Document:

Continuing Guaranty

    
      
        

      

      CONTINUING
        GUARANTY

      

      FOR
        VALUE
        RECEIVED and in consideration of credit given or to be given, and of other
        financial accommodations afforded or to be afforded to SUNRISE
        COAL, LLC,
        an
        Indiana limited liability company (hereinafter
        referred to as "Borrower"), pursuant to that certain Credit Agreement dated
        April 19, 2006, (the "Credit Agreement"), and other credit and collateral
        documents (hereinafter collectively referred to as "Loan Documents") executed
        or
        to be executed by and between the Borrower and OLD
        NATIONAL BANK,
        (hereinafter referred to as "Bank"), the receipt and sufficiency of which
        consideration is hereby acknowledged, and as an inducement to the Bank to
        extend
        such financial accommodations to the Borrower, the undersigned, HALLADOR
        PETROLEUM COMPANY,
        a
        Colorado corporation (hereinafter referred to as "Guarantor"), hereby guaranties
        the full and complete payment, when due, whether at maturity, by acceleration
        or
        otherwise, of any and all indebtedness of the Borrower to the Bank pursuant
        to
        the Credit Agreement, that certain Line of Credit Note, dated of even date
        herewith, payable to the order of the Bank in the original aggregate principal
        amount of Thirty Million and No/100 Dollars ($30,000,000.00) and that certain
        Term Loan Note to be executed and delivered by the Borrower in favor of the
        Bank
        at a future date as specified in the Credit Agreement (collectively the "Note")
        and all extensions, renewals, re-amortizations, restatements, modifications
        and
        amendments thereof, together with all costs, expenses and attorneys' fees
        (the
        above-described obligations and liabilities are hereinafter referred to as
        "Liabilities"), all without relief from valuation and appraisement laws;
        provided that the Guarantor shall not be responsible or liable for any advances
        or loans made by the Bank that exceed $15,000,000 unless Guarantor shall
        have
        approved in writing, such advances or loans (the “Guaranty
        Limitation”).

      

      If
        a
        Default (as such term is defined in the Credit Agreement) exists under the
        Credit Agreement, then immediately upon written demand by the Bank, the
        Guarantor shall pay the Liabilities as if such Liabilities constituted the
        direct and primary debts and obligations of the Guarantor, subject to the
        Guaranty Limitation. Except as provided herein, the Bank shall not be required
        to make any demand upon or pursue or exhaust any of its rights or remedies
        against the Borrower or others, including, without limitation, other guarantors,
        with respect to the payment or performance of any of the Liabilities or to
        pursue or exhaust any of its rights or remedies with respect to any collateral
        held by the Bank.

       

      This
        Guaranty shall remain fully enforceable irrespective of any defenses which
        the
        Borrower may assert on the underlying Liabilities (other than the defense
        of
        payment of the Liabilities), including, without limitation, the failure of
        consideration, breach of warranty, statute of frauds, statute of limitations,
        accord and satisfaction, and usury.

      

      This
        Guaranty shall be secured by a collateral assignment of the Guarantor’s rights
        in certain gas wells located in the San Juan Basin, New Mexico, as evidenced
        by
        that certain Master Purchase/Sale Agreement by and between Hallador Petroleum
        LLP and
        Coral
        Energy Resources, L.P., dated November 12, 2001. 

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      This
        Guaranty shall continue in force with respect to the Guarantor until the
        Bank
        receives written notice of the Guarantor's election not to guaranty any new
        Liabilities arising after receipt of such notice. Any such notice shall not
        in
        any way affect or limit either (i) the promise of the Guarantor giving such
        notice to pay all Liabilities existing at the time such notice is received
        by
        the Bank or (ii) the promises, obligations and undertakings of the remaining
        guarantors, if any, with respect to any Liabilities, including without
        limitation, those arising after the date of such notice. Regardless of when
        a
        renewal or extension of pre-termination Liabilities occurs (with or without
        adjustment of interest rate or other terms), the Liabilities shall be deemed
        to
        have been incurred prior to the termination to the extent of the renewal
        or
        extension and to be fully covered and included within this
        Guaranty.

