UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A

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

Filed by the Registrantþ
Filed by a Party other than the Registranto
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
 
Westmoreland Coal Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 (1) Title of each class of securities to which transaction applies:
 
  
 
 (2) Aggregate number of securities to which transaction applies:
 
  
 
 (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
  
 
 (4) Proposed maximum aggregate value of transaction:
 
  
 
 (5) Total fee paid:
 
   

o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 (1) Amount Previously Paid:
 
  
 
 (2) Form, Schedule or Registration Statement No.:
 
  
 
 (3) Filing Party:
 
  
 
 (4) Date Filed:
 
   



WESTMORELAND COAL COMPANY
2 North Cascade Avenue, 2ndFloor
9540 S. Maroon Circle, Suite 200
Englewood, Colorado Springs, Colorado 8090380112

Westmoreland Logo

(GRAPHIC)

March 31, 201128, 2012

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Westmoreland Stockholders:

The Annual Meeting of Stockholders of Westmoreland Coal Company will be held at our corporate officesThe Crowne Plaza Hotel located at 227 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 8090327th Street, Billings, Montana 59101 on Tuesday, May 24, 201122, 2012 at 8:30 a.m. Mountain Daylight Time, for the following purposes:

 1.The election of sevensix directors to the Board of Directors to serve for a one-year term;

 2.Advisory approval of Westmoreland Coal Company’s executive compensation;

3.To approve the amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors;

4.The ratification of the appointment by the Audit Committee of Ernst & Young LLP as principal independent auditor for fiscal year 2011;2012; and
3.To hold an advisory vote on executive compensation;
4.To hold an advisory vote on the frequency of the advisory vote on executive compensation; and

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

Only stockholders of record at the close of business on March 28, 201126, 2012 will be entitled to notice of and to vote at the meeting and any postponement or adjournment thereof.

YOUR VOTE IS IMPORTANT.Whether or not you plan to attend the annual meeting, we hope you will vote as soon as possible. You may vote by proxy over the Internet or by telephone, or, if you received paper copies of the proxy materials, you can also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the annual meeting regardless of whether you attend in person.

This proxy statement, the annual report to stockholders and the proxy voter card are being mailed on or about April 8, 2011.9, 2012.

                   By Order of the Board of Directors,

                   /s/ Jennifer S. Grafton

                   Jennifer S. Grafton
                   General Counsel and Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 22, 2012.
This notice, the accompanying proxy statement and Westmoreland Coal Company’s annual report to stockholders for the fiscal year
ended December 31, 2011 are available at www.proxyvote.com.


PROXY STATEMENT

Table of Contents

 
By Order of the Board of Directors,
/s/ Jennifer S. Grafton
Jennifer S. Grafton
General Counsel and Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 24, 2011.
This notice, the accompanying proxy statement and Westmoreland Coal Company’s Annual Report to stockholders for the fiscal year ended December 31, 2010 are available at www.proxyvote.com.

PROXY STATEMENT
Table of Contents
Page
General Information about the 20112012 Annual Meeting of Stockholders
1
  
Questions and Answers about the 20112012 Annual Meeting of Stockholders
1
  
Directors and Executive Officers
4
  
Corporate Governance
6
  
Director Compensation for 2010
11
  
Beneficial Ownership of Securities
12
  
Section 16(a) Beneficial Ownership Reporting Compliance
1314
  
Equity Compensation Plan Information
1314
  
Compensation Discussion and Analysis
1415
  
Executive Compensation for 20102011
2326
  
Certain Transactions
2732
  
AuditorsOverview of Proposals
2832
  
Overview of ProposalsMiscellaneous
29
Miscellaneous
31
40





WESTMORELAND COAL COMPANY
2 North Cascade Avenue, 2ndFloor
9540 S. Maroon Circle, Suite 200
Englewood, Colorado Springs, Colorado 8090380112
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held May 24, 201122, 2012


GENERAL INFORMATION ABOUT THE 20112012 ANNUAL MEETING OF STOCKHOLDERS

This proxy statement is being furnished by the Board of Directors (the “Board”) of Westmoreland Coal Company (the “Company”) to holders of our common stock and depositary shares in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting of Stockholders of Westmoreland Coal Company to be held at our corporate officesThe Crowne Plaza Hotel located at 227 North Cascade Avenue, 2nd Floor, Colorado Springs, Colorado, 8090327th Street, Billings, Montana 59101 on Tuesday, May 24, 201122, 2012 at 8:30 a.m. Mountain Daylight Time, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders (the “Annual Meeting”) and this proxy statement.

This proxy statement and the enclosed proxy voter card relating to the Annual Meeting of Stockholders are first being mailed to stockholders on or about April 6, 2011.9, 2012.  As of March 28, 2011,26, 2012, the record date, members of Westmoreland Coalthe Company’s senior management and directors are the record and beneficial owners of a total of 236,463316,444 shares (approximately 1.8%2.3%) of Westmoreland Coalthe Company’s outstanding common stock and have no ownership in Westmoreland Coalthe Company’s outstanding depositary shares.  It is management’s intention to vote all of its shares in the manner recommended by the Board for each matter to be considered by the stockholders.

QUESTIONS AND ANSWERS ABOUT THE 20112012 ANNUAL MEETING OF STOCKHOLDERS

Who can vote at the meeting?

Only stockholders who owned our common stock or depositary shares, each of which represents one quarter of a share of Series A Convertible Exchangeable Preferred Stock, $1.00 par value (“depositary shares”), of record at the close of business on March 28, 201126, 2012 are entitled to vote. Each holder of common stock is entitled to one vote per share. Each holder of depositary shares is entitled to one vote per share. There were 13,155,26313,899,965 shares of common stock and 640,515639,840 depositary shares outstanding on March 28, 2011.26, 2012.

What constitutes a quorum for the meeting?

The holders of a majority of the aggregate voting power of the common stock and depositary shares outstanding on the record date, present in person or by proxy at the meeting,Annual Meeting, shall constitute a quorum to conduct business at the meeting.Annual Meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have discretionary authority to vote on a particular matter and has not received voting instructions from its client) are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting.Annual Meeting.

How do I vote?
Via the Internet at www.proxyvote.com;
By phone at 1-800-690-6903; or
●
Via the Internet at www.proxyvote.com; 
●
By phone at 1-800-690-6903; or 
By completing and mailing in a paper proxy card.
●
By completing and mailing in a paper proxy card.
If your shares are registered directly in your name with Computershare Trust Company, our transfer agent, you are considered a stockholder of record with respect to those shares and the proxy card and voting instructions have been sent directly to you by Broadridge Financial Solutions, Inc. If, like most stockholders, you hold your shares in “street name” through a stockbroker, bank or other nominee rather than directly in your own name, you may not vote your shares in person at the meetingAnnual Meeting without obtaining authorization from your stockbroker, bank or other nominee, and you need to submit voting instructions to your stockbroker, bank or other nominee in order to cast your vote.  Generally, you will receive instructions from your stockbroker, bank or other nominee that you must follow in order to have your shares voted.


We encourage you to register your vote via the Internet. If you attend the meeting,Annual Meeting, you may also submit your vote in person and any votes that you previously submitted —– whether via the Internet, by phone or by mail —– will be superseded by the vote that you cast at the meeting.Annual Meeting. Whether your proxy is submitted by the Internet, by phone or by mail, if it is properly completed and submitted and if you do not revoke it prior to the meeting,Annual Meeting, your shares will be voted at the meetingAnnual Meeting as specified by you or, if you do not specify a choice as to a particular matter, in the manner set forth in this proxy statement.

Can I change my vote after I return my proxy card?

Yes. Even after you have submitted your proxy card, you may change your vote at any time before the proxy is exercised by either filing with our Secretary a written notice of revocation or a duly executed proxy card bearing a later date or by voting in person at the meeting.Annual Meeting. The powers of the proxy holders will be suspended if you attend the meetingAnnual Meeting in person and so request. However, attendance at the meetingAnnual Meeting will not, by itself, revoke a previously granted proxy. If you want to change or revoke your proxy and you hold your shares in “street name,” contact your broker or the nominee that holds your shares. Any written notice of revocation sent to us must include the stockholder’s name and must be received prior to the meetingAnnual Meeting to be effective.

What vote is required to approve each item?
The election of
Our directors (Proposal 1) requires that each director receive the affirmativeare elected by plurality vote, of a plurality of the votes cast with respect to that director at the annual meeting. Thiswhich means that, with respect to Proposal 1, the nominees who receive the largest number of “FOR” votes cast will be elected.  Neither broker non-votes nor abstentions will have any effect on the election of directors.  Approval of Proposals 2, 3 and 34 requires the affirmative vote of a majority of the shares present or represented by proxy and votingentitled to vote at the Annual Meeting.  For Proposal 4, we will treat the option receiving the largest number of votes as the option approved by the stockholders. Neither brokerBroker non-votes nor abstentions will have no effect with respect to any non-routine matter for which a broker does not have authority to vote.  Abstentions will have the same effect on the outcome of this proposal. Cumulative voting is not permitted for any ofas a vote against the proposals, included in this proxy statement.other than Proposal 1.

Which ballot measures are considered “routine” or “non-routine”?
The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 20112012 (Proposal 2)4) is a matter considered routine under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore no broker non-votes are not expected to exist in connection with Proposal 2.4.
The election of directors (Proposal 1), advisory approval of the advisory vote onCompany’s executive compensation (Proposal 3)2), and the advisory vote on the frequencyapproval of the advisory vote on executive compensationamendments to the Company’s Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors (Proposal 4)3) are matters considered non-routine under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposals 1, 3,2 and 4.3.

How are you handling solicitation of votes?

The accompanying proxy is solicited on behalf of our Board of Directors and the cost of solicitation borne by us. In addition to solicitations by mail, our directors, officers, and employees may solicit proxies by telephone, e-mail and personal interview, but will receive no additional compensation for doing so. We will also request brokerage houses, custodians, nominees, and fiduciaries to forward copies of the proxy material to those persons for whom they hold shares and request instructions for voting the proxies. We will reimburse those brokerage houses and other persons for their reasonable expenses for such services.

Do I have any rights of appraisal?

Under Delaware law, stockholders are not entitled to dissenters’ rights on any proposal referred to herein.

Where can I find the voting results of the meeting?Annual Meeting?

We will announce preliminary general voting results at the meetingAnnual Meeting and publish final detailed voting results on a Form 8-K that we will file within four business days after the meeting.Annual Meeting.

2


How do I submit a stockholder proposal for the 2012 annual meeting?2013 Annual Meeting?

Any proposal that a stockholder wishes to be considered for inclusion in our proxy statement and proxy card for the 20122013 Annual Meeting of Stockholders (the “2012“2013 Annual Meeting”) must be submitted to the Secretary at our offices, 2 North Cascade Avenue, 2nd Floor,9540 S. Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903,80112, no later than December 7, 2011.November 28, 2012. In addition, such proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934.

If a stockholder wishes to present a proposal before the 20122013 Annual Meeting, but does not wish to havewithout having the proposal considered for inclusionincluded in our proxy statement and proxy card, such stockholder must give written notice to the Secretary at the address noted above. The Secretary must receive such notice no earlier than January 25, 201222, 2013 and no later than February 24, 2012,21, 2013, and the stockholder must comply with the provisions of Sections 2.5 or 2.6, as applicable, of our bylaws.  Only proposals included in the proxy statement or that comply with our advance notice bylaw requirements will be considered properly brought before the Annual Meeting.

Does the Company offer an opportunity to receive future proxy materials electronically?

Yes. If you are a stockholder of record or a member of the 401(k) plan, you may, if you wish, receive future proxy statements and annual reports online rather than receiving proxy materials in paper form. If you elect this feature, you will receive an e-mail message notifying you when the materials are available, along with a web address for viewing the materials and instructions for voting by telephone or on the Internet. If you have more than one account, you may receive separate e-mail notifications for each account. You may sign up for electronic delivery in two ways:

 •
●
If you vote online, you may sign up for electronic delivery at that time; or

 •
●
You may sign up at any time by visiting http://enroll.icsdelivery.com/wlb.wlb.

If you received this proxy statement electronically, you do not need to do anything to continue receiving proxy materials electronically in the future. If you hold your shares in a brokerage account, you may also have the opportunity to receive proxy materials electronically. Please follow the instructions of your broker.

How can I get electronic access to the proxy materials and the annual report?

This proxy statement and our 20102011 Annual Report are available atwww.proxyvote.com; reference your ballot materials for access information.

3


Will I receive a separate proxy statement if I share the same address and last name as another stockholder?

No.  If you are the beneficial owner, but not the record holder, of shares of our stock, your broker, bank or other nominee may only deliver one copy of this proxy statement and our Annual Report to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement and our Annual Report to a stockholder at a shared address to which a single copy of the documents was delivered. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and who wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.

DIRECTORS AND EXECUTIVE OFFICERS
         
      Director/ Executive  
Name  Age  Officer Since Position
         
Keith E. Alessi  56  2007 Director; President and Chief Executive Officer
         
Thomas J. Coffey  58  2000 Director —Independent
         
Michael R. D’Appolonia  62  2008 Director— Independent
         
Gail E. Hamilton  61  2011 Director —Independent
         
Richard M. Klingaman  75  2006 Director— Independent
         
Jan B. Packwood  67  2011 Director— Independent
         
Robert C. Scharp  64  2011 Director— Independent
         
Kevin A. Paprzycki  40  2008 Chief Financial Officer and Treasurer
         
Douglas P. Kathol  58  2010 Executive Vice President
         
Jennifer S. Grafton  35  2011 General Counsel — Compliance and Corporate Governance and Secretary
         
Morris W. Kegley  63  2007 General Counsel — Mining Operations

NameAgeDirector/ Executive Officer SincePosition
Keith E. Alessi572007Director; Chief Executive Officer
Michael R. D’Appolonia632008
Director – Independent
Gail E. Hamilton622011
Director – Independent
Richard M. Klingaman762006
Director – Independent; Chairman of the Board
Jan B. Packwood682011
Director – Independent
Robert C. Scharp652011
Director – Independent
Jennifer S. Grafton362011General Counsel and Secretary
Douglas P. Kathol592010Executive Vice President
Robert P. King592012President and Chief Operating Officer
Joseph E. Micheletti462011Senior Vice President – Coal Operations
Kevin A. Paprzycki412008Chief Financial Officer and Treasurer
Director Information
The Board has fixed the number of directors following the Annual Meeting at six.  All our directors bring to our Board a wealth of leadership experience derived from their service as executives of corporations. Certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.
Keith E. Alessicurrently serves as a directorDirector and our President and Chief Executive Officer.  In additionSince he began working for us in 2007, he has assumed various roles including Executive Chairman, President and other various interim roles.  Prior to his work with us,Westmoreland, Mr. Alessi was an adjunct lecturer at the Ross School of Business at the University of Michigan from 20022001 to 2010. Prior2010 and was an Adjunct Professor at The Washington and Lee University Law School from 1999 to Westmoreland, Mr. Alessi was2007.  He previously served as Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of Lifestyle Improvement Centers, LLCa number of public and private companies from April 20031982 to May 2006.2000.  Mr. Alessi currently serves as a member of the board of directors of Town Sports International Holdings, Inc., H&E Equipment Services, Inc. and MWI Veterinary Supply, Inc.

Mr. Alessi’s wealthAlessi has over 30 years of turnaround management experience gained in turn around management, including his roles as Vice-Chairman of Farm Fresh and Chief Executive Officer of Jackson Hewitt and Telespectrum Worldwide, Inc., givessenior executive capacity.  This has given him unique insights into ourthe hurdles, challenges and opportunities facing Westmoreland and provides him the necessary leadership experience to lead the Company as it is poised to enter a new phase of growth.Company.
Thomas J. Coffeyhas been a Partner of B2B CFO Partners, LLC, a professional financial services organization, since 2005. Prior to 2005, Mr. Coffey was Vice President-Finance, Global Infrastructure Services from 1999 to 2005 and Vice President-Operations Analysis from 1998 to 1999 of Unisys Corporation, a technology services company.
Mr. Coffey has over 25 years of financial and operational management experience working with both public and private companies. He has served as the Chief Financial Officer of a public company, worldwide divisional Chief Financial Officer of a global technology company and a Partner with a “Big 4” accounting firm, and his extensive experience is invaluable to our Board’s responsibility for financial and accounting issues.
Michael R. D’Appoloniamost recently served as President and Chief Executive Officer of Kinetic Systems, Inc., a global provider of process and mechanical solutions to the electronics, solar and biopharmaceutical industries. From 1986 to 2006, Mr. D’Appolonia was an executive and Principal of Nightingale & Associates, LLC, and its predecessor company Nightingale & Associates, Inc., a global management consulting firm providing financial and operational restructuring services to mid-market companies in the US and overseas. From January 2002 through June 2006, Mr. D’Appolonia served as Nightingale’s President.  Mr. D’Appolonia is a member of the board of directors of Exide Technologies, Inc.  In addition, he was a member of the board of directors of The Washington Group International, Inc. from 2001 to 2007.

4


Mr. D’Appolonia’s experience as a Chief Executive Officer of a large global organization, along with his public company board experience, brings to our Board the perspective of a leader facing a similar set of current external economic, social and governance issues.

Gail E. Hamiltonmost recently served as Executive Vice President of Symantec Corporation, an infrastructure software and services provider, retiring in 2005.  Previously, she served as the General Manager of the Communications Division of Compaq Computer Corporation and as the General Manager of the Telecom Platform Division for Hewlett-Packard Company. She is currently a director of Arrow Electronics Inc., OpenText Corp., and Ixia. In the last five years, Ms. Hamilton has also served as a director of Washington Group International and Surgient, Inc.

Ms. Hamilton is a former senior executive with business and operational experience at a public technology company, whose strategic planning and business development experience are invaluable in guiding the development and progression of our information technology infrastructure and programs.  In addition, Ms. Hamilton’s extensive public and private board experience will bring further professionalism and insight to the board room.

Richard M. Klingamanhas been a consultant to the natural resources and energy industries since May 1992.  Prior to consulting, Mr. Klingaman was a senior executive with Penn Virginia Corporation, a natural resources company specializing in coal, oil, natural gas, timber, lime and limestone.

Mr. Klingaman’s extensive experience in the mining and energy industries, including as Senior Vice President of a large natural resources company, provides him with an intimate knowledge of our operations and our industry.

Jan B. Packwoodwas the President and Chief Executive Officer of IDACORP, Inc. (NYSE: IDA), a holding company whose main subsidiary, Idaho Power Company, is an electric utility engaged in the generation, transmission, distribution, sale and purchase of electric energy,  from 1999 to 2006.  Prior to such time, Mr. Packwood served in various executive-level capacities of Idaho Power Company beginning in the 1980s.   He currently serves as a director of IDACORP, Inc. and of various IDACORP, Inc. subsidiaries, including Idaho Power Company, IDACORP Financial Services, Inc. and Ida-West Energy Company.

As the former President and Chief Executive Officer of an electric utility involved in the mining and use of coal in the Pacific Northwest, Mr. Packwood brings to the Board a vast knowledge of our and our main customers’ business, including an understanding of the risks faced by our own power plant and the power plants we supply.  This expertise will be invaluable in directing the future of our power plant operations, as well as providing insight into potential growth and expansion activities in our mining segment.
Robert C. Scharpwas previously the Chief Executive Officer of Shell Coal Pty Ltd from 1997 to 2000 and then Chief Executive Officer of Anglo Coal Australia from 2000 to 2001. He served as the Chairman of the Shell Canada Energy Mining Advisory Council from 2005 to 2010. He had a 22 year career with Kerr McGee Corporation including serving as President —- Kerr McGee Coal Corporation and Senior Vice President —- Oil and Gas Production. He isMr. Scharp was a director of Bucyrus International from 2005 to 2011 and was a director of Foundation Coal Holdings from 2005 to 2009.  Mr. Scharp is also a retired Army National Guard colonel.

Mr. Scharp brings a wealth of coal mining industry experience to the Board, including invaluable chief executive operational oversight of coal mine operations.  Mr. Scharp’s vast industry experience will assist the Board in driving future operational mining excellence and evaluating potential growth and expansion opportunities.

Executive Officer Information

Keith E. Alessi, our President and Chief Executive Officer, is discussed above under “Director Information.”

Jennifer S. Grafton joined Westmoreland as Associate General Counsel in December 2008 and was named General Counsel and Secretary in February 2011.  Prior to Westmoreland, Ms. Grafton worked in the corporate group of various Denver-based and national law firms focusing her practice on securities and corporate governance.  She is a member of the Colorado bar.

Douglas P. Kathol joined Westmoreland in 2003 as Vice President – Development, adding additional responsibility as Treasurer in 2008.  In 2010, Mr. Kathol was named Executive Vice President.  Prior to Westmoreland, Mr. Kathol spent almost twenty years in various positions, including Senior Vice President of Norwest Corporation, a consulting firm providing expertise to the energy, mining, and natural resources industries.

Robert P. King joined Westmoreland in March 2012 as President and Chief Operating Officer. From 2006 through 2012, Mr. King held various executive leadership roles at Consol Energy, Inc., including Executive Vice President – Business Advancement and Support Services from 2009 through March 2012. Mr. King has over 30 years experience in the coal industry, both underground and surface mines.

Joseph E. Micheletti joined Westmoreland in 2001 and has held a series of positions with Westmoreland since such time, including President and General Manager of our Jewett Mine.  In June 2011, Mr. Micheletti was named Senior Vice President – Coal Operations.  Mr. Micheletti has worked in the production, maintenance, processing, and engineering disciplines of the mining industry for 24 years and sits as a Director of the Rocky Mountain Coal Mining Institute.

