Document:

exv10w5

EXHIBIT 10.5

AMENDED 2000 PERFORMANCE UNIT PLAN

Article I — Purpose

Section 1.1 The purpose of the Plan is to provide a financial incentive for key executives to
encourage and reward desired performance that will further the growth, development and financial
success of Westmoreland Coal Company (the “Company”), to align the interests of the Company’s key
executives and shareholders and to enhance the Company’s ability to maintain a competitive position
in attracting and retaining qualified personnel who contribute, and are expected to contribute,
materially to the success of the Company.

Article II — Definitions

Section 2.1 Whenever the following terms are used in this Plan, they shall have the meaning
specified below unless the context clearly indicates to the contrary. The masculine pronoun shall
include the feminine and neuter and the singular shall include the plural, where the context so
indicates.

“Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company,
(ii) any entity in which the Company has a significant equity interest, (iii) an affiliate of the
Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any
entity in which the Company has at least twenty percent (20%) of the combined voting power of the
entity’s outstanding voting securities, in each case as designated by the Board as being a
participating employer in the Plan.

“Assigned Value” shall mean the value assigned by the Committee, in its sole and absolute
discretion, to a Performance Unit which is valued other than by reference to the Fair Market Value
of the Common Stock, for the attainment of each of Threshold Performance, Target Performance and
Maximum Performance in any Performance Period.

“Award” shall mean a Performance Unit granted under the Plan to a Participant by the Committee
pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may
establish that are not inconsistent with the provisions of this Plan.

“Award Certificate” shall mean any written acknowledgment or other instrument or document
evidencing any Award and describing the anticipated time, manner and method of payment of fully
vested Awards at the end of the Performance Period, which is signed by or acknowledged by the
Company.

“Award Notification” shall mean any written acknowledgment or other instrument or document that
provides notice of a Participant’s selection by the Committee to receive an Award, which is signed
or acknowledged by the Company.

 

 

“Base Value” shall mean the average of the Daily Price of the Common Stock for the twenty (20)
consecutive trading days on which one or more trades occurs immediately preceding the commencement
of the Performance Period.

“Board” shall mean the Board of Directors of the Company.

“Cause” shall mean (i) the engaging by the Participant in willful conduct or misconduct that is
injurious to the Company or its Subsidiaries or Affiliates, or (ii) the embezzlement or
misappropriation of funds or property of the Company or its Subsidiaries or Affiliates by the
Participant, or the final conviction of the Participant of a felony or the entrance of a plea of
guilty or nolo contendere by the Participant to a felony, or (iii) any behavior that brings the
employee into public disrepute, contempt, scandal or ridicule or that reflects unfavorably upon the
reputation or high moral or ethical standards of the Company. For purposes of this paragraph, no
act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or
omitted to be done, by the Participant without reasonable belief that the Participant’s action or
omission was in the best interest of the Company. Any determination of Cause shall be made by the
Committee, in its sole discretion, and shall be final and binding on a Participant.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Committee” shall mean a committee of the Board composed of not less than two Non-Employee
Directors, all of whom shall be “nonemployee directors” with respect to the Plan within the meaning
of Section 16 and all of whom may be “outside directors” for purposes of Section 162(m) of the
Code. The members of the Committee shall be appointed by and serve at the pleasure of the Board.
In the absence of a resolution of the Board determining otherwise, “Committee” shall mean the
Compensation and Benefits Committee of the Board.

“Common Stock” shall mean the common stock of the Company, par value $2.50 per share, and any
equity security of the Company issued or authorized to be issued in the future, but excluding any
preferred stock and any warrants, options or other rights to purchase common Stock.

“Common Stock Appreciation” shall mean the difference between the Fair Market Value of the Common
Stock and the Base Value of a Performance Unit at the expiration of the Performance Period for that
Performance Unit.

“Company” shall mean Westmoreland Coal Company or any successor thereto.

“Covered Officer” shall mean at any date (i) any individual who, with respect to the previous tax
year of the Company, was a “covered employee” of the company within the meaning of Code Section
162(m), excluding any such individual whom the Committee, in its discretion, reasonably expects not
to be a “covered employee” with respect to the current tax year of the Company and (ii) any
individual who was not a “covered employee” under Code Section 162(m) for the previous tax year of
the Company, but whom the Committee, in its discretion, reasonably expects to be a “covered
employee” with respect to the current tax year of the Company or with respect to the tax year of
the Company in which any applicable Award will be paid.

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“Daily Price” shall mean the average of the highest and lowest sale price occurring during any
given trading day on which the Common Stock of the Company is traded.

“Disability” shall mean the disability of a Participant under the terms of the then effective long
term disability plan of the Company.

“Employee” shall mean any employee (as defined in accordance with Section 3401(c) of the Code) of
the Company or an Affiliate or Subsidiary, whether such employee is so employed at the time this
Plan is adopted or becomes so employed subsequent to the adoption of this Plan.

“Employer” shall mean the Company or an Affiliate or Subsidiary, whichever at the time employs the
Employee.

“Fair Market Value” shall mean the average of the Daily Price of the Common Stock for the last
twenty (20) consecutive trading days of a Performance Period on which one or more trades of Common
Stock occurs.

“Maximum Award” shall mean the Award payable under the Plan for Maximum Performance in any
Performance Period.

“Maximum Performance” shall mean the Performance Goals established for any Performance Period, the
attainment of which is necessary for the payment of the Maximum Award of a Target Award with an
Assigned Value for that Performance Period.

“Non-Employee Director” shall mean a member of the Board who is not an Employee or officer of the
Company or any of its Subsidiaries or Affiliates.

“Participant” shall mean an Employee who is selected to participate in the Plan.

“Performance Goals” shall mean performance goals or objectives established by the Committee for
each Performance Period pursuant to this Plan, the attainment of which is necessary for the payment
of an Award to a Participant at the completion of the Performance Period. Performance Goals may be
described in terms of Company-wide objectives or objectives that are related to the performance of
the individual Participant or the Affiliate, Subsidiary, or division, department or function within
the Company, Affiliate or Subsidiary in which the Participant is employed. Any Performance Goals
applicable to the Awards intended to qualify as “performance-based compensation” under Section
162(m) of the Code shall be limited to specified levels of, or increases in, the Company’s,
Affiliate’s or Subsidiary’s market share, sales, costs, return on equity, earnings per share,
earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization,
earnings growth, return on capital, return on assets, total shareholder return and/or increase in
the Fair Market Value of the Common Stock , measurements of safety performance or any combination
thereof. Each Performance Goal may be expressed on an absolute and/or relative basis, may be based
on or otherwise employ comparisons based on internal targets, the past performance of the Company
and/or the past or current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders’ equity and/or Shares
outstanding, or to

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assets or net assets. Except in the case of Performance Goals related to an Award intended to
qualify under Section 162(m) of the Code, if the Committee determines that a change in the
business, operations, corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the Performance Goals
unsuitable, the Committee, after the commencement of a Performance Period, may modify such
Performance Objectives, in whole or in part, as the Committee deems appropriate and equitable.

“Performance Period” shall mean the period of time specified in an Award Notification to be used in
measuring the degree to which the Performance Goals relating to Performance Units granted under
that Award Notification have been met; provided, however, that for purposes of the initial
Performance Period of the Plan, Performance Period shall mean the period commencing on July 1, 2000
and ending June 30, 2003.

“Performance Unit” shall mean a right that is (i) denominated in cash or Common Stock, (ii) valued,
as determined by the Committee, either in accordance with the achievement of such Performance Goals
during such Performance Periods as the Committee shall establish or with reference to the Fair
Market Value of the Common Stock, and (iii) payable at such time and in such form as the Committee
shall determine in accordance with the terms and conditions of Article VI hereof.

