exh10_3.htm


     

      
        

      

    

     

    EXHIBIT
10.3

     

    



    This
instrument and the rights and obligations evidenced hereby are subordinate in
the manner and to the extent set forth in that certain Hallador Subordination
Agreement and Assignment of Note made effective as of December 12, 2008, among
Sunrise Coal, LLC, Hallador Petroleum Company and PNC Bank, National
Association, as Administrative Agent for the Lenders, to the Senior Debt (as
defined therein), as the same may be amended from time to time, as more
particularly described in the Hallador Subordination Agreement and Assignment of
Note, and each holder of this instrument, by its acceptance hereof, shall be
bound by the provisions of the Hallador Subordination Agreement and Assignment
of Note

     

    AMENDED AND RESTATED
PROMISSORY NOTE

     

    $13,000,000.00                                                                                        Denver,
Colorado

                                                                                                December 12,
2008

    


    FOR VALUE RECEIVED,
SUNRISE COAL, LLC, an Indiana limited liability company (the “Borrower”), hereby
unconditionally promises to pay ON DEMAND to the order of HALLADOR PETROLEUM
COMPANY, a Colorado corporation (“Lender”), at 1660 Lincoln
Street, Suite 2700, Denver, Colorado 80264, or at such other address as the
holder of this Promissory Note (this “Note”) may specify in writing,
in lawful money of the United States of America and in immediately available
funds, the principal amount of THIRTEEN MILLION DOLLARS AND NO/00
($13,000,000.00) (the “Maximum
Principal Amount”), no later than five days after the date on which
Lender demands payment of this Note, or the date which is nine (9) years after
July 22, 2006 if no such demand is made before such date (the “Maturity Date”) if not sooner
paid, and to pay interest on the unpaid principal amount hereof at a rate of six
percent (6%) per annum (the “Base Rate”).

     

    WHEREAS, Lender is
a member of Borrower and has agreed to provide Borrower the funds, up to the
Maximum Principal Amount, for the continuing development of Borrower’s
business.

     

    WHEREAS, Borrower
executed a promissory note in favor of Lender in an amount of up to a maximum
principal amount of $13,000,000 dated as of July 22, 2008 (the “Original Note”).

     

    WHEREAS, Borrower
has received advances under the Original Note equal to the full amount available
under such note.

     

    WHEREAS, Borrower
intends to enter into a Credit Agreement with the lenders party thereto, PNC
Bank, National Association, as administrative agent for the lenders party
thereto, and Lender as Guarantor, and desires to amend and restate the Original
Note pursuant to that Credit Agreement.

     

    Section 1 .           Payment of Principal and
Interest.  Interest shall accrue at the Base Rate on the
outstanding principal balance of this Note from the date such principal amount
was disbursed to Borrower as set forth in Schedule 1 attached
hereto until the outstanding principal balance of this Note is paid in
full.  Borrower shall pay the accrued interest monthly no later than
five (5) Business Days after the first day of each calendar month so long as
there is any outstanding principal balance under this Note.  Borrower
shall pay the unpaid principal balance of this Note on the Maturity Date, if not
paid previously.  Notwithstanding anything to the contrary herein,
Lender shall not demand payment of this Note any earlier than the date that is
at least twelve months after the date hereof; provided that notwithstanding the
foregoing Lender may accelerate this Note at any time in accordance with the
provisions of Section 8
hereof.  Subject to the terms and conditions in this Note, Borrower
may repay, but may not reborrow any repaid amount under this Note.

     

    (a) Payment on Next Succeeding
Business Day.  If the payment date falls on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
the payment of interest.  For purposes of this Note, “Business Day” means a day of
the year on which banks are not required or authorized to close in Denver,
Colorado or New York, New York.

     

    (b) Maturity
Date.  On the Maturity Date, Borrower shall pay and perform in
full all Obligations then outstanding.  Borrower shall make payment
under this Note not later than 11:00 A.M. (New York City time) on the
Maturity Date in U.S. dollars to Lender by wire transfer of same day funds to an
account specified by Lender.  All sums paid by Borrower in connection
with this Note shall be applied first to accrued but unpaid interest, and next
to principal remaining to be paid under this Note, and then to any other
Obligations of Borrower hereunder; provided, however, that Lender may at its
option refuse to accept any prepayment not otherwise permitted under this
Note.

