ACQUISITION

Agreement to Acquire the General Partner of Oxford Resource Partners

On October 16, 2014, Westmoreland, Oxford Resource Partners, LP (NYSE: OXF, “Oxford”) and Oxford Resources GP, LLC, the general partner of Oxford (“Oxford GP”), announced that Westmoreland plans to acquire Oxford GP and contribute certain royalty bearing coal reserves to Oxford in return for Oxford common units.

The series of contemplated transactions are cross-conditioned upon each other and the transactions involving Oxford must be approved by a majority of the outstanding Oxford common unitholders that are not owned by Oxford GP and its affiliates and by a majority of the outstanding subordinated units. In addition, the transactions are conditioned upon Westmoreland either amending its existing credit facility and bond indenture or refinancing all of its existing debt, and also upon the refinancing of Oxford’s existing debt. Oxford intends to promptly file a proxy statement with the SEC for review and it is anticipated that the unitholder vote will be held in December 2014. Upon receiving unitholder approval, all of the transactions are expected to be closed concurrent with the debt transactions. It is anticipated that the transactions will be completed during the fourth quarter of 2014.

Canadian Acquisition

On December 24, 2013, the Company entered into an agreement to acquire Sherritt International Corporation’s Prairie and Mountain coal mining operations, collectively referred to as the Canadian Acquisition. On April 28, 2014, Westmoreland Coal Company consummated the Canadian Acquisition. These operations, referred to as the Canadian operations, include six producing thermal coal mines in the Canadian provinces of Alberta and Saskatchewan, a char production facility, and a 50% interest in an activated carbon plant. The Canadian properties include approximately 649 million tons of total proven or probable coal reserves as of December 31, 2013. The purchase consideration included a $282.8 million initial cash payment made on April 28, 2014, a cash payment for a working capital adjustment of $39.8 million made on June 25, 2014, and assumed liabilities of $332.3 million.

In connection with the Canadian Acquisition: (i) proceeds from a private offering of $425.0 million in aggregate principal amount of 10.75% senior secured notes, or the New Notes, were released from escrow and such notes were automatically exchanged for identical notes issued by Westmoreland and Westmoreland Partners, as co-issuers; (ii) Westmoreland increased its revolving line of credit to $60.0 million; and (iii) Westmoreland Mining LLC, or WML, a wholly owned subsidiary of Westmoreland, provided prepayment notices to holders of its 8.02% senior secured notes due 2018, which notes were prepaid at the end of May 2014. Acquisition related costs of $33.1 million have been expensed for the nine months ended September 30, 2014; which include a $14.2 million charge to cost of sales related to the sale of inventory written up to fair value in the acquisition, $7.8 million of expenses included in Selling and administrative costs, $6.2 million of loss on foreign exchange as described in Note 10, and $4.9 million included in Interest expense related to a bridge facility commitment fee.

The Canadian Acquisition has been accounted for under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value.

The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates. These adjustments may be significant and will be accounted for retrospectively.

A summary of the purchase consideration and a preliminary allocation of the purchase consideration follows (in millions):



	Provisional as of June 30, 2014			Adjustments			Provisional as of September 30, 2014
Purchase Price:
Cash paid - Initial payment	$	282.8		$	—		$	282.8
Cash paid - Working capital adjustment	39.8			—			39.8
Total cash consideration	$	322.6		$	—		$	322.6

Preliminary allocation of purchase price:
Assets:
Cash and cash equivalents	$	26.2		$	—		$	26.2
Trade receivables	49.9			—			49.9
Inventories - materials and supplies	52.0			—			52.0
Inventories - coal	79.8			—			79.8
Loan and lease receivables	11.2			—			11.2
Deferred tax assets	6.7			(5.7		)	1.0
Other current assets	3.4			—			3.4
Total current assets	229.2			(5.7		)	223.5
Land and mineral rights	151.3			5.7			157.0
Plant and equipment	139.6			(28.8		)	110.8
Loan and lease receivables	83.8			(4.7		)	79.1
Contractual third-party reclamation receivables, less current portion	6.8			—			6.8
Investment in joint venture	32.1			—			32.1
Intangible assets	—			37.0			37.0
Other assets	10.3			(1.7		)	8.6
Total Assets	653.1			1.8			654.9
Liabilities:
Current installments of long-term debt	(36.3		)	—			(36.3		)
Trade payables and other accrued liabilities	(93.7		)	(6.5		)	(100.2		)
Asset retirement obligations	(9.7		)	—			(9.7		)
Total current liabilities	(139.7		)	(6.5		)	(146.2		)
Long-term debt, less current installments	(86.3		)	—			(86.3		)
Asset retirement obligations, less current portion	(92.4		)	—			(92.4		)
Deferred tax liabilities	(12.1		)	4.7			(7.4		)
Total Liabilities	(330.5		)	(1.8		)	(332.3		)
Net fair value	$	322.6		$	—		$	322.6

The $26.2 million of cash and cash equivalents noted above includes $18.1 million which was used for immediate payment of an assumed liability on the acquisition date, leaving $8.1 million of net cash received upon the acquisition.

During the third quarter of 2014, the Company transferred to an unrelated 3rd party the contract related to the $37.0 million intangible asset noted above. Proceeds of $37.0 million were received from the unrelated 3rd party, with no gain or loss recognized on the transaction.

The results of operations of the Canadian operations from the acquisition date of April 28, 2014 have been included in the Company's consolidated results of operations for the three and nine months ended September 30, 2014. The Canadian operations generated $267.4 million of revenue and $14.2 million of operating loss since the April 28, 2014 acquisition date.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2013. The unaudited pro forma results have been prepared based on estimates and assumptions, which the Company believes are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2013, or of future results of operations.



	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2014			2013
Total Revenues	(In thousands, except per share data)
As reported	$	176,792	$	805,989		$	500,739
Pro forma	$	334,760	$	1,012,209		$	1,007,495

Operating Income
As reported	$	8,536	$	(51,021	)	$	26,245
Pro forma	$	24,353	$	(43,867	)	$	54,458

Net income (loss) applicable to common shareholders
As reported	$	2,421	$	(131,982	)	$	(928	)
Pro forma	$	3,315	$	(146,837	)	$	(5,816	)

Net income (loss) per share applicable to common shareholders
Basic, as reported	$	0.17	$	(8.49	)	$	(0.06	)
Basic, pro forma	$	0.23	$	(9.44	)	$	(0.40	)
Diluted, as reported	$	0.16	$	(8.49	)	$	(0.06	)
Diluted, pro forma	$	0.22	$	(9.44	)	$	(0.40	)