“Plan” shall mean the 2000 Performance Unit Plan, as amended from time to time.

“Retirement” shall mean the Termination of Employment of a Participant from the employ or service
of the Company or any of its Affiliates or Subsidiaries in accordance with the terms of the
applicable Company retirement plan, or if a Participant is not covered by any such plan, the
Termination of Employment of a Participant on or after the earliest to occur of the following:

          (a) the attainment by the Participant of the age of 65 or the achievement of five years of
employment or service with the Company, whichever occurs later; or

          (b) the attainment by the Participant of the age of 62 and twenty years of employment or
service with the Company.

“Section 16” shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any
successor provision thereto as in effect from time to time.

“Section 162(m)” shall mean Section 162(m) of the Code and the rules promulgated thereunder or any
successor provision thereto as in effect from time to time.

“Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

“Target Award” shall mean the Award payable under the Plan for Target Performance in any
Performance Period.

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“Target Performance” shall mean the Performance Goals established for any Performance Period, the
attainment of which is necessary for the payment of a Target Award with an Assigned Value for that
Performance Period.

“Termination of Employment” shall mean the time when the employee-employer relationship between a
Participant and the Employer is terminated for any reason, with or without Cause, including, but
not by way of limitation, a termination by resignation or discharge, but excluding (i) terminations
where there is a simultaneous reemployment or continuing employment of a Participant by the
Employer; (ii) at the discretion of the Committee, terminations which result in a temporary
severance of the employee-employer relationship; and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a consulting relationship by
the Employer with the former Employee. Notwithstanding the foregoing, the Committee, in its
absolute discretion, shall determine the effect of all matters and questions relating to
Termination of Employment. However, notwithstanding any provision of this Plan, the Employer has
an absolute and unrestricted right to terminate an Employee’s employment at any time for any reason
whatsoever, with or without Cause.

“Threshold Performance” shall mean the level of attainment of a Performance Goal necessary for the
payment of any Award with an Assigned Value upon the completion of any Performance Period for that
Award.

Article III — Plan Administration

Section 3.1 Subject to the authority and powers of the Board in relation to the Plan as hereinafter
provided, the Plan shall be administered by the Committee; provided, however, that the Committee
may not exercise any authority otherwise granted to it hereunder if such action would have the
effect of increasing the amount of any Award payable hereunder to any Covered Officer. All
determinations by the Committee shall be made by the affirmative vote of a majority of its members,
but any determination reduced to writing and signed by a majority of the members of the Committee
shall be as fully effective as if it had been made by a majority vote at a meeting duly called and
held. All decisions by the Committee pursuant to the provisions of the Plan and all orders or
resolutions of the Board pursuant thereto shall be final, conclusive and binding on all persons,
including but not limited to the Participants, the Company and its Affiliates and Subsidiaries and
their respective equity holders, heirs, successors and personal representatives.

Section 3.2 The Committee, on behalf of the Participants, shall have full authority to interpret
and enforce this Plan in accordance with its terms and shall have all powers necessary for the
accomplishment of that purpose, including, but not by way of limitation, the following powers:

          (a) To select the Participants;

          (b) To make Awards to Participants with respect to each Performance Period, subject to the
terms and conditions set forth in the Plan.;

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          (c) To establish the terms and conditions under which any Award granted hereunder may be
earned and paid, subject to the terms and conditions set forth in the Plan, including, without
limitation, the Performance Period, Assigned Value (if any) and vesting schedule of each Award;

          (d) To establish the terms and conditions of any Award Certificate evidencing an Award granted
hereunder, subject to the terms and conditions set forth in the Plan;

          (e) To interpret, construe, approve and adjust all terms, provisions, conditions and
limitations of this Plan;

          (f) To decide any questions arising as to the interpretation or application of any provision
of the Plan;

          (g) To prescribe forms and procedures to be followed by Employees for participation in the
Plan, or for other occurrences in the administration of the Plan;

          (h) To adopt such rules and regulations for the administration of the Plan not inconsistent
with the terms of the Plan as it may deem appropriate in its sole and absolute discretion; and

          (i) To waive any conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate an Award theretofore granted, prospectively or retroactively;
provided, however, that any such waiver, amendment, alteration, suspension, discontinuance or
termination that would adversely affect the rights of any Participant or holder or beneficiary of
any vested Award theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.

Section 3.3 No member of the Committee shall be liable for anything done or omitted to be done by
him or by any member of the Committee in connection with the performance of any duties under this
Plan, except for his own willful misconduct or as expressly provided by statute.

Section 3.4 All actions which may be taken by the Committee hereunder may also be taken by the
Board except for actions with regard to any Award intended to qualify under Section 162(m) of the
Code which would cause such Award not to qualify under said section.

Article IV-Participation

Section 4.1 Subject to the provisions of the Plan, the Committee may from time to time select any
Employee who is a salaried employee of the Company or of an Affiliate or Subsidiary to be granted
Awards under the Plan. Eligible Employees hired by the Company after the commencement of a
Performance Period may be granted Performance Units hereunder for the Performance Period which
commenced in the twelve (12) month period preceding the date on which the Employee became employed
by the Company. No Employee shall at any time have the right (a) to receive an Award upon the
expiration of a Performance Period which commenced prior to the twelve (12) month period preceding
the date on which they became an employee (b)

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to be selected as a Participant in the Plan for any Performance Period, (c) if selected as a
Participant in the Plan, to be entitled to an Award, or (d) if selected as a Participant in one
Performance Period, to be selected as a Participant in any subsequent Performance Period.

Article V — Awards

Section 5.1 For Performance Units measured by an Assigned Value, the Committee shall establish
Performance Goals for such Performance Units, including the Threshold Performance, Target
Performance and Maximum Performance, within 90 days of the commencement of a Performance Period,
and an Award for that Performance Period shall subject to the provisions of Article VI be paid or
otherwise deliverable upon the completion of the Performance Period solely on account of the
attainment of such Performance Goals. The degree to which the Company achieves such Performance
Goals and the business needs and circumstances of the Company at the time of payment of any Award
shall serve as the basis for the Committee’s determination of the Award payable to a Participant
upon the completion of a Performance Period. Awards will be prorated for Company performance
results occurring between stated performance levels. For Performance Units measured by an Assigned
Value, Company performance below the Threshold Performance in any Performance Period will result in
the forfeiture of such Performance Units awarded for that Performance Period, without any Award
payment.

Section 5.2 Awards payable at the expiration of a Performance Period shall be the product of (a)
the number of Performance Units in the Award and (b) the Common Stock Appreciation, if the
Performance Units are measured by the Fair Market Value of the Common Stock, or the appropriate
Assigned Value based upon Company performance, if the Performance Units are measured by Assigned
Value.

Section 5.3 In the case of all Awards measured by Assigned Value, no Participant may receive in any
one fiscal year an Award under the Plan of an amount greater than $2.5 million. In the case of all
Awards measured by Common Stock Appreciation, no Participant may receive in any one fiscal year an
Award under the Plan of a number of Performance Units greater than 500,000.

Section 5.4 The Company shall maintain a bookkeeping account for each Participant recording the
current value of Performance Units awarded hereunder. Each Participant shall receive an annual
statement reflecting the number of Performance Units awarded to that Participant hereunder, the
number of Performance Units which have vested as of the date of the statement, and the Base Value
or Assigned Value, as appropriate, assigned to each Performance Unit.

Section 5.5 At the Committee’s discretion, the effect of one-time charges and extraordinary,
nonrecurring events unrelated to the performance of a Participant such as asset write-downs,
litigation judgments or settlements, changes in tax laws, accounting principles or other laws or
provisions affecting reported results, accruals for reorganization or restructuring, and any other
extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or
losses may be disregarded for purposes of determining the attainment of Performance Goals.

