Document:

exv10w2

EXHIBIT 10.2

FORM OF

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

ABSALOKA COAL, LLC

a Delaware Limited Liability Company

Dated as of October 16, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE I ORGANIZATIONAL MATTERS
	 	 	2	 
	 
	 	 	 	 
	Section 1.1 Formation
	 	 	2	 
	Section 1.2 Name
	 	 	2	 
	Section 1.3 Purpose
	 	 	2	 
	Section 1.4 Registered Office and Registered Agent; Principal Place of Business
	 	 	3	 
	Section 1.5 Foreign Qualification
	 	 	3	 
	Section 1.6 Term
	 	 	3	 
	 
	 	 	 	 
	ARTICLE II DEFINITIONS AND REFERENCES
	 	 	3	 
	 
	 	 	 	 
	Section 2.1 Definitions
	 	 	3	 
	Section 2.2 References and Construction
	 	 	17	 
	 
	 	 	 	 
	ARTICLE III MEMBERS AND UNITS
	 	 	18	 
	 
	 	 	 	 
	Section 3.1 Members
	 	 	18	 
	Section 3.2 Additional Members
	 	 	18	 
	Section 3.3 Liability to Third Parties
	 	 	18	 
	Section 3.4 Members Have No Agency Authority
	 	 	18	 
	 
	 	 	 	 
	ARTICLE IV CAPITALIZATION
	 	 	19	 
	 
	 	 	 	 
	Section 4.1 Capital Contributions of WRI
	 	 	19	 
	Section 4.2 Capital Account of Investor and WRI Sub
	 	 	20	 
	Section 4.3 Failure Transfer
	 	 	20	 
	Section 4.4 Additional Mandatory Capital Contribution
	 	 	20	 
	Section 4.5 Interest on and Return of Capital Contributions
	 	 	20	 
	Section 4.6 Loans
	 	 	21	 
	 
	 	 	 	 
	ARTICLE V ALLOCATIONS AND DISTRIBUTIONS
	 	 	22	 
	 
	 	 	 	 
	Section 5.1 Sharing of Items of Income, Deduction, Gain and Loss
	 	 	22	 
	Section 5.2 Allocations for Capital Account Purposes
	 	 	22	 
	Section 5.3 Allocations for Federal Income Tax Purposes
	 	 	25	 
	Section 5.4 Allocations Attributable to Transferred Interests
	 	 	26	 
	Section 5.5 Distributions
	 	 	26	 
	 
	 	 	 	 
	ARTICLE VI MANAGEMENT AND GOVERNANCE PROVISIONS
	 	 	27	 
	 
	 	 	 	 
	Section 6.1 Management by WRI as Manager
	 	 	27	 
	Section 6.2 Removal of Manager
	 	 	28	 
	Section 6.3 Vacancies
	 	 	28	 
	Section 6.4 Compensation of the Manager
	 	 	28	 
	Section 6.5 Actions Requiring Investor Approval
	 	 	28	 
	Section 6.6 Exercise of Coal Options at Request of Investor
	 	 	31	 
	Section 6.7 Officers
	 	 	31	 
	Section 6.8 Mining Contract
	 	 	32	 

i

 

TABLE
OF CONTENTS
(continued)

	 	 	 	 	 
	 	 	Page
	Section 6.9 Sales Agency Agreement
	 	 	32	 
	Section 6.10 Sales to Unrelated Persons
	 	 	33	 
	Section 6.11 Right to Inspect Mine
	 	 	33	 
	 
	 	 	 	 
	ARTICLE VII ACCOUNTING AND BANKING MATTERS; CAPITAL ACCOUNTS; TAX MATTERS
	 	 	33	 
	 
	 	 	 	 
	Section 7.1 Books and Records; Reports; Notice of Certain Events
	 	 	33	 
	Section 7.2 Fiscal Year
	 	 	37	 
	Section 7.3 Capital Accounts
	 	 	37	 
	Section 7.4 Tax Partnership
	 	 	40	 
	Section 7.5 Tax Matters Partner
	 	 	40	 
	Section 7.6 Federal Income Tax Audit
	 	 	41	 
	Section 7.7 Tax Returns
	 	 	42	 
	Section 7.8 TEFRA Election
	 	 	42	 
	Section 7.9 § 754 Election
	 	 	42	 
	Section 7.10 Aggregation Election
	 	 	42	 
	Section 7.11 Defense of Tax Claims
	 	 	42	 
	 
	 	 	 	 
	ARTICLE VIII INDEMNIFICATION
	 	 	43	 
	 
	 	 	 	 
	Section 8.1 Power to Indemnify in Actions, Suits or Proceedings
	 	 	43	 
	Section 8.2 Expenses Payable in Advance
	 	 	43	 
	Section 8.3 Nonexclusivity of Indemnification and Advancement of Expenses
	 	 	43	 
	Section 8.4 Insurance
	 	 	44	 
	Section 8.5 Survival of Indemnification and Advancement of Expenses
	 	 	45	 
	Section 8.6 Limitation on Indemnification
	 	 	45	 
	Section 8.7 Indemnification of Employees and Agents
	 	 	45	 
	Section 8.8 Severability
	 	 	45	 
	 
	 	 	 	 
	ARTICLE IX DISPOSITIONS OF MEMBERSHIP INTERESTS
	 	 	46	 
	 
	 	 	 	 
	Section 9.1 Dispositions
	 	 	46	 
	Section 9.2 Substitution
	 	 	48	 
	 
	 	 	 	 
	ARTICLE X DISSOLUTION, LIQUIDATION, AND TERMINATION
	 	 	48	 
	 
	 	 	 	 
	Section 10.1 Dissolution
	 	 	48	 
	Section 10.2 Winding Up, Final Distribution
	 	 	50	 
	Section 10.3 Termination; Certificate of Cancellation
	 	 	52	 
	 
	 	 	 	 
	ARTICLE XI WITHDRAWAL
	 	 	52	 
	 
	 	 	 	 
	Section 11.1 Withdrawal
	 	 	52	 
	Section 11.2 Distribution Upon Withdrawal
	 	 	52	 
	Section 11.3 Procedure
	 	 	53	 
	Section 11.4 Termination of Membership
	 	 	53	 

ii 

 

TABLE
OF CONTENTS
(continued)

	 	 	 	 	 
	 	 	Page
	ARTICLE XII OUTSIDE ACTIVITIES AND INVESTMENTS
	 	 	53	 
	 
	 	 	 	 
	Section 12.1 Other Investments
	 	 	53	 
	Section 12.2 Certain Conflicts of Interest
	 	 	54	 
	Section 12.3 Effects on Related Parties
	 	 	54	 
	Section 12.4 Application
	 	 	55	 
	 
	 	 	 	 
	ARTICLE XIII WRI BUYOUT OPTION
	 	 	55	 
	 
	 	 	 	 
	Section 13.1 WRI Buyout Option
	 	 	55	 
	Section 13.2 Allocation of Tax Items; Distributions
	 	 	55	 
	 
	 	 	 	 
	ARTICLE XIV GENERAL PROVISIONS
	 	 	56	 
	 
	 	 	 	 
	Section 14.1 Notices
	 	 	56	 
	Section 14.2 Amendment and Waivers
	 	 	56	 
	Section 14.3 Entire Agreement
	 	 	57	 
	Section 14.4 Effect of Waiver or Consent
	 	 	58	 
	Section 14.5 Successors and Assigns
	 	 	58	 
	Section 14.6 Governing Law
	 	 	58	 
	Section 14.7 Jurisdiction and Venue
	 	 	58	 
	Section 14.8 Waiver of Jury Trial
	 	 	59	 
	Section 14.9 Directly or Indirectly
	 	 	59	 
	Section 14.10 Severability
	 	 	59	 
	Section 14.11 Further Assurances
	 	 	59	 
	Section 14.12 Title to Company Property
	 	 	60	 
	Section 14.13 No Third Party Beneficiaries
	 	 	60	 
	Section 14.14 Expenses
	 	 	60	 
	Section 14.15 Counterparts
	 	 	61	 
	Section 14.16 Confidentiality
	 	 	61	 
	Section 14.17 Power of Attorney
	 	 	62	 
	Section 14.18 Survival of Certain Provisions
	 	 	63	 
	 
	 	 	 	 
	ARTICLE XV DISPUTE RESOLUTION
	 	 	63	 
	 
	 	 	 	 
	Section 15.1 Disputes
	 	 	63	 

	 	 	 
	Exhibit A

	 	Membership Interest Purchase Agreement
	Exhibit B

	 	Mining Contract
	Exhibit C

	 	Sales Agency Agreement

iii 

 

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

ABSALOKA COAL, LLC

     THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, dated as of October 16, 2008,
is made and entered into by and among WRI Partners, Inc. (“WRI Sub”), a Delaware corporation and a
wholly-owned subsidiary of Westmoreland Resources, Inc., a Delaware corporation (“WRI”), and
Feedstock Investments IV, LLC, a Delaware limited liability company (“Investor”). Capitalized
terms as used herein shall have the meaning set forth in Section 2.1 unless otherwise defined
herein.

     WHEREAS, Absaloka Coal, LLC, a Delaware limited liability company (the “Company”), was formed
on May 29, 2008 by WRI, as the manager;

     WHEREAS, WRI has contributed a portion of its Membership Interest to WRI Sub;

     WHEREAS, WRI has entered into the Sublease subleasing to the Company rights to mine coal from
the Absaloka Mine, which Sublease is subject to approval from the U.S. Bureau of Indian Affairs;
and

     WHEREAS, pursuant to the Absaloka Purchase Agreement, WRI has sold to Investor all of its
Membership Interest in the Company, and Investor has become a Member of the Company;

     WHEREAS, in connection with the sale of WRI’s Membership Interest, WRI Sub and Investor have
agreed to amend and restate the Operating Agreement of the Company to provide for the operation and
governance of the Company on the terms set forth herein.

     NOW, THEREFORE, WRI Sub and Investor agree that the Operating Agreement of the Company is
hereby amended and restated in its entirety, effective October 16, 2008, as follows:

 

 

ARTICLE I

ORGANIZATIONAL MATTERS

     Section 1.1 Formation. The Company was formed as a Delaware limited liability company
by the filing on May 29, 2008 of the Certificate of Formation of the Company (the “Certificate”) in
the office of the Secretary of State of the State of Delaware under and pursuant to the Act. The
Members desire to amend and restate the limited liability company operating agreement in connection
with the acquisition by Investor of WRI’s Membership Interest. The Manager shall hereafter, from
time to time, execute further documents and take further action as it shall deem necessary to
comply with requirements of law for the operation of a limited liability company under the Act.
The Members hereby agree that during the term of the Company, the rights and obligations of the
Members with respect to the Company will be determined in accordance with the terms and provisions
of this Agreement and, except where the Act provides that such rights and obligations specified in
the Act shall apply “unless otherwise provided in a limited liability company agreement” or words
of similar effect and such rights and obligations are set forth in this Agreement, the Act.

     Section 1.2 Name. The name of the Company is “Absaloka Coal, LLC.” The business of
the Company shall be conducted in the name of the Company.

     Section 1.3 Purpose. The purposes for which the Company is organized are: (a) to
acquire, own, hold, maintain, and conduct mining operations on or in respect of, the Sublease;
(b) to exploit, produce, collect, store, treat, deliver, market, sell or otherwise dispose of coal
from the Sublease; and (c) to engage in or perform any and all activities that are related to or
incident to the foregoing and that may be lawfully conducted by a limited liability company under
the Act. In carrying out the business and purposes of the Company, the Company may act directly or
indirectly through contractual relationships with one or more entities.

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     Section 1.4 Registered Office and Registered Agent; Principal Place of Business.

          (a) The registered office of the Company required by the Act to be maintained in the State of
Delaware shall be the initial registered office named in the Certificate or such other office
(which need not be a place of business of the Company) as the Manager may designate from time to
time in the manner provided by law. The registered agent of the Company in the State of Delaware
shall be the initial registered agent named in the Certificate or such other person or persons as
the Manager may designate from time to time.

          (b) The principal place of business of the Company shall be 2 North Cascade Avenue, Colorado
Springs, Colorado 80903, or such location as designated by the Manager.

     Section 1.5 Foreign Qualification. Prior to the Company’s conducting business in any
jurisdiction other than Delaware, the Company shall comply with all requirements necessary to
qualify the Company as a foreign limited liability company in such jurisdiction. At the request of
the Manager, each Member agrees to execute, acknowledge, swear to, and deliver all certificates and
other instruments conforming with this Agreement that are necessary or appropriate to qualify,
continue, and terminate the Company as a foreign limited liability company in all such
jurisdictions in which the Company may conduct business.

     Section 1.6 Term. The existence of the Company commenced on the date the Certificate
was filed with the Secretary of State of Delaware and shall continue in existence until it is
dissolved and terminated in accordance with the terms of this Agreement.

ARTICLE II

DEFINITIONS AND REFERENCES

     Section 2.1 Definitions.

          (a) When used in this Agreement, the following terms have the respective meanings assigned to
them in this Section 2.1(a):

-3-

 

     “Absaloka Mine” means the surface coal mine complex located near Hardin, Montana and the Crow
Indian Reservation.

     “Absaloka Purchase Agreement” means the Membership Interest Purchase Agreement dated the date
hereof pursuant to which Investor purchased its Membership Interest in the Company from WRI
attached hereto as Exhibit A.

     “Act” means the Delaware Limited Liability Company Act or any successor statute, as amended
from time to time.

     “Adjusted Basis” means, as of any date of determination, the Company’s adjusted basis in any
asset as of such date, as determined for federal income tax purposes pursuant to Section 1011 of
the Code.

