and power to impose such regulation; and (c) Lessee shall not be subjected to inspection, regulation, and enforcement by more than one governmental entity.

ARTICLE 14 USE OF LANDS OUTSIDE THE LEASED PREMISES

     Subject to Article 4 of this Coal Lease, Lessee shall be entitled to make use of tribal surface lands lying outside the Leased Premises reasonably required for Mining Activities on the Leased Premises, including, but not limited to, the construction, operation, and maintenance of roads, power lines, railroads, conveyors, and any road easements required for landowner access. Lessee shall, to the extent deemed by it to be reasonably feasible and prudent, utilize such lands in a manner which will minimally impact the Lessor’s use of such lands, including mining operations conducted by others.

     Lessee shall at all times be required to comply with the federal laws and regulations governing rights-of-way across Indian lands, unless waived in accordance with Article 4 of this Coal Lease. Notwithstanding any provision of this Coal Lease or the Exploration Agreement, any rights-

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of-way across tribal land shall be granted by the Crow Tribe without further charge or compensation, in consideration of the payments made to the Lessor under this Coal Lease and the Exploration Agreement. However, if the Secretary or the Lessor should ever require the Lessee to pay compensation for any right- of-way across tribal land, then there is hereby granted to the Lessee a credit, against any tribal taxes due hereunder, equal to the amount of any compensation Lessee is required to pay.

ARTICLE 15 ACQUISITION OF NON-TRIBAL COAL AND SURFACE RIGHTS BY LESSEE

     15.1 Acquisition. When requested by Lessee, Lessor shall assist Lessee in acquiring the rights to utilize whatever surface land or interests in lands within the Crow Reservation Lessee deems necessary or convenient for Mining Activities.

     15.2 Transfer of Surface Rights to Lessor.

a.	Lessee may acquire and maintain ownership of surface lands within the Crow Reservation owned by persons or entities other than the Crow Tribe to the maximum extent possible while remaining in compliance with the limitations on land ownership contained in any relevant and applicable federal law. Any surface lands within the Crow Reservation necessary or convenient for Mining Activities in excess of permissible acreage limitations may first be acquired by Lessor, and leased back to the Lessee at the surface rental rates specified in this Coal Lease.
	If Lessor declines to acquire such lands, then such lands may be acquired by Lessee for Lessor, such acquisition to be evidenced by an appropriate deed in Lessor’s name. Lessor shall then execute and deliver a lease of said lands back to Lessee which grants Lessee all rights to use provided in this Coal Lease and the Exploration Agreement, without cost, (except as otherwise provided for in this Coal Lease or the Exploration Agreement) any and all of the land and any water rights associated with such land for Mining Activities until the Mining Activities on that land have been completed, and all uses by Lessee for any purposes connected with mining or reclamation cease. The term of said lease shall run concurrently with the term of this Coal Lease. Lessee shall provide Lessor with copies of any data, information or materials in its possession relative to title to the lands conveyed.
b.	The mechanism provided in this Article for the acquisition of surface rights may also be used by Lessee to acquire surface lands within the Crow Reservation which are outside the Mining Area for the purpose of exchanging said lands for lands within the Mining Area.
c.	With respect to any surface lands acquired and owned by Lessee pursuant to provision 15.2.a. of this Coal Lease, Lessee shall, at the end of the term of this Coal Lease, convey the same to the Crow Tribe. However, this provision

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will not prevent Westmoreland from acquiring property within the boundaries of the Crow Reservation for the purpose of swapping or trading for other property in order to allow Westmoreland to acquire title to surface within the Mining Area. Property acquired by Westmoreland for that purpose, and eventually used for that purpose, shall not be conveyed to the Crow Tribe. Further, to facilitate acquisition of property needed for Mining Activities, Westmoreland may encumber any property it acquires within the Crow Reservation or any property acquired by it for or in the name of the Crow Tribe with access road easements in favor of Westmoreland (for Mining Activities) or private owners as may be needed to arrange land swaps or purchases, for acquisition by Westmoreland of surface rights needed for Mining Activities.

d.