     

    (c) Obligations.  For
purposes of this Note, the “Obligations” are Borrower’s
obligation to pay principal, interest, charges, guarantees, indemnities and
other amounts payable under this Note, and in the event of any proceeding for
the collection or enforcement of the Obligations, after an Event of Default
shall have occurred and be continuing, the expenses of any exercise by Lender of
its rights under this Note, together with attorney’s fees and court
costs.

     

    Section 2 .           Prepayment.

     

    (a) Optional
Prepayments.  Borrower may, upon at least three days’ notice to
Lender, stating the proposed date and aggregate principal amount of the
prepayment, prepay the outstanding principal amount of this Note in whole or in
part, together with accrued interest to the date of such prepayment on the
principal amount so prepaid; provided, however, that each
partial prepayment shall be in an outstanding principal amount not less than
$100,000 or an integral multiple of $50,000 in excess thereof (or, if the
outstanding principal amount of this Note is less, such outstanding principal
amount).

     

    (b) Mandatory
Prepayments.  Prepayments of this Note shall be mandatory
immediately upon any sale or other disposition of all or substantially all of
the direct or indirect assets of Borrower in one or a series of transactions,
whether by sale, lease, transfer, loss, damage, destruction, condemnation or
otherwise, Borrower shall prepay the Obligations under this Note in an amount
equal to such proceeds, together with all accrued and unpaid interest on the
principal amount being prepaid through the date of prepayment.

     

    Section 3 .           Default
Interest.  If all or any portion of the principal amount of
this Note or any interest thereon is not paid on or prior to the date such
amounts are due, such overdue amounts shall thereafter bear interest at the Base
Rate plus five percent (5%) per annum.  If this Note is not paid when
due, Borrower further promises to pay all costs of collection, foreclosure fees,
and reasonable attorneys' fees incurred by the holder, whether or not suit is
filed hereon, together with the fees, costs and expenses as provided in this
Note.

     

    Section 4 .           Limitation of Interest
Rate.  The interest rate on this Note is expressly limited so
that in no contingency whatsoever, whether by reason of acceleration of the
maturity of this Note or otherwise, shall the interest contracted for or charged
or received by any Lender exceed the maximum amount permissible under applicable
law.  If, from any circumstance whatsoever, interest would otherwise
be payable to Lender in excess of the maximum lawful amount, the interest
payable to Lender shall be reduced to the maximum amount permitted under
applicable law, and the amount of interest for any subsequent period, to the
extent less than that permitted by applicable law, shall to that extent be
increased by the amount of such reduction.

     

    Section 5 .           Taxes.  Any
and all payments by Borrower under this Note shall be made free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all interest, penalties and other
liabilities with respect thereto, excluding, in the case of Lender, taxes
imposed on its net income, and franchise taxes imposed on it, by the United
States (other than United States withholding taxes) or the jurisdiction under
the laws of which Lender is organized or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
deductions, charges, and withholdings and interest, penalties and other
liabilities being hereinafter referred to as “Taxes”).  If
Borrower shall be required by law to deduct or withhold any Taxes from or in
respect of any sum payable under this Note, then (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
and withholdings of Taxes (including deductions and withholdings of Taxes
applicable to additional sums payable under this Section 5),
Lender receives an amount equal to the sum it would have received had no such
deductions or withholdings of Taxes been made, (ii) Borrower shall make
such deductions and withholdings, and (iii) Borrower shall pay the full
amount deducted or withheld to the relevant taxation authority or other
authority in accordance with applicable law.  Without prejudice to the
survival of any other agreement of Borrower hereunder, the agreements and
obligations of Borrower contained in this Section 5 shall survive the payment in full of
any and all amounts due under this Note.

     

    Section 6 .           Representations, Warranties
and Covenants of Borrower.  Borrower represents and warrants
that the following statements are true, correct and complete:

     

    (a) Borrower
(i) is a limited liability company duly organized and validly existing
under the laws of the State of Indiana, (ii) is duly qualified and in good
standing in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed, and
(iii) has all requisite power and authority to own or lease and operate its
properties and to conduct its business as presently conducted and to execute and
deliver, and to perform its obligations under, this Note.

     

    (b) This Note has been
duly executed and delivered by Borrower and is the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with its
terms.