      

      The
        Guarantor waives (a) notice to the Guarantor or the Borrower or other guarantors
        of (i) acceptance of this Guaranty by the Bank, (ii) the Borrower incurring
        additional Liabilities (but subject to the provision above regarding the
        Guaranty Limitation), and (iii) the amount of the Liabilities at any time
        outstanding; (b) except as provided herein, presentment for payment, demand,
        protest, notice to the Guarantor, the other guarantors or the Borrower of
        dishonor, nonpayment, default and non-performance with respect to any of
        the
        Liabilities; (c) the right to require proration among the Guarantor and other
        guarantors; (d) any and all rights to require the Bank to marshal assets
        of the
        Borrower or any other guarantor or other party providing any security for
        the
        Liabilities; (e) any defense which the Borrower or other guarantors have
        against
        the Bank other than payment; (f) all defenses given to sureties or guarantors
        at
        law or in equity other than payment; and (g) all errors and omissions in
        connection with the Bank's administration of the Liabilities, except actions
        or
        inactions which amount to bad faith, gross negligence or
        willful misconduct. All remedies or actions by the Bank for payment or
        fulfillment of the Liabilities are cumulative and the pursuit of one shall
        not
        preclude the exercise of any other rights or remedies.

      

      The
        Guarantor hereby grants to the Bank full power, in its uncontrolled discretion
        and without notice to the Guarantor, the other guarantors or the Borrower,
        to
        deal in any manner with the Liabilities, including, without limitation, the
        following powers: (a) to modify or otherwise change any terms of the
        Liabilities, or the rate of interest thereon, or to grant any extension or
        renewal thereof, and any other indulgence with respect thereto, and to effect
        any release, compromise, or settlement with respect thereto, all in accordance
        with the terms of the Loan Documents; (b) to forbear from enforcing payment
        or
        any term of the Liabilities; or (c) to release any other guarantor or surety
        of
        the Liabilities; provided, however, that (i) the Guarantor shall not be liable
        for any increase in debt, interest rate, or fees unless approved in writing
        by
        Guarantor; and (ii) the Bank shall not release any Collateral unless approved
        in
        writing by Guarantor. The obligations of the Guarantor hereunder shall not
        be
        released, discharged, or in any way affected, nor shall the Guarantor have
        any
        rights or recourse against the Bank by reason of any action the Bank may
        take,
        omit to take, or delay in taking under the foregoing powers. The obligations
        of
        the Guarantor under this Guaranty shall be joint and several obligations
        of the
        Guarantor and any other guarantors (now existing or hereafter arising) of
        the
        obligations of the Borrower to the Bank.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      Without
        limiting the foregoing waivers by the Guarantor of right to notice, and without
        obligating the Bank to follow the following procedure if demand is made after
        the occurrence of a Default, the Bank may at any time demand payment from
        the
        Guarantor by mailing to the Guarantor written demand therefor addressed to
        any
        address set forth below and the Guarantor agrees that the sending of such
        written demand as herein provided shall be sufficient demand for payment
        hereunder.

      

      Any
        notice required or permitted to be given under this Guaranty may be, and
        shall
        be deemed effective if made in writing and delivered to the recipient's address,
        telex number or facsimile number addressed to Borrower, Guarantor or Bank
        at the
        addresses indicated below, or as changed or modified in writing delivered
        to the
        other hereafter, by any of the following means: (a) hand delivery, (b) United
        States first class mail, postage prepaid, (c) registered or certified mail,
        postage prepaid, with return receipt requested, (d) by a reputable overnight
        delivery service, or (e) by telegraph or telex when delivered to the appropriate
        office for transmission, charges prepaid, with request for assurance of receipt
        in a manner typical with respect to communication of that type. Notice made
        in
        accordance with this paragraph shall be deemed given upon receipt if delivered
        by hand or wire transmission, three (3) Banking Days after mailing if mailed
        by
        first class, registered or certified mail, or one (1) Banking Day after deposit
        with an overnight courier service if delivered by overnight courier. Borrower,
        Guarantor and Bank may each change the address for service of notice upon
        it by
        a notice in writing to the other parties hereto.