     “Adjusted Capital Account” means, with respect to each Member and as of any point in time, an
account with a balance equal to the balance in the Member’s Capital Account as of that time reduced
by the adjustments, allocations and distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) of the Treasury Regulations and increased by the amount, if any, of the negative balance in
the Member’s Capital Account that the Member is obligated to restore within the meaning of Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations as of that time or is deemed obligated to restore
under Section 1.704-2(g)(1) or 1.704-2(i)(5) of the Treasury Regulations.

     “Affiliate” means, when used with respect to any person, any person directly or indirectly
controlling, controlled by, or under common control with such person. For the purposes of this
definition, the terms “controlling, controlled by, or under common control” means the possession,
directly or indirectly, of the power to direct or cause the direction of

-4-

 

management or policies (whether through ownership of securities or any partnership or other
ownership interest, by contract or otherwise) of a person.

     “Agreement” means this Amended and Restated Limited Liability Company Agreement, as hereafter
amended, restated, modified or changed in accordance with the terms of this Agreement.

     “Applicable Law” means any statute, law, rule, or regulation, or any judgment, order, writ,
injunction, or decree of any Governmental Entity to which a specified person or property is
subject.

     “Book Value” means, with respect to any asset of the Company, the Adjusted Basis thereof;
provided, however, that the Book Value of any property contributed to the Company shall be the Fair
Market Value of such contributed property on the date of contribution, reduced, but not below zero,
by all depreciation, amortization and similar expense charged to the Capital Accounts pursuant to
Section 7.3(d) with respect to such property. The Book Value of each asset will be increased or
decreased to reflect any adjustment to the adjusted basis of the asset under Section 734(b) or
743(b) of the Code, but only to the extent that the adjustment is taken into account in determining
Capital Accounts under Treasury Regulation Section 1.704-1(b)(2)(iv)(m).

     “Breach Liquidation” means a liquidation of the Company elected by Investor upon the
occurrence of the events specified in Sections 10.1(a)(iii), (iv) and (v).

     “Business Day” means a day other than a Saturday or a Sunday on which commercial banks are
authorized to be open for business with the public in Colorado Springs, Colorado.

     “Capital Account” means, with respect to each Member, the account maintained for that Member
pursuant to Section 7.3.

-5-

 

     “Capital Account Deduction” means, for any taxable year of the Company, each item of deduction
or loss of the Company for that taxable year, determined in the same manner as that item of
deduction or loss is determined for federal income tax purposes, except that (1) depreciation,
depletion, amortization and loss with respect to any property the Book Value of which is different
from its Adjusted Basis shall be calculated for book purposes pursuant to Section 7.3(d), and (2)
Section 705(a)(2)(B) Expenditures shall be included as items of deduction.

     “Capital Account Income” means, for any taxable year of the Company, each item of gross income
of the Company for that taxable year, determined in the same manner as that item of gross income is
determined for federal income tax purposes, except that (1) gain with respect to any property the
Book Value of which is different from its Adjusted Basis shall be calculated pursuant to
Section 7.3(d), and (2) any income received by the Company that is exempt from federal income tax
shall be included.

     “Capital Contribution” means, for any Member at the particular time in question, the aggregate
amount of any money, and the Fair Market Value of any property other than money, contributed to the
capital of the Company.

     “Cash Available for Distribution” means, for a calendar quarter, cash on hand of the Company
reduced by the amount of any reserves for expenditures expected to be made during the following two
calendar quarters, as reasonably determined by the Manager.

     “Cash Deficit” means the inability of the Company to pay its obligations as they come due.

     “Cash Payout” occurs when the amount of the cash distributions made by the Company to Investor
has yielded at least a ten percent (10%) Internal Rate of Return on the Equity

-6-

 

Payment and any amounts paid by Investor upon exercise of an Investor Option. Cash Payout may
be extended pursuant to the exercise of an Investor Option in accordance with Section 5.2(e).

     “Change in Law” means an amendment in or to the Code that eliminates or substantially reduces
the Indian Coal Production Tax Credits that are available to a Member of Absaloka from the
production and sale of Indian Coal from the Sublease.

     “Closing” means the closing of the Absaloka Purchase Agreement.

     “Coal Options” shall mean the options of the Company to extract additional amounts of coal
from the Crow Reserves as set forth in the Sublease.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any
comparable successor statute or statutes.

     “Committed Sales Contract” means a binding contract between WRI or the Company and a purchaser
that is not a “related person” (within the meaning of Section 45(e)(4) of the Code) of the Company
or any Member for the purchase and sale of coal from the Sublease prior to January 1, 2013.

     “Company” means Absaloka Coal, LLC, a Delaware limited liability company.

     “Contingent Payment Obligation” shall have the meaning set forth in the Absaloka Purchase
Agreement.

     “Credit Disallowance Period” shall mean any period subsequent to (i) a Final Determination
that all of the coal produced and sold by Absaloka fails to qualify for the Indian Coal Production
Tax Credit, (ii) a Final Determination that all allocations to Investor of the Indian Coal
Production Tax Credits in accordance with this Agreement are disallowed, or (iii) a

-7-

 

Change in Law which eliminates the Indian Coal Production Tax Credits that are available to a
Member of Absaloka from the production and sale of Indian Coal from the Sublease.

     “Crow Reserves” means the mineral interests owned by the Crow Tribe and leased to WRI in the
First Crow Lease and Second Crow Lease.

     “Crow Sublease” or “Sublease” means the Sublease between WRI and the Company relating to the
First Crow Lease and the Second Crow Lease.

     “Crow Tribe” means the Crow Tribe of Montana, a federally recognized Indian tribe.

     “Depletion” means Capital Account Deductions that consist of items of depletion excluding any
Excess Depletion, as calculated in accordance with Section 7.3(d).

     “Discounted Cash Flow Value” means, with respect to the Sublease, an amount equal to the Fair
Market Value of such Sublease, at the date of valuation, determined by valuing the discounted cash
flow (at a discount rate equal to 5% plus the 12-month LIBOR as announced by the British Banking
Association) that the Company would achieve over the remaining life of the Sublease if the
remaining reserves subject to the Sublease were produced and sold by the Company. With respect to
the volume of coal reserves to be sold from the Sublease pursuant to coal sales contracts in effect
at the date of determination, the calculation of Discounted Cash Flow Value shall utilize the cost
and pricing in effect under such coal sale contracts. With respect to the volume of coal reserves
subject to the Sublease that are not subject to coal sales contracts, the calculation of Discounted
Cash Flow Value shall utilize (i) costs equal to the costs determined under the Sublease, the
Mining Contract, and the Sales Agency Agreement, (ii) rate of production equal to the average rate
of production experienced at the Absaloka Mine during the 12-month period ending on the date of
determination, and (iii) pricing equal to the arithmetic

-8-

 

average of the Southern Powder River Basin 8800 BTU forward curve prompt month pricing over
the prior 12-month period. All calculations shall disregard any unexercised Coal Options.

     “Dispose” (including the correlative terms “Disposed” or “Disposition”) means any sale,
assignment, transfer, conveyance, gift, pledge, distribution, hypothecation or any other
disposition, whether voluntary, involuntary or by operation of law, and whether effected directly
or indirectly.

     “Electronic Transmission” means a form of communication that (i) does not directly involve the
physical transmission of paper, (ii) creates a record that may be retained, retrieved, and reviewed
by the recipient, and (iii) may be directly reproduced in paper form by the recipient through an
automated process.

     “Environmental Laws” shall mean Laws pertaining or relating to (a) noise or odors; (b) actual
or threatened pollution or protection of the air, groundwater, surface water, land, soils or
subsurface strata; (c) solid, gaseous or liquid waste generation, treatment, storage, disposal or
transportation; (d) exposure to hazardous or toxic substances or conditions; (e) regulations with
respect to the health or safety of the manufacture, processing, distribution in commerce, use, or
storage of chemical substances, petroleum or petroleum products; or (f) safety or health of
employees (including working conditions) in effect on the date hereof at the Absaloka Mine or where
any hazardous substances generated by the operation of the Absaloka Mine are disposed of by WRI.
Environmental Laws include without limitation, the Clean Air Act, as amended; the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 and Superfund Amendments and
Reauthorization Act of 1986 (collectively, “CERCLA”), as amended; the Federal Water Pollution
Control Act, as amended; the Federal Mine Safety and Health Act of 1977 (“MSHA”); the Resource
Conservation and Recovery Act of 1976

-9-

 

(“RCRA”), as amended; the Safe Drinking Water Act, as amended; the Surface Mining Control and
Reclamation Act, as amended; and the Toxic Substances Control Act, as amended.

     “Equity Payment” means the amount of $4,000,000.

     “Excess Depletion” means Depletion in respect of depletable property to the extent that it
exceeds the Book Value of such property.

     “Failure Transfer” means a purchase by WRI of all of Investor’s Membership Interest which may
be elected by Investor or WRI in the event of the failure of Absaloka to satisfy the Second Payment
Conditions.

     “Fair Market Value” means, with respect to any property or asset, the value that would be
obtained therefor in an arm’s length transaction or sale (for cash) between an informed and willing
purchaser and an informed and willing seller, neither being under any compulsion to buy or sell.

     “Final Determination” means a settlement agreement with the IRS which resolves one or more
federal income tax issues, or a judgment of a court of law or a decision in an administrative
proceeding becoming non-appealable with respect to one or more federal income tax issues.

     “First Crow Lease” means the Indenture of Lease dated November 2, 1974, as amended, between
the Crow Tribe and WRI.

     “Fixed Payment Note” shall have the meaning set forth in the Absaloka Purchase Agreement.

     “Fixed Note Obligation” shall have the meaning set forth in the Absaloka Purchase Agreement.

-10-

 

     “GAAP” means U.S. generally accepted accounting principles and practices, consistently
applied, which are recognized as such by the Financial Accounting Standards Board (or any generally
recognized successor).

     “Governmental Entity” means any court or tribunal in any jurisdiction (domestic or foreign) or
any governmental or regulatory body, agency, department, commission, board, bureau or other
authority or instrumentality (domestic or foreign).

     “Gross Receipts” means any gross receipts of the Company arising from the production and sale
of coal from the Sublease.

     “Indian Coal” has the meaning set forth in Section 45(c)(9) of the Code.

     “Indian Coal Production Tax Credit” means the tax credit available under Section 45(e)(10) of
the Code for the production and sale of Indian Coal.

     “Initial WRI Member Contribution” means the initial Capital Contributions of WRI made pursuant
to Section 4.1.

     “Internal Rate of Return” means the internal rate of return determined on the basis that: (i)
the Equity Payment and any amounts paid by Investor upon exercise of an Investor Option shall be
treated as an investment made by Investor on the date actually paid by Investor (or cash flow out,
being a negative number in the XIRR function hereinafter referred to); and (ii) distributions made
by the Company to Investor under any provision of this Agreement shall be treated as a return on
and of the investment made by Investor (or cash flow in, being a positive number in the XIRR
function hereinafter referred to) on the date of wire transfer by the Company, or receipt of cash
or certified check by Investor, of such distribution. If any parties to this Agreement dispute the
determination of the Internal Rate of Return, the parties hereby agree that the determination of
the Internal Rate of Return shall be finally and definitively determined

-11-

 

using the XIRR function in the 2003 release of Microsoft’s Excel software program, as
supplemented by Microsoft’s Office SP 2 (Service Pack) Update, with the Add-In Analysis ToolPak
added in.

     “Investor” shall have the meaning set forth in the introductory paragraph hereof and shall
include any assignee of any portion of the Membership Interest of Investor who is admitted as a
Member in accordance with the provisions of this Agreement.

     “Investor Option” shall have the meaning set forth in the Absaloka Purchase Agreement.

     “IRS” means the Internal Revenue Service of the government of the United States.

     “Laws” means any and all laws, statutes, ordinances, requirements, permit or license
conditions, rules, regulations or orders of any federal, tribal, state, local, executive,
legislative, judicial, regulatory or administrative agency, board, or other governmental authority.

     “Lien” means any mortgage, lien (statutory or other), other security agreement, arrangement or
interest, hypothecation, pledge or other deposit arrangement, assignment, charge, levy, executory
seizure, attachment, garnishment, encumbrance (including any easement, exception, reservation or
limitation, right of way, and the like), conditional sale, title retention, voting agreement or
other similar agreement, arrangement, device or restriction, preemptive or similar right, the
filing of any financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction, or restriction on sale, transfer, assignment, disposition or other alienation;
provided, however, that the term “Lien” shall not include any of the foregoing to the extent
created by this Agreement.

     “Liquidating Loss” means the excess of a property’s Book Value over its Fair Market Value,
recognized at the time of any sale, or deemed sale, of such property.

-12-

 

     “Manager” shall mean WRI, the manager of the Company.

     “Material Adverse Effect” on a Person shall mean any change in the business, properties,
assets, financial condition, or results of operations of such Person that would be materially
adverse to such Person or would materially adversely affect the ability of such Person to fulfill
its obligations under this Agreement.

     “Member” means any person executing this Agreement as of the date of this Agreement as a
member or hereafter admitted to the Company as a member as provided in this Agreement, but such
term does not include any person who has ceased to be a member of the Company.

     “Membership Interest” means the interest of a Member in the Company, including the right of
such Member to receive distributions (liquidating or otherwise), to be allocated income, gain,
loss, deduction, credit, or similar items, to receive information, and to grant consents or
approvals.

     “Mining Contract” means the Contract Mining Agreement dated October 15, 2008, between WRI and
the Company pursuant to which WRI agrees to be responsible for mining operations on the Sublease in
the form attached hereto as Exhibit B.

     “Net Operating Income” and “Net Operating Loss” means an amount for each fiscal year of the
Company calculated in accordance with the determination of taxable income and loss of the Company
for purposes of Section 703 of the Code, except that items of Capital Account Income and Capital
Account Deduction (other than Depletion) shall be substituted for items of income and deduction,
respectively, and all items of depletion and Liquidating Loss shall be excluded. If the amount so
determined is a positive amount, it shall be referred to as “Net Operating Income,” and shall
otherwise be referred to as “Net Operating Loss.”