Kevin A. Paprzyckijoined Westmoreland as Controller and Principal Accounting Officer in June 2006 and was named Chief Financial Officer in April 2008. In June 2010, he was also named Treasurer.  Prior to Westmoreland, Mr. Paprzycki was Corporate Controller at Applied Films Corporation from 2005 to 2006. Mr. Paprzycki became a certified public accountant in 1994 and a certified financial manager and certified management accountant in 2004.
Douglas P. Katholjoined Westmoreland in 2003 as Vice President — Development, adding additional responsibility as Treasurer in 2008. In 2010, Mr. Kathol was named Executive Vice President. Prior to Westmoreland, Mr. Kathol spent almost twenty years in various positions, including Senior Vice President,
5

Jennifer S. Graftonjoined Westmoreland as Associate General Counsel in December 2008 and was named General Counsel — Compliance and Corporate Governance and Secretary in February 2011. Prior to Westmoreland, Ms. Grafton worked in the corporate group of various Denver-based and national law firms. She is a member of the Colorado bar.
Morris W. Kegleyjoined Westmoreland in October 2005 as Assistant General Counsel and was named General Counsel in August 2007. Prior to Westmoreland, he worked in the legal department of Peabody Energy Company from 2004 to 2005. He is a member of the bar of Indiana, Illinois, Wyoming, and Colorado.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders and maintaining our integrity in the marketplace.  The Code of Conduct Handbook for directors, officers and employees, in conjunction with the Certificate of Incorporation, Bylaws, Board committee charters and Corporate Governance Guidelines, form the framework for the governance of Westmoreland. All of these documents are available on our website at www.westmoreland.com.  On an annual basis, all directors, officers and employees sign an acknowledgement that they have received and reviewed the guidelines provided in the Code of Conduct Handbook. All of these documents are available at our website at www.westmoreland.com.  We will post on this website any amendments to the Code of Conduct Handbook or waivers of the Code of Conduct Handbook for directors and executive officers. You can request a copy of any of these documents by writing to the Corporate Secretary, Westmoreland Coal Company, 2 North Cascade Avenue, 2nd Floor,9540 S. Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903.80112.
Board Structure and Risk Oversight
The Board separated the positions of Chairman of the Board and Chief Executive Officer in May 2009 and elected Richard M. Klingaman, an independent director, as our Chairman, and Keith E. Alessi as our President and Chief Executive Officer. Separating these positions allows our CEO to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board recognizes the time, effort, and energy that the CEO is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the Board’s oversight responsibilities continue to grow.  The Board believes this leadership structure has enhanced the Board’s oversight of risk and independence from our management, the ability of the Board to carry out its roles and responsibilities on behalf of our stockholders, and our overall corporate governance.

Risk is inherent with every business, and how well a business manages risk can ultimately influence its success.  We face a number of risks, including economic risks, operational risks, environmental and regulatory risks, and others, such as the impact of competition, weather conditions and weather conditions.pressures from competing fuel sources.  Management is responsible for the day-to-day management of risks that we face, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management.  In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The Board believes that establishing the right “tone at the top” and that full and open communication between management and the Board isare essential for effective risk management and oversight. Our Chairman talks regularly with our CEO to discuss strategy and the risks facing us. Seniorwe face. The executive management attendteam attends the quarterly board meetings and areis available to address any questions or concerns raised by the Board on risk management-related matters. Each quarter, the Board receives presentations from senior management on strategic matters involving our operations and is provided extensive materials that highlight the various factors that could lead to risk in our organization. The Board holds a strategic planning session with seniorthe management team on an annual basis to discuss strategies, key challenges, and risks and opportunities for us.  Further, the Board is empowered to hire its own advisors without management approval to assist it in fulfilling its duties.

While the Board is ultimately responsible for our risk oversight, our committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. The Compensation and Benefits Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs.  The Nominating and Corporate Governance Committee is tasked with overseeing succession planning for our directors and executive officers. On an annual basis, pursuant to such committee’s charters, the committees assess risk and have specific conversations with senior management regarding the risks faced.

6


Committees of the Board of Directors

As of the date of this proxy statement, our Board has seven directors and the following four committees: (1) Audit; (2) Compensation and Benefits; (3) Nominating and Corporate Governance; and (4) Executive.  From time-to-time, the Board will form a Pricing Committee to address specific transactions such as debt or equity issuances. The Board has set the number of directors following the Annual Meeting at six.  The current committee membership, the number of meetings during 20102011 and the function of each of the committees are described below.  Each of the committees except for the Executive Committee, operateoperates under a written charter adopted by the Board. All of the committee charters are available on our website at www.westmoreland.com. During 2010,2011, the Board held nine meetings plus a two-day strategic planning session. Each director serving during 20102011 attended at least 75%100% of the aggregate of all Board and applicable
committee meetings held during the period that he or she served as a director. Directors are expected to attend the Annual Meeting of Stockholders. All directors attended the last Annual Meeting of Stockholders.
         
      Nominating  
    Compensation and  
Name of Director Audit and Benefits Corporate Governance Executive
Non-Employee Directors:
        
Thomas J. Coffey Chair Member    
Michael R. D’Appolonia   Chair Member Member
Gail E. Hamilton Member Member    
Richard M. Klingaman       Member
Jan B. Packwood Member   Chair  
Robert C. Scharp Member   Member  
Employee Director:
        
Keith E. Alessi       Chair
Number of Meetings in 2010
 4 6 4 1

Name of Director Audit 
Compensation
and
Benefits
 
Nominating
and
Corporate Governance
 Executive 
Non-Employee Directors:                                                                                                                         
Thomas J. Coffey Chair Member     
Michael R. D’Appolonia   Chair Member Member 
Gail E. Hamilton Member Member     
Richard M. Klingaman       Member 
Jan B. Packwood Member   Chair   
Robert C. Scharp Member   Member   
Employee Director:         
Keith E. Alessi       Chair 
Number of Meetings in 2011 5 4 3 2 
Audit Committee
The Audit Committee provides oversight of the quality and integrity of our accounting, auditing and financial reporting practices.practices and is responsible for retaining and terminating our independent accounts. The committee exercises its oversight obligations through regular meetings with management, the Director of Internal Audit and our independent registered public accounting firm, Ernst & Young LLP. The Audit Committee is also responsible for oversight of risks relating to accounting matters, financial reporting and regulatory compliance. To satisfy these oversight responsibilities, the committee separately meets with our Chief Financial Officer, the Director of Internal Audit, Ernst & Young LLP and management. The committee also receives periodic reports regarding issues such as the status and findings of audits being conducted by the internal and independent auditors, the status of material litigation, accounting changes that could affect our financial statements and proposed audit adjustments. The Board has determined that Thomas J. Coffey isMichael D’Appolonia, Jan Packwood and Bob Scharp qualify as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
Audit Committee Report

Under its charter, the Audit Committee assists the Board of Directors in fulfilling the Board’s responsibility for oversight of Westmoreland’s financial reporting process and practices, and its internal control over financial reporting. Management is primarily responsible for our financial statements, the reporting process and assurance for the adequacy of the internal control over financial reporting. Our independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent audit of Westmoreland’s financial statements and internal control over financial reporting, and for expressing an opinion on the conformity of our audited financial statements to generally accepted accounting principles used in the United States and the adequacy of our internal control over financial reporting.

The Audit Committee has reviewed and discussed with Ernst & Young LLP Westmoreland’s audited consolidated financial statements and internal control over financial reporting. The Audit Committee has discussed with Ernst & Young LLP, during the 20102011 fiscal year, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.Board. The Audit Committee has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding such firm’s communications with the Audit Committee concerning independence, and has discussed with the independent accountants their independence.

7


The Audit Committee discussed with our internal and independent auditors the overall scope and plans for their respective audits. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of its examinations, the evaluations of our internal controls and the overall quality of our financial reporting. The Audit Committee also has reviewed and discussed the audited financial statements with management.

Based on the reviews and discussions described above, the Audit Committee recommended to the Board that the audited financial statements and assessment of internal controls over financial reporting be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.2011. The Audit Committee has selected Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2011.2012.
Thomas J. Coffey, Chairman
Gail E. Hamilton
Jan B. Packwood
Robert C. Scharp

Thomas J. Coffey, Chairman
Gail E. Hamilton
Jan B. Packwood
Robert C. Scharp

Compensation and Benefits Committee

The Compensation and Benefits Committee is responsible for assuring that the Board, our Chief Executive Officer, other executive officers, and our key management are compensated appropriately and in a manner consistent with our approved compensation strategy, internal equity considerations, competitive practice, and any relevant laws or regulations.  In addition, the committee reviews our compensation programs to ensure that our programs are not promoting imprudent risk-taking. In accordance with its charter, the committee may retain and terminate outside counsel, compensation consultants, or other experts or consultants, as it deems appropriate, form and delegate authority to subcommittees and delegate authority to one or more designated members of the committee. To assist it in satisfying its oversight responsibilities, the committee retainedchose in February 2011 to continue its relationship with Buck Consulting, at the beginning ofwhich began in February 2010, and meets regularly with management to understand the financial, human resources and stockholder implications of compensation decisions being made.
Compensation and Benefits Committee Risk Assessment
In February 2011,
On an annual basis, the committee reviewedreviews and discusseddiscusses the structure of our compensation program to assess whether any aspect of the program could potentially be expected to provide an incentive to our executive officers or other employees to take any unnecessary or inappropriate risks that could threaten our operating results, financial condition or impact long-term stockholder value. To assist the committee in their review in February 2012, the committee engaged Buck Consulting to conduct a risk assessment of our incentive-based compensation plans (including the annual and long-term incentive programs) and our compensation practices.

Based on the findings of Buck Consulting, our internal controls, policies and risk-mitigating components in our incentive arrangements as well as the committee’s formal review and discussion, the committee believes our compensation programs represent an appropriate balance of short-term and long-term compensation and do not encourage executive officers or other employees to take on unnecessary or excessive risks that are reasonably likely to have a material adverse effect on us.

Our incentive compensation is designed to reward bonus-eligible employees for committing to and deliveringachieving goals that are intended to be challenging yet provide them a reasonable opportunity to reach the threshold amount, while requiring meaningful growth to reach the target level and substantial growth to reach the maximum level. The amount of growth required to reach the maximum level of compensation is developed within the context of the normal business planning cycle and, while difficult to achieve, is not viewed to be at such an aggressive level that it would induce bonus-eligible employees to take inappropriate risks that could threaten our financial or operating stability. In addition, the annual bonus program contains a cap on the maximum financial payout to employees as a whole.

Our executive compensation program includes the following features to help minimize risk:risk.

Compensation Mix. We allocate compensation between fixed and contingent components, between annual cash incentives and long-term time-based equity incentives, and between time-based and performance-based long-term incentive compensation, based in part on an employee’s position and level of responsibility within the organization. We believe our mix of compensation elements helps to ensure that executives and other employees who are eligible for incentive compensation do not focus on achieving short-term results at the expense of the long-term growth and sustainability of the company.Company. None of our employees receives compensation whichthat is primarily derived from commissions.

Base salary is the only assured portion of compensation that we provide to our executives and other employees. Consequently, our incentive compensation arrangements are intended to reward performance.

8


The annual incentive plan establishes cash-based award opportunities that are payable if, and only to the extent that, pre-established corporate financial and individual performance objectives are achieved, subject to the discretion of the committee to exclude certain events outside our direct control.control and to reward exemplary performance.

The equity-based component of the executive compensation program consists of two types of equity awards: (1) grants of time-vested restricted stock units, and (2) grants of performance-based restricted stock units. The purposeuse of the three-year vesting schedule for restricted stock unitsboth time-based and the three-year performance period for performance-based restricted stock units isfor fiscal 2012 balances our desire to underscoredrive long-term stock price growth with the retention pressures we face from our commitment to long-term decision-makingdirect peers, as well as from emerging and growth.evolving competitors.

Stock Ownership Guidelines. We have established stock ownership guidelines to ensure that our executives’ interests are aligned with those of stockholders. These guidelines also help ensure that the decisions our executives implement to achieve our financial and strategic objectives are focused on our long-term growth and health. We believe that this policy effectively mitigates the possibility that our executives couldwould make business decisions to influence stock price increases in the short-term that cannot be sustained over the long-term or couldwould liquidate their equity holdings to capture short-term fluctuations in our stock price.

Board Approval of Transactions. Management must obtain approval from the Board for significant transactions (i.e., mergers, acquisitions, dividends, etc.) that could impact the achievement of previously approved financial performance targets used in the executive compensation program, and the Compensation and Benefit Committee retains the discretion to ignore the impact of certain factors over which management has no control (such as accounting changes or force majeure events) for purposes of determining whether pre-established performance targets have been met.
Compensation and Benefits Committee Interlocks and Insider Participation

During 2010,2011, each of Messrs. Klingaman, Coffey and D’Appolonia and Ms. Hamilton served on our Compensation and Benefits Committee. None of these directors was a current or former officer or employee of our company,the Company, and none had any related party transaction involving our companythe Company that is disclosable under Item 404 of Regulation S-K. During 2010,2011, none of our executive officers served on the board of directors of any entity that had one or more executive officers serving on our Board.

Compensation and Benefits Committee Report

The Compensation and Benefits Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Compensation and Benefits Committee recommended to the Board that the Compensation Discussion and Analysis, provided below, be included in this proxy statement.
Michael R. D’Appolonia, Chairman
Thomas J. Coffey
Gail E. Hamilton

Michael R. D’Appolonia, Chairman
Thomas J. Coffey
Gail E. Hamilton

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee identifies and recommends individuals qualified to be nominated as members of the Board and considers director candidates brought to the Board by stockholders. The committee also provides oversight on corporate governance matters and provides for the evaluation of Board, committee, and individual director performance, as well as provides oversight on succession planning.

The committee regularly assesses the mix of skills and industry experience currently represented on the Board, whether any vacancies on the Board are expected due to retirement or otherwise, the skills represented by retiring directors, and additional skills highlighted during the Board self-assessment process that could improve the overall quality and ability of the Board to carry out its functions. In the event vacancies are anticipated, or arise, the Nominating and Corporate Governance Committee considers various potential candidates for director and employs the same process for evaluating all candidates, including those submitted by stockholders. The committee is responsible for ensuring all director nominees undergo a thorough background check prior to nomination or appointment as a director and to review any adverse findings prior to such nomination or appointment.  Candidates may come to the attention of the committee through current Board members, professional search firms, stockholders or other persons.  In late 2010, we utilized the services of the National Association of Corporate Directors to help identify potential director candidates for election to the Board.

9


The committee initially evaluates a candidate based on publicly available information and any additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection criteria and the committee’s initial evaluation is favorable, the candidate is contacted by the chairman of the committee for an interview to determine the mutual levels of interest in pursuing the candidacy. The committee is tasked with considering whether the candidate is (i) independent pursuant to the
requirements of the NYSE Amex,The NASDAQ Stock Market, (ii) accomplished in his or her field and has a reputation, both personal and professional, that is consistent with our ideals and integrity, (iii) able to read and understand basic financial statements, (iv) knowledgeable as to us and the issues affecting our business, (v) committed to enhancing stockholder value, (vi) able to understand fully the legal responsibilities of a director and the governance processes of a public company, (vii) able to develop a good working relationship with other Board members and senior management and (viii) able to suggest business opportunities to us.  If these discussions and considerations are favorable, the committee makes a final recommendation to the Board to nominate the candidate for election.

In considering whether to recommend any particular candidate, including incumbent directors, for inclusion in the Board’s slate of recommended director nominees, the Nominating and Corporate Governance Committee takes into consideration a number of criteria which include:  professional work experience; skills; expertise; diversity; personal and professional integrity; character; temperament; business judgment; time availability in light of other commitments; dedication; conflicts of interest; and public company experience. The committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee.  The committee focuses on issues of diversity, such as diversity of education, professional experience and differences in viewpoints and skills. The committee does not have a formal policy with respect to diversity; however, the Board and the committee believe that it is essential that the Board members represent diverse viewpoints and strives to ensure that the slate of nominees represents a wide breadth of diverse backgrounds and skill sets to adequately represent the needs of the stockholders. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered. We believe that the backgrounds and qualifications of our directors, considered as a group, provide a composite mix of skills, experience, and knowledge that will assure that the Board can continue to fulfill its responsibilities.

The Board’s retirement policy mandates that directors elected to the Board at our annual meeting retire from the Board at the first annual meeting of stockholders following the director’s 75th birthday.  The Board grandfathered all current directors then serving as a director at the time the policy was adopted in November 2010, making the new retirement policy only applicable to current and future directors who will turn 75 after May 2010.

Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the Nominating and Corporate Governance Committee, c/o  Corporate Secretary, Westmoreland Coal Company, 2 North Cascade Avenue, 2nd Floor,9540 South Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903.80112. Assuming that appropriate biographical and background material has been provided on a timely basis, the committee will evaluate stockholder-recommended candidates by following the same process, and applying the same criteria, as it follows for candidates submitted by others. If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in our proxy statement for the next annual meeting.

Stockholders also have the right to nominate director candidates directly, without any action or recommendation on the part of the committee or the Board, by following the procedures set forth in Section 2.6, “Advance Notice of Nominees,” in our bylaws. Among other things, a stockholder wishing to nominate a director candidate must give notice to us within the specified time period that includes the information about the stockholder and the proposed nominee required by the bylaws. Any stockholder wishing to nominate a candidate for election to the Board pursuant to the bylaw provision must strictly comply with the procedures specified in Section 2.6 of the bylaws. Candidates nominated by stockholders in accordance with these procedures willcould be presented by the nominating stockholder from the floor of the annual meeting, but would not be included in our proxy statement for the next annual meeting.meeting, unless the Board made its own determination to include such candidate.

Other Committees

During 2010,2011, the Board had two other committees in addition to the committees set forth above: the Executive Committee and the Pricing Committee.  ThePursuant to its charter adopted by the Board in February 2012, the Executive Committee is authorized to act on behalf of the Board during periods between Board meetings. During 2010,2011, the Executive Committee held one informal meeting.two meetings. The Pricing Committee acts in the event of offerings of the Company’s securities with respect to matters such as determining the price and terms at which such securities shall be sold to underwriters and the public. During 2010,2011, the Pricing Committee held no meetings, but acted by unanimous written consent on several occasions with respect to the contribution of shares to our pension plans.plans and with respect to the issuance of debt in February 2011.

10


Director Independence
The NYSE Amex listing standards generally define an “independent director” as
NASDAQ Marketplace Rules require that a non-employee director who is affirmatively determined bymajority of the Board not to have a materialbe independent. No director qualifies as independent unless the Board determines that the director has no direct or indirect relationship with the listed companyCompany that would interfere with the exercise of independent judgment. Ourjudgment in carrying out the responsibilities of a director. In assessing the independence of its members, the Board examined the commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships of each member. The Board's inquiry extended to both direct and indirect relationships with the Company. Based upon both detailed written submissions by its members and discussions regarding the facts and circumstances pertaining to each member, considered in the context of applicable NASDAQ Marketplace Rules, the Board has determined that eachall of ourthe directors with the exception of our Chief Executive Officer, is independent as defined by the NYSE Amex.nominated for election, other than Mr. Alessi, are independent.  The independent directors meet during most Board meetings in separate executive session without management present. The Chairman of the Board, who is an independent director, presides over these meetings.  Each member of the Audit Committee must, in addition to the independence requirements of the NYSE Amex,NASDAQ Marketplace Rules, meet the heightened independence standards required for audit committee members under the NYSE AmexNASDAQ Marketplace Rules listing standards, Section 10A of the Securities Exchange Act of 1934, and Rule 10A-3 thereunder.  The Board has determined that Messrs. Coffey, Packwood and Scharp and Ms. Hamilton, the 2011 Audit Committee members, each meetmet such heightened independence standards.
Communicating with the Board

Stockholders who wish to write directly to the Board on any topic should address communications to the Board of Directors in care of the Chairman, Westmoreland Coal Company Board of Directors, 2 North Cascade Avenue, 2nd Floor,9540 S. Maroon Circle, Suite 200 Englewood, Colorado Springs, Colorado 80903.80112. Our Chairman will report on stockholder communications to the Board and provide copies or specific summaries to directors on matters deemed to be of appropriate importance. In general, communications from stockholders relating to corporate governance will be forwarded to the Board unless they are frivolous, obscene, repeat the same information contained in earlier communications, or failfails to identify the author.
DIRECTOR COMPENSATION FOR 2010

The elements of our 20102012 director compensation are reflected in the table below. We believe that it is important to attract and retain outstanding non-employee directors. One way we achieve this goal is through a competitivedirectors and target compensation program. To that end, in 2010, management worked with Buck Consulting to evaluateat the competitivenessmedian of our compensation program for our non-employee directors. After evaluating competitive market data on non-employee director compensation, an increase in both the annual cash and equity retainers was recommended to our Compensation and Benefits Committee so that Westmoreland’s non-employee director compensation remains competitive with our peer group. In June 2010,February 2012, the Compensation and Benefits Committee recommended and the Board approved the below compensation structure which was approved for fiscal year 2011.2012.  All non-employee directors receive the “Annual Cash Retainer” in addition to any other retainers they may be entitled for service as the Chairman or as the Chair of a committee.

Type of Compensation  Amount
Annual Cash Retainer  $35,000
Annual Stock AwardsAward Retainer (restricted stock units with one-year vest)
  
$50,00070,000 valued at fair market
value on date of grant
Annual Retainer for Chairman (in addition to other retainers)
  $35,000
Annual Retainer for Committee Chair (in addition to other retainers):
Chair:   
Audit Committee  $7,000
Compensation and Benefits Committee  $5,000
Nominating and Corporate Governance Committee $3,000
Annual Retainer for Serving on the Audit, C&B or N&CG Committees $5,000 per committee
Attendance at Board or Committee Meeting (in-person)
 $1,500 per meeting
Attendance at Board or Committee Meeting (telephonic)
 $1,000 per meeting
2010
2011 Non-Employee Director Compensation
            
 Fees Earned Or Stock Total Compensation          
Name(1) Paid In Cash($) Awards($)(2) ($)  
Fees Earned Or
Paid In Cash($)
  
Grant Date
Fair Value
of Stock
Awards($)(2)
  
Total
Compensation ($)
 
Thomas J. Coffey 70,500 29,996 100,496   75,500   50,009   125,509 
Michael R. D’Appolonia 60,600 29,996 90,596   73,500   50,009   123,509 
Gail E. Hamilton   61,375   50,009   111,384 
Richard M. Klingaman 103,500 29,996 133,496   85,000   50,009   135,009 
Jan B. Packwood   65,067   50,009   115,076 
Robert C. Scharp   63,375   50,009   113,384 
Former Directors(3)            
William M. Stern 56,500 29,996 86,496   5,667   —   5,667 
Frank T. Vicino, Jr. 33,462 29,996 63,458   4,889   —   4,889 
__________
(1)Mr. Alessi, who is our Chief Executive Officer, and a director, does not receive any additional compensation for his services as a director.
(2)2,901 shares of common
2,940 restricted stock units were awarded to each non-employee director elected to the Board in May 2010. Sale of the shares is2011.  The restricted untilstock units vest on May 2011.24, 2012.  The grant date fair value of these awards was $10.34$17.01 per share.share.
(3)Messrs. Stern and Vicino were serving as our preferred directors in early 2011.  Upon the repayment of the outstanding preferred dividends in early February 2011, the preferred director positions were eliminated.