Lessee reserves the right to burden any property acquired and conveyed pursuant to this Article with easements for road access in favor of Lessee or private landowners (to the extent required to obtain surface rights needed for Mining Rights).

ARTICLE 16 TRANSFER OF LANDS BY LESSOR

     The Lessor shall retain the right to sell, lease, trade, transfer, or otherwise convey any of the lands covered by this Coal Lease, including the Perimeter Area lands. Any such conveyance shall, however, be subject at all times to the rights of Lessee provided in this Coal Lease and the Exploration Agreement, including Article 23 of this Coal Lease.

ARTICLE 17 MINE OPERATIONS–ROADS AND WATER

     17.1 Existing Roads. To the extent it may do so, the Lessor grants to Lessee the right to use any existing public roads on the Crow Reservation and the right to improve such roads. Subject to the provisions of Article 4 of this Coal Lease and compliance with applicable laws and regulations governing rights-of-way across Indian lands, Lessor shall also grant to Lessee the right to construct, maintain, and use new roads within the Crow Reservation to facilitate activities contemplated by this Coal Lease.

          Before Lessee paves or improves any existing road, or constructs a new road which provides a link to an existing road providing access beyond the Leased Premises, the Lessor shall be notified of the plan for such road. The location and construction of any new roads shall require the consent of the Lessor and Secretary pursuant to applicable federal law, provided that the Lessor’s consent may not be unreasonably withheld.

          Lessee will not dedicate any road constructed by it within the Leased Premises for public use and such roads will be marked with signs indicating that they are only for private use unless Lessor determines that such road is needed as a public road, subject, however, to the consent of Lessee.

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          Upon expiration of this Coal Lease, or at such times as the roads constructed on the Leased Premises are no longer needed by Lessee for the activities contemplated under this Coal Lease, the rights granted by Lessor to Lessee to use such roads shall cease. Such roads shall then vest solely in the Lessor or surface owner, which shall assume all further responsibility for the upkeep and maintenance of such roads, to the maximum extent allowed by law.

     17.2 Water. The Lessor grants to Lessee the right to use any tribal water rights Lessor may have appurtenant to the Leased Premises for Mining Activities. Lessee may use surface or subsurface water for Mining Activities, regardless of the manner of its occurrence, including groundwater and pit water; except that any water and/or wastewater disposal shall be in compliance with applicable laws and regulations. Lessee may drill at its expense any necessary water wells on land covered hereby; provided such well shall not affect the quality or quantity of water being used for domestic, livestock, irrigation, or other existing tribal purposes, and further provided that Lessee obtain any Crow Tribal permits required for water well drilling on the Crow Reservation.

ARTICLE 18 MONTHLY STATEMENTS

     Lessee shall keep an accurate record of mining operations, showing for each month the total sales and amounts of Coal mined and sold. Lessee shall furnish the Superintendent and Crow Tribal Mineral Office monthly reports of these matters before the twenty-fifth (25^th) day of the succeeding month.

     An audit of Lessee’s accounts and books shall be made annually or at any time directed by the Superintendent, by a certified public accountant approved by the Secretary or the Secretary’s authorized representative and at the expense of Lessee. Lessee shall furnish, through the Superintendent, a free copy of the audit to the Secretary or the Secretary’s authorized representative and Crow Tribal Mineral office promptly after the completion of each audit.

     Lessor acknowledges that much of the information described in this Article is trade secret information of potential benefit and use to Lessee’s business competitors and, therefore, agrees to keep all information strictly confidential to the maximum extent allowed by law.

ARTICLE 19 REGULATIONS

     Lessee shall abide by and conform to any and all legal and enforceable regulations of the Secretary now or in the future in force relative to the Coal Lease. Neither the rate of royalty, nor the annual rental, nor the term of the Coal Lease may be changed by a future regulation without the consent of the parties to this Coal Lease.

ARTICLE 20 ASSIGNMENT OF LEASE

     Lessee shall not assign this Coal Lease or sublet any portion of the Leased Premises, except with the approval of the Secretary. Notwithstanding this limitation, Westmoreland may assign to an Operating Subsidiary without the approval of the Crow Tribe or the Secretary as provided in 25.1 of the Exploration Agreement.