-13-

 

     “Payout” occurs when the amount of the cash distributions made by the Company to Investor or
deemed made pursuant to the following sentence would yield at least a ten percent (10%) Internal
Rate of Return on the Equity Payment and any amounts paid by Investor upon exercise of an Investor
Option. In determining whether Payout has been reached on any date (the “Payout Determination
Date”), the Investor shall be deemed to have received a distribution on the Payout Determination
Date equal to the excess of : (i) the aggregate Net Operating Income that would be allocated to
Investor throughout the life of the Company on the Payout Determination Date if the books of the
Company were closed on the Payout Determination Date over (ii) the cumulative distributions made to
Investor prior to the Payout Determination Date. Payout may be deferred pursuant to the exercise of
an Investor Option in accordance with Section 5.2(e).

     “Permitted Transferees” means any Person to whom a Membership Interest is transferred in
compliance with the provisions of Section 9.1(b) or (c).

     “Person” has the meaning assigned to it in Section 18-101(12) of the Act.

     “Private Letter Ruling” means a ruling from the IRS in response to the private letter ruling
request submitted by the Company to the IRS on October 3, 2008.

     “Proceedings” means all proceedings, actions, claims, suits, investigations and inquiries by
or before any arbitrator or Governmental Entity.

     “Projected Payout Date” means at any time, the next date that the Manager in good faith
reasonably projects that the Company will achieve Payout, which date is determined to be reasonable
by the Company’s accounting firm.

     “Recapture Income” means any gain recognized by the Company upon the disposition of any asset
of the Company that is treated as ordinary income for federal income tax purposes

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by reason of the recapture of deductions previously taken with respect to the asset.
Recaptured income also includes any income required to be treated as ordinary income under
Section 751 of the Code as a result of deductions previously taken under Sections 1245, 1250 and
1254 of the Code.

     “Remaining Preference Amount” means at any point in time, the smallest dollar amount which, if
distributed to Investor at that time, would cause the Company to reach Payout.

     “Sales Agency Agreement” means the Sales Agency Agreement dated October 15, 2008 between WSC
and the Company pursuant to which WSC agrees to market the coal mined from the Sublease on behalf
of the Company substantially in the form of Exhibit C.

     “SEC” means the Securities and Exchange Commission of the United States.

     “Second Crow Lease” means the Lease dated February 13, 2004 between the Crow Tribe and WRI.

     “Second Payment Conditions” shall have the meaning ascribed thereto in the Absaloka Purchase
Agreement.

     “Section 705(a)(2)(B) Expenditures” means an expenditure described in Section 705(a)(2)(B) and
any amount treated as a Section 705(a)(2)(B) expenditure pursuant to Treasury Regulations
§ 1.704-1(b)(2)(iv)(i).

     “Sharing Percentage” means, except as otherwise provide in this Agreement, as follows:

     (i) With respect to Investor:

          (A) After Payout, other than in a Credit Disallowance Period: 5%;

          (B) After Payout, in a Credit Disallowance Period: 1%; and

          (C) All other times: 99%.

     (ii) With respect to WRI Sub:

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                (A) After Payout, other than in a Credit Disallowance Period: 95%;

                (B) After Payout, in a Credit Disallowance Period: 99%; and

                (C) All other times: 1%.

     “South Extension” means the portion of the Absaloka Mine that is the subject of the Second
Crow Lease.

     “Treasury Regulations” (or any abbreviation thereof used herein) means temporary or final
regulations promulgated under the Code.

     “WCC” shall mean Westmoreland Coal Company, which is WRI’s parent company.

     “WRI” shall have the meaning set forth in the introductory paragraph.

     “WRI Sub” shall have the meaning set forth in the introductory paragraph hereof and shall
include any assignee of any portion of the Membership Interest of WRI Sub that is admitted as a
Member in accordance with the provisions of this Agreement.

     “WRI Entities” shall mean WRI and WRI Sub.

     “WSC” means Westmoreland Coal Sales Co., a Delaware corporation and a direct or indirect
wholly-owned subsidiary of WCC.

          (b) In addition to the defined terms set forth in Section 2.1(a), the following terms used in
this Agreement are defined in the sections or other subdivisions of this Agreement, as referenced
below:

	 	 	 
	Defined Term	 	Reference
	Certificate

	 	Section 1.1
	Confidential Information

	 	Section 14.16
	Covered Person

	 	Section 8.1
	Deficit Member

	 	Section 5.2(f)(iii)
	Extended Cash Payout Period

	 	Section 5.2(e)
	Extended Payout Period

	 	Section 5.2(e)
	Formation Date

	 	Section 4.1(a)(i)
	Initial Distribution

	 	Section 5.5(c)
	Option Notice

	 	Section 5.2(e)

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	Defined Term	 	Reference
	Other Investments

	 	Section 12.1(a)
	Quarterly Report

	 	Section 7.1(b)(vii)
	Related Parties

	 	Section 12.1
	Representatives

	 	Section 14.16
	Tax Matters Partner

	 	Section 7.5

     Section 2.2 References and Construction.

          (a) All references in this Agreement to articles, sections, subsections and other subdivisions
refer to corresponding articles, sections, subsections and other subdivisions of this Agreement
unless expressly provided otherwise.

          (b) Titles appearing at the beginning of any of such subdivisions are for convenience only and
shall not constitute part of such subdivisions and shall be disregarded in construing the language
contained in such subdivisions.

          (c) The words “this Agreement”, “this instrument”, “herein”, “hereof”,
“hereby”, “hereunder”
and words of similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited.

          (d) Words in the singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.

          (e) Pronouns in masculine, feminine, or neuter gender shall be construed to state and include
any other gender.

          (f) Examples shall not be construed to limit, expressly or by implication, the matter they
illustrate.

          (g) The word “or” is not exclusive and the word “includes” and its derivatives means
“includes, but is not limited to” and corresponding derivative expressions.

          (h) No consideration shall be given to the fact or presumption that one party had a greater or
lesser hand in drafting this Agreement.

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          (i) All references herein to “$” or “dollars” shall refer to U.S. Dollars.

          (j) Unless the context otherwise requires or unless otherwise provided herein, the terms
defined in this Agreement which refer to a particular agreement, instrument or document shall also
refer to and include all renewals, extensions, modifications, amendments or restatements of such
agreement, instrument or document; provided that nothing contained in this subsection shall be
construed to authorize such renewal, extension, modification, amendment or restatement.

          (k) Schedules and Exhibits. Each Schedule and Exhibit is incorporated herein
by reference and made a part hereof for all purposes, and references to this Agreement shall also
include such Schedule and Exhibit, unless the context in which used shall otherwise require.

ARTICLE III

MEMBERS AND UNITS

     Section 3.1 Members. The names and addresses of the Members of the Company are set
forth in Schedule I.

     Section 3.2 Additional Members. Additional persons may be admitted to the Company as
Members as provided more specifically herein.

     Section 3.3 Liability to Third Parties. No Member or any officer, director, manager
or partner of such Member, solely by reason of being a Member, shall be liable for the debts,
obligations or liabilities of the Company, including under a judgment decree or order of a court.

     Section 3.4 Members Have No Agency Authority. Except as expressly provided in this
Agreement, no Member (in its capacity as a member of the Company) shall have any agency authority
on behalf of the Company.

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ARTICLE IV

CAPITALIZATION

     Section 4.1 Capital Contributions of WRI.

          (a) In connection with the formation of the Company, the following actions were taken in the
following order:

          (i) WRI formed the Company on May 29, 2008 (the “Formation Date”) by contributing $100
and other good and valuable consideration in exchange for 100% of the Membership Interests
therein. The Company was then a disregarded entity for federal income tax purposes.

          (ii) On September 10, 2008, WRI contributed a portion of its Membership Interests to
WRI Sub, and the Company became a partnership for federal income tax purposes.

          (iii) On October 8 and October 15, 2008, respectively, WRI and the Company entered into
the Crow Sublease and the Mining Contract.

          (iv) On October 15, 2008, Westmoreland Coal Sales Company and the Company entered into
the Sales Agency Contract.

          (v) On various dates from September 4 to September 23, 2008, WRI assigned, and the
Company assumed, WRI’s obligations on Committed Sales Contracts providing at least 80% of
the aggregate volume of coal subject to WRI’s Committed Sales Contracts in existence as of
the date hereof.

          (b) The parties hereto agree that the aggregate net Fair Market Value of the assets of the
Company following the transactions described in Section 4.1(a) shall be equal to $31,531,295.

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     Section 4.2 Capital Account of Investor and WRI Sub. On October 16, 2008, subsequent
to the formation transactions described in Section 4.1, Investor acquired WRI’s entire Membership
Interest. The initial Capital Account balance of Investor’s Membership Interest is $31,215,982 as
of October 16, 2008, and the Capital Account balance of WRI Sub is $315,313 as of October 16, 2008.

     Section 4.3 Failure Transfer. If Investor or WRI exercises its right under Section 6
of the Absaloka Purchase Agreement to require WRI to purchase and Investor to sell all of
Investor’s Membership Interest:

          (a) If such right is exercised (i) on or prior to April 15, 2009, retroactive to the Closing,
and (ii) after April 15, 2009, retroactive to January 1, 2009, and notwithstanding any other
provision of this Agreement, all items of income, gain, loss and deduction shall be allocated 99.9%
to WRI Sub and 0.1% to Investor, both for purposes of maintaining the Members’ Capital Accounts and
for federal income tax purposes; and

          (b) this Agreement shall be amended and restated to delete Section 6.5 hereof and otherwise as
the Manager deems advisable to reflect the relative Membership Interests of the Members; provided,
however, that no such amendment of this Agreement shall impose any financial obligations on
Investor in respect of its remaining Membership Interest.

     Section 4.4 Additional Mandatory Capital Contribution. A Member shall not have any
obligation to make an additional Capital Contribution.

     Section 4.5 Interest on and Return of Capital Contributions. No interest shall accrue
on any Capital Contributions and, except as provided herein, no Member shall have the right to
demand or require the return of its Capital Contributions except to the extent, if any, that
distributions made pursuant to the express terms of this Agreement may be considered as such by

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law or by unanimous agreement of the Members, or upon dissolution and liquidation of the
Company, and then only to the extent expressly provided for in this Agreement and as permitted by
law.

     Section 4.6 Loans.

          (a) The Company may borrow from the Members for the purpose of carrying on the Company’s
affairs, and the Company may make loans to Members, upon such terms and conditions as the Manager
may determine, provided that, except as provided herein, any interest payable or received with
respect to such loans shall be at the applicable federal rate, fixed and determined as of the date
of the loan. Any loan of Cash Available for Distribution made by the Company to WRI or WRI Sub
during the period prior to satisfaction or waiver of the Second Payment Conditions must be repaid
immediately following receipt by WRI of distribution from the Approval Escrow (as defined in the
Absaloka Purchase Agreement). The Company must repay all loans from Members prior to making any
distributions to Members, unless all Members agree to the contrary.

          (b) If, at the time of liquidation of the Company, including a Breach Liquidation, the Manager
determines that the distributions to be made to Investor in accordance with the provisions of
Article X hereof shall be paid in cash, and the Company does not have sufficient cash to make such
distribution to Investor, WRI shall be required to lend to the Company cash sufficient to make such
distribution, on the terms set forth above.

          (c) If the Manager reasonably determines at any time after satisfaction or waiver of the
Second Payment Conditions that the Company has a Cash Deficit, it shall notify Investor and WRI
that it has made that determination. Thereafter, Investor shall make all payments on the Fixed
Note Obligation and the Contingent Note Obligation directly to the

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Company in accordance with Section 4.2(f) of the Absaloka Purchase Agreement until notified by
the Manager that the Company no longer has a Cash Deficit. Any such payment made by Investor
shall: (i) be treated by WRI as a payment by Investor in satisfaction of an equal amount of any
accrued but unpaid obligation under the Fixed Note Obligation or Contingent Payment Obligation in
accordance with Section 4.2(f) of the Absaloka Purchase Agreement; and (ii) constitute a loan by
WRI to the Company at the then short-term applicable federal rate. Principal and accrued interest
on any such loan made pursuant to this provision shall be repaid to WRI before any distributions
are made pursuant to Section 5.5 or 10.2.

ARTICLE V

ALLOCATIONS AND DISTRIBUTIONS

     Section 5.1 Sharing of Items of Income, Deduction, Gain and Loss. All items of
income, deduction, gain and loss of the Company shall be determined and charged or credited, as the
case may be, to the Members in accordance with the provisions of this Article V; provided, however,
that in the event of a Failure Transfer, allocations shall be in accordance with the provisions of
Section 4.3.

     Section 5.2 Allocations for Capital Account Purposes.

          (a) Allocations of Gross Receipts. For purposes of maintaining the Members’ Capital
Accounts, all items of Gross Receipts for a fiscal year shall be allocated in accordance with the
Members’ Sharing Percentages during such year. If Payout occurs during a fiscal year, such year
shall be treated for purposes of this Section 5.2(a) as consisting of two separate fiscal years,
each comprising a portion of the fiscal year, the first ending on the date of Payout and the second
beginning on the day after Payout.

          (b) Net Operating Income and Net Operating Loss other than Gross Receipts. For
purposes of maintaining the Members’ Capital Accounts, except as otherwise provided in

-22-

 

this Section 5.2, all items of Net Operating Income and Net Operating Loss other than Gross
Receipts for a fiscal year shall be allocated in accordance with the Members’ Sharing Percentages
during such year. If Payout occurs during a fiscal year, such year shall be treated for purposes
of this Section 5.2(b) as consisting of two separate fiscal years, each comprising a portion of the
fiscal year, the first ending on the date of Payout and the second beginning on the day after
Payout.

          (c) Allocations of Depletion and Liquidating Loss. At all times, Depletion and any
Liquidating Loss shall be allocated 99% to Investor and 1% to WRI Sub. 