Non-Employee Director Stock Ownership Guidelines

In March 2011, the Board adopted stock ownership guidelines for non-employee directors under which the directors are expected to own Westmoreland equity at least equal in value to three times the annual cash retainer, with a five-year timetable to comply.

11


20102011 Outstanding Equity Awards at Fiscal Year-End for Directors
                 
Option Awards 
          Option    
  Securities Underlying  Securities Underlying  Exercise  Option 
  Unexercised Options (#)  Unexercised Options (#)  Price  Expiration 
Name Exercisable  Unexercisable  ($)  Date 
Thomas J. Coffey  10,000   0   18.01   5/31/11 
   5,000   0   15.31   5/24/12 
   1,762   0   25.14   6/23/16 
Richard M. Klingaman  3,733   0   23.99   2/27/16 
William M. Stern  5,000   0   18.01   5/31/11 
   5,000   0   15.31   5/24/12 
   1,762   0   25.14   6/23/16 

Option Awards 
Name 
Securities
Underlying
Unexercised
Options (#)
Exercisable
  
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  
Option
Exercise
Price ($)
  
Option
Expiration
Date
 
Thomas J. Coffey                                              5,000   0   15.31   5/24/12 
  1,762   0   25.14   6/23/16 
Richard M. Klingaman                                              3,733   0   23.99   2/2716 
BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information, as of March 1, 2011,2012, concerning beneficial ownership by: holders of more than 5% of any class of our voting securities; directors; each of the named executive officers listed in the Summary Compensation Table; and all directors and executive officers as a group. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted. The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity or individual has sole or shared voting power or investment power and also any shares that the entity or individual has the right to acquire within 60 days of March 1, 20112012 through the exercise of any stock options, the conversion of depositary shares at a conversion ratio of 1.708 shares of common stock for each depositary share, the vesting of restricted stock or upon the exercise or conversion of other rights. Unless otherwise indicated, each person has sole voting and investment power with respect to the shares set forth in the table. The percentage calculations set forth in the table are based on 13,098,53113,879,458 shares of common stock outstanding and 640,516639,840 depositary shares outstanding on March 1, 2011.2012.
                 
  Common  % of  Depositary  % of 
Name of Beneficial Owner Stock  Common  Shares  Depositary 
5% or Greater Equity Holders
                
Jeffrey L. Gendell (1)  3,288,025   25.10%  3,700   * 
Frank Vicino Jr. (2)  188,612   1.42%  108,730   16.98%
Stephen D. Rosenbaum (3)  131,404   1.00%  60,000   9.37%
T. Rowe Price (4)  757,320   5.79%  —   — 
Officers and Directors
                
Thomas J. Coffey (5)  51,696   *   —   — 
Michael R. D’Appolonia (6)  9,448   *   —   — 
Gail E. Hamilton  —   —   —   — 
Richard M. Klingaman (7)  10,343   *   —   — 
Jan B. Packwood  —   —   —   — 
Robert C. Scharp  —   —   —   — 
Keith E. Alessi (8)  81,789   *   —   — 
Kevin A. Paprzycki (9)  8,593   *   —   — 
Douglas P. Kathol (10)  40,867   *   —   — 
John V. O’Laughlin (11)  53,377   *   —   — 
Morris W. Kegley (12)  9,297   *   —   — 
Directors and Executive Officers as a Group (11 persons)  213,511   1.62%  —   — 
Name of Beneficial Owner
 Common Stock  
% of
Common
  
Depositary
Shares
  
% of
Depositary
Shares
 
 
5% or Greater Equity Holders            
Jeffrey L. Gendell (1)  3,071,144   22.12%  3,700   * 
Frank Vicino, Jr. (2)  188,574   1.34%  108,730   16.99%
Stephen D. Rosenbaum (3)  131,404   *   60,000   9.38%
T. Rowe Price (4)  774,320   5.58%  —   — 
Officers and Directors 
Thomas J. Coffey (5)  41,696   *   —   — 
Michael R. D’Appolonia  9,448   *   —   — 
Gail E. Hamilton  0   *   —   — 
Richard M. Klingaman  10,343   *   —   — 
Jan B. Packwood  0   *   —   — 
Robert C. Scharp  0   *   —   — 
Keith E. Alessi (6)  153,895   1.10%  —   — 
Kevin A. Paprzycki (7)  17,953   *   —   — 
Douglas P. Kathol (8)  42,067   *         
Joseph E. Micheletti (9)  8,232   *   —   — 
Morris W. Kegley (10)  17,255   *   —   — 
John V. O’Laughlin (11)  42,884   *   —   — 
Directors and Executive Officers as a Group (11 persons)  287,984   2.05%  —   — 
_________
*
Percentages of less than 1% are indicated by an asterisk.
asterisk
(1)The total for Mr. Gendell includes shares of common stock, as well as shares of common stock issuable upon conversion of depositary shares. According to a Schedule 13D/A filed February 11, 2011,January 6, 2012, Mr. Gendell owns 549,000 shares of common stock of which he has sole voting and dispositive power. In addition, Tontine Capital Partners, L.P. and other limited partnerships and limited liability companies that are affiliates of Tontine Capital Partners, L.P. own 2,732,7072,515,826 shares of common stock and 3,700 depositary shares that are convertible into 6,318 shares of common stock. Mr. Gendell is either a managing member of, or a managing member of the general partner of, these limited partnerships and limited liability companies and has shared voting and dispositive power over these shares. All of the foregoing shares may be deemed to be beneficially owned by Mr. Gendell. Mr. Gendell disclaims beneficial ownership of these shares for purposes of Section 16(a) under the Exchange Act, or otherwise, except as to shares directly owned by Mr. Gendell or representing Mr. Gendell’s pro rata interest in, and interest in the profits of, these limited partnerships and limited liability companies. The address for Mr. Gendell is 55 Railroad Avenue, Greenwich, CT 06830.
(2)
According to a Schedule 13D/A filed on February 19, 2010, Mr. Frank Vicino Jr. beneficially owns 108,730 depositary shares of which he has sole voting and sole dispositive power for 86,750 shares, and shared voting and dispositive power over 21,980 shares. The common stock total for Mr. Vicino includes 184,857185,673 common shares issuable upon conversion of depositary shares plus an additional 2,901 sharesshares. The address for which saleMr. Vicino is restricted until May 2011.3312 NE 40th Street, Fort Lauderdale, Fl 33308.

12

(3)3)The total for Mr. Rosenbaum includes shares of common stock, as well as shares of common stock issuable upon conversion of depositary shares. The depositary shares are convertible into 102,480102,459 shares of common stock. The address for Mr. Rosenbaum is 817 N. Calvert Street, Baltimore, MD 21202.
(4)According to a Schedule 13G/A filed on February 10, 2011,13, 2012, these securities are owned by various individual and institutional investors, including T. Rowe Price Small Cap Stock Fund, Inc. (which owns 591,800 shares, representing 4.5% of the shares outstanding), which T. Rowe Price Associates, Inc. (Price Associates) serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The principal business address of T. Rowe Price is 100 East Pratt St., Baltimore, Maryland 21202.
(5)Includes 15,000 common shares that may be purchased upon exercise of options and 2,901 common shares for which sale is restricted until May 2011.
(6)Includes 2,901 common shares for which sales are restricted until May 2011.
(7)Includes 2,901 common shares for which sales are restricted until May 2011.
(8)Includes 4,341 common shares held through the 401(k) plan and 70,556 common shares that may be purchased upon exercise of options under equity plans.
(9)Includes 2,640 common shares held through the 401(k) plan and 4,6665,000 common shares that may be purchased upon exercise of options under the 2007 plan.2000 Non Employee Director Stock Incentive Plan.
(10)(6)Includes 3,9385,959 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, 7,50030,556 shares of common stock that may be purchased upon the exercise of options under our 2002 Plan, 60,000 shares of common stock that may be purchase upon the exercise of options under our 2007 Plan and 10,027 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.

(7)Includes 4,419 shares of common stock held by Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, 7,000 shares of common stock that may be purchased upon exercise of options under our 2007 Plan and 1,911 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.
(8)Includes 5,215 shares of common stock held by Prudential Retirement, as trustee of the 2002Westmoreland’s 401(k) plan, and 4,6667,500 shares of common sharesstock that may be purchased upon exercise of options under theour 2002 Plan, 7,000 shares of common stock which may be purchased upon exercise of options under our 2007 plan.Plan and 2,500 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.  In addition, beneficial ownership includes 9,41013,878 shares of common stock and 14,066 options under various plans that are owned by Mr. Kathol’sKathol's wife.  Mr. Kathol expressly disclaims beneficial ownership of these securities, and this disclosure shall not be an admission that hethe reporting person is the beneficial owner of such securities for purposes of Section 16 or for any other purpose.
(11)(9)Includes 5,656953 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 44,2995,000 shares of common sharesstock that may be purchased upon exercise of options under equity plans.our 2007 Plan and 670 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.
(12)(10)Includes 3,3444,671 shares of common sharesstock held throughby Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, and 4,6667,000 shares of common sharesstock that may be purchased upon exercise of options under our 2007 Plan and 1,500 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.
(11)Includes 6,828 shares of common stock held by Prudential Retirement, as trustee of the Westmoreland’s 401(k) plan, 12,000 shares of common stock that may be purchased upon exercise of options under our 2002 Plan, 15,000 shares of common stock which may be purchased upon exercise of options under our 2007 plan.Plan and 1,508 shares of restricted stock issued under our 2007 Plan that will vest on April 1, 2012.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE Amex.The NASDAQ Stock Market. To the knowledge of management, based solely on its review of such reports, no person who at any time during the fiscal year ended December 31, 2010,2011, was a director, executive officer, or beneficial owner of more than ten percent of any class of equity securities of Westmoreland Coalthe Company failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.

EQUITY COMPENSATION PLAN INFORMATION

At December 31, 2010,2011, we had stock options and stock appreciation rights (“SARs”) outstanding from fourtwo stockholder-approved stock plans and one plan for non-employee directors that was not approved by stockholders. The 2000 Nonemployee Directors’ Stock Incentive Plan is the only plan not approved by stockholders and provided for the grant of stock options to non-employee directors at the time they were first elected to the Board and at the time of each subsequent re-election to the Board.  In October 2009, the Board terminated the 2000 Nonemployee Directors’ Stock Incentive Plan and several other stock-holder approved plans.  The termination of these plans does not impair the rights of any participant under any award granted pursuant to the plans.  All new equity issuances, whether to directors or officers, are made out of our stockholder-approved 2007 plan.
            
 Number of Securities 
 Remaining Available for Future 
 Number of Securities to Weighted Average Issuance Under Equity 
 be Issued Upon Exercise Exercise Price Compensation Plans (Excluding 
 of Outstanding Options of Outstanding Options Securities Reflected in Column (a)) 
Plan Category (a) (b) (c)  
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
(a)
  
Weighted Average
Exercise Price
of Outstanding
Options
(b)
  
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column (a))
(c)
 
Equity plans approved by security holders  243,590(1) $19.96  288,261(3)  199,606(1) $20.98   80,566(3)
Equity plans not approved by security holders  75,000(2) $15.85 0   30,000(2) $15.31   0 
Total 318,590 $18.99 288,261   229,606  $20.24   80,566 
__________
(1)Excludes SARs to acquire 102,867100,100 shares of common stock with exercise prices above $11.94,$12.75, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock Market on December 31, 2010.30, 2011. At December 31, 2010, 139,2672011, 100,100 SARs were outstanding with base prices between $19.37 and $29.48.
(2)Excludes SARs to acquire 16,067 shares of common stock with exercise prices above $11.94,$12.75, the closing price of a share of our common stock as reported on the NYSE AmexThe NASDAQ Stock market on December 31, 2010.30, 2011. At December 31, 2010,2011, 16,067 SARs were outstanding with base prices between $23.985 and $25.14.
(3)
Number of securities remaining available for future issuance reflects the reservation of 200,758302,033 shares for issuance to certain employees upon the completion of certain time-based vesting restrictions related to restricted stock units issued on July 1, 2009, and July 1, 2010.2010, and April 1, 2011.

13

COMPENSATION DISCUSSION AND ANALYSIS

Throughout its history, including over recent years, Westmoreland Coal Company has experienced dramaticmajor changes, since its inception in 1854.requiring redefinition of our business model.  Originally focused on underground mining in the Appalachian Basin, we have since divested ourselves of all eastern mining properties and assets, moved our headquarters to Colorado and purchased fivesix surface coal mining operations.  Since 2001, we have dramatically recreated ourselves as an energy company focused on niche coal markets where we can take advantage of long-term coal contracts and rail transportation advantages.  To understand our company and the way in which we compensate our executives, it is important to understand ourthe business environment we have operated in over the lastpast several years, the recent struggleschallenges that we have faced, and the progress we have made towards bringingreturning the company to profitability.  We believe that fullyThis understanding who we are as a company and the steps we have taken over the last several years to position ourselves to forge ahead into the next decade will provide insight into our past compensation practices and the steps we are taking to align the pay of our executives with creating long-term stockholder value.

Historical Business Environment

Our business is unusual in thathas a high proportion of our revenues, and therefore cash flows, are set or limited by contractual relationships. As such, management must focus on cost control, standardization,long-term supply contracts with a small number of customers. While these contracts provide certain long term visibility and efficiency in orderstability, their exclusivity and terms significantly restrict our ability to generate cash and profits. Along with these long-term contracts, wereact financially if there is an event which negatively impacts our customers’ ability to buy coal.  We also have the ongoing responsibility for substantial post-retirement health care liabilities associated with our discontinued Appalachian Basin underground mining operations.   We havehad been challenged over the past yearsduring recent history with generating sufficient cash at our operating subsidiaries to fund both the costincreasing costs of corporate overhead and these additional post-retirement liabilities.  In 2007, we hired Mr. Keith E. Alessi as Chief Executive Officer (“CEO”) at a difficult time in our history.  At that time, we were not producing cash flows sufficient to fundSince 2007, Mr. Alessi has led efforts which have successfully standardized our operations, and the substantial legacy costs. The Board charged Mr. Alessi with standardizing our operations, implementing procedures and controls, reducingreduced corporate overhead stabilizingand post retirement costs, stabilized cash flow, provided meaningful liquidity to our balance sheet and settingset a new, focused strategic vision. From 2007This new vision led to the acquisition of the Kemmerer mine in January of 2012.

Fiscal 2011 – The Year in Review

Fiscal year 2011 was a year in which we improved liquidity, successfully weathered several external challenges that impacted our customers, relocated our corporate offices and ultimately announced a major acquisition. Our business model relies primarily upon long term, cost plus contracts, with a small number of large customers. During 2011, the Pacific Northwest experienced unprecedented amounts of snow that led to a prolonged hydroelectric power season. This negatively impacted our largest customer well into the summer period.  In addition, flooding associated with the high snow pack disrupted rail transportation and mining production, which resulted in a further reduction in coal sales across our northern tier mining operations. Lastly, an explosion and fire at one of our major customers in November resulted in further loss of revenue. Despite these large interruptions in our operations in 2011, we ended the year within 10% of our record adjusted EBITDA from fiscal year 2010 due to timely reaction and stringent cost management.
In February, we issued $150 million in senior secured bonds in order to refinance existing debt and to provide ourselves additional liquidity. This, combined with favorable financial results from 2010, led to the elimination of a going-concern audit opinion in our financial statements. In December, we bolstered our reserves through the endacquisition of 2009,158 million tons of coal at our Absaloka mine.  This acquisition was in line with our strategic objective of increasing coal reserves and extending mine lives at all of our operations.
In November 2011, the management radically overhauledteam successfully relocated the corporate offices from Colorado Springs to south Denver. This move not only cut overhead costs through a reduction in office rent, lowered travel expenses and decreased consulting costs, but broadened the available pool of talent from which to draw new employees and executives and brought us geographically closer to our key business partners. By designing an office from scratch, we were able to build a new environment that reflects the core values of the company, with all offices identical in size, including the executive officers’ offices, and no executive has a corner office.  The new office atmosphere supports our overall compensation philosophy of limited perquisites and encourages a team environment.
Finally, we moved to diversify and grow the business through staffing changes, eliminationthe execution of unnecessary perquisitesa Purchase and compensation structures,Sale Agreement with Chevron Mining Inc. for the redesign or termination of certain benefit programs, settling of various outstanding litigation matters, consolidating and leveraging benefit programs across all business units, negotiating favorable modifications to certain agreements with our union partners, standardizing and streamlining financial and business reporting and restructuring many of our major debt arrangements.
Fiscal 2010 — The Year in Review
Fiscal year 2010 was a notable year at Westmoreland Coal Company. We improved operating income $52.3 million year-over-year. This significant improvement in performance was a direct resultpurchase of the implementation of key cost-saving initiatives over the preceding three years. In addition, each of our mines recorded improved safety performance measured by reportable incident rates for surface coal mines that exceeded the national average. Over the course of the year, we cut our liabilities and decreased cash spend through the successful implementation of a modernized prescription drug plan for our heritage retirees. In addition, we also realized material cost savings of efforts from 2008 and 2009 through streamlined processes, lower overall benefit expenses, the accomplishment of major information technology standardization projects, lowered legal costs, and the commencement of a new coal supply contract at the Rosebud mine. We undertook a number of value-add projects, including enhanced operational and financing reporting, an overhaul of the budgeting process and the commencement of reserve acquisition to extend the life of our mines.
Fiscal 2011 — The Year Ahead
Historically, the Compensation and Benefits Committee (the “Committee”) recognized the unique difficulties presented by our business model and that traditional incentive measurements were not always an appropriate measure for incentive compensation. As such, individual project-based accountabilities for senior managers were set and a large percentage of cash incentive bonuses were tied to achievementKemmerer mine in Kemmerer, Wyoming.  Both of these short-term goals during the 2008 through 2010 period. To better alignactivities demonstrated the management team withteam’s keen attention to fulfilling the long-term interestsstrategic plan and growth model set out by the Board of the stockholders, we performed a dramatic overhaulDirectors in early 2011.  We announced  this transaction in December 2011 and was successfully closed in January 2012.
General Compensation Practices and Philosophy
Based on a holistic review and overhaul of the compensation program in 2010, our philosophy for total compensation packages for fiscal year 2012 is consistent with fiscal year 2011, isbut significantly different than in prior periods. Our prior approach was reflective of the state of the company and the need to incent management to bring the company through the difficult period of turning around its financial performance. The new compensation philosophy is forward-looking in nature and is intended to more closely align the performance of the company to that of enhancing stockholder value.
Westmoreland now bases its total compensation strategy on a moderate growth model.  As a moderate growth company, Westmoreland maintainsseeks to maintain salaries at or near marketpeer group medians, shifts a portion of short-term incentive to long-term incentive and increases the percentage of long-term incentives as a percentage of total compensation to bring total pay to median.compensation.  Our named executive officers remain at-will employees and do not have employment agreements, including the CEO. In addition, we do not
The Westmoreland benefits philosophy is to provide any perquisites to our executivesexecutive officers with protection and our executives participate in the standardsecurity through health and welfare, programsretirement, disability insurance and life insurance programs. During fiscal year 2011, the CEO and other executive officers were eligible to receive the same benefits that are consistent with industry standards. generally available to other Westmoreland employees. In addition to the company-wide benefits, the Board elected to provide executive physical examinations to executive officers starting in fiscal year 2012, for which we cover the costs that are not otherwise covered under each executive officer’s chosen health plan. We believe that the executive physical is a prudent measure to help ensure the health of our executives. The executive physical benefit is a benefit generally provided by our peer companies and is available at a reasonable cost to Westmoreland.
Our compensation program is intended to attract, retain reward, and motivatereward our executives and is guided by several key principles:
Design a program that is simple, easy to understand, incents performance and aligns with long-term stockholder interests through the use of equity awards;
Target compensation levels set at or near market median of our peer group;
●
Design a program that aligns with long-term stockholder interests through the use of equity awards;
Link pay to performance by making between 30 and 43 percent of total executive compensation, depending on the executive, variable or “at risk” over the long-term; and
●
Target compensation is at median of peer group, with the long-term goal of bringing lower compensated executives to target levels as they continue to gain experience;
Provide a compensation program that emphasizes direct compensation as opposed to perquisites and other benefits.
●
Link pay to performance by making a substantial portion of total executive compensation variable or “at risk” over the long-term; and
●
Provide a compensation program that emphasizes direct compensation as opposed to perquisites and other benefits.
Stock Ownership Guidelines and Clawback Policies

In order to better align the interests of our executive management team with the interests of our stockholders and to promote our commitment to sound corporate governance, the Compensation and Benefits Committee approved stock ownership guidelines in 2011. The executive management team is expected to be in compliance with these guidelines within five years of becoming subject to the policy.  The ownership requirement for our named executive officers is calculated as a multiple of base salary as follows:
Executive Level Multiple of Base
Executive LevelSalary 
CEO  3.0x
COO2.0x
CFO, EVP and SVP  1.5x
Other named executive officers  1.0x

At this time, the Committee has not adopted a clawback policy for the executive management team.  While in full support of such a policy, the Compensation and Benefits Committee is waiting for more formal guidance from the Securities and Exchange Commission in response to the recent Dodd Frank legislation before adoption and implementation of a formal policy.