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ARTICLE 21 BOND

     Lessee agrees to furnish such bonds as may be required by law to conduct Mining Activities under this Coal Lease.

ARTICLE 22 INSPECTION

     The Leased Premises, producing operations, and appurtenances of the Lessee may be inspected by the Lessor and its agents or any authorized representative of the Secretary.

ARTICLE 23 DISPOSITION OF OTHER RESOURCES

     Lessor, along with the United States, retains the right to grant to other persons, firms, or corporations oil and gas leases (including methane gas), mineral leases (other than coal) or licenses, or exploration rights for oil, gas or other minerals (other than coal) or rights-of-way incident thereto, on the Mining Areas and Facilities Area, all of which will be made subordinate and subject to Lessee’s rights specifically granted herein. Such oil, gas, and minerals activities (other than coal) may be carried out concurrently with Mining Activities hereunder; provided, however, that such operations shall not interfere in any way with Mining Activities hereunder and no permanent fixture will be placed on, and no mining or drilling activity undertaken in, an active or planned Mining Area without Lessee’s prior written approval. Any coal bed methane leases granted by Lessor covering lands covered by this Coal Lease shall provide that any attempts to drill for coal bed methane on the acres leased must be done in a manner that will not interfere in any way with Lessee’s operation, present or future, or sterilize any coal reserves.

ARTICLE 24 SURRENDER AND TERMINATION

     Lessee may at any time terminate this Coal Lease or any part thereof upon the payment of all rentals, royalties, and other obligations then due to the Lessor and a surrender fee of Five Dollars and 0/100 ($5.00) and upon written notice being given sixty (60) days in advance to the Lessor through the Crow Tribal Government and the Secretary. This Coal Lease shall continue in full force and effect as to the lands not so surrendered. If this Coal Lease or any assignment thereof has been recorded, the Lessee or assignee shall file a recorded release and provide notice to the Superintendent of termination of this or any portion of this Coal Lease.

ARTICLE 25 RELINQUISHMENT OF SUPERVISION BY SECRETARY OF INTERIOR

     Should the Secretary of Interior, at any time during the term of this instrument, relinquish supervision as to all or part of the acreage covered, the relinquishment shall not bind Lessee until the Secretary has given Lessee thirty (30) days written notice. Until these requirements are fulfilled, Lessee shall continue to make all royalty and rental payments due under this Coal Lease.

     After notice of relinquishment has been received by Lessee, this Coal Lease shall be subject to the following further conditions:

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     25.1 All rentals and royalties accruing shall be paid directly to Lessor or its successors in title; and

     25.2 If, at the time supervision is relinquished by the Secretary as to all lands under this Coal Lease, Lessee has made all payments due and has fully performed all obligations on its part to be performed up to the time of the relinquishment, any bond given to the Secretary to secure performance of the Coal Lease shall be released to Lessee.

ARTICLE 26 INSURANCE, SOCIAL SECURITY, AND TAXES

     Lessee agrees to carry such insurance covering all persons working in, on, or in connection with the Leased Premises for the Lessee as will fully comply with the provisions of the statutes of the state of Montana covering worker’s compensation and occupational disease, as are now in force or as may be amended. Further, the Lessee agrees to comply with all the terms and provisions of all applicable laws of the state of Montana and of the United States of America as now exist or as may be amended, pertaining to Social Security, unemployment compensation, wages, hours and conditions of labor; and to indemnify and hold the Lessor and the United States harmless from payment of any damages occasioned by the Lessee’s failure to comply with these laws.

ARTICLE 27 HEIRS AND SUCCESSORS IN INTEREST

     Lessor and Lessee agree each obligation under this Coal Lease shall extend to and be binding on, and every benefit shall inure to, the heirs, executors, administrators, successors of, or assigns of the parties to this Coal Lease.

ARTICLE 28 GOVERNMENT EMPLOYEES NOT TO ACQUIRE LEASE

     No lease, its assignment, or interest in the same will be approved to any employee or employees of the United States Government, whether connected with the Bureau of Indian Affairs or otherwise. No employee of the United States Department of the Interior shall be permitted to acquire any interest in the leases by ownership of stock in corporations having leases or in any other manner.