          (d) Items of Capital Account Income and Capital Account Deduction. Subject to the
allocation rules described in Section 5.2(f) below, each item of Capital Account Income and Capital
Account Deduction shall be allocated in accordance with the manner in which the corresponding item
of Net Operating Income, Net Operating Loss, Liquidating Loss, and Depletion was allocated for the
fiscal year.

          (e) Extension of Payout and Cash Payout by Exercise of Investor Option. If, pursuant
to Section 5 of the Absaloka Purchase Agreement, Investor exercises an Investor Option to acquire
additional Membership Interests in the Company from WRI Sub, it shall notify the Company and WRI
Sub of the exercise of such Investor Option (the “Option Notice”). As a result of payment of the
Option Price and until Payout is subsequently achieved pursuant to the revised calculation of
Internal Rate of Return (the “Extended Payout Period”), Payout will not have been achieved for any
purpose of this Agreement. Cash Payout shall also be deferred pursuant to the revised calculation
of the Internal Rate of Return (the “Extended Cash Payout Period”). Accordingly, during the
Extended Payout Period, Investor shall continue to receive

-23-

 

allocations in accordance with pre-Payout Sharing Percentages, and, during the Extended Cash
Payout Period, distributions shall be shared in accordance with Section 5.5(b).

          (f) Regulatory Allocations. Notwithstanding the foregoing provisions of this
Section 5.2 to the contrary, the following special allocations of Capital Account Income and
Capital Account Deduction shall apply (in the order set forth below):

          (i) Qualified Income Offset. If, with respect to any taxable year during the
term of the Company, a Member receives an adjustment, allocation or distribution of the type
described in Section 1.704-(b)(2)(ii)(d)(4), (5), or (6) of the Treasury Regulations that
results in such Member’s Adjusted Capital Account having a negative balance, Capital Account
Income for that taxable year and all subsequent taxable years shall be allocated to that
Member in an amount necessary to eliminate the negative balance in the Member’s Adjusted
Capital Account as quickly as possible. The provisions of this Section 5.2(f)(i) are
intended to constitute a “qualified income offset” within the meaning of
Section 1.704-1(b)(2)(ii)(d)(3) of the Treasury Regulations and shall be construed in
accordance with that intention.

          (ii) Minimum Gain Chargeback. Beginning in the first taxable year in which
there are “nonrecourse deductions” or a distribution is made of proceeds of a nonrecourse
liability that are allocable to an increase in the minimum gain of the Company, as
determined under the rules of Section 1.704-2(e)(3) of the Treasury Regulations, and
thereafter throughout the full term of the Company, “minimum gain chargeback” rules in
accordance with Section 1.704-2(f) of the Treasury Regulations shall apply with respect to
the allocation of all Capital Account Income in those year(s). If there is a net decrease
during a taxable year of nonrecourse debt minimum gain within

- 24 -

 

the meaning of Section 1.704-2(i)(3), then the chargeback rules of
Section 1.704-2(i)(4) shall apply.

          (iii) Allocations with Respect to Deficit Members. Notwithstanding any of the
foregoing provisions of Article V to the contrary, if during any fiscal year of the Company,
the allocation of any Capital Account Deduction to a Member (the “Deficit Member”) would
cause or increase a negative balance in the Member’s Adjusted Capital Account as of the end
of that fiscal year, only the amount of such Capital Account Deduction that reduces the
balance to zero shall be allocated to the Deficit Member and the remaining amount shall be
allocated to the Member whose Adjusted Capital Account has a positive balance remaining at
that time.

     Section 5.3 Allocations for Federal Income Tax Purposes.

          (a) Generally. Except as otherwise provided in Section 4.3(a) and this Section 5.3,
for federal income tax purposes, each item of income and deduction shall be allocated in accordance
with the allocation of the corresponding item of Capital Account Income or Capital Account
Deduction.

          (b) Recapture Income; Excess Depletion. Any Recapture Income resulting from the sale
or other disposition of an asset of the Company shall, to the extent consistent with the allocation
of gain from such sale or other disposition, be allocated to the Members that were allocated or
have claimed any deduction giving rise to the Recapture Income. In accordance with Treasury
Regulation Section 1.704-1(b)(4)(iii), Excess Depletion with respect to depletable property shall
be allocated in the same proportion as the Members’ respective distributive shares of gross income
from such depletable property (as determined under Code Section 613(c)).

-25-

 

          (c) Indian Coal Production Tax Credits. For federal income tax purposes, any Indian
Coal Production Tax Credits of the Company that arise from the sale of coal produced from the
Sublease shall be allocated to the Members in proportion to their allocable shares of Gross
Receipts.

          (d) Allocations with Respect to Contributed Property. Solely for federal and
applicable state income tax purposes, income, gain, loss and deduction with respect to property
shall be allocated so as to take into account the difference, if any, between the Book Value of the
property and its Adjusted Basis. The preceding sentence shall be administered in accordance with
the traditional method under Section 1.704-3(b) of the Treasury Regulations.

          (e) Reporting. The Members agree to report for federal income tax purposes
consistently with the allocations set forth in this Section 5.3.

     Section 5.4 Allocations Attributable to Transferred Interests. If a Member transfers
a Membership Interest in the Company during a taxable year, items of income, loss, deduction and
credit attributable to the transferred interest shall be allocated between the transferor and the
transferee pursuant to any agreement between the transferor and transferee which is submitted to
the Manager and which is consistent with Section 706 of the Code.

     Section 5.5 Distributions.

          (a) Quarterly Distributions. Subject to Section 5.5(c) below, no later than 10
Business Days after receipt by Investor and the Company of an Invoice for payment of the Fixed
Payment Note or, if the Fixed Payment Note is no longer outstanding, by the 15th day after the end
of each calendar quarter, the Company shall distribute an amount of cash to the Members equal to
the Cash Available for Distribution for such calendar quarter. The provisions of this

-26-

 

Section 5.5(a) shall not apply to final distributions from the Company, which are governed by
the provisions of Section 10.2.

          (b) Sharing of Distributions. Except as provided in Section 10.2, distributions shall
be shared by the Members in accordance with Sharing Percentages, except that the term “Cash Payout”
shall be substituted for “Payout” wherever it applies in the definition of Sharing Percentages. In
making any distribution pursuant to this Section 5.5(b) that results in Cash Payout, such
distribution shall be bifurcated into a portion which causes Cash Payout, which shall be
distributed in accordance with pre-Payout Sharing Percentages, and the remainder, which shall be
distributed in accordance with post-Payout Sharing Percentages.

          (c) Deferral of Distributions. Notwithstanding the foregoing, no distributions may be
made by the Company prior to the release to WRI of the second installment of the Equity Payment
from escrow pursuant to Section 4.1 of the Absaloka Purchase Agreement. The Company shall make an
initial distribution, to the extent of Cash Available for Distribution, within ten (10) days of
such release (the “Initial Distribution”). Any Cash Available for Distribution prior to the date
described in the previous sentence may be loaned to WRI or WRI Sub at an interest rate equal to the
applicable federal rate, compounded quarterly. Any such loan must be repaid concurrent with the
Initial Distribution.

ARTICLE VI

MANAGEMENT AND GOVERNANCE PROVISIONS

     Section 6.1 Management by WRI as Manager. Except for matters in which the approval of
the Members is required by this Agreement or by nonwaivable provisions of the Act, the powers of
the Company shall be exercised by or under the authority of, and the business and affairs of the
Company shall be managed by, WRI, which is hereby designated as the Manager.

-27-

 

WRI shall provide facilities and necessary support for operations of the Company and the
Manager, as well as for the operations of the Company’s officers.

     Section 6.2 Removal of Manager. The Manager may only be removed, with or without
cause, by WRI Sub. Except as provided in the immediately preceding sentence, the Manager may not
be removed or replaced.

     Section 6.3 Vacancies. In the event that a vacancy is created in the position of
Manager at any time by the resignation or removal of the Manager, WRI Sub shall have the sole and
exclusive right to designate a replacement Manager.

     Section 6.4 Compensation of the Manager. WRI will not be paid any fee for serving as
Manager, but will be entitled to reimbursement for reasonable out-of-pocket costs and expenses in
serving in such capacity, consistent with the provisions of Section 14.14(b).

     Section 6.5 Actions Requiring Investor Approval.

          (a) In addition to any other matters under Applicable Law or pursuant to the provisions of
this Agreement that require the approval of the Members, the Manager or the Company (or the
officers and agents acting on its behalf), shall not take any of the following actions without
having first received the approval of Investor, which approval shall not be unreasonably withheld,
conditioned or delayed (which consent shall be considered as reasonably withheld if the action to
be consented to can reasonably be expected to have a Material Adverse Effect on Investor):

          (i) Cause a party other than WRI to be the mine operator of the Absaloka Mine;

          (ii) Acquire by purchase or lease any real or personal property for the Company other
than (A) the Sublease, including any amendment of the Sublease

-28-

 

occurring by reason of the exercise of a Coal Option, or (B) such other assets as
necessary or appropriate to carry out the duties of Manager as provided herein or to perform
the activities of the Company set forth herein;

          (iii) Dispose of, pledge, subject to a lien, or sublease the Sublease or any interest
in the minerals leased thereby or any significant part thereof, other than (i) sales of
production and other sales in the ordinary course of business, (ii) the Lien on the
Company’s assets of First Interstate Bank of Billings, Montana or any other lender, or (iii)
customary Liens contained in or arising under operating or similar requirements executed by
or binding on the Company.

          (iv) Enter into, amend or modify any agreement for borrowed money indebtedness of the
Company, other than (A) trade debt incurred in the ordinary course of business, or (B)
liability (as a co-borrower with WRI) for borrowed money to First Interstate Bank of
Billings, Montana (or any other financial institution), which may be entered into or amended
after the date of this Agreement, and any refinancing thereof with First Interstate Bank of
Billings, Montana or any other financial institution; (C) borrowings from any Member from
time to time upon such market terms and conditions as the Manager deems reasonable and
appropriate under the circumstances; or (D) as contemplated by Section 4.6 and Section 10.2.

          (v) Change the nature of the Company’s business.

          (vi) Commence a voluntary bankruptcy of the Company, or consent to the appointment of a
receiver, liquidator, assignee, custodian, or trustee for the purposes of winding up the
affairs of the Company;

-29-

 

          (vii) Offer for sale, issue, repurchase, or redeem any Membership Interests of the
Company, or authorize a new class or series of Membership Interests of the Company;

          (viii) Merge, combine, or consolidate the Company with any other entity, convert the
Company into another form of entity, or exchange interests with any other person or entity;

          (ix) Liquidate or dissolve the Company (except as permitted by Section 10.1);

          (x) Amend the Mining Contract, the Sublease, or the Sales Agency Agreement, or enter
into any other agreement between the Company and any Affiliate of WRI Sub, except for any
such amendment or agreement that will not result in any cost or liability to the Company;

          (xi) Permit the Company to default on its reclamation bonding requirements;

          (xii) Take any actions, other than operation in the ordinary course consistent with
past practice, which subjects or could reasonably be expected to subject Investor to
liability relating to the Absaloka Mine under any Environmental Laws;

          (xiii) Amend this Agreement; or

          (xiv) Take any action, authorize or approve, or enter into any binding agreement with
respect to or otherwise commit to do any of the foregoing.

          (b) If the Manager or the Company (or the officers and agents acting on their behalf) shall
take any of the actions set forth in Sections 6.5(a)(i), (ii), (iii), (iv), (v) or (vi) without the
prior approval of Investor in accordance with the provisions of Section 6.5(a), the

-30-

 

sole remedy of Investor shall be to cause a Breach Liquidation, as provided for in
Section 10.1(a) and Section 10.2(a), unless the sole purpose for the action of the Manager or the
Company was to cause a liquidation of the Company, in which case Investor shall be entitled to
injunctive relief. If the Manager or the Company (or the officers and agents acting on their
behalf) shall take any of the other actions set forth in Section 6.5(a) without the prior approval
of Investor in accordance with the provisions hereof, Investor is entitled, as its sole remedy, to
pursue either injunctive relief or Breach Liquidation.

          (c) Any merger or interest exchange of the Company effected in accordance with Section 6.5(a)
shall not be deemed to cause an assignment or other transfer of the Membership Interests under this
Agreement.

     Section 6.6 Exercise of Coal Options at Request of Investor. Before the occurrence of
Payout, the Manager shall exercise any Coal Options when and to the extent requested in writing by
Investor; provided that the Manager shall not be required to so exercise any Coal Option unless the
Company has Committed Sales Contracts for the sale prior to January 1, 2013 of the amount of
reserves to be acquired through such exercise that cannot be fulfilled through the reserves subject
to the Crow Sublease, as amended by any previously exercised Coal Options, as such Sublease and
Committed Sales Contracts are in effect at the time of the exercise of such Coal Option; and
provided, further, that Investor shall not be entitled to direct the Manager to exercise any Coal
Option during any Credit Disallowance Period.

     Section 6.7 Officers.

          (a) The Manager may designate one or more persons to be officers of the Company. No officer
need be a resident of the State of Delaware or a Member. Any such officers so designated shall
have such authority and perform such duties as the Manager may,

-31-

 

from time to time, delegate to them. The Manager may assign titles to particular officers.
Unless the Manager decides otherwise, if the title is one commonly used for officers of a business
corporation formed under the Delaware General Corporate Law (or any successor statute), the
assignment of such title shall constitute the delegation to such officer of the authority and
duties that are normally associated with that office, subject to any specific delegation of
authority and duties made to such officer by the Manager pursuant to this Section 6.7 and the other
terms and provisions of this Agreement. Each officer shall hold office until his successor shall
be duly designated and shall qualify or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. Any number of offices may be held by the same person.
The officers of the Company shall not receive salaries or other compensation from the Company.