Compensation Methodology

Peer Comparisons and Survey Data
In 2010, we developed a modified
Our peer group is based on criteria that representsrepresent the characteristics that define the markets in which we compete for talent, rather than simply the markets in which we compete for business. In creating our peer group, we noted that there are very few comparably-sized publicly-traded coal companies to align ourselves with for comparative purposes. In addition, a third of our executive team comes from segments other than mining. With these and other factors in mind, we identified two characteristics that we believe would have the greatest influence on how we perform, as well as on the leadership talent that we need to drive outstanding
performance.  First, we are capital-intensive and second, we maintain long-term contracts as part of the business relationship that is established with customers.  Based on such characteristics, we identified the below peer group for 20102011 with the assistance of ourthe compensation consultant.consultant engaged by the Compensation and Benefits Committee.  The companies included in the peer group differ from those listed in the indices used to prepare our stock price performance graph, which can be found in our 20102011 Annual Report to Stockholders. We believe that the peer group listed below, when used in conjunction with third-party compensation survey information, enabledenables us to provide an accurate assessment of market practices for the compensation of our executive management team.

15


Name 
FY 2010 Net Income
in Millions ($)
  
FY 2010 Revenues
in Millions ($)
 
Atwood Oceanics  272   645 
Calgon Carbon Corp.  35   482 
Drew Industries Inc.  28   573 
Dril-Quip Inc.  102   566 
Forward Air Corp.  32   484 
Genessee & Wyoming Inc.  79   630 
Gulf Island Fabrication Inc.  13   248 
Hecla Mining Co.  49   419 
Heico Corp.  55   617 
Hornbeck Offshore Services Inc.  36   421 
Horsehead Holding Corp.  25   382 
James River Coal Co.  78   701 
Pioneer Drilling Co.  -33   487 
Stillwater Mining Co.  50   556 
Superior Well Services Inc.  -80   399 
Union Drilling Inc.  -16   193 
Unit Corp.  146   872 
  
Westmoreland Coal Company  0   506 
         
Name FY 2009 Net Income in Millions ($)  FY 2009 Revenues in Millions ($) 
Atwood Oceanics  256   650 
Calgon Carbon Corp.  39   412 
Drew Industries Inc.  -24   398 
Dril-Quip Inc.  105   540 
Forward Air Corp.  10   417 
Genessee & Wyoming Inc.  60   545 
Gulf Island Fabrication Inc.  21   311 
Hecla Mining Co.  68   312 
Heico Corp.  45   538 
Hornbeck Offshore Services Inc.  50   386 
Horsehead Holding Corp.  -27   216 
James River Coal Co.  51   681 
Pioneer Drilling Co.  -23   325 
Stillwater Mining Co.  -9   394 
Superior Well Services Inc.  -80   399 
Union Drilling Inc.  -12   169 
Unit Corp.  -55   703 
         
Westmoreland Coal Company  -29   443 

In 2010,2011, we used Economic Research Institute CompAnalyst and Hay GroupCompAnalyst market data as additional comparison points. Total market data was compared with individual pay for each position, and “compra-ratios” were determined. Compra-ratios are an individual’s current salary divided by the reference point of the market data. For example, if an individual’s salary is $125,000 and the mid-point of the market data for that position was $100,000, the compra-ratio for that individual would be 125%, meaning such person is earning 25% more than the average of the market.
Internal Pay Equity

The Committee considers internal pay equity when making compensation decisions for the executive management team. However, the Committee does not use a fixed ratio or formula when comparing compensation among executive officers. Our CEO is compensated at a higher level than other executive officers due to his significantly greater level of experience, accountability and responsibility.  Mr. Alessi’s targeted total cash compensation was 3.63.5 times greater than the average of our four other named executive officers which differential includes his 2010 discretionary bonus.in 2011. We feel that Mr. Alessi’s cash compensation for 20102011 as compared to the other named executive officers is appropriate based on his significant contributionsrole in refocusing and improving our business operations since 2007.leading the team to meet the Board’s strategic objectives for 2011.  Our next highest paid named executive officer makes 1.31.45 times our lowest paid named executive officer.  We believe such internal pay equity highlights the reasonableness of the dispersion of pay to our named executive officers.

Compensation Administration and the Role of Management in Determining Executive Compensation

The Compensation and Benefits Committee establishes overall compensation strategy to ensure that our executives are rewarded appropriately and that executive compensation supports our business strategy and objectives. At the beginning of the calendar year, each executive sets personal performance goals, which are approved by the CEO for the executive team and by the Compensation and Benefits Committee for the CEO, targeted to positively influence stockholder value.  At the end of the calendar year, performance is evaluated by the CEO, for the other named executive officers, and by the Board, for the CEO, against the established goals and individual accomplishments during the year.  The Compensation and Benefits Committee reviews and approves the compensation, including base salaries, annual incentives, long-term incentives, and other benefits, of our named executive officers. The Compensation and Benefits Committee also reviews and approves the compensation for other key executives who are not identified in this report.  The annual incentive bonuses are paid out during the first quarter of the calendar year while increases to base
salaries occur at the beginning of the second quarter.  Long-term equity incentives, which are based on management tiers, were awarded on JulyApril 1, 2010. However, on a going-forward basis, long-term equity incentive awards will be issued on April 1st.2011.

While the Compensation and Benefits Committee has the responsibility to monitor and approve all compensation for our named executive officers, management also plays an important role in determining executive compensation. At the Compensation and Benefits Committee’s request, management recommends appropriate company-wide and mine and power financial and non-financial performance goals. After review and discussion, the Compensation and Benefits Committee adopts performance goals for the coming year.  Management works with the Compensation and Benefits Committee to establish the agenda and prepare information for each Compensation and Benefits Committee meeting. In addition, the CEO assists the Compensation and Benefits Committee by providing his evaluation of the performance of the executive officers who report directly to him, and recommending compensation levels for such officers. The Compensation and Benefits Committee also has a process for soliciting from the CEO an assessment of his own performance, which in conjunction with each director’s independent analysis of the CEO’s performance, is used to assist the Compensation and Benefits Committee and the Board in their evaluation of the CEO’s performance.  The CEO is not present during the Compensation and Benefits Committee and Board review and assessment of the CEO’s performance evaluation.

16


Role of Compensation Consultants

The Compensation and Benefits Committee originally retained Buck Consulting in February 2010 to serve as the Compensation and Benefits Committee’s compensation consultant to assist the Compensation and Benefits Committee in thoroughly reviewing our executive compensation program for future periods.  Buck Consulting provided high-levelcontinued to provide guidance to the Compensation and Benefits Committee in 2011 and early 20102012 in determining the total compensation packages for executive management. In addition, throughout 2010, Buck Consulting assisted management and the Committee in developing a modified total compensation philosophy and a more appropriate compensation package for the executive management team.

Components of the Executive Compensation Program for 20102011

Throughout this Compensation Discussion and Analysis, the individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2011, as well as the other individuals included in the “Summary Compensation Table” on page 27 of this proxy statement, are referred to as the “named executive officers.” They are (i) Keith Alessi, our President and Chief Executive Officer, (ii) Kevin Paprzycki, our Chief Financial Officer and Treasurer, (iii) Doug Kathol, our Executive Vice President, (iv) Joseph Micheletti, our Senior Vice President – Coal Operations, (v) Mike Kegley, our General Counsel – Mining and Operations, and (vi) John O’Laughlin, our former Senior Vice President – Coal Operations. Effective as of February 21, 2011, John O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management. This new role is not an executive officer position.
Our executive compensation program consists of three main elements:

Base Salary

In determining base salaries, each executive’s role and responsibility, applicable experience, unique skills, past performance, future potential with us, and peer group data are considered.  In addition, the Compensation and Benefits Committee considers compra-ratios, which are salary data for similar positions (compra-ratios),in the same pay grade, allowing the Compensation and Benefits Committee to evaluate internal equity are considered. The Committee is guided in its base salary determinations by a merit matrix that takes into account compra-ratios and performance. Thisequity. A matrix, which is utilized for all employees and includes our named executive officers, allows the Compensation and Benefits Committee to approve recommended base pay increases out of the available merit pool, which was set at 3.0% for 2011.2012.  For example, an outstanding performing executive who has a low compra-ratio, such as 75%, would be eligible for a 4.5% merit increase, while, conversely, a lower performing executive with a high compra-ratio, such as 125%, would generally not be eligible for a merit increase.  The Compensation and Benefits Committee has the discretion to grant salary adjustments above the percentage recommended by the matrix to take into account external peer group data. Individual increases to base salary are not guaranteed for our named executive officers and are provided only at the discretion of the Compensation and Benefits Committee after a review of an individual’s performance and relevant market data.
Base Salaries for 2010

2011 Base Salaries for Named Executive Officers
     
Name Position Base Salary
Keith E. Alessi CEO and President $600,000/ $400,0001600,000
Douglas P. Kathol Executive Vice President $212,672/ $275,0002280,500
Kevin A. Paprzycki Chief Financial Officer and Treasurer $212,175/ $217,1753245,000
John V. O’LaughlinJoseph E. Micheletti(1) Senior Vice President —– Coal Operations $225,508145,583/ $225,000
Morris W. Kegley General Counsel – Mining and Operations $215,671224,298
John V. O’Laughlin(2) 
1Senior Vice President – Coal Operations $225,508
__________
(1)Mr. Alessi’sMicheletti’s base salary was set at $600,000$145,583 through JuneMay of 2010. In June of 2010, Mr. Alessi’s base salary was adjusted to $400,000 to reflect the change2011 in his role with us.
2as General Manager of the Jewett mine. In May of 2011, Mr. Kathol’s base salary was set at $212,672 through June of 2010. In June of 2010, Mr. Kathol’sMicheletti’s base salary was increased to $275,000$225,000 to reflect his promotion to ExecutiveSenior Vice President.President – Coal Operations.
3(2)
John O’Laughlin served as our Senior Vice President – Coal Operations through February 21, 2011. Effective as of February 21, 2011, Mr. Paprzycki’s base salary was set at $212,175 through June of 2010. In June of 2010, Mr. Paprzycki’s base salary was increased $5,000 to reflect the addition of the Treasury role.O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management.

Annual Incentive Compensation

The annual incentive plan is intended to provide variable compensation awarded for performance based on the achievement of strategic goals and objectives.  The incentive pay is based on financial performance and personal performance, while executives with direct mining operational responsibility also have a safety component.  If the thresholds for the financial and safety components are not met, then no payout is made for that particular component. The annual incentive plan goals for fiscal year 20102011 were set by the Compensation and Benefits Committee in February 20102011 and encompassed the following:
GOAL COMPONENTS PERCENT OF TOTAL BONUS
Financial Threshold = Annual
Goal: Depending on the executive, annual budgeted operating income and free cash flow of the mine/ divisionWestmoreland Coal Company and/or maximizing contract incentives of certain mines
●    50% payout upon meeting 80% of goal (threshold)
●    100% payout upon meeting 100% of goal (target)
●    200% payout upon meeting 120% of goal (maximum)
 •
•
●    40% for mine operational executives
55%
●    60% for corporate office executives
•    50% of goal will be paid out upon meeting the threshold
•    Achievement in excess of the threshold is prorated
Safety Threshold =
Goal: Annual National Mine Safety and Health Administration (MSHA) average for reportable incident rate for surface mines in the coal industry
●    50% payout upon meeting 100% of goal (threshold)
●    100% payout upon meeting 125% of goal (target)
●    200% payout upon meeting 150% of goal (maximum)
 •
•
●    30% for mine operational executives
●    Not applicable for corporate executives
•    50% of goal will be paid out upon meeting the threshold
•    Achievement in excess of the threshold is prorated
Individual The percentage payout is evaluated on achievement of certain individual goals established between the executive and the CEO (or, in the case of the CEO, between him and the Board) and will be based on the executive’s overall performance. An executive may receive greater than 100% payout for the individual goal based on exemplary performance, as approved by the Compensation and Benefits Committee, or in the case of the CEO, by the Board.  The Board has great flexibility in exercising discretion relating to the individual AIP component and has the ability to reward executives based on the results of the year, notwithstanding that a particular executive did not meet the specific goal laid out at the beginning of the year. For example, for 2011 AIP payout, the Board took into account exemplary work on the Kemmerer transaction that was not part of the individual goals that were set in early 2011. •
•
●    30% for mine operational executives
45%
●    40% for corporate office executives

17

Target vs. Actual Annual Incentive Bonuses
Paid for 2010 Performance
                         
          Percentage of Target  Percentage of  Percentage of    
  Percentage of Total  Target Total Cash  Individual Bonus  Target Financial  Target Safety    
Name Compensation  Incentive Bonus  Approved  Bonus Approved3  Bonus Approved4  Total Cash Bonus 
Keith E. Alessi  70%/100%1 $404,614   235%  135% NA  $882,240 
Douglas Kathol  40%/50%2 $113,106   100%  135% NA  $134,805 
Kevin A. Paprzycki  40% $85,568   100%  135% NA  $101,994 
Morris W. Kegley  40% $78,700   100%  135% NA  $93,799 
John V. O’Laughlin  50% $112,119   0%  63%  114% $66,465 
19
Target vs. Actual Annual Incentive Bonuses
Paid for 2011 Performance for Named Executive Officers
 
  
Name 
Percentage of
Base Salary
Earned in 2011
  
Target Total
Cash Incentive
Bonus
  
Percentage of
Target Individual
Bonus Approved
  
Percentage
of Target
Financial Bonus Approved(2)
  
Percentage
of Target
Safety Bonus Approved(3)
  Total Cash Bonus 
Keith E. Alessi
  100% $588,460   134%  100% NA  $668,460 
Douglas Kathol  40% $109,577   214%  100% NA  $159,577 
Kevin A. Paprzycki  35% $83,202   250%  100% NA  $133,202 
Joseph E. Micheletti(1)  30%/ 35% $63,578   362%  116%  94%/ 189%  $128,546 
Morris W. Kegley  30% $65,448   151%  113% NA  $81,425 
John V. O’Laughlin(4)  30% $66,351   85%  113% NA  $64,524 
__________
1(1)In JuneMay of 2010,2011, Mr. Alessi’s total compensation package shifted, resulting in less base salary and more compensation at-risk.Micheletti was promoted to Senior Vice President – Coal Operations.  As such, his percentage of AIP payout was increased from 70%30% to 100%35%.
2(2)
In June of 2010, Mr. Kathol was promoted to Executive Vice President. As such, his percentage of AIP payout was increased from 40% to 50%.
3In 2010,2011, the annual budgeted operating income thresholdgoal and free cash flow goal for Westmoreland Coal Company was $27.510 million and $20.487 million, respectively. The 2011 actual operating income and free cash flow was $16.067 million and $26.789, respectively.  The weighted actual performance for corporate financial was 100% of goal, resulting in 100% financial payout. The mine level financial goal was based on maximizing contract incentives.  The consolidated performance of the mines for Mr. Kegley equated to a 123% payout and the consolidated performance of the mines for Mr. Micheletti was 124% payout. Messrs. Alessi, Kathol, KegleyPaprzycki and Paprzycki was $14.304 million. The 2010 actualMicheletti had the entirety of their financial goal based on the corporate operating income and free cash flow measures. However, Mr. Kegley’s financial portion of the AIP was $20.922 million. While the actual operating income would have brought the payout to 200%, management recommendedbased 30% on corporate financial and the Committee approved a 135% payout reflecting40% on certain one-time adjustments being backed out. In 2010, the annual budgeted operating income threshold for Mr. O’Laughlin was $32.006 million. The 2010 actual operating income was $32.922 million.mines maximizing contract incentives.
4(3)In 2010,2011, the average national reportable incident rate was 1.83,1.95, which is a calculation based on total hours worked and reportable incidents.  In 2010, the average reportable incident rate for Texas was 1.52 and for the mines Mr. O’LaughlinMicheletti oversaw as Senior Vice President – Coal Operations was 1.31.1.03.
(4)Mr. O’Laughlin’s Target Total Cash Incentive Bonus is based on both actual earnings and earnings through our short-term disability program.

Long-Term Incentive

Long-term incentive awards are designed to align the interests of our executives with those of our stockholders.  In 2010,On April 1, 2011, we issued time-based restricted stock units with a three-year vest and performance-based restricted stock units with a three-year cliff vest on JulyApril 1, 20102011. The performance-based restricted stock units vest upon the achievement of a preset three-year cumulative free cash flow measure. The number of shares issued was based on a tiered system that provides an identical numberpercentage of restricted stock units to executives in that tier, which awards represent between approximately 20% and 40% of suchthe executive’s base salary compensation. To determine the number of restricted stock units awarded to a named executive officer in a given tier, the Committee multiplies the assigned percentage of base salary compensation, such as 20%, times the average of the base salaries of all individuals assigned to such tier. The resulting number is divided by the fair valuestock price on the date of our common stock based on a 10-day average price immediately preceding grant date to determine the number of restricted stock units granted to such tier, rounded for ease of administration.grant.
Long-Term Incentive Awards for 2010
Long-Term Incentive Awards for Named Executive Officers for 2011
Long-Term Incentive Awards for Named Executive Officers for 2011
 
              
Name Long-Term Incentive Tier Number of RSUs Grant Date Fair Value of RSUs  
Percentage of
Base Salary
  
Number of
Time-Based RSUs
  
Number of
Performance-Based
RSUs
  
Grant Date
Fair Value of RSUs
 
Keith E. Alessi  125% 59,775 $484,775   150%  30,081   30,080  $900,009 
Douglas P. Kathol  45% 14,796 $119,996   80%  7,500   7,500  $224,400 
Kevin A. Paprzycki  34% 8,916 $72,309   70%  5,733   5,732  $171,516 
Joseph E. Micheletti  40%(1)  2,010   2,010  $60,139 
Morris W. Kegley  60%  4,500   4,498  $134,610 
John V. O’Laughlin  31% 9,852 $79,900   60%  4,524   4,522  $135,328 
Morris W. Kegley  22% 6,570 $53,283 
__________
(1)Mr. Micheletti’s long-term incentive award was based on his role as mine manager of the Jewett mine.  In 2012, his long-term incentive award will be based on this current position as Senior Vice President – Coal Operations and will represent 70% of his base salary.

Post-Employment Benefits

We have a severance policy that provides, under certain circumstances, our executives with twelve months of base pay, in addition to nine months of outplacement assistance and 12 months of health benefits at the same cost share as active employees.  Payment under the severance policy is triggered upon the following events: involuntary termination that is not for cause, such as a layoff; the sale of a facility or division, such as the sale of a specific mine; or a position being relocated by at least fifty miles. Except for this severance policy, we do not guarantee or provide any other cash compensation or benefits to our executives upon their departure from Westmoreland. For full walk-away amounts for each of our named executive officers upon the happening of certain events, such as involuntary termination without cause or change-in-control, see “EXECUTIVE COMPENSATION FOR 2010-Potential2011-Potential Payments upon Termination or Change-in-Control” below.

18


Federal Income Tax and Other Consequences

Under Section 162(m) of the Internal Revenue Code, we may not be able to deduct certain forms of compensation in excess of $1,000,000 paid per year to our named executive officers who are employed by us at year-end. The Compensation and Benefits Committee believes that it is generally in our best interest to satisfy the requirements for deductibility under Internal Revenue Code Section 162(m). Accordingly, the Compensation and Benefits Committee has taken appropriate actions, to the extent it believes feasible, to preserve the deductibility of annual incentive and long-term performance awards. However, notwithstanding this general policy, the Compensation and Benefits Committee also believes that there may be circumstances when our interests are best served by maintaining flexibility in the way compensation is provided, whether or not compensation is fully deductible under Internal Revenue Code Section 162(m). Accordingly, we reserve the authority to award non-deductible compensation in appropriate circumstances. Further, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended by us to satisfy the requirements for deductibility under Section 162(m) does in fact do so.

2012 Compensation Program
As illustrated in the graph below, we believe that performance and equity-based compensation should increase as a percentage of total direct compensation as salary grade levels and responsibility increases.  As such, for 2011,2012, the CEO hasand the COO have the highest percentage of total compensation at risk through both the annual and long-term incentive opportunities.
(PIE CHART)       (PIE CHART)
Pie Charts

(PIE CHART)       (PIE CHART)
As approved by the Compensation and Benefits Committee and, for the CEO, by the Board, the following table illustrates the total targeted compensation packages for the projected named executive officers for 2011.2012.
                   
            Targeted  Targeted Total 
Name Position Base Salary  Targeted AIP  LTIP  Compensation 
Keith E. Alessi CEO and President $600,000   100%  150% $2,100,000 
Douglas P. Kathol Executive Vice President $280,500   40%  80% $617,100 
Kevin A. Paprzycki Chief Financial Officer and Treasurer $245,000   35%  70% $502,300 
Vacant
 Senior Vice President TBD   35%  70% $TBD 
Morris W. Kegley General Counsel $224,300   30%  60% $426,200 

Name Position Base Salary  Targeted AIP  
Targeted
LTIP
  
Targeted
Total
Compensation
 
Keith E. Alessi CEO $700,000   100%  150% $2,450,000 
Robert P. King President and COO $425,000   100%  100% $1,275,00 
Douglas P. Kathol Executive Vice President $287,513   40%  80% $632,528 
Kevin A. Paprzycki CFO and Treasurer $260,000   35%  70% $533,000 
Joseph E. Micheletti SVP – Coal Operations $231,750   35%  70% $475,088 

Summary of Named Executive Officer Compensation for 2011

Keith E. Alessi:  President and Chief Executive Officer
             
Total Cash Received         # of RSUs / Grant Date Fair 
for 2010 2010 Base Salary  Bonus for 2010  Value of 2010 RSUs 
$974,544 $600,000/$400,0001  $882,2402 59,775 RSUs/ $484,775

1Mr. Alessi’s base salary was set at $600,000 through June of 2010. In June of 2010, Mr. Alessi’s base salary was adjusted to $400,000 to reflect the transition of oversight of various operational divisions to Mr. Kathol as Executive Vice President.
2The Board issued $400,000 worth of Mr. Alessi’s AIP payout in the form of unrestricted fully-vested common stock, issued on March 15, 2011.

19

Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$1,256,920 $600,000 $668,460 60,161 RSUs/ $900,009


Base Salary

For 2011,2012, the CommitteeBoard increased Mr. Alessi’s base salary back to $600,000,$700,000, which puts this component of compensation betweennear 75% of the peer group.  The Board reviewed Mr. Alessi’s compensation history and comparative data from the Company’s peer group, median and 75%.noting that his base salary had not increased since he joined the Company in 2007. The CommitteeBoard feels that this new base salary is appropriate given Mr. Alessi’s skill setexperience and experience, as well as our improving performance.past performance meeting strategic goals.