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Article VI — Payment of Awards

Section 6.1 Upon completion of each Performance Period, the Committee shall review Company
performance results as compared to the established Performance Goals for that Performance Period,
and shall certify (either by written consent or as evidenced by the minutes of a meeting) the
specified Performance Goals achieved for the Performance Period (if any) and direct which Award
payments are payable under the Plan, if any.

Section 6.2 Vested Performance Units may be paid in a lump sum or in installments over any period
of time not to exceed 10 years following the close of the Performance Period or, in accordance with
terms established by the Committee, on a deferred basis. The Committee shall have sole and
absolute authority and discretion to determine the time and manner in which Awards, if any, shall
be paid under this Plan. The anticipated time and manner of payment will be as set forth in the
Award Certificate; provided, however, that the Committee reserves the right, based on business
needs and circumstances of the Company at any time prior to actual payment of any portion of an
award, to modify or amend the terms and manner of payment. The following provisions may, at the
discretion of the Committee, apply to any Award:

     (a) Form of Payment: Payment of vested Awards may be made in cash, or at the option of
the Committee, in whole or in part in Company Common Stock from any shareholder approved
Stock Incentive Plan, and may be subject to such restrictions as the Committee shall
determine.

     (b) Vesting: Except as provided in subsection (d) below, Participants shall vest in
Performance Units in equal one-third increments on the anniversary date of an Award.

     (c) Voluntary or Involuntary Termination: In the event of a Participant’s Involuntary
Termination of Employment Without Cause by the Company, the Participant shall be entitled to
payment for all vested Performance Unit Awards in accordance with the terms and conditions
of the Award Certificate. Notwithstanding anything to the contrary set forth elsewhere in
this Plan, in the event of the Participant’s Termination of Employment for Cause prior to
the close of a Performance Period by the Company, its Affiliate or Subsidiary, or by the
Participant for reasons other than Retirement, death or Disability, then the Participant
shall forfeit all Awards, whether vested or not, for which the Performance Period has not
ended.

     (d) Retirement, Death or Disability: In the event of the death, Retirement or
Disability of a Participant prior to the close of a Performance Period, a pro rata portion
of the Participant’s outstanding Performance Units shall vest based on the number of full
months which have elapsed in each Performance Period as of the date of the Participant’s
death, Retirement or Disability.

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Section 6.3 The Committee shall not have discretion or authority to increase the amount payable
hereunder pursuant to an Award in a manner inconsistent with the requirements for qualified
performance-based compensation under Code Section 162(m).

Section 6.4 Notwithstanding any other provision of the Plan or any to the contrary, Performance
Units which vest on or after January 1, 2005 will be paid in installments over five (5) years
following the close of the Performance Period The first such payment shall be made within ninety
(90) days after the end of the Performance Period and each successive installment to be on the
anniversary of the first payment. While the provisions of Section 6.2 providing discretion in the
Committee to modify such payment shall not be effective after 2004 and the provisions of Section
9.2 shall be effective with respect to payment of all Units under Article VI which become vested
after 2004.

Article VII — Amendment, Modification, Suspension or Termination of the Plan

Section 7.1 The Board may at any time terminate or suspend the Plan, in whole or in part, and from
time to time, amend or modify the Plan, provided that, except as otherwise provided in the Plan, no
such amendment, modification, suspension or termination shall adversely affect the rights of any
Participant under any vested Award previously earned but not yet paid to such Participant without
the consent of such Participant. In the event of such termination, in whole or in part, of the
Plan, the Committee may, subject to the foregoing, direct the payment to Participants of any
amounts specified in Article V and theretofore not paid out, prior to the respective dates upon
which payments would otherwise be made hereunder to such Participants, and in a lump sum or
installments as the Committee shall prescribe with respect to each such Participant.
Notwithstanding the foregoing, any such payment to a Covered Officer must be discounted to reflect
the present value of such payment using a rate equal to the average yield of a 5-year treasury
security for the month prior to the month in which the payment is made. The Board may at any time
and from time to time delegate to the Committee any or all of its authority under this Article VII.

Article VIII — Adjustments

Section 8.1 The existence of outstanding Awards shall not affect in any manner the right or power
of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital stock of the Company or its business or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock of the
Company) or the dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding of any kind, whether or
not of a character similar to that of the acts or proceedings enumerated above.

Section 8.2 In the event of any consolidation or merger of the Company with another corporation or
entity or the adoption by the Company of a plan of exchange affecting the Common Stock of the
Company or any distribution to holders of Company Common Stock of

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securities or property (other than normal cash dividends or dividends payable in Company Common
Stock), or a capital reorganization or reclassification or other transaction involving a
significant increase or decrease in the capitalization of the Company, the Committee shall make
such adjustment or other provision as it may deem equitable, including adjustments to the Base
Value assigned to outstanding Awards, to give proper effect to such event.

Article IX — General Provisions

Section 9.1 Unless otherwise determined by the Committee and provided in the Award Certificate, no
Award or any other benefit under this Plan shall be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant, except by will or the laws of descent and
distribution. Any attempted assignment of an Award or any other benefit under this Plan in
violation of this Section 9.1 shall be null and void. A Participant may designate in writing a
beneficiary (including the trustee or trustees of a trust) who shall upon the death of such
Participant be entitled to receive all amounts payable under the provisions of Section 6.2 to such
Participant. A Participant may rescind or change any such designation at any time. No transfer of
an Award by will or by laws of descent and distribution shall be effective to bind the Company
unless the Company shall be furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary or appropriate to establish the
validity of the transfer.

Section 9.2 The Company shall have the right to withhold applicable taxes from any Award payment
and to take such other action as may be necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes.

If and to the extent any portion of any payment, compensation or other benefit provided to
Participant in connection with Participant’s separation from service (as defined in Section 409A of
the Code (“Section 409A”)) is determined to constitute “nonqualified deferred compensation” within
the meaning of Section 409A and Participant is a specified employee as defined in Section
409A(a)(2)(B)(i) of the Code, as determined by the Company in accordance with its procedures, such
portion of the payment shall not be paid before the day that is six months plus one day after the
date of separation from service as determined under Section 409A (the “New Payment Date”), except
as Section 409A may then permit. The aggregation of any payments that otherwise would have been
paid to Participant during the period between the date of separation from service and the New
Payment Date shall be paid to Participant in a lump sum on such New Payment Date, and any remaining
payment shall be paid on their original schedule.

For purposes of this Plan, each amount to be paid shall be construed as a separate identified
payment for purposes of Section 409A, and any payments that are due within the “short term deferral
period” as defined in Section 409A shall not be treated as deferred compensation unless applicable
law requires otherwise. Neither the Company nor the Participant shall have the right to accelerate
or defer the delivery of any such payments except specifically permitted or required by Section
409A. This Plan is intended to comply with the provisions of Section 409A and the

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Plan shall, to the extent practicable, be construed in accordance therewith. Terms defined in the
Plan shall the meanings given such terms under Section 409A if and to the extent required to comply
with Section 409A. In any event, the Company makes no representations or warranty and shall have no
liability to any Participant or any other person if any provisions of or payments under this Plan
are determined to constitute deferred compensation subject to Section 409A but not to satisfy the
conditions of that section.