ARTICLE 29 DEFAULT

     Any defaults hereunder by either party shall be handled in accord with Section 23 of the Exploration Agreement.

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ARTICLE 30 PRESERVATION OF ANTIQUITIES

     Lessee shall obtain necessary archeological clearances in accordance with the Antiquities Act of 1906, the Archaeological Resources Protection Act of 1979, and other applicable laws before the start of any mining. When directed by the Lessor or the Secretary, Lessee shall obtain, at its own expense, a qualified archaeologist to examine and, if necessary, excavate or gather any ruins or other objects of historical or cultural significance located on the Leased Premises. Such actions will be conducted after consultation with Lessor, the Bureau of Indian Affairs, and the Advisory Council on Historic Preservation. Any objects that are excavated or gathered shall be turned over to the Lessor or the appropriate federal agency.

ARTICLE 31 FORCE MAJEURE

     If, because of Force Majeure, the Lessee is reasonably prevented from performing any of its obligations under this Coal Lease or satisfying any of the conditions of this Coal Lease, including those obligations and conditions, which if unfulfilled, may limit the term of the Coal Lease, then such obligations and conditions shall be reduced, and any time or date (including those on the term of this Coal Lease if production of coal in paying quantities is interrupted by such Force Majeure), shall be extended or reduced to the extent the Lessee is so prevented. As used herein, “Force Majeure” shall have the meaning provided at Section 11 of the Exploration Agreement and the mitigation and notification procedures provided therein shall apply.

ARTICLE 32 ARBITRATION

     Except as otherwise provided herein, any disputes arising under this Coal Lease or the Exploration Agreement, and any claims of breach, default, invalidity, or termination, or application or interpretation hereunder, and any other disputes arising hereunder, shall be settled by binding arbitration. The arbitration provisions of Section 26 of the Exploration Agreement shall apply.

ARTICLE 33 LIMITED WAIVER OF SOVEREIGN IMMUNITY

     The Crow Tribe specifically and unequivocally waives its sovereign immunity from suit and hereby consents to being named as a party in any litigation between Westmoreland, an Operating Subsidiary and the Crow Tribe involving the construction, execution, interpretation, validity, enforcement, performance, or any disputes arising under this Coal Lease and the Exploration Agreement, including any dispute concerning the rights, responsibilities, and obligations of the parties hereto relating to the mining of Crow Coal under this Coal Lease and the Exploration Agreement. It is agreed that this waiver of sovereign immunity is limited and extends only to Westmoreland and an Operating Subsidiary and to no other parties, and that the waiver is further limited to only those matters referenced in this provision.

     This waiver shall be effective such that both parties shall comply with the binding arbitration provisions of the Exploration Agreement and Coal Lease and either party may have recourse to federal court to fully enforce the parties’ agreement to arbitrate and the arbitration result pursuant to the Federal Arbitration Act found at 9 U.S.C. § 1, et seq.

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     This waiver of sovereign immunity is based upon the Crow Tribe’s opinion, belief and considered finding that the assertion of the Crow Tribe’s sovereign immunity in any dispute involving Westmoreland concerning this Exploration Agreement or the Coal Lease would be inappropriate. The parties expressly recognize this waiver shall not extend to or apply to any claim which might be brought against the Crow Tribe for punitive damages. Further, the parties expressly recognize this waiver shall not permit or authorize the sale or transfer of any property held by the United States in trust for the Crow Tribe. Except for an award of costs and attorneys’ fees of or for any arbitration proceedings, the Crow Tribe’s monetary liability resulting from any dispute arising under the referenced agreements and the waiver of sovereign immunity herein is limited to an award against the Tribe of offsets or withholding of future royalties and taxes otherwise payable by Westmoreland to the Crow Tribe, and/or injunctive relief providing for enforcement of Westmoreland’s right to explore, lease, and mine according to the referenced agreements.

     A true and correct copy of Crow Tribal Legislative Act No. CLB 0402, enacted February 10, 2004, and approved February 12, 2004, approving this limited waiver of sovereign immunity as to matters arising in conjunction with this Exploration Agreement and Coal Lease, is attached hereto as Exhibit “D.”