Annual Incentive Compensation

Financial Component: The financial component was based on budgeted operating income and free cash flow at the consolidated corporate level. As we exceeded threshold budgeted operating income, this componentThe weighted actual performance for these corporate financial goals was paid out at 135%.100%, resulting in 100% financial payout.

Individual Component: The Compensation and Benefits Committee recommended and the Board approved a 235%134% individual performance payout for Mr. Alessi for his performance in 2010.2011.  The non-employee directors of the Board reviewed and provided feedback on Mr. Alessi’s financial performance, strategic effectiveness, business management, talent management and personal effectiveness.  Mr. Alessi was provided above average ratings in all categories by the directors. Coupled with such ratings, the Committee tookThe Board made particular note of Mr. Alessi’shis major accomplishments in 2011, including exemplary leadership in making significant progress with our financial performance including a $52.3of the $150.0 million increase in operating income and a $43.4 million improvement in pretax income from 2009. The Board also recognized his leadership in 2010 and initiativenote issuance, successful reserve acquisition, relocation of the corporate office, successful Kemmerer bid and management of the successful refinancing of the company’s debt via a high yield note offering.extended hydro electric power season, subsequent floods and customer plant outage.

Safety Component:  Not applicable.

Long-Term Incentive Compensation

For fiscal year 2010,2011, Mr. Alessi was awarded long-term equity at a targeted 125%150% of base salary, which is at a substantially higher tier than the other named executive officers.  The Board felt such grant was warranted due to Mr. Alessi’s direct responsibility for overseeing the entire organization, as well as direct responsibility for our company’s profits and losses.  The Board and Mr. Alessi felt strongly that his compensation should be directly tied to that of the stockholders and our overall financial results.

Douglas Kathol: Executive Vice President
             
Total Cash Received         # of RSUs / Grant Date Fair 
for 2010 2010 Base Salary  Bonus for 2010  Value of 2010 RSUs 
$383,197 $212,672/$275,0001  $134,805  14,796 RSUs/ $119,995
1Mr. Kathol’s base salary was set at $212,672 through June of 2010. In June of 2010, Mr. Kathol’s base salary was increased to $275,000 to reflect his promotion to  Executive Vice President.President

Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$433,519 $280,500 $159,577 15,000 RSUs/ $224,400
Base Salary
In June 2010,
For 2012, the Compensation and Benefits Committee approved Mr. Kathol’s base pay increase to $275,000 reflective of his promotion to Executive Vice President. Taking into account his mid-year promotion and accompanying salary adjustment, in February 2011 the Committee awarded Mr.��Kathol an additional 2.0% merit increase, bringing his base salary to $280,500 effective as of March 31, 2011.increased Mr. Kathol’s base salary is slightly over median forto $287,513 effective April 1, 2012, which puts this component of compensation near the 25% of the peer group, which reflects his extensive mining and operational experience.group.

Annual Incentive Compensation

Financial Component: The financial component was based on budgeted operating income and free cash flow at the consolidated corporate level. As we exceeded threshold budgeted operating income, this componentThe weighted actual performance for these corporate financial goals was paid out at 135%.100%, resulting in 100% financial payout.

Individual Component:  Management proposed and the Committee approved a 100%214% individual performance payout for Mr. Kathol due to efforts in reducing bonding collateral needs at Westmoreland Mining, LLC.meeting our strategic goal of growth through acquisition.  Mr. Kathol played a key role in our successful bid for the Kemmerer Mine. In addition, Mr. Kathol increased Director and Officer Insurance and Property and Casualty coverage at a lower premium, enhanced customer interactions, which included meetings with a significant numberhelped grow the business through the acquisition of existing customers and worked on the renegotiation of the Rocky Mountain Power contractadditional reserves and the beginningexecution of negotiations for the 2016 renewal of the Coyote contract.new coal sales contracts.

Safety Component:  Not applicable.

20


Long-Term Incentive Compensation

For fiscal year 2010,2011, the Compensation and Benefits Committee awarded Mr. Kathol 14,79615,000 restricted stock units representing 45%80% of his base salary, which is the second largest equity grant on the executive team.  The Compensation and Benefits Committee felt this award appropriate given Mr. Kathol’s role in the organization and direct operational responsibilities and to more closely alignincentivize Mr. Kathol’s performanceKathol to creatingmake decisions that will create and sustain stockholder value.

Relocation

Mr. Kathol was offered a relocation package when the corporate office relocated from Colorado Springs to South Denver due to the distance from his house to the new office location.  The Company paid $59,943 in 2011 primarily towards final moving expenses, transportation of household goods, temporary living expenses, and a miscellaneous allowance of one-month’s salary.

Kevin A. Paprzycki:  Chief Financial Officer and Treasurer
             
Total Cash Received         # of RSUs / Grant Date Fair 
for 2010 2010 Base Salary  Bonus for 2010  Value of 2010 RSUs 
$315,892 $212,175/$217,1751  $101,944  8,916 RSUs/ $72,309

1Mr. Paprzycki’s base salary was set at $212,175 through June of 2010. In June of 2010, Mr. Paprzycki’s base salary was increased $5,000 to reflect the addition of the Treasury role.
Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$370,922 $245,000 $133,202 11,465 RSUs/ $171,516

Base Salary

The Compensation and Benefits Committee approved Mr. Paprzycki’s new base salary for 2011 commensurate with his added responsibilities and2012 in line with the peer group data, bringing his base salary to $245,000$260,000 effective as of February 4, 2011. Mr. Paprzycki’s adjustedApril 1, 2012.  This increase in base salary reflects his commendable performance in 2010, growth in the CFO/ Treasury role and marketbrings this component of compensation to near 25% of peer group data.

Annual Incentive Compensation

Financial Component: The financial component was based on budgeted operating income and free cash flow at the consolidated corporate level. As we exceeded threshold budgeted operating income, this componentThe weighted actual performance for these corporate financial goals was paid out at 135%.100%, resulting in 100% financial payout.

Individual Component: Management proposed and the Compensation and Benefits Committee approved a 100%250% individual performance payout for Mr. Paprzycki as he met his goals for 2010. In 2010, through both the retention of new talent and the utilization of existing resources,Paprzycki. Mr. Paprzycki ledmade significant strides in enhancing the Finance TeamTreasury function and implemented new financial reporting systems to achieve a number of key objectives. During such time frame,greatly simplify and expedite forecast measures. The Compensation and Benefits Committee also recognized Mr. Paprzycki developed a free cash flow projectionin providing critical modeling and measurement system, which brought value add performance information to the management team and the Board of Directors. In addition, the Finance Team incorporated better reporting and analysis of our heritage cash spending, ensuring the Company generated its targeted savings for one of the Company’s largest liabilities. Through Mr. Paprzycki’s leadership, the Finance Team also executed several successful tax minimization opportunities and implemented a new software systemfinancial data for the Company’s income tax accounting.successful Kemmerer Mine bid.

Safety Component:  Not applicable.

Long-Term Incentive Compensation

For fiscal year 2010,2011, the Compensation and Benefits Committee awarded Mr. Paprzycki 8,91611,465 restricted stock units, which reflected the target percentage award from his set tier plus an additional 2,000 shares as compensation for his additional responsibilities as Treasurer.tier.
John V. O’Laughlin:
Joseph E. Micheletti: Senior Vice President —– Coal Operations
             
Total Cash Received         # of RSUs / Grant Date Fair 
for 2010 2010 Base Salary  Bonus for 2010  Value of 2010 RSUs 
$290,704 $225,508  $66,465  9,852 RSUs/ $79,900
Change
Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$320,282 $145,583/$225,000(1) $128,546 4,020 RSUs/ $60,139
__________
(1)Mr. Micheletti’s base salary was set at $145,583 through May of 2011 while in his role as President and General Manager of the Jewett Mine. In May of 2011, Mr. Micheletti’s base salary was increased to $225,000 to reflect his promotion to Senior Vice President – Coal Operations.

Base Salary

For 2012, the Compensation and Benefits Committee increased Mr. Micheletti’s base salary to $231,750 effective April 1, 2012, which puts this component of compensation below the 25% of the peer group, but commensurate with his limited time in Rolethis new role.
On February 21, 2011, John O’Laughlin, our former Vice President — Coal Operations, accepted a new position with us as Vice President — Strategic Sourcing and Asset Management. This new role is not a named executive officer position.
Annual Incentive Compensation

Financial Component:  TheMr. Micheletti’s financial component was based partially on budgeted operating income athis time as President and General Manager of the consolidatedJewett Mine and partially on his time as Senior Vice President – Coal Operations.  The portion of his financial component tied to his role as President and General Manager was based on the Jewett mine level. As we exceeded threshold budgeted operating income, this componentmaximizing contract incentives and was paid out at 63%100%. The portion of his financial component tied to his role as Senior Vice President – Coal Operations was based on the weighting of the five mine’s performance relative to maximizing contract incentives and/or operating income and was paid out at 124%.

21


Individual Component:  Management proposed and the Compensation and Benefits Committee approved a 362% individual performance payout for Mr. Micheletti. The Committee did not approverecognized Mr. Micheletti’s key role in the assisting the team in putting together a payoutsuccessful bid for individual performance forthe Kemmerer Mine. Additionally, Mr. O’Laughlin for 2010 due toMicheletti successfully assisted mine-level management in maximizing contract incentives and in replacing bonding collateral at the underperformanceJewett Mine.

Safety Component:  Mr. Micheletti’s safety component was based partially on his time as President and General Manager of the mine over which he had direct operational responsibility for the majority of the year.
Safety Component: Mr. O’Laughlin was paid 114%Jewett Mine and partially on his time as Senior Vice President – Coal Operations.  The portion of his safety component duetied to abovehis role as President and General Manager was based on the Jewett mine’s reportable incident rate relative to the national average industry safety recordsfor surface mines and paid out at all of our significant mines.94%.  With direct operational responsibility for all of our mines as Senior Vice President – Coal Operations, Mr. O’Laughlin’sMicheletti’s safety component payout isin such role was based upon an average of reportable incident rates at all mine locations. In 2010,2011, the average national reportable incident rate was 1.83,1.95, which is a calculation based on total hours worked and reportable incidents.  In 2010,2011, the average reportable incident rate for the mines Mr. O’LaughlinMicheletti oversaw was 1.31,1.03, which is significantly less than the national average. In addition, this average reportable incident rate is an improvement over results in 2009.This phenomenal safety record correlated into a 189% safety component payout.

Long-Term Incentive Compensation

For fiscal year 2010,2011, Mr. O’LaughlinMicheletti was awarded 9,8524,020 restricted stock units, which is a higher tier award than other vice presidents.  The Compensation and Benefits Committee felt such higher tier level was warranted due to Mr. O’Laughlin’sMicheletti’s direct responsibility for overseeing more employees than any other named executive officer, direct responsibility for a large portion of our company’s profits and losses, and his direct operational responsibility for all mining operations.

Relocation

Mr. Micheletti was offered a relocation package as part of his promotion to Senior Vice President – Coal Operations to cover his move from Texas to Montana.  The Company paid $27,122 in 2011 primarily towards a home finding trip (up to a maximum of six days), temporary living expenses, and a miscellaneous allowance of one-month’s salary.  Mr. Micheletti will incur additional expenses in 2012 to include his final moving expenses, transportation of household goods, and home purchase closing costs.

Morris W. Kegley:  General Counsel – Mining and Operations
             
Total Cash Received         # of RSUs / Grant Date Fair 
for 2010 2010 Base Salary  Bonus for 2010  Value of 2010 RSUs 
$290,5511
 $215,671  $93,799  6,570 RSUs/ $53,283
1Mr. Kegley’s total cash received reflects a leave of absence that he took during the year for an extended period of time.
Base Salary
The Committee approved
Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$299,585 $224,298 $81,425 8,998 RSUs/ $134,610

Change in Role

On February 29, 2012, the recommendation to provideBoard determined that the roles and responsibilities of Mr. Kegley a 4.0% merit increase to his base salary no longer require that he be considered an executive officer of the Company for 2011, bringing his base salary to $224,298 effective asreporting purposes under the rules and regulations of March 31, 2011. Mr. Kegley’s 4.0% merit increase was based on an outstanding performance ratingthe Securities and a compra-ratio of 94% of peer and survey data. The Committee feels Mr. Kegley’s base salary is appropriate given his experience relating to corporate governance and SEC-related disclosure and compliance requirements.Exchange Commission.

Annual Incentive Compensation

Financial Component: The financial component for Mr. Kegley was based 30% on budgeted operating income and free cash flow at the consolidated corporate level. As we exceeded threshold budgetedlevel and 40% on the four major mines maximizing contract incentives and/or operating income, this componentincome. The weighted actual performance for the corporate financial goals was 100%, resulting in 100% financial payout for that portion, while the mine-level goal paid out at 135%123%.

Individual Component: Management proposed and the Compensation and Benefits Committee approved a 100%151% individual performance payout for Mr. Kegley due to his continued exemplary negotiation work with the UMWA.Kegley.  Mr. Kegley actively participatedprovided invaluable assistance in UMWA negotiations to reduce medical expensesthe review of land and liabilities associated withcoal supply agreements in anticipation of the deferred vested population.Kemmerer Mine bid. Additionally, Mr. Kegley also provided superior legal supportplayed an integral role in the full settlementacquisition of reclamation disputes with the Colstrip 3&4 buyers, resulting in a contract amendment that will result in favorable economics in the out years.new reserves at our Absaloka Mine.

Safety Component:  Not applicable.

Long-Term Incentive Compensation

For fiscal year 2010,2011, the Committee awarded Mr. Kegley 6,5708,998 restricted stock units based on his placement in the 22%60% long-term incentive tier, as discussed above.

22


John V. O’Laughlin: Former Senior Vice President – Coal Operations

Total Cash Received
for 2011
 2011 Base Salary Bonus for 2011 
# of RSUs / Grant Date Fair
Value of 2011 RSUs
$285,695 $225,508 $64,524 9,046 RSUs/ $135,328

Change in Role

On February 21, 2011, Mr. O’Laughlin accepted a new position with us as Vice President – Strategic Sourcing and Asset Management.  The Board determined that the roles and responsibilities of Mr. O’Laughlin in this new position no longer require that he be considered an executive officer of the Company for reporting purposes under the rules and regulations of the Securities and Exchange Commission.

Annual Incentive Compensation

Financial Component: The financial component for Mr. O’Laughlin was based 30% on budgeted operating income and free cash flow at the consolidated corporate level and 40% on the four major mines maximizing contract incentives and/or operating income. The weighted actual performance for the corporate financial goals was 100%, resulting in 100% financial payout for that portion, while the mine-level goal paid out at 123%.

Individual Component: Management proposed and the Compensation and Benefits Committee approved a 85% individual performance payout for Mr. O’Laughlin.

Long-Term Incentive Compensation

For fiscal year 2011, the Committee awarded Mr. O’Laughlin 9,046 restricted stock units based on his placement in the 60% long-term incentive tier, as discussed above.

EXECUTIVE COMPENSATION FOR 20102011

Summary Compensation Table

The following table summarizestables set forth information regarding the fiscal 2011 compensation paid to each individual who served asfor our principal executive officer or principal financial officer in 2010 andChief Executive Officer, Chief Financial Officer, our other three next most highly compensated executive officers who were serving as executive officers at December 31, 2010. We referthe end of fiscal 2011, and one additional individual for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of fiscal 2011 (collectively, our “named executive officers”). Columns required by SEC rules are omitted where there is no amount to thesereport. The table also sets forth information regarding the fiscal 2009 and/or fiscal 2010 compensation for those individuals as ourwho were also named executive officers.officers in fiscal 2009 and/or fiscal 2010.
                                     
                          Change in       
                      Non-Equity  Pension       
              Stock  Option  Incentive Plan  Value  All Other    
Name and Principal     Salary  Bonus  Awards  Awards  Compensation  Earnings  Compensation  Total 
Position Year  ($)  ($)  ($)(1)(2)  ($)(1)  ($)(3)  ($)  ($)(4)  ($) 
Keith E. Alessi  2010   492,305   —   884,775   —   482,239   4,004   16,572   1,879,895 
CEO and President  2009   588,461   350,000   245,100   —   370,731   20,044   16,643   1,590,979 
   2008   403,846   —   —   710,400   242,308   3,775   12,222   1,372,551 
Kevin A. Paprzycki  2010   213,948   —   72,309   —   101,994   5,907   16,202   410,360 
CFO and Treasurer  2009   213,077   —   45,752   —   38,354   3,599   12,467   313,249 
   2008   189,450   —   —   82,880   34,101   8,741   7,088   322,260 
Douglas P. Kathol  2010   248,392   —   119,996   —   134,806   16,409   16,444   536,047 
Executive Vice President                                    
John V. O’Laughlin  2010   224,239   —   79,900   —   66,465   28,987   16,274   415,865 
VP — Coal Operations  2009   225,222   —   68,628   —   80,535   (5,611)  12,552   381,326 
   2008   211,374   —   —   177,600   45,657   52,408   6,971   494,010 
Morris W. Kegley  2010   196,752   —   53,283   —   93,779   13,398   16,199   373,411 
General Counsel  2009   213,463   —   45,752   —   76,847   38,224   12,472   386,758 
   2008   200,156   —   —   82,880   36,028   30,301   7,411   356,776 

Name and Principal
Position
 Year 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)(1)
 
Non-Equity
Incentive
Plan
Compensation
($)(2)
 
Change in
Pension
Value
Earnings
($)
 
All Other
Compenation
($)(3)(5)
 
Total
($)
Keith E. Alessi(6)
CEO and President
 2011 588,460 — 900,009 668,460 8,027 16,572 2,181,528
 2010 492,305 — 884,775 482,239 4,004 16,572 1,879,895
 2009 588,461 350,000 245,100 370,731 20,044 16,643 1,590,979
Kevin A. Paprzycki
CFO and Treasurer
 2011 237,720 — 171,516 133,202 14,478 16,369 573,285
 2010 213,948 — 72,309 101,994 5,907 16,202 410,360
 2009 213,077 — 45,752 38,354 3,599 12,467 313,249
Douglas P. Kathol
Executive Vice President
 2011 273,942 — 224,400 159,577 31,893 76,515 766,327
 2010 248,392 — 119,996 134,806 16,409 16,444 536,047
Joseph E. Micheletti
SVP – Coal Operations
 2011 191,736 — 60,139 128,546 57,061 53,194 483,826
Morris W. Kegley
General Counsel
 2011 218,160 — 134,610 81,425 23,535 16,231 473,961
 2010 196,752 — 53,283 93,779 13,398 16,199 373,411
 2009 213,463 — 45,752 76,847 38,224 12,472 386,758
Former Named Executive Officers                
John V. O’Laughlin(4)
VP – Coal Operations
 2011 221,171 — 135,238 64,524 54,827 16,283 492,043
 2010 224,239 — 79,900 66,465 28,987 16,274 415,865
 2009 225,222 — 68,628 80,535 (5,611) 12,552 381,326
__________
(1)Amounts in these columns represent the aggregate grant date fair value of the equity awarded calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 —– Share-Based Payment. Amounts for 2008 have been recalculated to comply with the new requirements.  These columns were prepared assuming none of the awards will be forfeited.  Additional information is set forth in the “Grants of Plan-Based Awards” table below. Details regarding the 2011, 2010 2009 and 20082009 stock awards that are outstanding as of December 31, 20102011 may be found in the “2010��2011 Outstanding Equity Awards At Fiscal Year-End” table below. A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 20102011 may be found in the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2010.
2011.
(2)The Board elected to issue $400,000 worth of Mr. Alessi’s AIP payout for exemplary performance in 2010 in the form of unrestricted fully-vested common stock, issued on March 15, 2011 at a grant date fair value of $13.90.
(3)Represents the cash bonus awarded under our Annual Incentive Plan, a discretionary performance-based award made in the first quarter of each fiscal year for performance in the prior fiscal year.
(4)(3)“All Other Compensation” for 20102011 includes reimbursements and payments for our contributions to the Westmoreland’s 401(k) Planplan and life insurance premiums. We contributed $14,700 $14,700, $14,700, $14,700, and $14,700 in matching contributions to the 401(k) Planplan on behalf of Messrs. Alessi, Paprzycki, Kathol, O’Laughlin and Kegley, respectively.each named executive officer.  Our 401(k) match program provided for a match of total cash compensation earned in 20102011 up to a maximum allowable cash compensation of $245,000 equaling 6% of total cash compensation. We paid life insurance premiums of $1,872, $1,502, $1,744, $1,574,$1,669, $1,872, $1,346, $1,531 and $1,499$1,583 during 20102011 for Messrs. Alessi, Paprzycki, Kathol, O’Laughlin,Micheletti, Kegley, and Kegley,O’Laughlin respectively.
(4)Mr. O’Laughlin served as our SVP – Coal Operations through the end of February 2011.
(5)“All Other Compensation” for 2011 also includes $59,943 and $27,122 for Messrs. Kathol and Micheletti, respectively, for relocation of their home.  Mr. Kathol was eligible for relocation under our Relocation Policy upon the move of the office from Colorado Springs to Englewood, Colorado.  Upon Mr. Micheletti accepting the position of Senior Vice President – Coal Operations, he was eligible for relocation under the Relocation Policy for his move from Texas to Montana.
(6)Mr. Alessi does not receive any additional compensation for his services as a director.
Components of Total Compensation

We believe in compensating our executive officers with a mix of both base salary and at risk compensation made up of cash and equity.  For a thorough discussion of our compensation components and the percentage of at risk compensation, see “Components of the Executive Compensation Program for 2011” in the Compensation Discussion and Analysis section above.
Non-Equity Incentive Plan Compensation

Non-equity incentive plan compensation amounts are annual cash incentives under our Annual Incentive Plan (“AIP”). The AIP is funded based on various components, which are unique to each named executive officer, and may include our annual budgeted operating income performance, annual budgeted free cash flow, maximizing contract incentives at specific mines, MSHA average for reportable incident rate for surface mines in the coal industry, and individual performance goals, all of which are discussed above in “Compensation Discussion and Analysis.”