     

    Section 7 .           Covenants.  So
long as any Obligations under this Note shall remain outstanding, Borrower
shall:

     

    (a) use the proceeds of
this Note solely for working capital and for third-party costs and expenses
related to the development and expansion of the Carlisle coal mine and its other
business activities as approved by Borrower’s Board of Managers;

     

    (b) comply with all
applicable laws, rules, regulations and orders, including all applicable laws
regarding the protection and safety of the environment and Borrower’s employees,
applicable to Borrower’s operations and properties noncompliance with which
could have a material adverse effect on Borrower, its financial condition or its
operations; and shall obtain and do all things necessary to renew, extend and
continue in effect all permits, licenses and approvals necessary to operate its
business in compliance with all applicable laws;

     

    (c) at any reasonable
time and from time to time, upon reasonable prior notice, permit Lender or any
agents or representatives thereof to examine its records and books, and visit
its properties, including, but not limited to, the Project sites, and to discuss
its affairs, finances and accounts with any of Lender’s managers, officers or
directors and with its independent certified public accountants;

     

    (d) keep proper books
of record and account, in which full and correct entries shall be made of all
financial transactions and the assets and businesses of Borrower in accordance
with generally accepted accounting principles;

     

    (e) pay when due all
taxes, assessments and governmental charges and levies upon it or its income,
profits or property as well as all other material liabilities, except those
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside;

     

    (f) give Lender
immediate notice of the receipt by Borrower of any notice of default under any
document, instrument or agreement evidencing Borrower’s indebtedness for
borrowed money to which Borrower is a party or by which it or its properties are
bound or affected, including, without limitation, the Credit Agreement made
effective as of December 12, 2008, 2008 by and between Borrower, the lenders
party thereto, PNC Bank, National Association as administrative agent to the
lenders party thereto, and Hallador Petroleum Company as Guarantor (together
with all documents and instruments executed in connection therewith, the “Senior Credit Documents”),
together with a copy of such notice; and

     

    (g) not engage in any
business other than the ownership and operation of coal reserves and coal mines
and related businesses.

     

    Section 8 .           Events of
Default.  Upon the occurrence and continuance of any one or
more of the following (each an “Event of Default”), all
amounts then remaining unpaid on this Note may become, or may be declared to be,
immediately due and payable as provided herein:

     

    (a) Borrower fails to
pay when due any principal, interest or other Obligations when the same becomes
due and payable hereunder, and such failure continues for a period of three (3)
days following the date upon which any such payment was due.

     

    (b) Borrower breaches
any covenant or any other term or condition of this Note in any material respect
and, in each such case, such breach, if subject to cure, continues for a period
of five (5) days after the occurrence thereof.

     

    (c) Any representation
or warranty made by Borrower herein shall be false or misleading in any material
respect on the date that such representation or warranty was made or deemed
made.

     

    (d) Borrower shall
generally not pay its debts as such debt becomes due, or shall admit in writing
its inability to pay debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
Borrower seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, Borrower) shall occur, or the action to authorize any of
the actions set forth above in this Section 8(d).

     

    (e) Any money judgment,
writ or similar final process shall be entered or filed against Borrower or any
of its real or personal property or other assets for more than $50,000, and
shall remain unvacated, unbonded or unstayed for a period of thirty (30)
days.

     

    (f) The occurrence of a
default or event of default (which has not been cured during any applicable cure
or grace period) under any document, instrument or agreement evidencing
Borrower’s indebtedness for borrowed money, including, without limitation, the
Senior Credit Documents.

     

    Section 9 .           Remedies.  At
any time an Event of Default exists or has occurred and is continuing, Lender
shall have all rights and remedies provided in this Note and under applicable
law, all of which rights and remedies may be exercised without notice to or
consent by Borrower, except as such notice or consent is expressly provided for
hereunder or required by applicable law.  All rights, remedies and
powers granted to Lender hereunder or under applicable law are cumulative, not
exclusive and enforceable, in Lender’s discretion, alternatively, successively,
or concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Borrower of this Note.  To
the maximum extent permitted by law, Lender may, at any time or times, proceed
directly against Borrower to collect the Obligations owing by Borrower to
Lender.

     

    Without limiting
the foregoing, at any time an Event of Default exists or has occurred and is
continuing, Lender may, in its discretion and without limitation, accelerate the
payment of all Obligations owing by Borrower to Lender and demand immediate
payment thereof to Lender (provided, that, upon the occurrence of any Event of
Default described in Section 8(d),
all Obligations owing by Borrower to Lender shall automatically become
immediately due and payable).

     

    Section 10 .           Miscellaneous.

     

    (a) Lender is hereby
authorized to record the date and amount of each payment or prepayment of the
principal amount of this Note or any interest thereon on the schedules annexed
hereto and constituting a part hereof, and any such recordation shall constitute
prima facie evidence of the accuracy of the information so recorded, provided
that the failure to make any such recordation (or any error therein) shall not
limit or otherwise affect the obligations of Borrower under this
Note.