ARTICLE 34 OBLIGATIONS

     While the Leased Premises are in trust or restricted status, all of the Lessee’s obligations under this Coal Lease and the obligations of its sureties are to the United States as well as to the owners of the Leased Premises.

ARTICLE 35 MISCELLANEOUS

     35.1 Notices. Unless otherwise specified, all notices, requests, statements, and other information shall be in writing and delivered to or sent by registered or certified mail, with return receipt requested, postage prepaid, to the address of the party as set out below, and shall be effective upon receipt.

If to Lessor:
	Chairperson
	Crow Tribal Council
	Crow Agency, Montana 59022
and
	Crow Tribe Legal Department
	P.O. Box 340
	Crow Agency, MT 59022
If to Lessee:
	President

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	Westmoreland Resources, Inc.
	P.O. Box 449
	Hardin, MT 59034
	and
	General Counsel
	Westmoreland Coal Company
	2 North Cascade Avenue, Third Floor
	Colorado Springs, CO 80903-1614
If to Regional Director:
	Regional Director
	Billings Area Office
	Bureau of Indian Affairs
	316 North 26th Street
	Billings, Montana 59101
And if to the Superintendent:
	Superintendent
	Bureau of Indian Affairs
	Crow Indian Agency
	P.O. Box 69
	Crow Agency, Montana 59022

or to such other address or individual as the Lessor or Lessee may otherwise specify.

     35.2 Applicable Law. This Coal Lease shall be construed in accordance with the laws of the state of Montana. It is the intention of the parties that this provision shall relate only to matters of contract construction, and that such provision shall in no way be construed to authorize the imposition of Montana regulatory law relative to Mining Activities undertaken by Lessee within the exterior boundaries of the Crow Reservation.

     35.3 Headings. The captions of Articles and underlying provisions are for convenience of reference and are not to be considered a part of the text or to be used to interpret any provision of this Coal Lease.

     35.4 Invalidity. If any court shall hold any part of this Coal Lease to be invalid, such holding shall not invalidate any other part of this Coal Lease.

     35.5 Other Tribal Coal Leases. In the event Lessor enters into a coal lease or other coal development lease with someone other than Lessee on lands in the vicinity of the Mining Areas identified herein, Lessee agrees that it will not unreasonably interfere with the operations of such lessee. Lessor agrees that if it should enter into a coal lease or other coal development lease on lands

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in the vicinity of the Mining Areas identified herein, Lessor shall provide in such lease or other lease that the lessee thereunder shall conduct its operations so as not to unreasonably interfere with Lessee’s Mining Activities.

     35.6 Interest. All royalties, taxes, rentals, and any other sums payable under this Coal Lease which are not paid when due shall thereafter bear simple interest, from the date due until paid, at the fixed rate of prime plus two percent (2%), with the rate fixed according to the prime rate of interest in effect on the due date of the payment.

ARTICLE 36 TRIBAL EMPLOYMENT

     Lessee shall give a priority right of employment to members of the Crow Tribe for all positions for which they are qualified and available and shall pay the prevailing wage rates for similar services in the area. Upon initial hiring and whenever thereafter a job opening occurs, Lessee, its contractors or subcontractors, shall give notice of such opening to the Crow Tribe stating the time and place where job applications will be accepted. Except in cases of emergency, no nonmember of the Tribe shall be hired for any job until at least forty-eight (48) hours (not including Saturdays and Sundays) following the delivery of such notice to the Crow Tribe. In order to supplement and reinforce the above employment standards, which have governed Westmoreland’s Tribal employment obligations since the inception of the Tract III Lease, Lessee agrees to use reasonable good faith efforts to:

a.	Expand Tribal employment when job openings occur for which there are qualified and available Tribal members in supervisory, management, and staff positions within WRI and its mining contractor, and provide training and promotional opportunities to qualified Crow Tribal members at least equal to those opportunities provided to other members of WRI’s and its contractor’s professional staffs;
b.	Expand employment of Crow Tribal members by subcontractors when job openings occur for which there are qualified and available Tribal members and periodically provide advance planning notice of typical anticipated subcontracting needs (including emergency services) to the Tribe’s TERO office;
c.	Encourage the purchase of materials and services by WRI and its mining contractor from Crow-owned businesses when qualified and competitive, and periodically provide advance planning notice of typical anticipated purchasing needs to the Tribe’s TERO office.