Equity Awards

Values for stock grants in the summary compensation table and numbers included in the grants of plan-based awards table relate to restricted stock and restricted stock units granted to the named executive officers under our stockholder-approved 2007 plan. The plan is administered by the Compensation and Benefits Committee, which has retained the exclusive authority to make awards under the plan. The committee approves all long-term incentive grants to executive officers other than the CEO, whose grants are approved by the Board. The committee also approves the overall grant pool for all other participants. The primary purpose of the long-term incentive plan is to link compensation with the long-term interests of stockholders. RestrictedTime-based restricted stock units, representing 50% of the total award, granted to the named executives officers on JulyApril 1, 20102011 vest over three years beginning 12 months from the grant date, with 33% of the shares becoming vested and available for release at that time, and an additional 33% vesting and becoming available for release on each successive anniversary of the grant date. Full vesting occurs on the third anniversary of the grant date. Performance-based restricted stock units, representing 50% of the total award, were also granted on April 1, 2011 and will cliff vest on April 1, 2014 upon achievement of a three-year cumulative free cash flow amount that was set by the Compensation and Benefits Committee in early 2011. Awards not yet released are forfeited upon separation.

23


20102011 Grants of Plan-Based Awards
              
   Approval Date by All Other Stock Awards: Grant Date Fair Value of      
Estimated Future Payouts Under
Equity Incentive Plan Awards(1)
       
Name Grant Date Committee/ Board Number of Units (#) Stock Awards($)(1)  Grant Date 
Approval Date
by Committee/
Board
 
Threshold
(#)
  
Target
(#)
  
Maximum
(#)
  
All Other
Stock
Awards(#)(1)
  
Grant Date
Fair Value
of Stock
Awards($)(1)
 
Keith E. Alessi 7/01/2010  6/21/2010   59,775(1)  484,775  4/01/2011 3/09/2011  15,040   30,080   45,120   30,081   900,009 
Kevin A. Paprzycki 7/01/2010  6/17/2010   8,916(1)  72,309  4/01/2011 2/08/2011  2,866   5,732   8,598   5,733   171,516 
Douglas P. Kathol 7/01/2010  6/17/2010   14,769(1)  119,996  4/01/2011 2/08/2011  3,750   7,500   11,250   7,500   224,400 
Joseph Micheletti
 4/01/2011 2/08/2011  1,005   2,010   3,015   2,010   60,139 
Morris W. Kegley
 4/01/2011 2/08/2011  2,249   4,498   6,747   4,500   134,610 
John V. O’Laughlin 7/01/2010  6/17/2010   9,852(1)  79,900  4/01/2011 2/08/2011  2,261   4,522   6,783   4,524   135,238 
Morris W. Kegley 7/01/2010  6/17/2010   6,570(1)  53,283 
Keith E. Alessi 3/15/2011  3/09/2011   19,836(2)  400,000 
__________
(1)The 20102011 LTIP award granted by the Compensation and Benefits Committee on June 17, 2010February 8, 2011 to all named executive officers, except Mr. Alessi, whose grant was approved by the Board on June 21, 2010,March 9, 2011, and consisted of time-based restricted stock units with a three-year vest and performance-based restricted stock units with a three-year cliff vest issued out of the 2007 plan with a grant date of JulyApril 1, 2010. The grant date fair value on July 1, 2010 was $8.11 per share.
(2)The Board granted to Mr. Alessi, as part of the 2010 AIP award, fully-vested unrestricted stock out of the 2007 plan with a grant date of March 15, 2011.  The grant date fair value on March 15,April 1, 2011 was $13.90$14.96 per share.
2010
2011 Outstanding Equity Awards at Fiscal Year-End
                        
 Option Awards Stock Awards 
 Securities Securities   
 Underlying Underlying Option   
 Unexercised Unexercised Exercise Option Market value of units 
 Options (#) Options (#) Price Expiration Units that have that have not  Option Awards Stock Awards 
Name Exercisable Unexercisable ($) Date not vested (#)(2) vested as of 12/31/10($)(3)  
Securities
Underlying
Unexercised
Options(#)
Exercisable
  
Option
Exercise
Price
($)
 
Option
Expiration
Date
 
Units that
have
not
vested
(#)(1)
  
Market
value of units
that have not
vested as of
12/30/11($)(2)
  
Unearned
units that
have
not vested
(#)(3)
  
Market value
of unearned
units
that have not
vested as of
12/30/11($)(2)
 
Keith E. Alessi 30,556 0 24.12 5/02/17   30,556   24.12 5/02/17            
  60,000   21.40 7/01/18            
           10,000   127,500       
 40,000  20,000(1) 21.40 7/01/18            39,850   508,088       
 20,000 238,800            30,081   383,533       
 59,775 713,713                    30,080   383,520 
Kevin A. Paprzycki 2,500 0 29.48 6/05/16   2,500   29.48 6/05/16                
 1,900 0 24.41 7/01/16   1,900   24.41 7/01/16                
 4,666  2,334(1) 21.40 7/01/18   7,000   21.40 7/01/18                
 3,734 44,584            1,867   23,804         
 8,916 106,457            5,944   75,786         
           5,733   73,096         
                   5,732   73,083 
Douglas P. Kathol 7,500 0 16.17 8/18/13   7,500   16.17 8/18/13                
 6,700 0 19.37 7/01/14   6,700   19.37 7/01/14                
  6,700   20.98 7/01/15                
  4,300   24.41 7/01/16                
  7,000   21.40 7/01/18                
           1,867   23,804         
           9,864   125,766         
           7,500   95,625         
                   7,500   95,625 
Joseph E. Micheletti
  5,000   21.40 7/01/18                
           1,067   13,604         
           2,504   31,926         
           2,010   25,628         
                   2,010   25,628 
Morris W. Kegley
  1,900   24.41 7/01/16                
 6,700 0 20.98 7/01/15   7,000   21.40 7/01/18                
 4,300 0 24.41 7/01/16            1,867   23,804         
 4,666  2,334(1) 21.40 7/01/18            4,380   55,845         
 3,734 44,584            4,500   57,375         
 14,796 176,664                    4,498   57,350 
John V. O’Laughlin 491 0 18.09 5/29/11   4,700   12.86 6/24/12                
 1,809 0 18.19 5/29/11   3,650   18.08 6/30/13                
 4,700 0 12.86 6/24/12   3,650   17.80 12/31/13                
 3,650 0 18.08 6/30/13   9,800   19.37 7/01/14                
 3,650 0 17.80 12/31/13   14,600   20.98 7/01/15                
 9,800 0 19.37 7/01/14   9,900   24.41 7/01/16                
 14,600 0 20.98 7/01/15   15,000   21.40 7/01/18                
 9,900 0 24.41 7/01/16            2,800   35,700         
 10,000  5,000(1) 21.40 7/01/18            6,568   83,742         
 5,600 66,864            4,524   57,681         
 9,852 117,633                    4,522   57,656 
Morris W. Kegley 1,900 0 24.41 7/01/16 
 4,666  2,334(1) 21.40 7/01/18 
 3,734 44,584 
 6,570 78,446 
__________
(1)These options were awarded by the Compensation and Benefits Committee in June 2008 as part of the annual LTIP award. The options vest in three annual increments beginning July 1, 2009, with the remaining two increments vesting in July 2010 and July 2011.
(2)Awards in this column consist of restricted stock units with a grant dates of July 1, for both 2009 and 2010.2010 and April 1, 2011. Awards of restricted stock units vest in thirds over a three-year period beginning on the first anniversary of the date of grant. To the extent vested, these units are reflected in the “Stock Vested in 2010”2011” table below.
(3)(2)The market value of the awards of restricted stock units that have not yet vested was determined by multiplying the closing price of a share of common stock on December 31, 201030, 2011 ($11.94)12.75) by the number of shares.
(3)Awards in this column consist of performance-based restricted stock units with a grant date of April 1, 2011. These awards pay out at Threshold, Target and Maximum depending on the achievement of a free cash flow metric designated by the Compensation and Benefits Committee in 2011. Upon achievement of the performance goal on April 1, 2014, these awards cliff vest.  If performance is not achieved, all awards will forfeit.

24


Stock Vested in 20102011
        
Name Shares Acquired on Vesting(#) Stock Value Realized on Vesting($)(1)  
Shares Acquired
on Vesting(#)
  
Stock Value Realized
on Vesting($)(1)
 
Keith E. Alessi 10,000 81,100   10,000   179,800 
  19,925   358,251 
Kevin A. Paprzycki 1,866 15,133   1,867   33,567 
  2,972   53,437 
Douglas P. Kathol 1,866 15,133   1,867   33,567 
  4,932   88,677 
Joseph E. Micheletti   1,067   19,185 
  1,252   22,511 
Morris W. Kegley   1,867   33,567 
  2,190   39,376 
John V. O’Laughlin 2,800 22,708   2,800   50,344 
Morris W. Kegley 1,866 15,133 
  3,284   59,046 
__________
(1)The market value of the awards was determined by multiplying the closing price of a share of common stock on July 1, 2011 ($8.11)17.98) by the number of shares.
2010
2011 Pension Benefits
              
 Present Value of   
 Accumulated Benefit   
 Number of Years as of Payments During Last 
 Credited Service December 31, 2010 Fiscal Year 
Name Plan Name (#) ($)(1) ($)  Plan Name 
Number of Years
Credited Service
(#)
  
Present Value of Accumulated Benefit as of
December 31, 2011
($)(1)
  
Payments During Last
Fiscal Year
($)
 
Keith E. Alessi Westmoreland Retirement Plan (WCC)  3.08   27,823   —  Westmoreland Retirement Plan (WCC)  2.08   35,850   — 
Kevin A. Paprzycki Westmoreland Retirement Plan (WCC)  4.0   27,148   —  Westmoreland Retirement Plan (WCC)  3.0   41,627   — 
Douglas P. Kathol Westmoreland Retirement Plan (WCC)  5.81   122,124   —  Westmoreland Retirement Plan (WCC)  5.81   154,017   — 
Joseph E. Micheletti
 Westmoreland Retirement Plan (WECO)  10.0   183,891   — 
Morris W. Kegley
 Westmoreland Retirement Plan (WCC)  3.67   148,150   — 
John V. O’Laughlin Westmoreland Retirement Plan (BSS)  10.0   229,237   —  Westmoreland Retirement Plan (BSS)  9.0   248,063   — 
Morris W. Kegley Westmoreland Retirement Plan (WCC)  4.67   124,615   — 
__________
(1)Pension economic assumptions are consistent with our SFAS 87 financial reporting for fiscal year 2010.2011. Demographic assumptions are also consistent with our pension financial reporting, with the exception that per SEC guidance, pre-retirement decrements are not used. A discount rate of 5.4%4.25% was used for 2010.2011.

Effective July 1, 2009, the Board froze all structures of our pension plan for non-union employees, including our named executive officers, resulting in no future benefits accruing under these plans.  Prior to July 2009, each of the named executive officers participated in one of the same defined benefit pension plan structures offered to other non-union employees. Eligible employees become fully vested after five years of vested service. The Westmoreland Coal CompanyCompany’s pension plan structure provides for normal retirement at 65. Early retirement benefits are available at age 55 with 10 years of service, however at reduced benefits.  Mr. O’Laughlin is the only named executive eligible to retire as of December 31, 2010.2011.  The executive may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are 50%, 66 2/3% and 100% joint and survivor options, a 10-year certain and life option, and a single life annuity.
In addition, to the main Westmoreland pension plan structure, Mr. O’Laughlin is covered under plan provisions for two subsidiaries where he has worked. Aspects of each subsidiary’s plan provisions may be more or less attractive than the plan provisions applicable to us. Based on Mr. O’Laughlin’s service and salary, the Beulah and Savage Salaried Employee’s (“BSS”) benefits are the most valuable as of December 31, 2010. Under the BSS plan, normal retirement age is 65. Early retirement benefits are available at age 55 with 5 years of service, but reduced 3% per year for early commencement before age 62. Mr. O’Laughlin may choose optional forms of benefit, all reduced to be actuarially equivalent to the single life annuity benefit. The optional forms available are lump sum, 50%, 66 2/3%, and 100% joint and survivor options, a 10-year certain and life option, and a single life annuity.
20102011 Pension Benefits Upon Retirement, Termination, Disability or Death

Messrs. Paprzycki, Kathol, Micheletti, Kegley and KegleyO’Laughlin are vested in the pension plan and entitled to an annual lifetime benefit payable upon voluntary or involuntary termination or death (paid for the life of the spouse).  Mr. O’Laughlin is vested in the pension plan and entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse).  Mr. Alessi is not vested in the pension plan. Benefits shown assume that the event entitling the individual to benefits occurred on December 31, 2010.2011.

Mr. Paprzycki is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr. Paprzycki are first payable on September 1, 2035. Mr. Paprzycki currently is not eligible for early retirement benefits.
             
            Time or Period of
Name Type of Termination Plan Benefit Amount  Form of Payment Payment
Kevin A. Paprzycki Termination Pension Plan $732  Monthly Annuity Life
  Death Pension Plan $559  Monthly Annuity Life of Spouse

25

Name Type of Termination 
Plan
 
Benefit
Amount
 Form of Payment 
Time or Period of
Payment
Kevin A. Paprzycki
 Termination Pension Plan $732 Monthly Annuity Life
  Death Pension Plan $559 Monthly Annuity Life of Spouse


Mr. Kathol is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr. Kathol are first payable on December 1, 2017. Mr. Kathol currently is not eligible for early retirement benefits.
            
 Time or Period of
Name Type of Termination Plan Benefit Amount Form of Payment Payment Type of Termination Plan 
Benefit
Amount
 Form of Payment 
Time or Period of
Payment
Douglas P. Kathol Termination Pension Plan $1,291 Monthly Annuity Life Termination Pension Plan $1,291 Monthly Annuity Life
 Death Pension Plan $985 Monthly Annuity Life of Spouse Death Pension Plan $985 Monthly Annuity Life of Spouse

Mr. Micheletti is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr. O’LaughlinMicheletti are first payable on JanuaryAugust 1, 2011.2015.
Name Type of Termination Plan 
Benefit
Amount
 Form of Payment 
Time or Period of
Payment
Joseph E. Micheletti
 Termination Pension Plan $840 Monthly Annuity Life
             Death Pension Plan $319 Monthly Annuity Life of Spouse
 Time or Period of
Name Type of Termination Plan Benefit Amount Form of Payment Payment
John V. O’Laughlin Retirement/Termination Pension Plan $2,072 Monthly Annuity Life
 Disability Pension Plan $2,072 Monthly Annuity Life
 Death Pension Plan $947 Monthly Annuity Life of Spouse

Mr. Kegley is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse). The benefits for Mr. Kegley are first payable on July 1, 2012. Mr. Kegley currently is not eligible for early retirement benefits.
             
            Time or Period of
Name Type of Termination Plan Benefit Amount  Form of Payment Payment
Morris W. Kegley Termination Pension Plan $993  Monthly Annuity Life
  Death Pension Plan $758  Monthly Annuity Life of Spouse

Name Type of Termination Plan 
Benefit
Amount
 Form of Payment 
Time or Period of
Payment
Morris W. Kegley
 Termination Pension Plan $993 Monthly Annuity Life
  Death Pension Plan $758 Monthly Annuity Life of Spouse

Mr. O’Laughlin is vested in the pension plan and is entitled to an annual lifetime benefit payable upon retirement, voluntary or involuntary termination, disability or death (paid for the life of the spouse).

Name Type of Termination Plan 
Benefit
Amount
 Form of Payment 
Time or Period of
Payment
John V. O’Laughlin
 Retirement/Termination Pension Plan $2,139 Monthly Annuity Life
  Disability Pension Plan $2,139 Monthly Annuity Life
  Death Pension Plan $974 Monthly Annuity Life of Spouse

Potential Payments upon Termination or Change-in-Control

Our named executive officers are not entitled to any additional payments or benefits relating to termination of employment other than the retirement benefits described in the preceding compensation tables and participation in a severance policy that is generally available to all our employees. Our severance policy covers virtually all our employees, although the amount of the severance benefit depends upon employee tier.tier and years of service with us. The highest tier, which includes our named executive officers, provides for severance compensation equal to 12 months of monthly base pay, 9 months of outplacement assistance and 12 months of health benefit continuation. Severance benefits are payable under the policy only in the following circumstances: involuntary termination that is not for cause; termination due to sale of a facility, division or business segment; or relocation of more than 50 miles that the employee declines. Our executives do not have employment contracts or any benefits triggered by a change-in-control, unless the change-in-control results in an involuntary termination of the executive without cause.  In addition, our Annual Incentive Policy provides that program participants are only entitled to payment of incentive payouts if they are employed on the date
of payment, which typically occurs in March of the following year.  All incentive payouts are forfeited should a named executive officer leave our employment for any reason, unless otherwise expressly agreed to by the Compensation and Benefits Committee.

The following table represents full walk-away amounts for each of our named executive officers upon the occurrence of certain events, assuming in each case that the event in question occurred as of December 31, 2010.2011.  The following tables do not include amounts payable upon termination for pension benefits, as those benefits are described above in the “2010“2011 Pension Benefits” tables.
                       
    Termination for Cause/  Involuntary  Termination upon       
Name Type of Compensation Voluntary Termination  Not for Cause  Change-in-Control  Retirement  Death 
Keith Alessi Salary $0  $400,000  $0  $0  $0 
  Vested Equity(1)(2) $0  $0  $952,513  $0  $952,513 
  Outplacement Services and health benefits $0  $22,812  $0  $0  $0 
  
TOTAL
 $0  $422,812  $952,513  $0  $952,513 

                       
    Termination for Cause/  Involuntary  Termination upon       
Name Type of Compensation Voluntary Termination  Not for Cause  Change-in-Control  Retirement  Death 
Kevin Paprzycki Salary $0  $217,175  $0  $0  $0 
  Vested Equity(1)(2) $0  $0  $151,041  $0  $151,041 
  Outplacement Services and health benefits $0  $21,873  $0  $0  $0 
  
TOTAL
 $0  $239,048  $151,041  $0  $151,041 

26

                      
 Termination for Cause/ Involuntary Termination upon     
Name Type of Compensation Voluntary Termination Not for Cause Change-in-Control Retirement Death  Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
Douglas Kathol Salary $0  $275,000  $0  $0  $0 
Keith Alessi 
Salary
 $0  $600,000  $0  $0  $0 
 Vested Equity(1)(2) $0  $0  $221,248  $0  $221,248  Vested Equity(1)(2) $0  $0  $1,019,120  $0  $1,115,438 
 Outplacement Services and health benefits $0  $13,911  $0  $0  $0  Outplacement services and health benefits $0  $23,622  $0  $0  $0 
 
TOTAL
 $0  $288,911  $221,248  $0  $221,248  TOTAL $0  $623,622  $1,019,120  $0  $1,115,438 
                       
    Termination for Cause/  Involuntary  Termination upon       
Name Type of Compensation Voluntary Termination  Not for Cause  Change-in-Control  Retirement  Death 
John O’Laughlin Salary $0  $225,508  $0  $0  $0 
  Vested Equity(1)(2) $0  $0  $184,497  $0  $184,497 
  Outplacement Services and health benefits $0  $17,163  $0  $0  $0 
  
TOTAL
 $0  $242,671  $184,497  $0  $184,497 

                      
 Termination for Cause/ Involuntary Termination upon     
Name Type of Compensation Voluntary Termination Not for Cause Change-in-Control Retirement Death  Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
Morris Kegley Salary $0  $215,671  $0  $0  $0 
Kevin Paprzycki 
Salary
 $0  $245,000  $0  $0  $0 
 Vested Equity(1)(2) $0  $0  $123,030  $0  $123,030  
Vested Equity(1)(2)
 $0  $0  $172,686  $0  $191,040 
 Outplacement Services and health benefits $0  $18,371  $0  $0  $0  Outplacement services and health benefits $0  $15,122  $0  $0  $0 
 
TOTAL
 $0  $234,042  $123,030  $0  $123,030  TOTAL $0  $260,122  $172,686  $0  $191,040 

Name Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
 Douglas Kathol 
Salary
 $0  $280,500  $0  $0  $0 
  
Vested Equity(1)(2)
 $0  $0  $245,195  $0  $269,211 
  Outplacement services and health benefits $0  $5,445  $0  $0  $0 
  TOTAL $0  $285,945  $245,195  $0  $269,211 

Name Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
Joseph Micheletti 
Salary
 $0  $225,000  $0  $0  $0 
  
Vested Equity(1)(2)
 $0  $0  $71,158  $0  $77,594 
  Outplacement services and health benefits $0  $14,433  $0  $0  $0 
  TOTAL $0  $239,433  $71,158  $0  $77,594 

Name Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
Morris Kegley 
Salary
 $0  $224,298  $0  $0  $0 
  
Vested Equity(1)(2)
 $0  $0  $137,024  $0  $151,427 
  Outplacement services and health benefits $0  $10,227  $0  $0  $0 
  TOTAL $0  $234,525  $137,024  $0  $151,427 

Name Type of Compensation 
Termination for Cause/
Voluntary Termination
  
Involuntary
Not for Cause
  
Termination upon
Change-in-Control
  Retirement  Death(3) 
John O'Laughlin 
Salary
 $0  $225,508  $0  $0  $0 
  
Vested Equity(1)(2)
 $0  $0  $177,123  $0  $191,603 
  Outplacement services and health benefits $0  $9,027  $0  $0  $0 
  TOTAL $0  $234,535  $177,123  $0  $191,603 
________
(1)Various unvested options and SARs held by our named executive officers automatically vest upon a change-in-control.  However, all outstanding options held by our named executive officers have an exercise price greater than $11.94,$12.75, the closing price of our stock on December 31, 2010.30, 2011. There is no intrinsic value in any accelerated options or vested stock options because options with an exercise price greater than $11.94$12.75 have zero intrinsic value.
  The value of vested equity was determined by multiplying the number of vested shares times $12.75, the closing stock price on December 30, 2011
(2)We recently awarded long-term equity to the named executive officers in the form of restricted stock units with grant dates of July 1, 2009, and July 1, 2010, and April 1, 2011, vesting in thirds on an annual basis.  Pursuant to the restricted stock unit agreements, the units automatically vest immediately prior to a change-in-control, death, disability or qualified retirement of the recipient.  No named executive officer met the qualifications for a “qualified retirement” as of December 31, 2010.2011.
(3)The performance-based restricted stock units vest pro rata upon death of disability.  For valuation purposes, we assume the triggering event (death) occurred on December 31, 2011 resulting in the vesting of a third of the award.
CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS

Policies and Procedures for Related Person Transactions

Our Board has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which Westmoreland Coal Company is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest.