Section 9.3 No Employee or other person shall have any claim or right to be granted an Award under
this Plan, and there is no obligation for uniformity of treatment of Participant or holders or
beneficiaries of Awards. Neither the Plan nor any action taken thereunder shall be construed as
giving an Employee any right to be retained in the employ of the Company or an Employer and the
right of the Company or Employer to dismiss or discharge any such Participant is specifically
reserved. The benefits provided for Participants under the Plan shall be in addition to, and shall
in no way preclude, other forms of compensation to or in respect of such Participants. No
Participant shall have any lien on any assets of the Company or an Employer by reason of any Award
made under this Plan.

Section 9.4 At the discretion of the Committee, the Award payments under this Plan may be
considered compensation under any deferred compensation plan adopted by the Company after the
effective date of this Plan.

Section 9.5 Each Award hereunder shall be evidenced by an Award Certificate that shall be delivered
to the Participant and may specify the terms and conditions of the Award and any rules applicable
thereto. In the event of a conflict between the terms of the Plan and any Award Certificate, the
terms of the Plan shall prevail.

Section 9.6 This Plan and all determinations made and actions taken pursuant thereto, shall be
governed by and construed in accordance with, the laws of the State of Colorado, without giving
effect to conflicts of laws principles.

Section 9.7 If any provision of the Plan or any Award is, or becomes, or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any Participant or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction,
Participant or Award and the remainder of the Plan and any such Award shall remain in full force
and effect.

Section 9.8 Neither the Plan nor any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the Company or any subsidiary or
affiliate of the Company and a Participant or any other person. To the extent that any person
acquires a right to receive payments from the Company or any subsidiary or affiliate of the

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Company pursuant to an Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any subsidiary or affiliate.

Section 9.9 This Plan shall be binding upon and inure to the benefit of the Company, its successor
and assigns and each Participant and his legal representatives.

Article X — Term of the Plan

Section 10.1 The Plan shall be effective as of June 1, 2000 and shall remain effective until May
31, 2010.

Section 10.2 No new Awards shall be granted under the Plan after the termination of the Plan.
Unless otherwise expressly provided in the Plan or in an applicable Award Certificate, any Award
granted hereunder may, and the authority of the Board or Committee to amend, alter, adjust,
suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any
such Award shall, continue after the termination of the Plan for so long as Awards remain
outstanding under the Plan.

IN WITNESS WHEREOF, the Company has executed this Plan this 4th day of December, 2008, but
effective as of July 1, 2000.

	 	 	 	 	 
	 	 	Westmoreland Coal Company
	 
	 	 	 	 
	 

	 	By	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	ATTEST:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

12exv10w7

EXHIBIT 10.7

WESTMORELAND COAL COMPANY

AMENDED 2007 EQUITY INCENTIVE PLAN FOR EMPLOYEES AND NON-EMPLOYEE DIRECTORS

1. Purpose

     The purpose of this 2007 Equity Incentive Plan for Employees and Non-Employee Directors (the
“Plan”) of Westmoreland Coal Company, a Delaware corporation (the “Company”), is to advance the
interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and
motivate persons who are expected to make important contributions to the Company and by providing
such persons with equity ownership opportunities and performance-based incentives that are intended
to better align the interests of such persons with those of the Company’s stockholders.

2. Eligibility

     All of the Company’s employees, officers and directors are eligible to be granted options,
stock appreciation rights, restricted stock, restricted stock units and other stock-based awards
(each, an “Award”) under the Plan. Each person who receives an Award under the Plan is deemed a
“Participant”.

     Except where the context otherwise requires, the term “Company” shall include any of the
Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f)
of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the
“Code”) and any other business venture (including, without limitation, joint venture or limited
liability company) in which the Company has a controlling interest, as determined by the Board of
Directors of the Company (the “Board”); provided, however, that the term “Company” shall be limited
to include only entities that are eligible issuers of service recipient stock (as defined in Treas.
Reg. Section 1.409A-1(b)(5)(iii)(E)), or the applicable successor regulations for Awards that would
otherwise be subject to Section 409A, unless the Board of Directors determines otherwise.

3. Administration and Delegation

     (a) Administration by Board of Directors. The Plan will be administered by the Board.
The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may
construe and interpret the terms of the Plan and any Award agreements entered into under the Plan.
The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and
it shall be the sole and final judge of such expediency. All decisions by the Board shall be made
in the Board’s sole discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination relating to or under the
Plan made in good faith.

 

 

     (b) Appointment of Committees. To the extent permitted by applicable law, the Board
may delegate any or all of its powers under the Plan to one or more committees or subcommittees of
the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a
Committee of the Board to the extent that the Board’s powers or authority under the Plan have been
delegated to such Committee.

4. Stock Available for Awards

     (a) Number of Shares. Subject to adjustment under Section 10, Awards may be made
under the Plan for up to 700,000 shares of common stock, $2.50 par value per share, of the Company
(the “Common Stock”). If any Award expires; is terminated, surrendered or canceled without having
been fully exercised; is forfeited in whole or in part (including as the result of shares of Common
Stock subject to such Award being repurchased by the Company at the original issuance price
pursuant to a contractual repurchase right); is settled in cash or otherwise results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall again be available for
the grant of Awards under the Plan. Further, shares of Common Stock tendered to the Company by a
Participant to exercise an Award shall be added to the number of shares of Common Stock available
for the grant of Awards under the Plan. However, in the case of Incentive Stock Options (as
hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.

     (b) Section 162(m) Per-Participant Limit. The maximum number of shares of Common
Stock with respect to which Awards may be granted to any Participant under the Plan shall be
200,000 per calendar year. For purposes of the foregoing limit, the combination of an Option in
tandem with a SAR (as each is hereafter defined) shall be treated as a single Award. The
per-Participant limit described in this Section 4(b) shall be construed and applied consistently
with Section 162(m) of the Code or any successor provision thereto, and the regulations thereunder
(“Section 162(m)”).

     (c) Substitute Awards. In connection with a merger or consolidation of an entity with
the Company or the acquisition by the Company of property or stock of an entity, the Board may
grant Awards in substitution for any options or other stock or stock-based awards granted by such
entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan.
Substitute Awards shall not count against the overall share limit set forth in Section 4(a), except
as may be required by reason of Section 422 and related provisions of the Code.

5. Stock Options

     (a) General. The Board may grant options to purchase Common Stock (each, an “Option”)
and determine the number of shares of Common Stock to be covered by each Option, the exercise price
of each Option and the conditions and limitations applicable to the exercise of each Option,
including conditions relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option that is not intended to be an Incentive Stock Option (as
hereinafter defined) shall be designated a “Nonstatutory Stock Option.”

- 2 -

 

     (b) Incentive Stock Options. An Option that the Board intends to be an “incentive
stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be
granted to employees of Westmoreland Coal Company, any of Westmoreland Coal Company’s present or
future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any
other entities the employees of which are eligible to receive Incentive Stock Options under the
Code, and shall be subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any other party, if an
Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive
Stock Option or for any action taken by the Board, including without limitation the conversion of
an Incentive Stock Option to a Nonstatutory Stock Option.

     (c) Exercise Price; Fair Market Value.

          (1) The Board shall establish the exercise price of each Option and specify such exercise
price in the applicable option agreement. The exercise price shall be not less than 100% of the
Fair Market Value (as defined below) of a share of Common Stock on the date the Option is granted;
provided that if the Board approves the grant of an Option with an exercise price to be determined
on a future date, the exercise price shall be not less than 100% of the Fair Market Value of a
share of Common Stock on such future date.