       

      
        	
                If
                  to the Bank:

              	
                Old
                  National Bank

                2
                  West Main Street

                Danville,
                  Illinois 61832

                Attn:
                  Dan Laughner, Vice President

                Telephone:
                  (217) 477-5344

                Facsimile:
                  (217) 477-5896

              	 

      

      

      
        	
                With
                  a copy

                (which
                  shall not constitute

                notice
                  hereunder) to

              	
                Bingham
                  McHale LLP

                2700
                  Market Tower

                Indianapolis,
                  Indiana 46204-4900

                Attn:
                  Brett J. Miller, Esq.

                Facsimile:
                  (317) 236-9907

              	 
	 	 	 
	
                If
                  to the Borrower:

              	
                Sunrise
                  Coal, LLC

                6641
                  S. State Road 46

                Terre
                  Haute, Indiana 47802

                Attn:
                  Brent Bilsland 

                Telephone:
                  (812) 894-3480

                Facsimile:
                  (812) 894-3665

              	 
	 	 	 
	
                With
                  copies

                (which
                  shall not constitute 

                notice
                  hereunder) to: 

              	
                Krieg
                  DeVault LLP 

                One
                  Indiana Square, Suite 2800

                Indianapolis,
                  Indiana 46204

                Attn:
                  Michael Messaglia, Esq

                Facsimile:
                  (317) 636-1507

              	 
	 	 	 
	
                If
                  to the Guarantor

              	
                Hallador
                  Petroleum Company

                1660
                  Lincoln Street, Suite 2700

                Denver,
                  CO 80264

                Attn:
                  Victor Stabio

                Facsimile:
                  (303) 832-3013

              	 
	 	 	 
	
                With
                  copies

                (which
                  shall not constitute

                notice
                  hereunder) to:

              	
                Morgan,
                  Lewis & Bockius LLP

                300
                  South Grand Avenue, Suite 2200

                Los
                  Angeles, CA 90071

                Attn:
                  Ingrid A. Myers, Esq.

                Facsimile:
                  (213) 612-2501

              	 

      

      

      Whenever
        possible, each provision of this Guaranty shall be interpreted in such a
        manner
        as to be effective and valid under applicable law, but if such provision
        shall
        be prohibited by or invalid under applicable law, such provision shall be
        ineffective to the extent of such prohibition or invalidity, without
        invalidating the remainder of such provision or remaining provisions of this
        or
        any related agreement or instrument.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

      Notwithstanding
        any other terms or conditions set forth in this Guaranty, the Guarantor
        subordinates (until such time as the Bank has been paid in full with respect
        to
        the Liabilities) any claim or other right which it might now have or hereafter
        acquire against the Borrower or any other person that is primarily or
        contingently liable on the Liabilities that arise from the existence or
        performance of the Guarantor's obligations under the Guaranty, including,
        without limitation, any right of subrogation, reimbursement, exoneration,
        contribution, indemnification, any right to participate in any claim or remedy
        of the Bank against the Borrower or any collateral security therefore which
        the
        Bank now has or hereafter acquires, whether or not such claim, remedy, or
        right
        arises in equity, or under contract, statute, or common law.

      

      After
        the
        occurrence of a default under the Loan Documents, Guarantor shall have the
        right
        (but not the obligation) to purchase the Liabilities, which exist at the
        time of
        such default at a price equal to the outstanding amount of such Liabilities
        (the
“Purchase Price”), and the Bank shall be obligated to sell such Liabilities on
        the terms and conditions set forth herein. The Liabilities may be purchased
        by
        Guarantor upon the following terms:

      

      (a) The
        Purchase Price shall be payable to Guarantor in immediately available funds
        within ten (10) days after Guarantor notifies the Bank in writing of its
        election to purchase the Liabilities;

      

      (b) The
        transfer of title to the Liabilities shall be evidenced by a loan assignment
        agreement and such other agreements, notices, and documents as Guarantor
        reasonably requests to complete and sale the assignment of all of the Bank’s
        right, title, and interest in and to the Liabilities and all collateral securing
        such Liabilities; provided that such sale and assignment shall be without
        recourse and without representation or warranty (express or implied) whatsoever;
        and

      

      (c) The
        Bank
        shall sell and assign the Liabilities, together with all collateral for such
        liabilities, free and clear of any rights or participants or other parties
        in
        such Liabilities and collateral.