If a related person proposes to enter into a related person transaction, the related person must report the proposed related person transaction to our general counsel. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our Audit Committee. Whenever practicable, the reporting, review, and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the Chairman of the Audit Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the Audit Committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually. As appropriate for the circumstances, the Audit Committee will review and consider:
the related person’s interest in the related person transaction;

the approximate dollar value of the amount involved in the related person transaction;
●
the related person’s interest in the related person transaction;
whether the terms of the transaction are no less favorable to us than could have been reached with an unrelated third party; and

●
the approximate dollar value of the amount involved in the related person transaction;
the purpose of, and the potential benefits to us of, the transaction.
●
whether the terms of the transaction are no less favorable to us than could have been reached with an unrelated third party; and

●
the purpose of, and the potential benefits to us of, the transaction.

The Board has determined that certain transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of the policy, such as compensation to an executive officer if the compensation has been approved, or recommended to the Board for approval by the Compensation and Benefits Committee or an arrangement that is specifically contemplated by provisions of our certificate of incorporation or bylaws, such as the exculpation, indemnification, and directors’ and officers’ insurance arrangements contemplated by the certificate of incorporation and bylaws.

27


Certain Relationships and Related Transactions

Tontine Note Transaction

On March 4, 2008, we completed the sale of $15 million of senior secured convertible notes to Tontine Partners, L.P. and Tontine Capital Partners, L.P. pursuant to a Senior Secured Convertible Note Purchase Agreement dated as of March 4, 2008 among us, the Tontine partnerships, and Tontine Capital Associates, L.P., as collateral agent.  The senior notes bore interest at a rate of 9% (which increased to 10% per annum in July 2010), payable in cash or in kind at our option, and were payable in full on March 4, 2013.  In 2010, we paid the Tontine entities $1,236,438 of in kind interest and $462,363 in cash.  On February 4, 2011, at the closing of a note transaction, Tontine Partners L.P. and Tontine Capital Partners, L.P. each converted $15,962,541 in principal amount of the senior secured convertible notes into common stock of Westmoreland at a conversion price of $8.50 per share. This conversion, coupled with the cash payment made on the closing date of the note transaction, resulted in full satisfaction of these senior secured convertible notes.  Mr. Jeffrey Gendell, who is either a managing member of, or a managing member of the general partner of, the Tontine partnerships is deemed to beneficially own greater than 20% of our outstanding common stock.
Familial Employment of an Executive Officer
Diane Kathol Severance Payout

Doug Kathol, our Executive Vice President and a named executive officer, is married to Diane Kathol who served as our Vice President —– Mining and Power during all of fiscal year 2010. Ms. Kathol retired from Westmoreland on December 31, 2010. During 2010,2011, Ms. Kathol received casha severance payout of $166,525, paid throughout the year in the normal payroll cycles.

OVERVIEW OF PROPOSALS

This proxy statement contains four proposals requiring stockholder action. Proposal No. 1 requests the election of six directors to the Board, Proposal No. 2 requests advisory approval of the Company’s executive compensation, Proposal No. 3 requests the approval of amendments to the Amended and Restated 2007 Equity Incentive Plan, and Proposal No. 4 requests the ratification of the
appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2012.  Each of the proposals is discussed in more detail below.

Proposal 1 – Election of Directors

The Board has nominated directors Alessi, D’Appolonia, Hamilton, Klingaman, Packwood and Scharp to be elected to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified.  On March 12, 2012, Mr. Coffey notified us that he will retire from the Board effective at the Annual Meeting after 12 years of dedicated service.  As such, the Board decreased the size of the Board to six directors effective as of the Annual Meeting.  While Tontine Capital Partners, L.P. and Tontine Partners, L.P. have the right to designate two individuals for election to our Board as directors pursuant to the Secured Convertible Note Purchase Agreement dated March 4, 2008, they have not so designated any directors at this time.

At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the six nominees named in this Proxy Statement. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board’s six nominees.

Vote Required

The six nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the six directors to be elected by those shares, will be elected as directors to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.

Recommendation of the Board

The Board of Directors recommends you vote “FOR” the election of directors Alessi, D’Appolonia, Hamilton, Klingaman, Packwood and Scharp.

Proposal 2 - Advisory Approval of the Company’s Executive Compensation

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders to vote to approve, on an advisory or nonbinding basis, the compensation of $198,912our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules. As background to compensation paid to our named executive officers in 2011 are the following business highlights:

●
During 2011, the Pacific Northwest experienced unprecedented amounts of snow that led to a prolonged hydroelectric power season. This negatively impacted our largest customer well into the summer period.  In addition, flooding associated with the high snow pack disrupted rail transportation and mining production, which resulted in a further reduction in coal sales across our northern tier mining operations. Lastly, an explosion and fire at one of our major customers in November resulted in further loss of revenue. Despite these large interruptions in our operations in 2011, we ended the year within 10% of our record adjusted EBITDA from fiscal year 2010 due to timely reaction and stringent cost management;
●
To mitigate the effect of future events like those that occurred in 2011, among other reasons, we entered into an agreement for the acquisition of the Kemmerer Mine, which will diversify the business and diminish the impact of uncontrollable events; and
●
Under management’s leadership, the Company improved liquidity through the $150.0 million debt issuance in February 2011, expanded our reserve base through a major acquisition at our Absaloka Mine and relocated the corporate office to the Denver area resulting in lowered costs and a platform for future growth.

In addition, compensation and governance practices implemented in recent years include the following:

●
The CEO nor any other executive officer has an employment contract;
●
We have eliminated all tax gross-ups, executive supplemental retirement policies, frozen pension plans and terminated retiree health care;
●
The Compensation and Benefits Committee engaged Buck Consulting, an independent consultant who does no other work for us;
●
Approximately 70% of both the CEO’s and the President and COO’s total compensation package is at-risk compensation;
●
We have minimal executive perquisites;
●
The named executive officers receive annual long-term equity awards in the form of restricted stock units with half of the shares vesting at the end of a three-year period upon the attainment of a three-year free cash flow goal.  Restricted stock units represent a significantly larger percentage of each officer’s total compensation opportunity as compared to short term annual incentive opportunities.  We believe this alignment ensures that a significant portion of our officer’s compensation is tied to long-term stock price performance;
●
The Board implemented officer stock ownership guidelines at three times salary for the CEO and between two and one times salary for other members of the management team; and
●
The Board approved stock ownership guidelines for directors of three times their annual cash retainer fee.
Compensation Philosophy and Approach

Westmoreland’s compensation philosophy for its named executive officers is designed to achieve several key objectives, including: focusing decision-making and behavior on goals that are consistent with the overall business strategy; creating a pay-for-performance culture, and allowing us to attract and retain employees with the skills critical to our long-term success. To achieve these objectives, Westmoreland uses a mix of base pay and incentive opportunities (short and long-term), while concentrating a majority of the executives’ reward opportunities in at-risk incentive pay. The design of the compensation program is intended to support our overall business objectives and to increase long-term stockholder value. In 2011, greater than 50% of target total compensation for each named executive officer was grantedat-risk based on our performance and the named executive officer.

We considered the most recent stockholder advisory vote on executive compensation required by the proxy rules in reassessing these compensation policies and our compensation decisions and, based on the 99.2% favorable vote cast in 2011, believe stockholders support our approach and actions. The Compensation and Benefits Committee made no material changes to 2012 compensation packages given the overwhelming stockholder support.  We intend to continue to seek stockholder guidance on executive compensation through an annual say-on-pay vote.

We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement.  Accordingly, we ask our stockholders to vote “FOR” Proposal 2 approving, on an advisory basis, the compensation of the named executive officers, as disclosed in this proxy statement.

The say-on-pay vote is advisory, and therefore not binding on us, the Compensation and Benefits Committee or our Board of Directors. Our Board of Directors and our Compensation and Benefits Committee value the opinions of our stockholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and the Compensation and Benefits Committee will evaluate whether any actions are necessary to address those concerns.  The Board has adopted a policy providing for annual say-on-pay advisory votes.  Unless the Board modifies this policy, the next say-on-pay advisory vote will be held at our 2013 Annual Meeting.

Vote Required

Approval of Proposal 2 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.

Recommendation of the Board

The Board of Directors recommends a vote FOR Proposal 2.

Proposal 3 – Amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors

Reason for the Proposed Amendments

The Board of Directors approved the 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “2007 Plan”) on March 9, 2007, and established the number of shares to be reserved for issuance under this plan at 700,000. On August 16, 2007, the Company’s stockholders approved the 2007 Plan.  Currently, the 2007 Plan has only 55,655 shares available for issuance to
employees and directors.  After the issuance of approximately 35,000 shares to the director at the Annual Meeting, we will have 20,655 shares available for issuance. On February 29, 2012, the Board approved the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the “Amended 2007 Plan”), which increases the share reserve by 700,000 shares. After giving effect to grants previously made under the 2007 Plan, the aggregate number of shares that would be available for issuance under the Amended 2007 Plan, assuming stockholder approval of the amendment to add an additional 700,000 shares for issuance thereunder, would be approximately 720,655 shares as of the date of this proxy statement. This number does not include the effect of forfeitures, if any, of outstanding awards. The Board believes that this amendment is in our best interests and our stockholders and is consistent with the compensation philosophy described in this proxy statement.

Summary of Proposed Amendments

In addition to the increased share reserve, the Board is also asking stockholders to approve additional amendments to the 2007 Plan, which include the following:

●
Update Section 4(a) to prohibit broad recycling of shares;

●
Update Section 4(a) to provide more detail on the treatment of shares that are repurchased by us to cover tax obligations;

●
Reorder the document to put all potential award sections together (Options, SARs, Restricted Stock, RSUs, etc.) and move the director award section to after these sections for better flow;

●
Broaden the current language in Section 3 to allow the Board and the Compensation and Benefits Committee to delegate administrative authority under the plan to executives;

●
Update the Option and SAR sections to prohibit both repricing and cash buyouts without express stockholder approval;

●
Amend the director award section to fix the dollar value of the award at $70,000;

●
Permit amendment of awards to comply with Section 954 of the Dodd Frank Act (the “clawback” requirements) without participant consent;

●
Update the Restricted Stock Unit section to provide for a minimum vesting period of 3 years; and

●
Update the 2007 Plan to provide for double trigger vesting in the event of Change of Control.

Amended and Restated 2007 Plan Summary

The following is a brief summary description of the Amended 2007 Plan, which is qualified in its entirety by reference to the provisions of the Amended 2007 Plan itself, which is attached as Appendix A to this Proxy Statement.

●
Types of Awards

The Amended 2007 Plan provides for the grant of incentive stock options intended to qualify under Internal Revenue Code Section 422, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards as described below (collectively, “Awards”).

●
Incentive Stock Options and Non-statutory Stock Options.

Optionees receive the right to purchase a specified number of shares of common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant.  Options may not be granted at an exercise price less than 100% of the fair market value of the common stock on the date of grant or for a term in excess of ten years.  The Amended 2007 Plan permits the following forms of payment of the exercise price of options: (i) payment by cash, check or in connection with a “cashless exercise” through a broker, (ii) subject to certain conditions, surrender to the Company of shares of common stock, (iii) by means of a “net exercise” procedure; (iv) any other lawful means, or (v) any combination of these forms of payment.

Unless approved by the Company’s stockholders, (i) no outstanding option may be amended to provide an exercise price less than the then-current exercise price of such option, and (ii) no option may be issued under the 2007 Plan in substitution for any outstanding option to purchase shares of common stock if the exercise price of such option is less than the then-current exercise price of the cancelled option.

●
Stock Appreciation Rights.

A stock appreciation right, or SAR, is an award entitling the holder, upon exercise, to receive an amount in common stock or cash or a combination thereof determined by reference to appreciation, from and after the date of grant, datein the fair market value of $53,283. Ms. Kathol is also entitleda share of common stock.  SARs may be granted independently or in tandem with an option.  SARs may not be granted at a base price less than 100% of the fair market value of the common stock on the date of grant.

●
Restricted Stock Awards.

Restricted stock awards entitle recipients to acquire shares of common stock, subject to the right of the Company to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable Award are not satisfied prior to the end of the applicable restriction period established for such Award.

●
Restricted Stock Unit Awards.

Restricted stock unit awards entitle the recipient to receive annual incentive compensationshares of common stock to be delivered at the time such shares vest pursuant to the terms and conditions established by the Board of Directors.

●
Other Stock-Based Awards.

Under the Amended 2007 Plan, the Board of Directors has the right to grant other Awards based upon the common stock having such terms and conditions as the Board of Directors may determine, including the grant of shares based upon certain conditions, the grant of Awards that are valued in 2011 for her 2010 performance. Upon her retirement, she forfeited all unvestedwhole or in part by reference to, or otherwise based on, shares of common stock, and the grant of Awards entitling recipients to receive shares of common stock to be delivered in the future.

●
Performance Conditions.

The Compensation and Benefits Committee may determine, at the time of grant, that a restricted stock award, restricted stock unit award or other stock-based award granted to an employee will vest solely upon the achievement of specified performance criteria designed to qualify for deduction under Section 162(m) of the Code.  The performance criteria for each such Award will be based on one or more of the following measures: (a) earnings before interest, taxes, 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, (k) stock price or total stockholder return, (l) dividends, (m) strategic business objectives consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures, or (n) except in the case of individuals who are “covered employees” under Section 162(m) of the Code, any other performance criteria established by the Compensation and Benefits Committee.  These performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated.  Such performance goals may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs.  Such performance goals (i) may vary by employee and may be different for different Awards; (ii) may be particular to a employee or the department, branch, line of business, subsidiary, division or other unit in which constituted the entire award. Ms. Kathol has held various positionsemployee works and may cover such period as may be specified by the Compensation and Benefits Committee; and (iii) will be set by the Compensation and Benefits Committee within the time period prescribed by, and will otherwise comply with Westmoreland since 1993, includingthe requirements of, Section 162(m) of the Code.

●
Director Awards.

The Amended 2007 Plan provides for the automatic grant of Awards to members of the Board of Directors who are not employees of the Company (“Non-Employee Directors”).  On the commencement of service on the Board, each Non-Employee Director will receive an Award with a value determined in a manner deemed appropriate by the Board, in an amount determined in the
Board’s discretion.  In addition, on the date of each annual meeting of stockholders, each Non-Employee Director who is both serving as a Vice Presidentdirector immediately before and immediately after such meeting will receive an Award with a value determined in a manner deemed appropriate by the Board, which may include Black-Scholes modeling, equal to $70,000 (rounded up to the nearest whole share).  The Board retains the specific authority from time to time to increase or decrease the dollar values of Westmoreland sinceAwards granted to Non-Employee Directors under the early 2000s.
AUDITORS
Amended 2007 Plan.  Awards automatically granted to Non-Employee Directors will (i) have an exercise or base price equal to 100% of the fair market value of the common stock on the date of grant, (ii) vest according to the schedule specified in the Award, (iii) expire at the time specified in the Award, which in the case of Options will be the earlier of 10 years from the date of grant or three months following cessation of service on the Board, and (iv) contain such other terms and conditions as the Board determines.  If a Non-Employee Director’s service terminates for any reason other than a Reorganization Event or Change in Independent Public Accounting Firm
On January 6, 2009, we notified KPMG LLPControl Event, then all of such Non-Employee Director’s Awards will automatically vest and become fully exercisable on the date such individual ceases to be a director, provided that upon completionthe individual has served as a director for three years or more.  If the individual has served as a director for less than three years, all of the 2008 audit engagementNon-Employee Director’s Awards will expire on the date such individual ceases to be a director.  Notwithstanding the foregoing vesting provisions, (i) a Non-Employee Director’s Awards may vest automatically upon the occurrence of a Reorganization Event or Change in Control Event as described below, and (ii) the Board may provide for accelerated vesting in the case of the death or disability of a director.

●
Transferability of Awards

Except as the Board of Directors may otherwise determine or provide in an Award, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order, and during the life of the grantee, will be exercisable only by the grantee.

●
Eligibility to Receive Awards

Employees, officers, and directors of the Company and its subsidiaries and of other business ventures in which the Company has a controlling interest are eligible to be granted Awards under the Amended 2007 Plan.  Under present law, however, incentive stock options may only be granted to employees of the Company and its subsidiaries.

●
Plan Benefits

All of the Company’s employees, officers and directors are eligible to receive Awards under the Amended 2007 Plan.

Key Corporate Governance Practices in the Stock Plan

The Amended 2007 Plan includes a number of provisions that we believe promote good corporate governance practices and reinforce the alignment between our equity compensation arrangements and the filinginterests of our stockholders, including:
●
Administration.  The Amended 2007 Plan is administered by the Compensation and Benefits Committee of the Board, which is comprised entirely of non-employee directors.
●
Minimum Vesting Requirements.  All equity awards, except for awards of stock options and/or stock appreciation rights and the automatic, non-discretionary awards to our non-employee directors, made under the Amended 2007 Plan are required to meet minimum three year vesting requirements, subject to certain limited exceptions.
●
Shares Returning from Past Awards and Other Limitations.  If the Amended 2007 Plan is approved, shares used to pay the exercise price of an award or withholding taxes in connection with an award, and unissued shares resulting from the settlement of stock appreciation rights in shares, will not become available for future issuance under the Amended 2007 Plan. Shares tendered in payment of an option for a cashless, net or similar exercise, shares withheld for taxes, and shares attributable to cash-settled awards shall not be again available for the grant of awards under the Amended 2007 Plan.
●
Limited Transferability.  Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation and Benefits Committee.
●
No Evergreen Provision.  There is no “evergreen” feature pursuant to which the shares authorized for issuance under the Amended 2007 Plan can be increased automatically without stockholder approval.
●
No Discounted Options or SARs.  Stock options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date, except as permitted under the Internal Revenue Code.
●
No Repricing Without Stockholder Approval.  We cannot, without stockholder approval, reprice awards, such as stock options or stock appreciation rights, by reducing the exercise price of such awards, or exchange such awards for cash, other awards or new stock options or new stock appreciation rights that have a reduced exercise price.
Key Information

If stockholders approve the Amended 2007 Plan, the total number of shares available for issuance will be approximately 720,655.  If stockholders do not approve the Amended 2007 Plan, we will not have an adequate number of shares available for future equity awards and may not be able to effectively recruit new employees, motivate current employees or operate our equity compensation program.

We manage our use of equity incentive awards carefully and maintained a reasonable “burn rate,” which we define as the number of shares subject to equity awards issued in a fiscal year, with double weighting put on full value restricted stock awards, as a percentage of our weighted average shares outstanding. Westmoreland’s three-year average burn rate of 2.67% is lower than the 4.02% burn rate used by Institutional Shareholders Services (ISS) to assess companies like ours in the energy industry.  The ISS burn rate calculation is similar but not identical to our burn rate calculation.
The following table shows the number of outstanding and available shares, by plan, before and after stockholder approval (assuming a total of 720,655 shares are available for issuance after approval, which reflects the 30,000 share issuance to the non-employee directors) and the total overhang as of the Form 10-Krecord date:

   Issued Awards   Available Shares   Total 
Before Stockholder Approval               
Stock Plan   433,783     50,655     484,438  
Other Plans   194,307     0     194,307  
                
Total   628,045     50,655     678,745  
Total Overhang (%)             4.9%
    
After Stockholder Approval               
Amended and Restated 2007 Plan   433,783     750,655     1,184,438  
Other Plans   194,307     0     194,307  
                
Total   628,045     750,655     1,378,745  
Total Overhang (%)             10%

Federal Income Tax Consequences

The following tax discussion is a general summary as of the date of this proxy statement of the U.S. federal income tax consequences to the Company and the participants in the Amended 2007 Plan.  The discussion is intended solely for general information of stockholders considering how to vote with respect to this proposal and not as tax guidance to participants in the Amended 2007 Plan.  The discussion does not address state, local or foreign income tax rules or other U.S. tax provisions, such as estate or gift taxes.  Different tax rules may apply to specific participants and transactions under the 2007 Plan, particularly in jurisdictions outside the United States.  In addition, the federal income tax laws and regulations frequently have been revised and may be changed again at any time.  Therefore, each recipient is urged to consult a tax advisor before exercising any award or before disposing of any shares acquired under the 2007 Plan both with respect to federal income tax consequences as well as any foreign, state or local tax consequences.

The grant of an option or restricted stock unit will create no tax consequences for the participant or the Company.  A participant will have no taxable income upon exercise of an incentive stock option, except that the alternative minimum tax may apply.  Upon exercise of an option other than an incentive stock option, a participant generally must recognize ordinary income equal to the fair market value of the shares acquired minus the exercise price.  Upon a disposition of shares acquired by exercise of an
incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must recognize ordinary income equal to the lesser of (1) the fair market value of the shares at the date of exercise minus the exercise price or (2) the amount realized upon the disposition of the incentive stock option shares minus the exercise price.  Otherwise, a participant’s disposition of shares acquired upon the exercise of an option (including an incentive stock option for which the incentive stock option holding periods are met) generally will result in only capital gain or loss.  Other awards under the 2007 Plan (including restricted stock units, both time-based and performance-based) generally will result in ordinary income to the participant at the later of the time of delivery of cash, shares, or other awards, or the time that either the risk of forfeiture or restriction on transferability lapses on previously delivered cash, shares, or other awards.  Except as discussed below, the Company generally will be entitled to a tax deduction equal to the amount recognized as ordinary income by the participant in connection with an option, restricted stock unit award, or other awards, but will be entitled to no tax deduction relating to amounts that represent a capital gain to a participant.  Thus, the Company will not be entitled to any tax deduction with respect to an incentive stock option if the participant holds the shares for the incentive stock option holding periods.

Section 162(m) generally allows the Company to obtain tax deductions without limit for performance-based compensation.  The Company intends that options and performance-based restricted stock unit awards granted under the 2007 Plan will continue to qualify as performance-based compensation not subject to Section 162(m)’s $1 million deductibility cap.  A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no assurance that such compensation under the 2007 Plan will be fully deductible under all circumstances.  In addition, other awards under the 2007 Plan may not qualify as performance-based compensation under Section 162(m), and therefore compensation paid to executive officers in connection with such awards may not be deductible.