          (2) The “Fair Market Value” of a share of Common Stock for purposes of the Plan shall be
determined as follows:

     (A) if the Common Stock trades on a national securities exchange, the closing
sale price (for the primary trading session) in the principal U.S. market for the
Common Stock on the date of grant; or

     (B) if the Common Stock does not trade on any such exchange, the average of the
closing bid and asked prices as reported by an authorized OTCBB market data vendor
as listed on the OTCBB website (otcbb.com) on the date of grant; or

     (C) if the Common Stock is not publicly traded, the Board will determine the
Fair Market Value for purposes of the Plan using any measure of value it determines
to be appropriate (including, as it considers appropriate, relying on appraisals) in
a manner consistent with the valuation principles under Section 409A of the Code,
except as the Board or Committee may expressly determine otherwise; or

     (D) for any date that is not a trading day, the Fair Market Value of a share of
Common Stock for such date will be determined by using the closing sale price or
average of the closing bid and asked prices, as appropriate, for the immediately
preceding trading day and with the timing in the formulas above adjusted
accordingly.

The Board may substitute a particular time of day or other measure of “closing sale price” or
“closing bid and asked prices” if appropriate because of exchange or market procedures or can, in
its sole discretion, use weighted averages either on a daily basis or such longer period as

- 3 -

 

complies with Section 409A of the Code. The Board has sole discretion to determine the Fair Market
Value for purposes of this Plan, and all Awards are conditioned on the Participants’ agreement that
the Board’s determination is conclusive and binding even though others might make a different
determination.

     (d) Duration of Options. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Board may specify in the applicable option agreement, provided,
however, that no Option will be granted for a term in excess of 10 years.

     (e) Exercise of Option. Options may be exercised by delivery to the Company of a
written notice of exercise signed by the proper person or by any other form of notice (including
electronic notice) approved by the Board, together with payment in full as specified in Section
5(f) for the number of shares for which the Option is exercised. Shares of Common Stock subject to
the Option will be delivered by the Company following exercise either as soon as practicable or,
subject to such conditions as the Board shall specify, on a deferred basis (with the Company’s
obligation to be evidenced by an instrument providing for future delivery of the deferred shares at
the time or times specified by the Board).

     (f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option
granted under the Plan shall be paid for as follows:

          (1) in cash or by check, payable to the order of the Company;

          (2) except as may otherwise be provided in the applicable option agreement, by (i) delivery of
an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax withholding or (ii)
delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions
to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the
exercise price and any required tax withholding;

          (3) to the extent provided for in the applicable option agreement or approved by the Board, in
its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common
Stock owned by the Participant valued at their Fair Market Value, provided (i) such method of
payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from
the Company, was owned by the Participant for such minimum period of time, if any, as may be
established by the Board in its discretion and (iii) such Common Stock is not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements;

          (4) to the extent provided for in the applicable Nonstatutory Stock Option agreement or
approved by the Board in its sole discretion, by delivery of a notice of “net exercise” to the
Company, as a result of which the Participant would receive (A) the number of shares of Common
Stock underlying the Option so exercised reduced by (B) the number of shares of Common Stock equal
to the aggregate exercise price of the Option divided by the Fair Market Value on the date of
exercise;

          (5) to the extent provided for in the applicable Incentive Stock Option agreement or approved
by the Board in its sole discretion, by delivery of a notice of “net exercise” to the Company, as a
result of which the Participant would receive the number of

- 4 -

 

shares of Common Stock underlying the Option so exercised reduced by the number of shares of
Common Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value
on the date of exercise; provided, however, that such provision shall only be operative in an
Incentive Stock Option agreement to the extent that the inclusion of the provision will not cause
the Option to fail to qualify as an Incentive Stock Option under the applicable Code rules;

          (6) payment of such other lawful consideration as the Board may determine; or

          (7) by any combination of the above permitted forms of payment.

     (g) Limitation on Repricing. Unless such action is approved by the Company’s
stockholders: (i) no outstanding Option granted under the Plan may be amended to provide an
exercise price per share that is lower than the then-current exercise price per share of such
outstanding Option (other than adjustments pursuant to Section 10) and (2) the Board may not cancel
any outstanding option (whether or not granted under the Plan) and grant in substitution therefor
new Awards under the Plan covering the same or a different number of shares of Common Stock and
having an exercise price per share lower than the then-current exercise price per share of the
cancelled option.

6. Director Awards.

     (a) Initial Grant. Upon the commencement of service on the Board by any individual
who is not then an employee of the Company or any subsidiary of the Company, the Company shall
grant to such person an Award with a value determined in a manner deemed appropriate by the Board,
which may include a value determined using Black-Scholes modeling, equal to $60,000.

     (b) Annual Grant. On the date of each annual meeting of stockholders of the Company,
the Company shall grant to each member of the Board of Directors of the Company who is both serving
as a director of the Company immediately prior to and immediately following such annual meeting and
who is not then an employee of the Company or any of its subsidiaries, an Award with a value
determined in a manner deemed appropriate by the Board, which may include a value determined using
Black-Scholes modeling, equal to $30,000; provided, however, that a director shall not be eligible
to receive an Award under this Section 6(b) until such director has served on the Board for at
least seven months.

     (c) Grant or Base Price. The grant or base price or exercise price of an Award
granted under this Section 6 shall not be less than 100% of the Fair Market Value per share of
Common Stock on the date of grant of the Award.

     (d) Terms of Director Awards.

          (1) Subject to clauses (2) and (3) below, Awards granted under this Section 6 shall vest
according to the Schedule specified in the Award.

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          (2) Upon the occurrence of a Reorganization Event or a Change in Control Event (as such terms
are defined below), Awards made to directors shall be treated in accordance with Sections 10(b) and
10(c).

          (3) If a Participant’s service as a director terminates for any reason other than a
Reorganization Event or a Change in Control Event, and if the Participant has served as a director
for three years or more, then such Participant’s Awards shall vest and become fully exercisable on
the date such Participant ceases to be a director. If a Participant’s service as a director
terminates for any reason other than a Reorganization Event or a Change in Control Event, and such
Participant has served as a director for less than three years, then all of the Participant’s
unvested Awards shall expire on the date such Participant ceases to be a director; provided,
however, that the Board may in its sole discretion provide for the vesting of any unvested Award if
the Participant’s service as a director terminates by reason of death or disability.

          (4) Awards granted under this Section 6 shall expire at the time specified in the relevant
Award, which in the case of Options shall be the earlier of 10 years from the date of grant or
three months following cessation of Board service.

          (5) Awards shall contain such other terms and conditions as the Board shall determine.

     (e) Board Discretion. This Plan is not intended to limit the Board’s ability to
revise the incentive compensation payable to the directors, and the Board retains the specific
authority to from time to time increase or decrease the dollar values specified in Section 6(a) and
Section 6(b) and to amend the terms of director Awards as set forth in Section 6(d).

7. Stock Appreciation Rights.

     (a) General. The Board may grant Awards consisting of a stock appreciation right
(“SAR”) entitling the holder, upon exercise, to receive an amount of Common Stock or cash or a
combination thereof (such form to be determined by the Board) determined in whole or in part by
reference to appreciation, from and after the date of grant, in the Fair Market Value of a share of
Common Stock. The date as of which such appreciation or other measure is determined shall be the
exercise date.

     (b) Grants. SARs may be granted in tandem with, or independently of, Options granted
under the Plan.

     (c) Grant or Base Price. The grant or base price or exercise price of an SAR shall
not be less than 100% of the Fair Market Value per share of Common Stock on the date of grant of
the SAR; provided that if the Board approves the grant of an SAR with an exercise price to be
determined on a future date, the exercise price shall be not less than 100% of the Fair Market
Value of a share of Common Stock on such future date.

     (d) Term. The term of an SAR shall not be more than 10 years from the date of grant.

- 6 -

 

     (e) Exercise. SARs may be exercised by delivery to the Company of a written notice of
exercise signed by the proper person or by any other form of notice (including electronic notice)
approved by the Board, together with any other documents required by the Board.