          (b) Any officer may resign as such at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at the time of its
receipt by the Manager. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation. Any officer may be removed as such,
either with or without cause, by the Manager; provided, however, that such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Designation of an officer
shall not of itself create contract rights. Any vacancy occurring in any office of the Company may
be filled by the Manager.

     Section 6.8 Mining Contract. The Manager shall enter into and administer the Mining
Contract between the Company and WRI.

     Section 6.9 Sales Agency Agreement. The Manager shall enter into and administer the
Sales Agency Agreement between the Company and WSC.

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     Section 6.10 Sales to Unrelated Persons. All sales by the Company of Indian Coal
mined from the Sublease will be made to unrelated third parties in compliance with
Sections 45(e)(4) and 45(e)(10)(A) of the Code.

     Section 6.11 Right to Inspect Mine. Investor shall have the right to inspect the
Absaloka Mine from time to time, during regular business hours and following reasonable notice to
the Manager.

ARTICLE VII

ACCOUNTING AND BANKING MATTERS; CAPITAL ACCOUNTS; TAX MATTERS

     Section 7.1 Books and Records; Reports; Notice of Certain Events.

          (a) The Company shall keep and maintain full and accurate books of account for the Company in
accordance with tax accounting principles consistently applied and in accordance with the terms of
this Agreement. Such books shall be maintained at the principal United States office of the
Company. Members and their designated representatives shall have full and complete access at all
reasonable times to review, inspect and copy the books and records of the Company. The Members
shall pay any actual cost of copying any books, and shall pay any special costs, such as
enlargement from microfilm or computer printout, which may be required in connection with such
inspection. Inspection shall be conducted at a time and in a manner so as not to unreasonably
interfere with the normal operation of the business of the Company.

          (b) The Company shall provide to the Members the reports identified below, at the times
indicated below:

          (i) Within 30 days from the end of each month, a report showing the Company’s total
volume of production of coal from the Sublease for the month, total volume of sales of such
coal made during the month, and major maintenance on either the

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plant or the dragline operating at the Absaloka Mine, or any other force majeure event,
that has resulted in the interruption of production for at least 48 continuous hours, as
well as the current status of any previously reported event that continues to have a
significant impact on Company operations or financial results;

          (ii) Within 60 days from the end of each fiscal quarter, a report showing the Company’s
cash flow for the quarter, including total volume of production of coal from the Sublease
for the quarter, total volume of sales of such coal made during the quarter, the price
received for such sales, all costs incurred by the Company in connection with its operations
during the quarter, all fees paid to WRI and Affiliates of WRI or to third parties during
such quarter, the total of Indian Coal Production Tax Credits that would be available for
such quantity of production if all requirements of the Code were satisfied with respect to
the Sublease, the amounts that would be payable to the Crow Tribe and to Investor in respect
of the Indian Coal Production Tax Credits during such quarter, and the Remaining Preference
Amount as of the end of the quarter;

          (iii) A report within 90 days after the close of each fiscal year of the Company
containing a balance sheet and statement of operations prepared in accordance with the
capital account maintenance principles of Section 704(b) of the Code. A Member shall have
the right to cause the Company to conduct an audit by the Company’s accounting firm of
either or both of the balance sheet or statement of operations for such fiscal year, at the
requesting Member’s cost.

          (iv) Within 60 days following the end of each quarter, an unaudited balance sheet and
statement of operations prepared consistently with the annual financial statements required
by Section 7.1(b)(iii), and a management discussion and analysis

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addressing any variance between forecasted and actual coal production levels, revenues
and expenses for the period.

          (v) On or before April 1 of each year, the Company shall furnish to each Member a Form
K-1, including such information as is reasonably pertinent for the preparation of such
Member’s federal income tax return for the immediately preceding calendar year. If the
Form K-1 is not delivered to Investor by April 1, Investor shall have the right to suspend
payment of the Fixed Payment Note and the Contingent Payment Obligation without interest
until the Form K-1 has been delivered, following which delivery all suspended payments shall
be immediately paid to WRI. The Company’s accounting firm shall sign as the preparer of the
Form 1065 to which the Form K-1 is attached.

          (vi) No later than 75 days prior to a Projected Payout Date, the Manager shall give
notice to the Members of the Projected Payout Date, which shall include a certification by
the Company’s accounting firm that the determination of the Projected Payout Date is
reasonable. The Manager shall, on the fifth Business Day prior to the Projected Payout
Date, certify to the Members in writing that the Projected Payout Date continues to be
reasonable based on all information known to it, which certification shall include the
certification by the Company’s accounting firm. Each notice of Projected Payout Date and
each certification required by this Section 7.1(b)(vi) shall set forth the Indian Coal
Production Tax Credits generated by the production and sale of Indian Coal from the Sublease
through the end of the most recent calendar quarter which ended more than 20 days before the
date of the notice and certification. The achievement of Payout shall be verified to the
Members as soon as practicable after its occurrence by

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the Company’s accounting firm. Such verification will be based upon a review of the
Company’s books and records.

     (vii) Within 15 days after the end of each calendar quarter, a report detailing coal
production and sales of Indian Coal from the Sublease for the most recent calendar quarter
and the allocation of Indian Coal Production Tax Credits to Investor (the “Quarterly
Report”).

To the extent that preparation of the foregoing reports requires information, reports or consents
that is required to be provided by a third party, and such information, reports or consents have
not been provided in a timely manner (despite the Company exercising all commercially reasonable
efforts to obtain the information) so as to permit the Company to provide the reports in the time
periods set forth in this Section 7.1(b), the Company shall provide written notice to the Members
notifying them that the report will not be provided as set forth herein for the reason set forth,
indicating when the information, reports or consents are expected to be received from the third
party, and undertaking to provide the information, reports or consents promptly following receipt
thereof.

          (c) The Manager shall give the Members notice of the occurrence of the following events
promptly following the occurrence thereof:

          (i) the rendering of a final, non-appealable determination by a court or other judicial
body that WRI has acted with gross negligence or willful misconduct as the operator of the
Absaloka Mine;

          (ii) the assignment by WRI of the Mining Contract to a third party without the consent
of Investor;

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          (iii) a violation of Environmental Laws as a result of which the Company is subject to
material liability;

          (iv) the receipt by the Company of (A) a Private Letter Ruling from the IRS, (B)
approval by the Bureau of Indian Affairs of the Second Crow Lease and the Sublease and (C)
notification from WRI and/or Investor that it is electing to require a Failure Transfer
because the Second Payment Conditions have not been satisfied; and

          (v) the taking of any action described in Section 6.5(a) without the prior approval of
Investor.

          (d) All costs of preparing, providing and mailing all reports and notices and all other
materials furnished by the Company shall be paid by the Company.

     Section 7.2 Fiscal Year. The calendar year shall be selected as the accounting year
of the Company and the books of account shall be maintained on an accrual basis.

     Section 7.3 Capital Accounts. A capital account shall be established and maintained
for each Member in accordance with the following:

          (a) General Adjustments. A Member’s Capital Account shall be increased and decreased
as follows:

          (i) The Capital Account shall be increased by (a) the amount of the Member’s Capital
Contribution made in cash; (b) the Fair Market Value of assets contributed in kind (net of
liabilities secured by such contributed property that the Company is considered to assume or
take subject to under Treasury Regulation Section 1.704-1(b)(2)(iv)(b)); and (c) the amount
of Capital Account Income that is allocated to the Member pursuant to this Agreement.

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          (ii) The Capital Account shall be decreased by (a) the amount of money and the Fair
Market Value of any property that the Company distributes to the Member (net of any
indebtedness secured by such distributed property that the Member is considered to assume or
take subject to under Treasury Regulation Section 1.704-1(b)(2)(iv)(b)), and (b) the amount
of Capital Account Deductions that are allocated to the Member pursuant to this Agreement.

          (iii) The rules regarding maintenance of Capital Accounts described in this Section
7.3(a) are intended to correspond to the provisions of Treasury Regulations
§1.704-1(b)(2)(iv)(b). To the extent that Section 7.3(a)(i) and (ii) conflict with such
provision, Treasury Regulations §1.704-1(b)(2)(iv)(b) shall prevail.

          (b) Adjustments for Unrealized Gain and Unrealized Loss. For purposes of computing
and maintaining Capital Accounts pursuant to Section 7.3(a) above, immediately prior to the
distribution of any asset of the Company to a Member (including a distribution in liquidation of
the Company), the amount of unrealized gain with respect to the asset shall be deemed to be an item
of Capital Account Income recognized by the Company and shall be allocated to the Members as
provided in Article V, and the amount of unrealized loss with respect to the asset shall be deemed
to be an item of Capital Account Deduction recognized by the Company and shall be allocated to the
Members as provided in Article V. For this purpose, the unrealized gain with respect to an asset
of the Company shall be equal to the excess of the Fair Market Value of the asset over the Book
Value of the asset and the unrealized loss with respect to an asset of the Company shall be equal
to the excess of the Book Value of the asset over the Fair Market Value of the asset.

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          (c) Capital Accounts of Transferees. A transferee of an interest in the Company shall
succeed to the Capital Account attributable to the interest, and there shall be no adjustment to
the Capital Accounts as a result of the transfer.

          (d) Adjustments with Respect to Contributed Property. In accordance with Sections
1.704-1(b)(2)(iv)(d)(3) and 1.704-1(b)(2)(iv)(g) of the Treasury Regulations, in the case of
property contributed to the Company by a Member, the Members’ Capital Accounts shall be debited or
credited for items of depreciation, depletion, amortization, and gain or loss computed for book
purposes with respect to such property in the same manner as such items would be computed if the
adjusted tax basis of such property were equal to its Fair Market Value on the date of its
contribution to the Company. In accordance with Section 1.704-1(b)(2)(iv)(g)(iii) of the Treasury
Regulations, the amount of book depreciation, depletion or amortization for a period with respect
to property the Book Value of which is different from its Adjusted Basis shall be the amount that
bears the same relationship to the Book Value of such property as the depreciation, depletion or
amortization computed for tax purposes with respect to such property for such period bears to the
adjusted tax basis of such property; provided that, if such property has a zero adjusted tax basis,
the book depreciation or amortization shall be determined under any reasonable method selected by
the Manager. If the adjusted tax basis of depletable property is zero, Depletion with respect to
such property shall be determined by applying the rules under Code Sections 611 and 613 for
calculating depletion based upon the assumption that the adjusted basis of such property equals
such Book Value. The Fair Market Value of property contributed to the Company shall be based upon
the agreed net Fair Market Value of the assets of the Company under Section 4.1(b), provided that,
in determining the Fair Market Value of contributed property, the Manager may, under any reasonable
method which it selects, allocate

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the agreed net Fair Market Value of the assets of the Company among different items of Company
assets.

          (e) Compliance with Regulations. The Company shall make all other adjustments to the
Capital Accounts required by Section 1.704-1(b)(2)(iv) of the Treasury Regulations.

          (f) Initial Capital Account Balances. The Members agree that the Capital Account
balance of each of WRI Sub and Investor as of the date hereof shall equal the amounts referenced in
Section 4.2.

     Section 7.4 Tax Partnership. The Members agree to classify the Company as a
partnership for federal and applicable state tax purposes. Neither the Company, any Member nor any
officer or other representative of any of the foregoing shall file an election to classify the
Company as an association taxable as a corporation for federal tax purposes.

     Section 7.5 Tax Matters Partner. Investor shall act as the “tax matters partner”
under Section 6231(a)(7) of the Code (such person, in this Section 7.5, being called the “Tax
Matters Partner”), subject to replacement by the Manager only upon a showing that Investor has
failed to comply with its obligations as Tax Matters Partner. The Members shall take such action
as is required by Treasury Regulations under Section 6231(a)(7)(A) of the Code to designate
Investor as the Tax Matters Partner. Investor shall take such action as may be necessary to make
WRI Sub a notice partner within the meaning of Section 6231(a)(8) of the Code. The Tax Matters
Partner shall promptly notify the Members if any tax return or report of the Company is audited or
if any adjustments are proposed by any governmental body. In addition, the Tax Matters Partner
shall promptly furnish to the Members all notices concerning administrative or judicial Proceedings
relating to federal income tax matters as required under the Code. During the

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pendency of any such administrative or judicial Proceeding, the Tax Matters Partner shall
furnish to the Members periodic reports, not less often than monthly, concerning the status of any
such Proceeding. Without the consent of WRI Sub, the Tax Matters Partner shall not extend the
statute of limitations, file a request for administrative adjustment, file suit concerning any tax
refund or deficiency relating to any Company administrative adjustment or enter into any settlement
agreement relating to any item of Company income, gain, loss, deduction or credit for any fiscal
year of the Company. The Company shall indemnify and hold harmless the Tax Matters Partner for any
and all liabilities, costs and expenses (including reasonable attorneys’ fees and accountants’
fees) that the Tax Matters Partner may incur in its capacity as Tax Matters Partner, acting in
compliance with its obligations under this Agreement.

     Section 7.6 Federal Income Tax Audit. In the event of any federal income tax audit of
the Company, WRI Sub shall control any and all negotiated settlements with any tax authority with
respect to the qualification of coal production from the Absaloka Mine for Indian Coal Production
Tax Credits. Investor shall control any and all negotiated settlements with any tax authority with
respect to the allocation of Indian Coal Production Tax Credits among the Members. The party
controlling a negotiated settlement with any tax authority shall, in good faith, consult with the
other party regarding the suggested terms of such settlement; provided, however, that the
controlling party shall be under no obligation to comply with any suggestion of the other party.
The controlling party shall provide to the other party copies of all correspondence or pleadings
between the controlling party and the tax authority regarding any tax audit. The other party shall
be entitled to monitor all hearings and meetings with the tax authority associated with such
settlement negotiations.