Vote Required

Approval of Proposal 4 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.  If stockholders approve the Amended 2007 Plan, it will replace the existing 2007 Plan.

Recommendation of the Board

The Board of Directors recommends a vote FOR Proposal 4.

Proposal 4 – Ratification of Principal Independent Auditor

The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm and as auditors of our consolidated financial statements for fiscal year ending December 31, 2008, it would be dismissed2012. In January 2009, E&Y began serving as our independent registered public accounting firm. The decisionPrior to change accounting firms was approved bythat, KPMG LLP served as our Audit Committee. On March 13, 2009, KPMG completed its audit services for the Company for the fiscal year ended December 31, 2008.
During the years ended December 31, 2008 and 2007 and the subsequent period through the date of the filing of the Form 8-K/A on March 23, 2009, we had no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to KPMG’s satisfaction, would have caused KPMG to make reference in connection with their opinion to the subject matter of the disagreement; or (2) reportable events, except as described below. Our management has authorized KPMG to respond fully to the inquiries of the new independent registered public accounting firm regarding all matters.firm.
KPMG’s reports on our consolidated financial statements as of and for the years ended December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit report of KPMG on the consolidated financial statements of Westmoreland and subsidiaries for the year ended December 31, 2008 expressed the opinion that various factors raised substantial doubt about our ability to continue as a going concern. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2008 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. The audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2007 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicated that we did not maintain effective internal control over financial reporting as of December 31, 2007 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contained an explanatory paragraph that stated that: “Management identified and included in its assessment material weaknesses related to electronic spreadsheets that impact the Company’s financial reporting, census data used to calculate postretirement medical benefit obligations, and the accounting for one of the Company’s stock based compensation plans.”
We requested and obtained from KPMG a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the above statements. A copy of KPMG’s letter, dated March 16, 2009, is filed as Exhibit 16.1 to our Current Report on Form 8-K/A filed March 23, 2009.

28

Engagement of Ernst & Young LLP
On January 8, 2009, our Audit Committee approved the engagement of Ernst & Young LLP as our new independent registered public accounting firm beginning with fiscal year 2009, and to perform procedures related to the financial statements to be included in our quarterly report on Form 10-Q, beginning with, and including, the quarter ending March 31, 2009. We did not consult with Ernst & Young during the fiscal years ended December 31, 2007 and December 31, 2008, or during any subsequent period prior to its appointment as our auditor with respect to any of the matters or events listed in Regulations S-K 304(a)(2)(i) and (ii).
Auditor’s Fees

The following table summarizes the fees of Ernst & Young LLP for fiscal years 20092010 and 2010.2011. For 2010,2011, audit fees include an estimate of amounts not yet billed.
        
Fee Category(1) 2010 2009  2011  2010 
Audit Fees(2) $911,000 $856,000  $855,000  $911,000 
Audit Related Fees (3) $77,000  $0 
Total Fees $911,000 $856,000  $932,000  $911,000 
__________
(1)We did not pay any “Audit Related Fees,” “Tax Fees” or “All Other Fees” to Ernst & Young in fiscal years 20092010 or 2010.
2011.
(2)Audit fees consist of fees for the audit of our financial statements, including fees related to the audit of our internal controls over financial reporting, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings.
(3)Audit Related Fees consist of fees we paid to Ernst & Young as part of the high-yield note financing in February 2011.

Pre-Approval Policy and Procedures

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting firm. This policy generally provides that we will not engage our registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures. From time-to-time, the Audit Committee may pre-approvepre-
approve specified types of services that are expected to be provided to us by our registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount. The Audit Committee has delegated to the Chairman of the Audit Committee the authority to approve any audit or non-audit services to be provided to us by our registered public accounting firm. Any approval of services by the Chairman of the Audit Committee pursuant to this delegated authority is reported on at the next meeting of the Audit Committee. All fees paid to Ernst & Young in 20092010 and 20102011 were pre-approved by the Audit Committee.
OVERVIEW OF PROPOSALS
This Proxy Statement contains four proposals requiring stockholder action. Proposal No. 1 requests the election of seven directors to the Board. Proposal No. 2 requests the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2011. Proposal No. 3 requests an advisory vote on executive compensation and Proposal No. 4 requests an advisory vote on the frequency of the vote on executive compensation. Each of the proposals is discussed in more detail in the pages that follow.
Proposal 1 — Election of Directors
The Board has nominated directors Alessi, Coffey, D’Appolonia, Hamilton, Klingaman, Packwood and Scharp to be elected to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. Messrs. Stern and Vicino, our preferred directors, left the Board on February 4, 2011 upon the set aside of payment of all accrued and outstanding dividends on the Series A Preferred Stock. The Board increased the size of the Board to seven directors and appointed Ms. Hamilton and Messrs. Packwood and Scharp to fill the vacancies effective February 7, 2011 and has nominated all three directors for election at the Annual Meeting. While Tontine Capital Partners, L.P. and Tontine Partners, L.P. have the right to designate two individuals for election to our Board as directors pursuant to the Secured Convertible Note Purchase Agreement dated March 4, 2008, they have not so designated any directors at this time.
At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the seven nominees named in this Proxy Statement. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board’s seven nominees.

29

Vote Required
The seven nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the seven directors to be elected by those shares, will be elected as directors to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.
Recommendation of the Board
The Board of Directors recommends you vote “FOR” the election of directors Alessi, Coffey, D’Appolonia, Hamilton, Klingaman, Packwood and Scharp.
Proposal 2 — Ratification of Principal Independent Auditor
The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm and as auditors of our consolidated financial statements for 2011. In January 2009, EY began serving as our independent registered public accounting firm. Prior to that, KPMG LLP served as our independent registered public accounting firm.
At the Annual Meeting, the stockholders are being asked to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2011.fiscal year 2012. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in our best interest. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and to respond to questions.

Vote Required

Approval of Proposal 24 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.

Recommendation of the Board

The Board of Directors recommends you vote “FOR” Proposal 2.4.
Proposal 3 — Advisory Vote on Executive Compensation
We are providing our stockholders with the opportunity to cast an advisory vote on executive compensation as described below. We believe that it is appropriate to seek the views of stockholders on the design and effectiveness of our executive compensation program. The goal of our executive compensation program is to attract, motivate and retain a skilled and proactive team of executives who will provide leadership for our success in our unique marketplace and circumstance. We seek to accomplish this goal in a way that rewards performance and is aligned with our stockholders’ long-term interests. We believe that our executive compensation program, which emphasizes long-term equity awards, satisfies this goal and is strongly aligned with the long-term interests of our stockholders.MISCELLANEOUS
The Compensation Discussion and Analysis, beginning on page 14 of this Proxy Statement, describes our executive compensation program and the decisions made by the Compensation and Benefits Committee in 2010 in more detail. Highlights of the program include the following:
70% of Mr. Alessi’s total compensation package is at-risk compensation.
The named executive officers receive annual long-term equity awards in the form of restricted stock units with half of the shares vesting at the end of a three-year period upon the meeting of certain long-term performance goals. Restricted stock units represent a significantly larger percentage of each officer’s total compensation opportunity as compared to short term annual incentive opportunities. We believe this alignment ensures that a significant portion of our officers’ compensation is tied to long-term stock price performance.

30

None of the named executive officers has an employment agreement. In addition, we do not provide any perquisites, tax reimbursements or change in control benefits to the named executive officers that are not available to other employees.
Each of the named executive officers is employed at-will and is expected to demonstrate exceptional personal performance in order to continue serving as a member of the executive team.
We request stockholder approval of the compensation of our named executive officers as disclosed pursuant to the SEC’s compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the compensation tables).
As an advisory vote, this proposal is not binding upon us. However, the Compensation and Benefits Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by stockholders in their vote on this proposal and will continue to consider the outcome of the vote when making future compensation decisions for named executive officers.
Vote Required
Approval of Proposal 3 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.
Recommendation of the Board
The Board of Directors recommends a vote FOR Proposal 3.
Proposal No. 4 — Advisory Vote on Frequency of Say-on-Pay Votes
As described in Proposal 3 above, our stockholders are being provided the opportunity to cast an advisory vote on our executive compensation program. The advisory vote on executive compensation described in Proposal 3 above is referred to as a “say-on-pay vote.”
This Proposal 4 affords stockholders the opportunity to cast an advisory vote on how often we should include a say-on-pay vote in our proxy materials for future annual stockholder meetings (or special stockholder meeting for which we must include executive compensation information in the proxy statement for that meeting). Under this Proposal 4, stockholders may vote to have the say-on-pay vote every year, every two years, every three years or abstain.
Recommendation of the Board
The Board recommends that stockholders vote on Proposal 4 to hold say-on-pay votesEVERY YEAR (as opposed to every two years or every three years).
MISCELLANEOUS
Upon the written request of any person who on the record date was a record owner of our stock, or who represents in good faith that he or she was on such date a beneficial owner of such stock entitled to vote at the annual meeting,Annual Meeting, we will send such person, without charge, a copy of our Annual Report onForm 10-K for 2010,2011, as filed with the Securities and Exchange Commission. Requests for this report should be directed to Corporate Secretary, Westmoreland Coal Company, 2nd Floor, 2 North Cascade Avenue,9540 S. Maroon Circle, Suite 200, Englewood, Colorado Springs, Colorado 80903.80112.

The Board has no present intention of bringing any other business before the meetingAnnual Meeting and has not been informed of any other matters that are to be presented to the Annual meeting. If any other matters properly come before the meeting,Annual Meeting, however, the persons named in the enclosed proxy will vote in accordance with their best judgment.

March 31, 201128, 2012

31



 
(IMAGE)
VOTE BY INTERNET —- www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic voting
instruction form.
WESTMORELAND COAL COMPANY
9540 SOUTH MAROON CIR., SUITE 200
ENGLEWOOD, CO 80112
ATTN: JENNIFER S. GRAFTON
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the Internet. To sign up for
electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access proxy materials
electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy
card in hand when you call and then follow the instructions.

VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we
have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.



(IMAGE)

(IMAGE)
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:         x
TO VOTE, MARK BLOCKS BELOW IN  BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS  PORTION FOR YOUR RECORDS
DETACH AND RETURN  THIS  PORTION ONLY

THIS  PROXY  CARD  IS  VALID  ONLY  WHEN  SIGNED  AND  DATED.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

 
For
All
Withhold
All
For All
Except
To withhold authority to vote for any
individual  nominee(s),  mark  “For  All
Except” and write  the  number(s) of  the
nominee(s) on the line below.
The Board of Directors recommends you vote
FOR the following:
m m m   
 
      
 For
All		Withhold
All		For All
Except		To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s)
1.  Election of the nominee(s) on the line below.

Directors
(IMAGE)     Nominees
The Board of Directors recommends you vote FOR the following:
    
    ooo  
1. Election of Directors
Nominees
01  Keith E. Alessi
02   Thomas J. Coffey
03  Michael R. D’AppoloniaD'Appolonia0403  Gail E. Hamilton      0504  Richard M. Klingaman
0605  Jan B. Packwood 
0706  Robert C. Scharp    
      
 The Board of Directors recommends you vote FOR proposals 2, 3 and 3.4. ForAgainstAbstain
 
 
2
2. Advisory approval of Westmoreland Coal Company's executive compensation.mmm
3.  To approve the amendments to the Amended and Restated 2007 Equity Incentive Plan for Employees and Non-Employee Directors.mmm
4.  Ratification of the appointment of Ernst & Young LLP as principal independent auditor for fiscal year 2011.ooo
3     To cast an advisory vote on executive compensation.
ooo
The Board of Directors recommends you vote 1 YEAR on the following proposal:1 year2 year3 yearAbstain
4     To cast an advisory vote on the frequency of executive compensation votes.
oooo
NOTE:Such other business as may properly come before the meeting or any adjournment thereof.2012.   mmm 




Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.

Investor Address Line 1
Investor Address Line 2
Investor Address Line 3
Investor Address Line 4
Investor Address Line 5
John Sample
1234 ANYWHERE STREET
ANY CITY, ON A1A 1A1



         
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
  
      
      
 
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other
fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a
corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
    
      
      SHARE
CUSIP #
SEQUENCE #

      
 
       
Signature [PLEASE  SIGN WITHIN BOX]
Date
JOB # Signature  (Joint  Owners)Date  



Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Combined Document is/are available at www.proxyvote.com .
WESTMORELAND COAL COMPANY
Annual Meeting of Stockholders
May 22, 2012 8:30 AM
This proxy is solicited by the Board of Directors
The undersigned hereby constitutes and appoints Jennifer S. Grafton as true and lawful agent and proxy with power of substitution, to represent the undersigned and to vote all shares of Common Stock held by the undersigned at the Annual Meeting of Stockholders to be held at The Crowne Plaza Hotel located at 27 North 27th Street, Billings, Montana 59101, on Tuesday, May, 22, 2012, at 8:30 a.m. (mountain daylight time), and at any adjournments thereof, on all matters coming before said meeting as noted on the reverse side of this card.
  




This proxy, when properly executed, will be voted in the manner directed herein. If no directions are given, this proxy will be voted in accordance with the Board of Directors' recommendations. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY AND PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
  















You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. The proxies cannot vote your shares unless you sign and return this card.
   
   
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Combined Document, E-Delivery Flyer is/are available at www.proxyvote.com.






WESTMORELAND COAL COMPANY

Annual Meeting of Stockholders
May 24, 2011 8:30 AM
This proxy is solicited by the Board of Directors		  
Continued and to be signed on reverse side
Appendix A

WESTMORELAND COAL COMPANY
AMENDED AND RESTATED 2007 EQUITY INCENTIVE PLAN FOR EMPLOYEES
AND NON-EMPLOYEE DIRECTORS
1.  Purpose
The undersigned hereby constitutespurpose of this 2007 Equity Incentive Plan for Employees and appoints Morris W. KegleyNon-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 Jennifer S. Graftonmotivate persons who are expected to make important contributions to the Company and eachby providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of them,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 truedefined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and lawful agentsany regulations promulgated thereunder (the “Code”) and proxies with powerany 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 substitution,Directors of the Company (the “Board”); provided, however, that the term “Company” shall be limited to representinclude 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 undersignedapplicable 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 voteadopt, 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”), or any officer of the Company.  All references in the Plan to the “Board” shall mean the Board or any such Committee or officer to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officer.
4.  Stock Available for Awards
(a)  Number of Shares.
(1)  Subject to adjustment under Section 10, Awards may be made under the Plan for up to 1,400,000 shares of common stock, $2.50 par value per share, of the Company (the “Common Stock”).
(2)  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); 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 otherwise held by a Participant and tendered to the undersignedCompany by the 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.
(3)  Shares tendered in payment of an option for a cashless, net or similar exercise, shares withheld for taxes, and shares attributable to cash-settled Awards shall not be again available for the grant of Awards under the Plan.
(4)  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
- 2 -
Section 4(a), except as may be required by reason of Section 422 and related provisions of the Code.
5.  Stock Options
(a)  General.  The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable.  An Option that is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option.”
(b)  Incentive Stock Options.  An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of the Company, any of the 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
- 3 -
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 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 Annual Meetingtime or times specified by the Board).
(f)  Payment Upon Exercise.  Common Stock purchased upon the exercise of Stockholdersan 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
- 4 -
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 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.
6.  
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 held at our corporate offices, 2 N. Cascade Avenue, 2nd Floor, Colorado Springs, CO 80903, on Tuesday, May, 24, 2011, at 8:30 a.m. (mountain time),determined by the Board) determined in whole or in part by reference to appreciation, from and at any adjournments thereof, on all matters coming before said meetingafter the date of grant, in the Fair Market Value of a share of Common Stock.  The date as notedof 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 reverse sidedate of this card.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.
This proxy, when properly executed,
(d)  Term.  The term of an SAR shall not be more than 10 years from the date of grant.
(e)  Exercise.  SARs may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with any other documents required by the Board.
- 5 -
7.  
Restricted Stock.
(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.
(b)  Terms and Conditions.
(1)  General. The Board shall determine the terms and conditions of an Award of Restricted Stock, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.
(2)  Dividends.  Participants holding shares of Restricted Stock will be votedentitled to all ordinary cash and other dividends paid with respect to such shares, unless otherwise provided by the Board.  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.
8.  
Restricted Stock Units.
(a)  General.  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”).
(b)  Terms and Conditions.
(1)  In General.  The Board shall determine the terms and conditions of a Restricted Stock Unit Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.
(2)  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 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.
(3)  Voting Rights.  A Participant shall have no voting rights with respect to any Restricted Stock Units.
(4)  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
- 6 -
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.  
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 may elect to grant to such person an Award with a value determined in a manner deemed appropriate by the Board, with such award being made in the Board’s sole discretion.
(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 serving as a director of the Company 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 equal to $70,000 (rounded up to the nearest whole share) based on the Fair Market Value of the Company’s common stock.
(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)  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
- 7 -
unvested Award if the Participant’s service as a director terminates by reason of death or disability.
(2)  Awards granted under this Section 10 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.
(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 paragraph (b) and to amend the terms of director Awards as otherwise permitted by this Plan.
11.  
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 Award of Restricted Stock or RSUs, (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 directed herein.determined by the Board.  Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.
(b)  Reorganization Events.
(1)  Definition.  A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company.
(2)  Consequences of a Reorganization Event on Awards Other than Restricted Stock.  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
- 8 -
Stock 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 paragraph (2), the Board shall not be obligated by the Plan to treat all Awards, or all Awards of the same type, identically.
For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
(3)  Consequences of a Reorganization Event on Restricted Stock.  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 share of Restricted Stock 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 Restricted Stock.  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 Award of Restricted Stock or any other agreement between a Participant and the Company, all restrictions and
- 9 -
conditions on all Restricted Stock 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 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
- 10 -
Common Stock or the Outstanding Company Voting Securities at or above the Modified Ownership Threshold, thereby making such Person an “Acquiring Person” under the terms of the Rights Agreement.  The “Rights Agreement” referred to in this clause (A)(II) means the Amended and Restated Rights Agreement, dated as of February 7, 2003, between the Company and Computershare Trust Company, N.A. (formerly known as EquiServe Trust Company, N.A.), as rights agent, as amended by the First Amendment to the Amended and Restated Rights Agreement, dated as of May 2, 2007.
(B)   such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated pursuant to the terms of the Standby Purchase Agreement, dated as of May 2, 2007 between the Company and Tontine Capital Partners, L.P. or (z) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or
(C)   the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of common
- 11 -
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 Awards.  Unless specifically provided to the contrary in the instrument evidencing any Award or any other agreement between a Participant and the Company, upon a Change of Control Event, unvested Awards will automatically become vested or exercisable, and all restrictions and conditions on Restricted Stock shall automatically be deemed terminated or satisfied: (a) if the Participant is an employee and is Terminated within 12 months following such Change of Control; or (b) if the Participant is a director and 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.
12.  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 domestic relations order acceptable to the Company its sole discretion, 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.
- 12 -
(c)  Board Discretion.  Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award.  The terms of each Award need not be identical, and the Board need not treat Participants uniformly.
(d)  Termination of Status.  The Board shall determine the effect on an Award of the disability, death, termination of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.
(e)  Withholding.  The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will 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.  Notwithstanding the foregoing, the Board may amend an Award to comply with Section 954 of the Dodd Frank Act (the “clawback” requirements) without Participant consent.
(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
- 13 -
such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.
(h)  Acceleration.  The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.
(i)  Limitation on Repricing; Buyout.  Unless such action is approved by the Company’s stockholders: (i) no directionsoutstanding 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); (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; and (3) the Board may not conduct any cash buyouts of Awards except to the extent the Award may, by its terms, be settled in cash.
(j)  Performance Awards.
(1)  Grants.  Restricted Stock, RSUs 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,
- 14 -
(F)  net income,
(G)  earnings or book value per share,
(H)  cash flow(s),
(I)   total sales or revenues or sales or revenues per employee,
(J)   production (separate work units or SWUs),
(K)  stock price or total stockholder return,
(L)  dividends,
(M)  strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures, or
(N)  except in the case of a Covered Employee, any other performance criteria established by the Committee, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated.
Such performance measures may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for restructuring and rationalization programs.  Such performance measures: (i) may vary by Participant and may be different for different Awards; (ii) may be particular to a Participant or the department, branch, line of business, subsidiary, division, operating unit, or other unit in which the Participant works and may cover such period as may be specified by the Committee; and (iii) shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m).  Awards that are given,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.
- 15 -
13.  
Vesting.  Unless otherwise provided in an Award agreement, Awards shall be 100% vested: (a) for directors, after one year of service, and (b) for employees, ratably over three years of service.
14.  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.  This amended and restated version of the Plan shall become effective on the date the Plan is approved by the Company’s stockholders (the “Effective Date”).  No Awards shall be granted under the Plan after the expiration of 10 years from the Effective Date, but Awards previously granted may extend beyond that date.
(d)  Amendment of Plan.  The Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that (i) to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until such amendment shall have been approved by the Company’s stockholders if required by Section 162(m) (including the vote required under Section 162(m)); (ii) no amendment that would require stockholder approval under the rules of American Stock Exchange (“AMEX”) may be made effective unless and until such amendment shall have been approved by the Company’s stockholders; and (iii) if the AMEX amends its corporate governance rules so that such rules no longer require stockholder approval of “material amendments” to equity compensation plans, then, from and after the effective date of such amendment to the AMEX rules, no amendment to the Plan (A) materially increasing the number of shares authorized under the Plan (other than pursuant to Section 4(c) or 10), (B) expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the class of participants eligible to participate in the Plan shall be effective unless stockholder approval is obtained.  In addition, if at any time the approval of the Company’s stockholders is required as to any other modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such modification or amendment without such approval.  Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this proxySection 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.
- 16 -
(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.  To the extent any Award constitutes deferred compensation subject to 409A that is payable to a specified employee on separation from service, payment of the Award will be voteddelayed for six months after the date of separation from service.
(f)  Governing Law.  The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the Boardlaws of Directors’ recommendations. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY AND PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.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.
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The proxies cannot vote your shares unless you sign and return this card.
Continued and to be signed on reverse side

- 17 -