8. Restricted Stock; Restricted Stock Units.

     (a) General. The Board may grant Awards entitling recipients to acquire shares of
Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of
such shares at their issue price or other stated or formula price (or to require forfeiture of such
shares if issued at no cost) from the recipient in the event that conditions specified by the Board
in the applicable Award are not satisfied prior to the end of the applicable restriction period or
periods established by the Board for such Award. Instead of granting Awards for Restricted Stock,
the Board may grant Awards entitling the recipient to receive shares of Common Stock to be
delivered at the time such shares of Common Stock vest (“Restricted Stock Units”) (Restricted Stock
and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).

     (b) Terms and Conditions. The Board shall determine the terms and conditions of a
Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the
issue price, if any.

     (c) Additional Provisions Relating to Restricted Stock.

          (1) Dividends. Participants holding shares of Restricted Stock will be entitled to
all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the
Board. If any such dividends or distributions are paid in shares, or consist of a dividend or
distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or
other property will be subject to the same restrictions on transferability and forfeitability as
the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be
made no later than the end of the calendar year in which the dividends are paid to shareholders of
that class of stock or, if later, the 15th day of the third month following the date the dividends
are paid to shareholders of that class of stock.

          (2) Stock Certificates. The Company may require that any stock certificates issued in
respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the
applicable restriction periods, the Company (or such designee) shall deliver the certificates no
longer subject to such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts
due or exercise rights of the Participant in the event of the Participant’s death (the “Designated
Beneficiary”). In the absence of an effective designation by a Participant, “Designated
Beneficiary” shall mean the Participant’s estate.

     (d) Additional Provisions Relating to Restricted Stock Units.

          (1) Settlement. Upon the vesting of and/or lapsing of any other restrictions (i.e.,
settlement) with respect to each Restricted Stock Unit, the Participant shall be entitled to
receive from the Company one share of Common Stock or an amount of cash equal to the Fair

- 7 -

 

Market Value of one share of Common Stock, as provided in the applicable Award agreement. The
Board may, in its discretion, provide that settlement of Restricted Stock Units shall be deferred
in a manner consistent with Section 409A, on a mandatory basis or at the election of the
Participant.

          (2) Voting Rights. A Participant shall have no voting rights with respect to any
Restricted Stock Units.

          (3) Dividend Equivalents. To the extent provided by the Board, in its sole
discretion, a grant of Restricted Stock Units may provide Participants with the right to receive an
amount equal to any dividends or other distributions declared and paid on an equal number of
outstanding shares of Common Stock (“Dividend Equivalents”). Dividend Equivalents may be paid
currently or credited to an account for the Participants, may be settled in cash and/or shares of
Common Stock and may be subject to the same restrictions on transfer and forfeitability as the
Restricted Stock Units with respect to which paid, as determined by the Board in its sole
discretion, subject in each case to such terms and conditions as the Board shall establish, in each
case to be set forth in the applicable Award agreement.

9. Other Stock-Based Awards.

     Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, shares of Common Stock or other property, may be
granted hereunder to Participants (“Other Stock-Based Awards”), including without limitation Awards
entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other
Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards
granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise
entitled. Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board
shall determine. Subject to the provisions of the Plan, the Board shall determine the terms and
conditions of each Other Stock-Based Award, including any purchase price applicable thereto.

10. Adjustments for Changes in Common Stock and Certain Other Events.

     (a) Changes in Capitalization. In the event of any stock split, reverse stock split,
stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or
other similar change in capitalization or event, or any dividend or distribution to holders of
Common Stock other than an ordinary cash dividend, (i) the number and class of securities available
under this Plan, (ii) the sub-limit set forth in Section 4(b), (iii) the number and class of
securities and exercise price per share of each outstanding Option, (iv) the share- and per-share
provisions and the grant or base price of each outstanding SAR, (v) the number of shares subject to
and the repurchase price per share subject to each outstanding Restricted Stock Award, (vi) the
share- and per-share-related provisions and the purchase price, if any, of each outstanding Other
Stock-Based Award, and (vii) the terms and conditions of each Award issuable under Section 6, shall
be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the
manner determined by the Board. Without limiting the generality of the foregoing, in the event the
Company effects a split of the Common Stock by means of a stock dividend and the exercise price of
and the number of shares subject to an outstanding Option are adjusted as of the

- 8 -

 

date of the distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and the distribution
date for such stock dividend shall be entitled to receive, on the distribution date, the stock
dividend with respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close of business on the
record date for such stock dividend.

     (b) Reorganization Events.

          (1) Definition. A “Reorganization Event” shall mean: (a) any merger or consolidation
of the Company with or into another entity as a result of which all of the Common Stock of the
Company is converted into or exchanged for the right to receive cash, securities or other property
or is cancelled, (b) any exchange of all of the Common Stock of the Company for cash, securities or
other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of
the Company.

          (2) Consequences of a Reorganization Event on Awards Other than Restricted Stock
Awards. In connection with a Reorganization Event, the Board may take any one or more of the
following actions as to all or any (or any portion of) outstanding Awards other than Restricted
Stock Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or
substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation
(or an affiliate thereof), (ii) upon written notice to a Participant, provide that the
Participant’s unexercised Options or other unexercised Awards will terminate immediately prior to
the consummation of such Reorganization Event unless exercised by the Participant within a
specified period following the date of such notice, (iii) provide that outstanding Awards shall
become exercisable, realizable, or deliverable, or restrictions applicable to an Award shall lapse,
in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a
Reorganization Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share surrendered in the Reorganization Event (the
“Acquisition Price”), make or provide for a cash payment to a Participant equal to the excess, if
any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the
Participant’s Options or other Awards (to the extent the exercise price does not exceed the
Acquisition Price) over (B) the aggregate exercise price of all such outstanding Options or other
Awards and any applicable tax withholdings, in exchange for the termination of such Options or
other Awards, (v) provide that, in connection with a liquidation or dissolution of the Company,
Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the
exercise price thereof and any applicable tax withholdings) and (vi) any combination of the
foregoing. In taking any of the actions permitted under this Section 10(b), the Board shall not be
obligated by the Plan to treat all Awards, or all Awards of the same type, identically.

          For purposes of clause (i) above, an Option shall be considered assumed if, following
consummation of the Reorganization Event, the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior to the consummation of the Reorganization
Event, the consideration (whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock held immediately
prior to the consummation of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a

- 9 -

 

majority of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Reorganization Event is not solely common stock of the
acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of
the acquiring or succeeding corporation, provide for the consideration to be received upon the
exercise of Options to consist solely of common stock of the acquiring or succeeding corporation
(or an affiliate thereof) equivalent in value (as determined by the Board) to the per share
consideration received by holders of outstanding shares of Common Stock as a result of the
Reorganization Event.

          (3) Consequences of a Reorganization Event on Restricted Stock Awards. Upon the
occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the
repurchase and other rights of the Company under each outstanding Restricted Stock Award shall
inure to the benefit of the Company’s successor and shall, unless the Board determines otherwise,
apply to the cash, securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a
Reorganization Event involving the liquidation or dissolution of the Company, except to the extent
specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or
any other agreement between a Participant and the Company, all restrictions and conditions on all
Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.

     (c) Change in Control Events.