     

    (b) All notices and
other communications required or permitted to be given or made under this Note
shall be in writing and shall be given or made by mail (certified or registered,
return receipt requested), by overnight courier, via facsimile or by personal
delivery at the address specified below or at such other address as shall be
designated in a notice in writing:

     

    If
to Lender:

     

    Hallador Petroleum
Company

     

    1660 Lincoln
Street, Suite 2700

     

    Denver,
CO  80264

     

    Attention:  Victor
Stabio

     

    Facsimile:  303.832.3013

     

    If
to Borrower:

     

    Sunrise Coal,
LLC

     

    1183 East
Canvasback Drive

     

    Terre Haute,
Indiana 47802

     

    Attention:                                Brent
Bilsland

     

    Facsimile:                                812.894.3665

     

    (c) Any waiver of any
rights under this Note is neither valid nor effective unless made in writing and
signed by the holder of this Note.  No delay or omission on the part
of the holder of this Note in exercising any right shall operate as a waiver
thereof or of any other right.  A waiver by the holder of this Note
upon any one occasion shall not be construed as a bar or waiver of any right or
remedy on any future occasion.  Should any one or more of the
provisions of this Note be determined illegal or unenforceable, all other
provisions shall nevertheless remain effective.  This Note cannot be
changed, modified, amended, or terminated except in writing and signed by Lender
and Borrower.

     

    (d) This Note is made
for the benefit of, and shall be enforceable by, Lender and its successors and
assigns.

     

    (e) All parties now and
hereafter liable with respect to this Note, whether maker, principal, surety,
guarantor, endorser or otherwise, hereby waive presentment, demand, protest and
all other notices of any kind.

     

    (f) This Note shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Colorado, without reference to the principles of conflicts of laws
thereof.

     

    (g) THE UNDERSIGNED
HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO
THE NONEXCLUSIVE JURISDICTION OF ANY COLORADO STATE COURT OR FEDERAL COURT OF
THE UNITED STATES OF AMERICA SITTING IN DENVER, COLORADO, AND ANY APPELLATE
COURT THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COLORADO STATE COURT OR, TO THE
EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  THE UNDERSIGNED
HEREBY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.  THE UNDERSIGNED, TO THE EXTENT
IT MAY LEGALLY DO SO, HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE
OF ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND
THAT THE HOLDER OF THIS NOTE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 10(G)
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE UNDERSIGNED TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.

     

    (h) This Note is a
replacement note which supersedes, as of the date hereof, in its entirety the
Original Note.  Any interest that has accrued and remains unpaid with
respect to the Original Note shall be paid on the next interest payment date as
provided herein.

     

    {Signature
appears on following page}

     


    
      
        
          DB2/20909837.1


        

         


      

      
         


        
          

        

      

      
         


      

    


    IN WITNESS WHEREOF, the
undersigned has executed this Note as of the date first above
written.

     

    


    
      	 
    	
              BORROWER:

              SUNRISE
      COAL, LLC

              an Indiana
      limited liability company

              By:           

              Brent K.
      Bilsland

              President

            


    

    



    
      
        
          Signature Page to Promissory
Note

          DB2/20909837.1


        

         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
A

    


    ADVANCES AND REPAYMENTS OF
AMOUNTS OUTSTANDING UNDER THE NOTE

    


    


    
      	
              Date of Advance

            	
              Amount of Advance

            	
              Date of Repayment

            	
              Amount of Repayment

            	
              Remaining Balance

               Under Line of Credit

            	
              Notation Made By

            
	
              2/1/2008

            	
              1,000,000.00

            	 
    	 
    	
              12,000,000.00

            	 
    
	
              4/14/2008

            	
              1,250,000.00

            	 
    	 
    	
              10,750,000.00

            	 
    
	
              5/16/2008

            	
              350,000.00

            	 
    	 
    	
              10,400,000.00

            	 
    
	
              6/23/2008

            	
              600,000.00

            	 
    	 
    	
              9,800,000.00

            	 
    
	
              8/5/2008

            	
              2,000,000.00

            	 
    	 
    	
              7,800,000.00

            	 
    
	
              8/14/2008

            	
              1,000,000.00

            	 
    	 
    	
              6,800,000.00

            	 
    
	
              10/15/
      2008

            	
              1,800,000.00

            	 
    	 
    	
              5,000,000.00

            	 
    
	
              11/18/2008

            	
              5,000,000.00

            	 
    	 
    	
              0.00