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     Section 7.7 Tax Returns. The Company shall timely file or cause to be filed all
federal and state tax returns required to be filed by the Company, and shall utilize the Company’s
accounting firm to prepare such returns. The Manager shall be entitled to appoint the Company’s
accounting firm, which firm shall be reasonably acceptable to the Members and shall not be a “big
four” firm. The Company shall provide each Member with a draft of the federal income tax returns
required to be filed by the Company, along with workpapers for preparation of such return, at least
20 days before filing for the Member’s review and comment. The Manager will consider in good faith
the comments of Investor in finalizing such returns.

     Section 7.8 TEFRA Election. The Company shall make an election under Section
6231(a)(1)(B)(ii) of the Code to have the tax treatment of partnership items be determined at the
Company level.

     Section 7.9 § 754 Election. The Manager shall make the election provided by § 754 of
the Code for the Company for the short tax year ending on the date Investor acquired its interest
in the Company.

     Section 7.10 Aggregation Election. The Company shall make a protective election to
aggregate the portions of the Sublease attributable to the First Crow Lease and Second Crow Lease
for purposes of Section 614(c) of the Code.

     Section 7.11 Defense of Tax Claims. Except as provided in Section 7.6, Investor and
WRI Sub shall jointly control (at each party’s own expense) any defense or settlement, compromise,
admission, or acknowledgment of any federal income tax audit by the IRS relating to tax items of
the Company and no such federal income tax audit shall be settled or compromised without the prior
written approval (which shall not be unreasonably withheld, conditioned or delayed) of each of
Investor and WRI Sub.

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ARTICLE VIII

INDEMNIFICATION

     Section 8.1 Power to Indemnify in Actions, Suits or Proceedings. The Company shall
indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or Proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or it is or was a Member, officer, or Manager of the
Company, or is or was serving at the request of the Company as a member, officer, manager, or
director of another limited liability company, corporation, partnership, joint venture, trust or
other enterprise (a “Covered Person”), against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such Covered Person in
connection with such action, suit or Proceeding, provided that such Covered Person acted in good
faith and in a manner such Covered Person reasonably believed to be in or not opposed to the best
interests of the Company, or, with respect to any criminal action or Proceeding, that such Covered
Person had no reasonable cause to believe his conduct was unlawful. The termination of any action,
suit or Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or
its equivalent, shall not, of itself, create a presumption that a Covered Person did not act in
good faith and in a manner which such Covered Person reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or Proceeding, had
reasonable cause to believe that his conduct was unlawful. This indemnification shall be from the
assets of the Company only, and no Member shall have any liability with respect to such
indemnification.

     Section 8.2 Expenses Payable in Advance. Expenses incurred by a Covered Person in
defending or investigating a threatened or pending action, suit or Proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or Proceeding upon receipt of an

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unsecured undertaking by or on behalf of such Covered Person to repay such amount if it shall
ultimately be determined that such Covered Person is not entitled to be indemnified by the Company
as authorized by this Article VIII.

     Section 8.3 Nonexclusivity of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by or granted pursuant to this
Article VIII shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any agreement, contract, vote of
Members or Manager or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in a Covered Person’s official capacity and as to
action in another capacity while holding such office, it being the policy of the Company that
indemnification of the persons specified in Sections 8.1 shall be made to the fullest extent
permitted by law but only if the Manager authorizes such broader protection than set forth in the
other provisions of this Article VIII. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Section 8.1 but whom the Company
has the power or obligation to indemnify under the provisions of the Act or otherwise.

     Section 8.4 Insurance. On such terms as the Manager approves, the Company may
purchase and maintain insurance on behalf of any person who is or was a Covered Person against any
liability asserted against or incurred by such Covered Person in any such capacity, or arising out
of such Covered Person’s status as such, whether or not the Company would have the power or the
obligation to indemnify the Covered Person against such liability under the provisions of this
Article VIII. If such insurance is provided through participation in the insurance policies of an
Affiliate of the Company, the Company shall pay its allocable share of the cost of such insurance.

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     Section 8.5 Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to, this
Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Member, officer or Manager and shall inure to the benefit of the
heirs, executors and administrators of such a person and shall survive the liquidation of the
Company.

     Section 8.6 Limitation on Indemnification. Notwithstanding anything else herein to
the contrary, the Company shall not be obligated to indemnify any Covered Person for (i) any
Proceeding initiated by such Covered Person against the Company unless that Proceeding was brought
to enforce such Covered Person’s right to indemnification under Section 8.1 and, in such
Proceeding, it is determined that such Covered Person is entitled to indemnification, or (ii) any
Proceeding brought by the Company against such Covered Person unless such Covered Person is found
not to be liable to the Company.

     Section 8.7 Indemnification of Employees and Agents. The Company may, to the extent
authorized from time to time by the Manager, provide rights to indemnification and the advancement
of expenses to employees and agents of the Company similar to those conferred in this Article VIII
to Members, officers or the Manager of the Company.

     Section 8.8 Severability. The provisions of this Article VIII are intended to comply
with the Act. To the extent that any provision of this Article VIII authorizes or requires
indemnification or the advancement of expenses contrary to the Act or the Certificate, the
Company’s power to indemnify or advance expenses under such provision shall be limited to that
permitted by the Act and the Certificate and any limitation required by the Act or the Certificate
shall not affect the validity of any other provision of this Article VIII.

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ARTICLE IX

DISPOSITIONS OF MEMBERSHIP INTERESTS

     Section 9.1 Dispositions.

          (a) No Member may Dispose of its Membership Interest, in whole or in part, other than in
accordance with the terms of this Article IX, and any attempted Disposition that is not in
accordance with this Article IX shall be, and is hereby declared, null and void ab initio.
The Members agree that a breach of the provisions of the restrictions on Dispositions set forth in
this Article IX may cause irreparable injury to the Company and the Members, for which
monetary damages (or other remedy at law) are inadequate in view of (i) the complexities and
uncertainties in measuring the actual damages that would be sustained by reason of the failure of a
person to comply with such provisions, and (ii) the uniqueness of the Company’s business and the
relationship among the Members. Accordingly, the Members agree that the restrictions on
Dispositions may be enforced by specific performance.

          (b) WRI Sub may not directly or indirectly Dispose of all or any part of its Membership
Interest without the consent of Investor and the Manager, which shall not be unreasonably withheld,
conditioned or delayed; provided, however, that (i) WRI Sub may Dispose of all or any portion of
its interests in the Company to an Affiliate of WRI and WRI may Dispose of all or any portion of
its interests in WRI Sub to an Affiliate of WRI, if not treated as a transfer for federal income
tax purposes; (ii) WRI Sub may Dispose of all or any portion of its Membership Interest in the
Company to Investor upon exercise by Investor of the Investor Option pursuant to the terms of the
Absaloka Purchase Agreement; and (iii) WRI Sub may pledge, grant a security interest in or
otherwise encumber its interest in the Company provided such pledge is granted in favor of an
entity that would qualify as a qualified institutional buyer under 17 CFR § 230.144A(a)(1)(i),
(iv), (v) or (vi) of the regulations of the SEC.

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          (c) Investor may not directly or indirectly Dispose of all or any part of its Membership
Interest (including transfers to an Affiliate) other than a Disposition (i) approved by WRI Sub and
the Manager, which approval shall not be unreasonably withheld, conditioned or delayed,
(ii) constituting a Failure Transfer in accordance with the terms of Section 6 of the Absaloka
Purchase Agreement, (iii) pursuant to an exercise by WRI of its Buyout Option in accordance with
the terms of Section 9 of the Absaloka Purchase Agreement, or (iv) in a transaction which is not
treated as a transfer for federal income tax purposes. Further, no Affiliate of Investor may
directly or indirectly Dispose of all or any part of its interest in Investor, except to the extent
that such transfer would not be treated as a transfer of a partnership interest in the Company for
federal income tax purposes. Notwithstanding the foregoing, Investor shall be entitled to withdraw
from the Company at any time pursuant to Section 11.1.

          (d) The foregoing Sections 9.1(b) and (c) to the contrary notwithstanding, a Disposition of a
Membership Interest (including to any Permitted Transferee) shall be null and void ab initio (i)
if, following the proposed Disposition, the Company would constitute a “publicly traded
partnership” for purposes of Section 7704 of the Code, (ii) if the transferee fails to deliver to
the Company all documents required pursuant to Section 9.2, (iii) if the Disposition would trigger
a termination of the Company under Section 708(b)(1)(B) of the Code, unless the transferor obtains
a private letter ruling from the IRS confirming that such a termination will not change the results
described in the Private Letter Ruling; or (iv) if such Disposition would result in the violation
of any applicable federal or state securities laws. The Manager is entitled to condition its
consent to a Disposition on the delivery to the Company of an opinion of counsel acceptable to the
Manager with respect to the matters set forth in Section 9.1, including that the proposed
Disposition is exempt from registration with the SEC or any state securities authority.

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Any Permitted Transferee must be capable of fulfilling the financial obligations of the
transferor under this Agreement. Any costs incurred by the Company in connection with any proposed
or actual Disposition by a Member of all or a part of its Membership Interest shall be borne by
such Member.

     Section 9.2 Substitution.

          (a) Unless an assignee of a Membership Interest becomes a Member in accordance with the
provisions of this Agreement, such assignee shall not be entitled to any of the rights granted to a
Member hereunder in respect of such Membership Interest, other than the right to receive
allocations of income, gain, loss, deduction, credit and similar items and distributions to which
the assignor would otherwise be entitled, to the extent such items are assigned.

          (b) An assignee of the Membership Interest of a Member, or any portion thereof, may become a
Member entitled to all of the rights of a Member in respect of such Membership Interest if (i) the
assignor gives the assignee such right, (ii) the Manager consents in writing to such substitution;
and (iii) the assignee executes and delivers to the Company an executed counterpart of this
Agreement.

ARTICLE X

DISSOLUTION, LIQUIDATION, AND TERMINATION

     Section 10.1 Dissolution.

          (a) The Company shall dissolve and its affairs shall be wound up upon the first to occur of
the following (each, an “Event”):

          (i) the unanimous agreement of the Members to dissolve the Company;

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          (ii) the entry of a decree of judicial dissolution of the Company under Section 18-802
of the Act;

          (iii) a final, non-appealable determination by a court or other judicial body that WRI
has acted with gross negligence or willful misconduct in the operation of the Absaloka Mine,
if Investor elects to require a Breach Liquidation;

          (iv) the taking of an action under Section 6.5(a) without the prior approval of
Investor, if Investor elects to require a Breach Liquidation;

          (v) any of the following occurrences where such occurrence has a Material Adverse
Effect on the Company: (A) the invalidation, cancellation or other termination, or
suspension of the Sublease or either of the First Crow Lease or the Second Crow Lease, or
any other agreement upon which the validity or effectiveness of any such Sublease or lease
depends in whole or in part; (B) any modification, amendment, or reformation of or to any
such Sublease, lease or other agreement; (C) any failure to obtain any required final,
binding and nonappealable governmental approvals of any such Sublease, lease or other
agreement or of mining plans or other permission or authority necessary for the Company to
conduct the contemplated mining activities under the Sublease; or (D) failure to obtain a
permit under the Surface Mining Control and Reclamation Act for lands within the Second Crow
Lease by January 1, 2010, if Investor elects to require a Breach Liquidation; and

          (vi) any event which makes it unlawful for the Company business to be continued, unless
the event can be and is remedied within a reasonable period of time.

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          (b) The bankruptcy, dissolution or withdrawal of any Member or the assignment by any Member of
its interest (whether or not in compliance with the terms of this Agreement) shall not dissolve the
Company.

     Section 10.2 Winding Up, Final Distribution.

          (a) Upon the occurrence of an Event, and, in the case of the Events specified in
Section 10.1(a)(iii), (iv) and (v), written notice from Investor that it is electing a Breach
Liquidation, the Manager shall proceed with winding up the affairs of the Company in accordance
with the principles and procedures set forth in Section 10.2(b).

          (b) The Company’s assets shall be revalued in accordance with Treasury Regulations
§ 1.704-1(b)(2)(iv)(f)(5)(ii) and the net profit or loss therefrom shall be allocated among the
Company’s Members (without regard to any unexercised Investor Options or Coal Options) in
accordance with Treasury Regulations § 1.704-1(b)(2)(iv)(g). The value of the Sublease shall be
determined by agreement of the Members, which determination shall be set forth in writing and
delivered to the Manager. If the Members are unable to agree on the value of the Sublease, the
value shall be determined by Erhardt, Keefe, Steiner & Hottman PC (or such other person or firm as
shall be reasonably acceptable to the Members), which shall value the Sublease (including any
previously exercised Coal Options) at their Discounted Cash Flow Value. The Discounted Cash Flow
Value of the Sublease, as so determined by Erhardt, Keefe, Steiner & Hottman PC or such other
person or firm, shall be binding upon the Members for purposes of determining liquidating
distributions.

          (c) Following such procedures, the Company shall proceed with payment, or making provision for
payment, of all liabilities of the Company, including liabilities, if any, to any Member, following
which the Company shall make distributions to the Members pro rata in

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accordance with the balances in their respective Capital Accounts (after taking into account
all adjustments thereto required by the provisions of Section 7.3 and Article V as a result of the
operations of the Company during its final accounting period, as a result of the sale or other
disposition of Company assets, and as a result of any unrealized gain or unrealized loss inherent
in Company assets to be distributed in kind); provided that, with respect to any liquidating
distribution required to be made to Investor, the Manager shall, at its option, either (i) sell the
Company’s assets and distribute the proceeds thereof to Investor, or (ii) distribute the Sublease
to WRI Sub and pay Investor in cash the balance in its Capital Account as adjusted in accordance
with Section 10.2(b). If the Company does not have sufficient cash to make a liquidating
distribution to Investor of cash equal to Investor’s Capital Account balance, WRI shall be required
to lend to the Company, and the Company shall be required to borrow from WRI, cash sufficient to
make such distribution, on the terms specified in Section 4.6.