          (1) Definition. A “Change in Control Event” shall mean:

     (A) (I) except as provided in clause (A)(II) below, the acquisition by an
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the “Exchange Act”)) (a “Person”) of beneficial
ownership of any capital stock of the Company if, after such acquisition, such
Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 20% or more of either (x) the then-outstanding shares of common stock
of the Company (the “Outstanding Company Common Stock”) or (y) the combined voting
power of the then-outstanding securities of the Company entitled to vote generally
in the election of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this subsection (A), the following
acquisitions shall not constitute a Change in Control Event: (i) any acquisition
directly from the Company (excluding an acquisition pursuant to the exercise,
conversion or exchange of any security exercisable for, convertible into or
exchangeable for common stock or voting securities of the Company, unless the Person
exercising, converting or exchanging such security acquired such security directly
from the Company or an underwriter or agent of the Company), (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iii) any acquisition by any
corporation pursuant to a Business Combination (as defined below) which complies
with clauses (x) and (y) of subsection (C) of this definition; and provided,
further, that

- 10 -

 

if any person beneficially owns 20% or more of the Outstanding Company Common
Stock or the Outstanding Company Voting Securities, but notwithstanding such
ownership, a Change in Control Event has not occurred because the Person’s
acquisition of all or a portion of such Person’s shares is or was an acquisition
described in clause (i) of the preceding proviso, then the acquisition by that
Person of any additional shares of Common Stock other than pursuant to a stock
split, stock dividend, or other similar event shall constitute a Change in Control
Event; or (II) notwithstanding the foregoing clause (A)(I), the acquisition of 20%
or more of the Outstanding Company Common Stock or the Outstanding Company Voting
Securities shall not be a Change of Control Event if the Person acquiring such
interest in the Company’s outstanding securities does not thereby become an
“Acquiring Person” under the terms of the Rights Agreement (defined below) in effect
on the date of the shareholder approval of this Plan; provided, however, that if
such Person would become an “Acquiring Person” under the terms of the Rights
Agreement upon the acquisition of a specified percentage of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities greater than 20% (the
“Modified Ownership Threshold”), then it shall be a Change of Control Event under
this Plan if such Person acquires a beneficial interest in the Outstanding Company
Common Stock or the Outstanding Company Voting Securities at or above the Modified
Ownership Threshold, thereby making such Person an “Acquiring Person” under the
terms of the Rights Agreement. The “Rights Agreement” referred to in this clause
(A)(II) means the Amended and Restated Rights Agreement, dated as of February 7,
2003, between the Company and Computershare Trust Company, N.A. (formerly known as
EquiServe Trust Company, N.A.), as rights agent, as amended by the First Amendment
to the Amended and Restated Rights Agreement, dated as of May 2, 2007.

     (B) such time as the Continuing Directors (as defined below) do not constitute
a majority of the Board (or, if applicable, the Board of Directors of a successor
corporation to the Company), where the term “Continuing Director” means at any date
a member of the Board (x) who was a member of the Board on the date of the initial
adoption of this Plan by the Board or (y) who was nominated pursuant to the terms of
the Standby Purchase Agreement, dated as of May 2, 2007 between the Company and
Tontine Capital Partners, L.P. or (z) who was nominated or elected subsequent to
such date by at least a majority of the directors who were Continuing Directors at
the time of such nomination or election or whose election to the Board was
recommended or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election; provided, however, that there
shall be excluded from this clause (y) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened solicitation
of proxies or consents, by or on behalf of a person other than the Board; or

     (C) the consummation of a merger, consolidation, reorganization,
recapitalization or share exchange involving the Company or a sale or other

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disposition of all or substantially all of the assets of the Company (a
“Business Combination”), unless, immediately following such Business Combination,
each of the following two conditions is satisfied: (x) all or substantially all of
the individuals and entities who were the beneficial owners of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than 50% of
the then-outstanding shares of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business Combination
(which shall include, without limitation, a corporation which as a result of such
transaction owns the Company or substantially all of the Company’s assets either
directly or through one or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the “Acquiring Corporation”) in substantially
the same proportions as their ownership of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, respectively, immediately prior to such
Business Combination and (y) no Person (excluding any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 20% or more of the
then-outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors (except to the extent that
such ownership existed prior to the Business Combination); or

     (D) the liquidation or dissolution of the Company.

          (2) Effect on Options. Notwithstanding the provisions of Section 10(b) and
irrespective of whether such an event is also a Reorganization Event, effective immediately prior
to a Change in Control Event, except to the extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement between a Participant and the Company.
Upon the occurrence of a Change of Control Event, unless specifically provided to the contrary in
the instrument evidencing any Award or any other agreement between a participant and the Company,
unvested options granted to an employee or a director of the Company will automatically become
vested or exercisable upon a Change of Control Event if such employee is Terminated within 12
months following such Change of Control or the director is removed from the Board within 12 months
of the Change of Control, or, if a regular meeting of shareholders occurs within 12 months of the
Change of Control, such director is not nominated for re-election at such meeting after he or she
expresses a desire to be so nominated. For purposes of the foregoing, “Terminated” means
involuntary dismissal or a material change in the employee’s level of total compensation or a
material change in his or her level of responsibility which, in either such case, causes the
employee to voluntarily terminate his or her employment.

          (3) Effect on Restricted Stock Awards.  Notwithstanding the provisions of Section
10(b) and irrespective of whether such an event is also a Reorganization Event, effective
immediately prior to a Change in Control Event, except to the extent specifically provided to the
contrary in the instrument evidencing any Restricted Stock Award or any other agreement

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between a Participant and the Company, all restrictions and conditions on all Restricted Stock
Awards then-outstanding shall automatically be deemed terminated or satisfied.

          (4) Effect on SARs and Other Stock-Based Awards. Upon the occurrence of a Change of
Control Event, unless specifically provided to the contrary in the instrument evidencing any Award
or any other agreement between a participant and the Company, unvested SARs granted to an employee
or a director of the Company will automatically become vested or exercisable upon a Change of
Control Event if such employee is Terminated within 12 months following such Change of Control or
the director is removed from the Board within 12 months of the Change of Control, or, if a regular
meeting of shareholders occurs within 12 months of the Change of Control, such director is not
nominated for re-election at such meeting after he or she expresses a desire to be so nominated.
For purposes of the foregoing, “Terminated” means involuntary dismissal or a material change in the
employee’s level of total compensation or a material change in his or her level of responsibility
which, in either such case, causes the employee to voluntarily terminate his or her employment.

          The Board may specify in an Award at the time of the grant the effect of a Change in Control
Event on any Other Stock-Based Award.

11. General Provisions Applicable to Awards

     (a) Transferability of Awards. Awards shall not be sold, assigned, transferred,
pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by
operation of law, except by will or the laws of descent and distribution or, other than in the case
of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the
life of the Participant, shall be exercisable only by the Participant; provided, however, that the
Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant
to or for the benefit of any immediate family member, family trust or other entity established for
the benefit of the Participant and/or an immediate family member thereof if, with respect to such
proposed transferee, the Company would be eligible to use a Form S-8 for the registration of the
sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended;
provided, further, that the Company shall not be required to recognize any such transfer until such
time as the Participant and such permitted transferee shall, as a condition to such transfer,
deliver to the Company a written instrument in form and substance satisfactory to the Company
confirming that such transferee shall be bound by all of the terms and conditions of the Award.
References to a Participant, to the extent relevant in the context, shall include references to
authorized transferees.

     (b) Documentation. Each Award shall be evidenced in such form (written, electronic or
otherwise) as the Board shall determine. Such written instrument may be in the form of an
agreement signed by the Company and the Participant or a written confirming memorandum to the
Participant from the Company. Each Award may contain terms and conditions in addition to those set
forth in the Plan.

     (c) Board Discretion. Except as otherwise provided by the Plan, each Award may be
made alone or in addition or in relation to any other Award. The terms of each Award need not be
identical, and the Board need not treat Participants uniformly.