     Lessee further agrees to follow the foregoing Tribal employment provisions on the Tract III Lease effective immediately upon the parties’ execution of the Exploration Agreement.

     The terms of this paragraph may be amended by subsequent agreement of the parties to this Lease. Compliance with this provision shall be deemed full compliance with any Crow Tribal law or regulation related to employment of Tribal members, except that Lessee take no position with

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respect to Tribal regulation of union membership or dues requirements for Tribal members working on the Reservation.

ARTICLE 37 SALE OF COAL WITHIN FIFTY MILES

     Lessee will not sell coal mined from the Leased Premises for use in a coal conversion or mine-mouth generating facility to be located on the Crow Indian Reservation or within fifty (50) miles of the exterior boundaries of the diminished Crow Indian Reservation without first receiving approval of such sale from the Lessor.

ARTICLE 38 THE MINE-MOUTH GENERATING FACILITY

     It is the intention of Westmoreland and the Crow Tribe to continue exploring the possibility and feasibility, on mutually agreeable terms, of constructing and operating a coal-fired generating facility on or near the Crow Indian Reservation using coal mined by Westmoreland from the Mining Area and/or the Tract III lease area. The terms of this Lease are not intended to apply to Crow coal produced to supply such a facility. Without affecting the terms of this Lease, the Crow Tribe reserves the right and authority to grant tax and royalty concessions of any type for any Crow coal produced to supply a coal conversion or electric generating facility in which the Crow Tribe or other Tribally-owned entity has an equity interest.

ARTICLE 39 USE OF FACILITIES AREA

     In addition to the Leased Premises, Lessee shall use the area lying north of the Leased Premises and currently within the boundaries of the Tract III Lease existing between the Lessor and Lessee dated November 26, 1974, for location of mining facilities. The Facilities Area shall be used for any hauling, processing, storing, weighing, loading, and any other Mining Activities related to the production of Coal.

     To provide for the use of said area, and notwithstanding any other agreements between the parties, Lessor and Lessee agree that any obligations Lessee may have under that agreement entitled “Land Purchase Option Agreement” dated November 26, 1974, to offer to sell any lands to the Crow Tribe shall abate and be suspended until the completion of any and all mining or reclamation activities in connection with or occurring pursuant to this Coal Lease.

ARTICLE 40 WAIVER

     No failure by either party to insist upon the strict performance of the terms of conditions of this Coal Lease or to exercise any right or remedy consequent upon the breach thereof, or to complain of any act or omission by the other party and no acceptance of full or partial payments during the continuance of such breach constitutes a waiver of any terms or conditions of this Coal Lease to be performed or observed by the parties.

ARTICLE 41 MEMORANDUM OF LEASE

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     Lessor or Lessee intend to execute a Memorandum of Lease for purposes of recordation in the county wherein the Leased Premises are located. In the event of any inconsistency between the Memorandum of Lease and the terms hereof, the terms hereof shall govern.

ARTICLE 42 APPROVAL BY SECRETARY

     The parties’ obligations hereunder are contingent upon the approval of this Coal Lease by the Secretary which shall occur pursuant to Section 21 of the Exploration Agreement. Approval of this Coal Lease by the Secretary constitutes approval of the exhibits attached hereto and all other agreements or exhibits incorporated herein. Further, by the approval of this Coal Lease, it is the finding of the Secretary that this Coal Lease and the attached exhibits are in the best interest of the Crow Tribe, and any regulations that are, in any way, inconsistent with the rights granted herein, are waived. The Secretary’s approval of this Lease is expressly limited by Section 21.6 of the Exploration Agreement.

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     IN WITNESS WHEREOF, the parties have executed this Coal Lease Agreement on the day and year first mentioned.