          (d) In any liquidation, the portion of any distribution payable to Investor that is equal to
the remaining outstanding principal balance and accrued interest owed by Investor to WRI under the
Fixed Payment Note and the amount, if any, payable by Investor to WRI in respect of the Contingent
Payment Obligation for any period prior to the date of the Breach Liquidation, whether or not yet
reflected in an invoice, shall be paid directly by the Company to WRI on behalf of Investor. In
connection with a Breach Liquidation, the Company shall, concurrent with the liquidating
distribution, provide to WRI, with a copy to Investor, a certificate setting forth all
distributions made to Investor from the date of its admission as a Member of the Company, including
the amount of liquidating distributions.

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          (e) Upon the liquidation of a Member’s interest in the Company, liquidating distributions with
respect thereto shall be made within the time period prescribed by the Treasury Regulations under
Section 704(b) of the Code.

          (f) No Member shall be required to restore the deficit, if any, in its Capital Account.

     Section 10.3 Termination; Certificate of Cancellation. On completion of the
distribution of Company assets as provided in this Agreement, the Company shall be terminated and
the Manager shall file a certificate of cancellation with the Secretary of State of Delaware,
cancel any other filings made pursuant to Section 1.5, and take such other actions as may be
necessary to terminate the Company.

ARTICLE XI

WITHDRAWAL

     Section 11.1 Withdrawal. Investor shall have the right to withdraw from the Company
as a Member at any time by providing written notice to the Company and the other Members of such
intention to withdraw. Such withdrawal shall not cause a dissolution of the Company pursuant to
Article X.

     Section 11.2 Distribution Upon Withdrawal. Upon withdrawal, Investor shall be
entitled to receive from the Company the amount of its Capital Account at the date of withdrawal,
determined in accordance with the provisions of Section 7.3 and as the Capital Account would be
adjusted in accordance with the provisions of Section 10.2(b) upon a liquidation of the Company;
provided, however, that the portion of the distribution equal to (a) the remaining principal and
accrued interest owed by Investor to WRI under the Fixed Payment Note and (b) the amount, if any,
remaining payable by Investor to WRI in respect of the

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Contingent Payment Obligation for any period prior to withdrawal, whether or not reflected in
an Invoice as of the date of withdrawal, shall be paid by the Company to WRI on behalf of Investor.

     Section 11.3 Procedure. Upon receipt by the Company from Investor of its written
notice of withdrawal, the Manager shall request from WRI a certificate setting forth (a) the
remaining principal and accrued interest owing under the Fixed Payment Note at the date of
withdrawal and (b) the amounts payable by Investor to WRI in respect of the Contingent Payment
Obligation for any period prior to withdrawal.

     Section 11.4 Termination of Membership. Upon payment by the Company (i) to Investor
of the amounts required under Section 11.2 and (ii) to WRI if amounts remain payable to WRI under
the Fixed Payment Note and Contingent Payment Obligation, Investor’s Membership Interest in the
Company shall terminate, effective the date of the notice of withdrawal.

ARTICLE XII

OUTSIDE ACTIVITIES AND INVESTMENTS

     Section 12.1 Other Investments. Each of the Members acknowledge and affirm that the
other Members and their Affiliates (the “Related Parties”):

          (a) (A) have participated (directly or indirectly) and will continue to participate (directly
or indirectly) in other mining activities and in private equity, venture capital and other direct
investments in corporations, joint ventures, limited liability companies and other entities that
engage in various aspects of the U.S. domestic and international mining business (in this
Article XI, “Other Investments”), including Other Investments that may or will be
competitive with the Company’s business or that may qualify for favorable tax treatment, (B)  have
interests in, participate with, aid and maintain seats on the board of directors or similar

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governing bodies of, Other Investments, and (C) may develop or become aware of business
opportunities for Other Investments; and

          (b) may or will, as a result of or arising from the matters referenced in Section 12.1(a)
above, the nature of the Related Parties’ businesses and other factors, have conflicts of interest
or potential conflicts of interest.

     Section 12.2 Certain Conflicts of Interest. The Members (in their own names and in
the name and on behalf of the Company) expressly (x) waive any conflicts of interest or potential
conflicts of interest described in Section 12.1(b) and agree that no Related Party shall have any
liability to any Member, any Affiliate thereof, or the Company with respect to such conflicts of
interest or potential conflicts of interest and (y) acknowledge and agree that the Related Parties
and their respective representatives will not have any duty to disclose to the Company, any other
Member or the Manager any such business opportunities, whether or not competitive with the
Company’s business and whether or not the Company might be interested in such business opportunity
for itself or to offer such business opportunities to the Company. The Members (and the Members on
behalf of the Company) also acknowledge that the Related Parties and their representatives have
duties not to disclose confidential information of or related to the Other Investments.

     Section 12.3 Effects on Related Parties. The Members (in their own names and in the
named and on behalf of the Company) hereby:

          (a) agree that (A) the terms of this Article XII, to the extent that they modify or limit a
duty or other obligation, if any, that a Related Party may have to the Company or another Member
under the Act or other Applicable Law, are reasonable in form, scope and content; and (B) the terms
of this Article XII shall control to the fullest extent possible if it is in

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 conflict with a duty, if any, that a Related Party may have to the Company or another Member,
the Act or any other Applicable Law; and

          (b) waive any duty or other obligation, if any, that a Related Party may have to the Company
or another Member, pursuant to the Act or any other Applicable Law, to the extent necessary to give
effect to the terms of this Article XII.

     Section 12.4 Application. The Members (in their own names and in the name and on
behalf of the Company) acknowledge, affirm and agree that (i) the execution and delivery of this
Agreement is of material benefit to the Company and the Members, and that they would not be willing
to (x) execute and deliver this Agreement, and (y) make their agreed Capital Contributions to the
Company, without the benefit of this Article XII and the agreement of the parties thereto; and (ii)
they have reviewed and understand the provisions of Section 18-1101(b) of the Act.

ARTICLE XIII

WRI BUYOUT OPTION

     Section 13.1 WRI Buyout Option. Upon notice from WRI to the Company that it has
exercised its Buyout Option in accordance with Section 9 of the Absaloka Purchase Agreement, the
Company shall provide to WRI and Investor the information required to calculate the Buyout Price
determined under the Absaloka Purchase Agreement, utilizing the procedures and assumptions set
forth in Article X.

     Section 13.2 Allocation of Tax Items; Distributions. The books of the Company shall
close on the date of the Buyout Notice for purposes of determining Investor’s allocable share of
tax items of the Company for the taxable year of the Company which includes such date, and Investor
shall be allocated only its share of tax items of the Company through such date, and no tax items
in any subsequent year of the Company shall be allocated to Investor. Notwithstanding

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Section 5.5, the Company shall not be required to distribute any amount to Investor after the date
of the Buyout Notice.

ARTICLE XIV

GENERAL PROVISIONS

     Section 14.1 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests, or consents provided for or permitted to be given under this
Agreement must be in writing and must be given either by depositing that writing in the United
States mail, addressed to the recipient, postage paid, and registered or certified with return
receipt requested or by delivering that writing to the recipient in person, by courier, by
Electronic Transmission, or by facsimile transmission; and a notice, request, or consent given
under this Agreement is effective on acknowledged receipt by the person who received it. All
notices, requests, and consents to be sent to a Member must be sent to or made at the addresses
given for that Member on Schedule I or such other address as that Member may specify by
notice to the other Members. All notices, requests, and consents to be sent to the Company must be
sent to or made at the address specified for the Company in Schedule I or such other
address as the Company may specify by notice to the Members.

     Section 14.2 Amendment and Waivers.

          (a) Subject to Section 14.2(b), this Agreement may not be amended or modified, and no
provisions hereof may be waived, without the written consent of all parties hereto unless otherwise
expressly provided in this Agreement. If this Agreement is amended as a result of substituting a
Member, the amendment to this Agreement shall be signed by the transferor and by the person to be
substituted.

          (b) Notwithstanding Section 14.2(a), amendments to this Agreement that are of an
inconsequential nature and do not adversely affect the Members, or are necessary to

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comply with any Applicable Law or governmental regulations, or are necessary in the opinion of
counsel to the Company to ensure that the Company will not be treated as an association taxable as
a corporation for U.S. Federal income tax purposes, may be made by the Manager without the consent
of the Members.

          (c) No action taken pursuant to this Agreement, including any investigation by or on behalf of
any party hereto, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained in this Agreement.
The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a further or continuing waiver of such breach or as a waiver of any other or
subsequent breach. No failure on the part of any party hereto to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right, power or remedy by such party preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. All remedies
hereunder are cumulative and are not exclusive of any other remedies provided by Applicable Law.

     Section 14.3 Entire Agreement. This Agreement, the Absaloka Purchase Agreement and
the other documents entered into in connection with this Agreement constitute the entire agreement
and understanding of the parties hereto in respect of its subject matter and supersede all prior
understandings, agreements, or representations by or among such parties, written or oral, to the
extent they relate in any way to the subject matter hereof or the transactions contemplated hereby.
In the event of a conflict between this Agreement and the Absaloka Purchase Agreement, the Absaloka
Purchase Agreement shall prevail as to matters related primarily to the terms of the

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purchase and sale by WRI of its Membership Interest to Investor, and this Agreement shall
prevail as to matters related primarily to the affairs of Absaloka.

     Section 14.4 Effect of Waiver or Consent. The failure of any person to insist upon
strict performance of a covenant hereunder or of any obligation hereunder, irrespective of the
length of time for which such failure continues, shall not be a waiver of such person’s right to
demand strict compliance in the future. No consent or waiver, express or implied, to or of any
breach or default in the performance of any obligation hereunder shall constitute a consent or
waiver to or of any other breach or default in the performance of the same or any other obligation
hereunder.

     Section 14.5 Successors and Assigns. Subject to Article IX, this Agreement
shall be binding upon and inure to the benefit of the Members and their respective heirs, legal
representatives, successors, and assigns.

     Section 14.6 Governing Law. THIS AGREEMENT AND THE PERFORMANCE OF THE TRANSACTIONS
AND THE OBLIGATIONS OF THE PARTIES HEREUNDER WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW
PRINCIPLES.

     Section 14.7 Jurisdiction and Venue. IN RESPECT OF ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION AND
VENUE OF ANY FEDERAL OR STATE COURT LOCATED WITHIN THE STATE OF DELAWARE, WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON HIM, CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY FIRST
CLASS

-58-

 

REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, DIRECTED TO HIM AT
THE ADDRESS SPECIFIED PURSUANT TO SECTION 14.1, AGREES THAT SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF, AND WAIVES ANY OBJECTION TO JURISDICTION OR VENUE OF, AND
WAIVES ANY MOTION TO TRANSFER VENUE FROM, ANY OF THE AFORESAID COURTS.

     Section 14.8 Waiver of Jury Trial. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND ANY
DOCUMENT EXECUTED IN CONNECTION HEREWITH.

     Section 14.9 Directly or Indirectly. Where any provision of this Agreement refers to
action to be taken by any person, or which such person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by such person, including
actions taken by or on behalf of any Affiliate of such person.

     Section 14.10 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any provision may be made
enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall
be enforceable to the maximum extent permitted by Applicable Law.

     Section 14.11 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any additional

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documents and instruments and perform any additional acts that may be necessary or appropriate
to effectuate and perform the provisions of this Agreement and those transactions.

     Section 14.12 Title to Company Property. All property owned by the Company, whether
real or personal, tangible or intangible, shall be deemed to be owned by the Company, and no
Member, individually, shall have any ownership of such property. The Company shall hold all of its
property in its own name.

     Section 14.13 No Third Party Beneficiaries. Except as otherwise provided in
Article VIII, it is the intent of the parties hereto that no third-party beneficiary rights
be created or deemed to exist in favor of any person not a party to this Agreement, unless
otherwise expressly agreed to in writing by the parties.

     Section 14.14 Expenses.

          (a) All reasonable third party out-of-pocket costs and expenses incurred by the Members in
connection with their decisions to enter into this Agreement and the negotiation, execution and
delivery of this Agreement, and all related documents (including reasonable attorneys’ fees and
expenses) shall be paid by such Member.

          (b) Provided that they are included within a budget or are otherwise authorized in accordance
with the terms of this Agreement, all direct, third party out-of-pocket expenses reasonably
incurred in the Company business, including expenses incurred by WRI Sub, WSC or any other
Affiliate of WRI in connection with the Company’s operations, shall be paid with Company funds,
including costs of obtaining audits (including the fees and expenses of the Company’s independent
auditors), fees and expenses attributable to the preparation of the Company’s tax returns and
reports, fees and expenses of independent mining engineers retained by the Company, routine outside
legal costs, and printing and mailing expenses.

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     Section 14.15 Counterparts. This Agreement may be executed in any number of
counterparts, with each such counterpart constituting an original and all of such counterparts
constituting but one and the same instrument.

     Section 14.16 Confidentiality. Each Member will, and will cause each of its managers,
agents, counsel, advisors, consultants, lenders, investors, potential investors, officers,
directors, employees, partners or other representatives (collectively, the “Representatives”) to,
keep confidential all non-public information received from or otherwise relating to, the Company,
its subsidiaries, properties and businesses, (“Confidential Information”) and will not, and will
not permit its Representatives to, (a) disclose Confidential Information to any other person other
than to another party hereto, or Affiliate thereof, for a valid business purpose of the Company, or
(b) use Confidential Information for anything other than as necessary and appropriate in carrying
out the business of the Company. The restrictions set forth in this Agreement do not apply to any
disclosures required by law, including federal securities law applicable to a Member. As used in
this Agreement the term “Confidential Information” shall not include information that (i) is or
becomes generally available to the public other than as a result of a disclosure by a Member or its
Representatives in violation of this Agreement, (ii) is or was available to such Member on a
non-confidential basis prior to its disclosure to such Member or its Representatives by the Company
or another Member or (iii) was or becomes available to such Member on a non-confidential basis from
a source other than the Company, which source is or was (at the time of receipt of the relevant
information) not known to the recipient of such information to be bound by a confidentiality
agreement with (or other confidentiality obligation to) the Company or another person. A Member
shall be responsible for any breaches of this confidentiality obligation by its Representatives. A
Member shall have the right to disclose Confidential

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Information in connection with a subpoena, interrogatory, request for production, civil
investigative demand or other such legal process issued by any court, arbitrator(s), or
administrative, legislative, investigative or regulatory body, but only to the extent necessary to
fully respond thereto and after providing written notice to the other Members as far as possible in
advance of such legal process to permit them to obtain a protective order.