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     (d) Termination of Status. The Board shall determine the effect on an Award of the
disability, death, termination of employment, authorized leave of absence or other change in the
employment or other status of a Participant and the extent to which, and the period during which,
the Participant, or the Participant’s legal representative, conservator, guardian or Designated
Beneficiary, may exercise rights under the Award.

     (e) Withholding. The Participant must satisfy all applicable federal, state, and
local or other income and employment tax withholding obligations before the Company will deliver
stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company
may decide to satisfy the withholding obligations through additional withholding on salary or
wages. If the Company elects not to or cannot withhold from other compensation, the Participant
must pay the Company the full amount, if any, required for withholding or have a broker tender to
the Company cash equal to the withholding obligations. Payment of withholding obligations is due
before the Company will issue any shares on exercise or release from forfeiture of an Award or, if
the Company so requires, at the same time as is payment of the exercise price unless the Company
determines otherwise. If provided for in an Award or approved by the Board in its sole discretion,
a Participant may satisfy such tax obligations in whole or in part by delivery of shares of Common
Stock, including shares retained from the Award creating the tax obligation, valued at their Fair
Market Value; provided, however, except as otherwise provided by the Board, that the total tax
withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s
minimum statutory withholding obligations (based on minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable
income). Shares surrendered to satisfy tax withholding requirements cannot be subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.

     (f) Amendment of Award. Subject to Section 5(g), the Board may amend, modify or
terminate any outstanding Award, including but not limited to, substituting therefor another Award
of the same or a different type, changing the date of exercise or realization, and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to
such action shall be required unless (i) the Board determines that the action, taking into account
any related action, would not materially and adversely affect the Participant’s rights under the
Plan or (ii) the change is permitted under Section 10 hereof.

     (g) Conditions on Delivery of Stock. The Company will not be obligated to deliver any
shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously
delivered under the Plan until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market rules and regulations,
and (iii) the Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.

     (h) Acceleration. The Board may at any time provide that any Award shall become
immediately exercisable in full or in part, free of some or all restrictions or conditions, or
otherwise realizable in full or in part, as the case may be.

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     (i) Performance Awards.

          (1) Grants. Restricted Stock Awards and Other Stock-Based Awards under the Plan may
be made subject to the achievement of performance goals pursuant to this Section 11(i)
(“Performance Awards”), subject to the limit in Section 4(b) on shares covered by such grants.

          (2) Committee. Grants of Performance Awards to any Covered Employee intended to
qualify as “performance-based compensation” under Section 162(m) (“Performance- Based
Compensation”) shall be made only by a Committee (or subcommittee of a Committee) comprised solely
of two or more directors eligible to serve on a committee making Awards qualifying as
“performance-based compensation” under Section 162(m). In the case of such Awards granted to
Covered Employees, references to the Board or to a Committee shall be deemed to be references to
such Committee or subcommittee. “Covered Employee” shall mean any person who is a “covered
employee” under Section 162(m)(3) of the Code.

          (3) Performance Measures. For any Award that is intended to qualify as
Performance-Based Compensation, the Committee shall specify that the degree of granting, vesting
and/or payout shall be subject to the achievement of one or more objective performance measures
established by the Committee, which shall be based on the relative or absolute attainment of
specified levels of one or any combination of the following:

     (A) earnings before interest, taxes, depreciation and/or amortization,

     (B) earnings before operating income or profit,

     (C) operating efficiencies,

     (D) return on equity, assets, capital, capital employed, or investment,

     (E) after tax operating income,

     (F) net income,

     (G) earnings or book value per share,

     (H) cash flow(s),

     (I) total sales or revenues or sales or revenues per employee,

     (J) production (separate work units or SWUs),

     (K) stock price or total stockholder return,

     (L) dividends,

     (M) strategic business objectives, consisting of one or more objectives based
on meeting specified cost targets, business expansion goals, and goals relating to
acquisitions or divestitures, or

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     (N) except in the case of a Covered Employee, any other performance criteria
established by the Committee, and may be absolute in their terms or measured against
or in relationship to other companies comparably, similarly or otherwise situated.

Such performance measures may be adjusted to exclude any one or more of (i) extraordinary items,
(ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects
of changes in accounting principles, (iv) the writedown of any asset, and (v) charges for
restructuring and rationalization programs. Such performance measures: (i) may vary by Participant
and may be different for different Awards; (ii) may be particular to a Participant or the
department, branch, line of business, subsidiary, division, operating unit, or other unit in which
the Participant works and may cover such period as may be specified by the Committee; and (iii)
shall be set by the Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m). Awards that are not intended to qualify as Performance-Based
Compensation may be based on these or such other performance measures as the Board may determine.

          (4) Adjustments. Notwithstanding any provision of the Plan, with respect to any
Performance Award that is intended to qualify as Performance-Based Compensation, the Committee may
adjust downwards, but not upwards, the cash or number of Shares payable pursuant to such Award, and
the Committee may not waive the achievement of the applicable performance measures except in the
case of the death or disability of the Participant or a change in control of the Company.

          (5) Other. The Committee shall have the power to impose such other restrictions on
Performance Awards as it may deem necessary or appropriate to ensure that such Awards satisfy all
requirements for Performance-Based Compensation.

12. Miscellaneous

     (a) No Right To Employment or Other Status. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be construed as giving a Participant
the right to continued employment or any other relationship with the Company. The Company
expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

     (b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no
Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an Award until becoming the record holder
of such shares.

     (c) Effective Date and Term of Plan. The Plan shall become effective on the date the
Plan is approved by the Company’s stockholders (the “Effective Date”). No Awards shall be granted
under the Plan after the expiration of 10 years from the Effective Date, but Awards previously
granted may extend beyond that date.

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     (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any
portion thereof at any time provided that (i) to the extent required by Section 162(m), no Award
granted to a Participant that is intended to comply with Section 162(m) after the date of such
amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and
until such amendment shall have been approved by the Company’s stockholders if required by Section
162(m) (including the vote required under Section 162(m)); (ii) no amendment that would require
stockholder approval under the rules of American Stock Exchange (“AMEX”) may be made effective
unless and until such amendment shall have been approved by the Company’s stockholders; and (iii)
if the AMEX amends its corporate governance rules so that such rules no longer require stockholder
approval of “material amendments” to equity compensation plans, then, from and after the effective
date of such amendment to the AMEX rules, no amendment to the Plan (A) materially increasing the
number of shares authorized under the Plan (other than pursuant to Section 4(c) or 10), (B)
expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the
class of participants eligible to participate in the Plan shall be effective unless stockholder
approval is obtained. In addition, if at any time the approval of the Company’s stockholders is
required as to any other modification or amendment under Section 422 of the Code or any successor
provision with respect to Incentive Stock Options, the Board may not effect such modification or
amendment without such approval. Unless otherwise specified in the amendment, any amendment to the
Plan adopted in accordance with this Section 12(d) shall apply to, and be binding on the holders
of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board
determines that such amendment does not materially and adversely affect the rights of Participants
under the Plan. No Award shall be made that is conditioned upon stockholder approval of any
amendment to the Plan.

     (e) Compliance with Code Section 409A. No Award shall provide for deferral of
compensation that does not comply with Section 409A of the Code, unless the Board, at the time of
grant, specifically provides that the Award is not intended to comply with Section 409A of the
Code. The Company shall have no liability to a Participant, or any other party, if an Award that
is intended to be exempt from, or compliant with, Section 409A is not so exempt or compliant or for
any action taken by the Board.

     (f) Governing Law. The provisions of the Plan and all Awards made hereunder shall be
governed by and interpreted in accordance with the laws of the State of Delaware, excluding
choice-of-law principles of the law of such state that would require the application of the laws of
a jurisdiction other than such state.

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