CROW TRIBE OF INDIANS
By:
	Chairman
WESTMORELAND RESOURCES, INC.
By:
Its:

APPROVED:

Secretary of Interior

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EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant for the year ended December 31, 2008:

Subsidiary Name	State of Incorporation
Kentucky Criterion Coal Company		Delaware
WEI — Ft. Lupton, Inc. 4		Delaware
WEI — Rensselaer, Inc. 4		Delaware
WEI — Roanoke Valley, Inc. 4		Delaware
Westmoreland Coal Sales Company, Inc.		Delaware
Westmoreland Energy LLC		Delaware
Westmoreland Resources, Inc.		Delaware
Westmoreland Terminal Company		Delaware
Westmoreland — Ft. Drum, Inc. 4		Delaware
Criterion Coal Company		Delaware
Eastern Coal and Coke Company		Pennsylvania
Westmoreland Savage Corporation 1		Delaware
Westmoreland Mining LLC		Delaware
Dakota Westmoreland Corporation 1		Delaware
Western Energy Company 1		Montana
Texas Westmoreland Coal Co. 1		Montana
Westmoreland Risk Management, Ltd.		Bermuda
Basin Resources, Inc.		Colorado
Westmoreland Power, Inc.		Delaware
Westmoreland — Roanoke Valley, L.P. 6		Delaware
Westmoreland — North Carolina Power, LLC 4		Virginia
Westmoreland Utility Operations, LLC 5		Virginia
WRI Partners, Inc. 2		Delaware
Absaloka Coal, LLC 3		Delaware

1	Wholly owned subsidiary of Westmoreland Mining LLC
2	Wholly owned subsidiary of Westmoreland Resources, Inc.
3	Subsidiary of WRI Partners, Inc.
4	Wholly owned subsidiary of Westmoreland Energy LLC
5	Wholly owned subsidiary of Westmoreland Power, Inc.
6	Majority-owned subsidiary of Westmoreland Energy LLC

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Westmoreland Coal Company:

          We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 2-90847, 33-33620, 333-56904, 333-66698, 333-142132, 333-106852, and 333-150512) of our reports dated March 13, 2009, with respect to the consolidated balance sheets of Westmoreland Coal Company and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2008, the related financial statement schedule I, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 Annual Report on Form 10-K of Westmoreland Coal Company.

          Our audit report on the consolidated financial statements dated March 13, 2009 contains an explanatory paragraph that states that as described 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 regard 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.

KPMG LLP

Denver, Colorado
March 13, 2009

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

To the Partners
Westmoreland Partners

(formerly, Westmoreland-LG&E Partners):

          We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 2-90847, 33-33620, 333-56904, 333-66698, 333-142132, 333-106852 and 333-150512) of Westmoreland Coal Company and subsidiaries of our report dated March 30, 2007, with respect to the statements of operations and comprehensive income, partners’ capital, and cash flows of Westmoreland-LG&E Partners for the six months ended June 30, 2006, which report appears in the December 31, 2008 Annual Report on Form 10-K of Westmoreland Coal Company.

KPMG LLP

Denver, Colorado
March 13, 2009

EX-31.1

Exhibit 31.1

Certification

I, Keith E. Alessi, Jr., certify that:

1.	I have reviewed this Annual Report on Form 10-K of Westmoreland Coal Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009	/s/ Keith E. Alessi
	Name:	Keith E. Alessi
	Title:	Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification

I, Kevin A. Paprzycki, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Westmoreland Coal Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009	/s/ Kevin A. Paprzycki
	Name:	Kevin A. Paprzycki
	Title:	Chief Financial Officer

EX-32

Exhibit 32

Statement Pursuant to 18 U.S.C. § 1350

          Pursuant to 18 U.S.C. § 1350, each of the undersigned certifies that this Annual Report on Form 10-K for the year ended December 31, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Westmoreland Coal Company.

Dated: March 13, 2009	/s/ Keith E. Alessi
	Keith E. Alessi
	Chief Executive Officer and President
Dated: March 13, 2009	/s/ Kevin A. Paprzycki
	Kevin A. Paprzycki
	Chief Financial Officer

          A signed original of this written statement required by Section 906 has been provided to Westmoreland Coal Company and will be retained by Westmoreland Coal Company and furnished to the Securities and Exchange Commission or its staff upon request.