     Section 14.17 Power of Attorney. Investor does hereby irrevocably constitute and
appoint WRI as its true and lawful attorney-in-fact, with full power of authority in its name,
place and stead to execute, swear to, acknowledge, deliver, file and record as appropriate:

          (a) Certificates and amendments thereto, under the Act and the laws of any other jurisdiction
in which certificates, affidavits and other documents evidencing or preserving the Company as a
limited liability company may or should, in the opinion of the Manager, be filed or recorded;

          (b) Any other instrument which may be required to be filed or recorded by the Company under
the laws of any governmental jurisdiction or by any governmental agency, or which the Manager deems
it advisable to file or record;

          (c) Any documents which may be required to effect the continuation of the Company, the
substitution or addition of a Member, the amendment of the Certificate of Formation or the
dissolution and termination of the Company, provided the continuation, substitution, addition,
amendment or dissolution and termination are in accordance with the terms of this Agreement;

          (d) All instruments which the Manager deems appropriate to reflect a change or modification of
this Agreement in accordance with the terms of this Agreement, including without limitation the
addition of substituted Members pursuant to Article IX;

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          (e) All filings with agencies of the federal government or of any other jurisdiction which the
Manager deems appropriate to carry out the business of the Company; and

          (f) All contracts, agreements, instruments, returns, conveyances and other instruments which
the Manager deems appropriate to manage the affairs of the Company.

     The power of attorney is irrevocable, is a power coupled with an interest, shall survive the
dissolution of Investor and shall extend to the successors and permitted assigns of Investor and
WRI. Investor agrees to be bound by and ratify any representations made and actions taken by WRI
acting in good faith pursuant to such power of attorney.

     Section 14.18 Survival of Certain Provisions. The following provisions shall survive
the termination of the Company: Article V and Sections 7.3 through 7.11, 8.1 through 8.8, 10.3,
14.2 through 14.16 and Article XV, and the definitions and exhibits relevant to such provisions.

ARTICLE XV

DISPUTE RESOLUTION

     Section 15.1 Disputes. The Members shall seek to resolve any disputes or claims
arising between the Members and/or the Company in connection with this Agreement amicably through
discussions between the Members. No breach shall be deemed to occur hereunder until the Member
alleged to be in breach is given at least 30 days prior written notice describing such dispute or
claim. A Member’s exercise of its judgment shall not be subject to any dispute or claim. If any
dispute or claim is not settled or cured within the 30-day period contemplated above, either Member
may commence an action in the federal or state courts of the State of Delaware.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, the Members have executed this Agreement in counterparts effective as of
the date first above written.

	 	 	 	 	 	 	 
	 	 	FEEDSTOCK INVESTMENTS IV, LLC	 	 
	 
	 	 	 	 	 	 
	 	 	By its Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

SIGNATURE PAGE—LIMITED LIABILITY COMPANY AGREEMENT

OF ABSALOKA COAL LLC

 

 

     IN WITNESS WHEREOF, the Members have executed this Agreement in counterparts effective as of
the date first above written.

	 	 	 	 	 	 	 
	 	 	WESTMORELAND RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	WRI PARTNERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

SIGNATURE PAGE—LIMITED LIABILITY COMPANY AGREEMENT

OF ABSALOKA COAL LLCexv10w3

EXHIBIT 10.3

FORM OF

FIXED PAYMENT NOTE

			
	 	 	 
	$27,215,982	 	 
	Denver, Colorado
	 	Executed October 16, 2008

     FOR VALUE RECEIVED, the undersigned, FEEDSTOCK INVESTMENTS IV, LLC, a Delaware limited
liability company (“Investor”), having an address of 82 Devonshire Street, R7E, Boston,
Massachusetts 02109, promises to pay to the order of WESTMORELAND RESOURCES, INC., a Delaware
corporation having an address of Two North Cascade Avenue, Colorado Springs, Colorado 80903
(“WRI”), the amounts described below as set forth herein. Any defined term used herein which is
not defined herein shall have the meaning given such term in the Membership Interest Purchase
Agreement dated effective October 16, 2008 among Investor, WRI, Absaloka Coal, LLC, a Delaware
limited liability company (“Absaloka”) and WRI Partners, Inc., a Delaware corporation (the
“Agreement”), regarding the sale by WRI to Investor of WRI’s membership interest in Absaloka. This
Note is subject to the terms and the obligations of Investor and WRI set forth in the Agreement.

     Maturity/Payment Schedule. Investor shall pay to WRI the amount (the “Fixed Payment”)
of $2,000,000 each calendar quarter, according to the terms and subject to adjustments set forth
herein. Payment for the quarter from the date hereof through December 31, 2008 shall be prorated
based on the number of days in the quarter. The Fixed Payment shall be paid within ten (10)
business days following Investor’s receipt of an invoice from WRI delivered after each completed
calendar quarter, commencing with the invoice pertaining to the calendar quarter ending December
31, 2008, and continuing through and until the earliest of (x) the payment in respect of the
calendar quarter ending December 31, 2012 (the “Maturity Date”) and (y) such date as a total amount
of $27,215,982 (the “Principal Sum”) and all interest accrued thereon has been paid under this Note
and (z) the occurrence of any of the events set forth under “Termination of Note” below. On the
Maturity Date, unless the Note has been earlier terminated, the remaining Principal Sum and all
accrued interest shall be immediately due and payable. In circumstances described (i) in Section 7
of the Agreement upon the occurrence of a Breach Liquidation, and (ii) in Section 8 of the
Agreement upon the withdrawal of Investor from Absaloka, Absaloka may make Fixed Payments to WRI on
behalf
of Investor, which payments shall be applied by WRI to the Fixed Payment Obligations
hereunder.

     No Prepayment. This Note may not be prepaid at the election of Investor.

     Deferral of Fixed Payments. If the Fixed Payment for a given calendar quarter (plus
any deferred Fixed Payment from a prior period) exceeds an amount which is equal to ninety percent
(90%) of Investor’s share of Indian Coal Production Tax Credits available to Absaloka for a given
calendar quarter (the “Maximum Credit”) under the Amended and Restated Limited Liability Company
Agreement of Absaloka dated effective October 16, 2008 (the “Operating Agreement”), Investor shall
have the right to defer the payment of such excess amount until the

 

 

next succeeding calendar
quarter, at which time such excess amount shall be paid, in addition to the $2,000,000 Fixed
Payment, subject to additional deferral in the event the Maximum Credit is exceeded. The deferral
provided for in the preceding sentence shall be subject to adjustment in accordance with the
provisions of Section 14.2 of the Agreement. Investor’s obligation to make Fixed Payments shall in
no event be deferred beyond the payment in respect of the quarter ending December 31, 2012.

     Suspension of Fixed Payments. Notwithstanding the foregoing, Investor may suspend
Fixed Payments upon the occurrence of the following: (i) a Disqualification Event or a
Disallowance Event, as provided under Section 12 of the Agreement; (ii) under the circumstances
specified in Section 12.3(c)(iii) of the Agreement; (iii) the enactment of an amendment in or to
the Internal Revenue Code that eliminates the Indian Coal Production Tax Credits that are available
to Absaloka from the production and sale of coal from the Sublease; or (iv) the failure of Absaloka
to provide tax information to Investor by April 1 of any year. With respect to the Fixed Payments
suspended by reason of the occurrence of the events set forth in clauses (i) and (iii) above, Fixed
Payments shall be resumed at the earlier of (x) Cash Payout (as defined in the Operating Agreement
and in accordance with the terms of Section 12 of the Agreement) or (y) Investor’s notice to
Absaloka and WRI that it is withdrawing from Absaloka. The obligation to make Fixed Payments under
the circumstances described in Section 12.3(c)(iii) shall be dependent on the requirements of such
Section. With respect to the Fixed Payments suspended by reason of the occurrence of the event set
forth in (iv) above, upon the delivery to Investor by Absaloka of tax information, Investor shall
pay to WRI all accrued Fixed Payments, including any Fixed Payments covering periods of suspension.

     Termination of Note. Investor’s obligation to make Fixed Payments in accordance with
the terms of this Note shall terminate if prior to the Maturity Date either of the following events
occurs: (i) the exercise by Investor or WRI of the right to require transfer of Investor’s
membership interest upon the failure of Absaloka to satisfy the Second Payment Conditions, in
accordance with the terms set forth in Section 6 of the Agreement; or (ii) the occurrence of a
Breach Liquidation Event, in accordance with the terms set forth in Section 7 of the Agreement.
Upon the occurrence of either such event, this Note will be deemed terminated, and, in the case of
a Breach Liquidation, all amounts accrued under this Note shall become payable.

     Interest. Interest shall accrue on the outstanding Principal Sum and unpaid interest
thereon at the rate of ten percent (10%) per annum compounded quarterly (the “Interest Rate”). All
payments made hereunder shall be applied first to the payment of accrued interest and then
against the outstanding balance of the Principal Sum. Should Investor fail to timely pay
amounts due hereunder, such overdue payments shall bear interest at the lesser of (i) twelve
percent (12%) per annum, or the maximum rate of interest allowed by applicable law (the “Default
Rate”). All interest hereunder shall be calculated on the basis of a 365-day year, actual days
elapsed.

     Payment Instructions. Investor shall make all payments due under the terms of this
Note to WRI by wire transfer of immediately available funds to an account designated by WRI or at
such other place as may be designated to Investor in writing by WRI, all in accordance with the
provisions set forth in the Agreement, except as follows:

2

 

     (a) Until satisfaction or waiver of the Second Payment Conditions (as defined in the
Agreement), payments due under this Note shall be paid in accordance with the terms of the Approval
Escrow Agreement.

     (b) If at any time after satisfaction or waiver of the Second Payment Conditions, the Manager
of Absaloka notifies Investor and WRI in writing that Absaloka is experiencing a Cash Deficit (as
defined in the Operating Agreement), Investor shall thereafter make the Fixed Payments directly to
Absaloka, by wire transfer of immediately available funds to an account designated by the Manager
of Absaloka, until it is notified by the Manager of Absaloka in writing that Absaloka no longer is
experiencing a Cash Deficit. WRI shall treat such payment to Absaloka as satisfying an equal
amount of any accrued and unpaid obligations under this Fixed Payment Note. Investor shall notify
WRI of the amount and timing of such payments to Absaloka.

     (c) From the Escrow Commencement Date until the Conclusion of a Tax Audit (as such terms are
defined in Section 12 of the Agreement), Fixed Payments under this Note shall be paid in accordance
with the terms of the IRS Audit Escrow Agreement.

     Security; Recourse. This Note shall be a recourse obligation of Investor, secured by
a pledge by Investor to WRI of Investor’s entire membership interest in Absaloka pursuant to a
Pledge Agreement dated as of October 16, 2008.

     Remedies. The remedies provided in this Note shall be cumulative and shall be in
addition to any other rights or remedies now or hereafter provided by law or equity. Whenever WRI
shall sustain or incur any losses or out-of-pocket expenses with respect to this Note in connection
with a failure by Investor to pay all Fixed Payments when due hereunder, Investor shall pay, on
demand, to WRI, in addition to any other penalties or premiums hereunder, an amount sufficient to
compensate WRI for all such losses or out-of-pocket expenses, including, without limitation, all
costs and expenses of a suit or proceeding (or any appeal thereof) brought for recovery of all or
any part of or for protection of the indebtedness evidenced by this Note or to enforce WRI’s rights
hereunder or thereunder, including reasonable attorneys’ fees. No delay, failure or omission by
any holder of this Note, in respect of any default by Investor, to exercise any right or remedy
shall constitute a waiver of the right to exercise the right or remedy upon any such default or
subsequent default.

     Waiver. Investor and any endorser herein waives presentment, demand, notice of
dishonor, notice of acceleration and protest, and assents to any extension of time with respect to
any payment due under this Note, and to the addition or release of any party. No waiver of any
payment or other right under this Note shall operate as a waiver of any other payment or right.

     Amendment. This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification or discharge is
sought.

     Validity. If any of the provisions of this Note shall be held to be invalid or
unenforceable, the determination of invalidity or unenforceability of any such provision shall not
affect the validity or enforceability of any other provision or provisions hereof.

3

 

     Successors and Assigns. This Note shall be binding upon Investor and its successors
and assigns and shall inure to the benefit of and be enforceable by WRI and its successors and
assigns.

     Notices. All notices to Investor expressly required in this Note shall be in writing
and shall be delivered by hand delivery or mailed by certified mail, return receipt requested,
postage prepaid, addressed to Investor at its address set forth above, or at such other address as
Investor shall notify the holder hereof. All such notices or other communications shall be deemed
to be properly given upon receipt of delivery by Investor.

     Conflicts. In the event of a conflict between the provisions of this Note and the
terms of either the Agreement or the Operating Agreement, the terms of the Agreement and the
Operating Agreement will control.

     Governing Law. This Note shall be construed and enforced in accordance with the law
of the State of Delaware.

     IN WITNESS WHEREOF, Investor and WRI have caused this instrument to be executed as of the day
and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	INVESTOR:	 	 	 	WRI:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	FEEDSTOCK INVESTMENTS IV, LLC	 	 	 	WESTMORELAND RESOURCES, INC.	 	 
	By its Manager	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	Name:

	 	 

	 	 	 	Name:
	 	 

	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 

4

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