      

      The
        Guarantor represents to and for the benefit of the Bank, upon which the Bank
        is
        entitled to rely and the Guarantor acknowledges that the Bank is relying,
        that
        (i) the execution, delivery, and performance hereof will not violate any
        law or
        any other material contract, agreement, or understanding which is binding
        upon
        the Guarantor; (ii) this Guaranty is the valid and binding obligation of
        the
        Guarantor, enforceable in accordance with its terms; and (iii) the financial
        statements of the Guarantor provided as of the date hereof and to be provided
        hereafter to the Bank are and will be true, accurate, and complete, have
        been
        and will continue to be prepared on a consistent basis, and currently and
        will
        continue to fairly present the financial position of the Guarantor as of
        the
        date hereof and as of the dates of such future financial statements of the
        Guarantor delivered to the Bank.

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      While
        the
        Liabilities are outstanding, the Guarantor agrees to provide true and correct
        copies of any and all filings made by it with the SEC, including without
        limitation, all 10-K and 10-Q filings. 

      

      The
        Guarantor acknowledges that (i) the Guarantor is capable of and responsible
        for
        obtaining information on and keeping informed as to all aspects of the
        Borrower's business, including, without limitation, its financial affairs
        and
        business prospects, and the status of the Liabilities from time to time and
        (ii)
        the Bank has no responsibility to so inform the Guarantor.

      

      The
        Guarantor acknowledges that separate guaranties may be given in connection
        with
        the Liabilities (including other guaranties by the Guarantor) and this Guaranty
        shall not be modified, amended, limited (other than in accordance with the
        terms
        hereof) or extinguished if one or more of the terms of the other guaranty
        agreements differ from those of this Guaranty or are subsequently amended,
        modified, limited, and extinguished. The execution of this Guaranty shall
        not
        affect the validity or enforceability of any existing guaranties, which
        guaranties shall remain in full force and effect. All obligations hereunder
        shall continue, notwithstanding the incapacity or lack of authority of the
        other
        guarantors, and any failure by the Bank to file, pursue, or enforce a claim
        against any of the other guarantors, or any waiver, release, consent, or
        other
        accommodation given or provided to any of the other guarantors, shall not
        operate to release the Guarantor or other guarantors from liability hereunder,
        or limit the rights of the Bank against the Guarantor or any other guarantor.
        The failure of any other person to sign this Guaranty or any other guaranty
        shall not release or affect the liability of the signer hereof. The Loan
        Documents have been submitted to the Guarantor for examination, and the
        Guarantor acknowledges that, by execution of this Guaranty, the Guarantor
        has
        reviewed and approved the Loan Documents.

      

      This
        writing is intended by the parties hereto as a final expression of this Guaranty
        and is also intended as a complete and exclusive statement of the terms of
        that
        agreement. No course of dealing, course of performance or trade usage, and
        no
        parole evidence of any nature, shall be used to supplement or modify any
        terms
        hereof.

      

      The
        Guarantor further agrees that, to the extent that the Borrower makes a payment
        or payments to the Bank, or the Bank receives any proceeds of collateral,
        which
        payment or payments or any part thereof are subsequently invalidated, declared
        to be fraudulent or preferential, set aside, or otherwise is required to
        be
        repaid to the Borrower, its estate, trustee, receiver or any other party,
        including, without limitation, under any bankruptcy law, state or federal
        law,
        common law or equitable cause, then to the extent of such payment or repayment,
        the Liabilities or part thereof which has been paid, reduced, or satisfied
        by
        such amount shall be reinstated and continued in full force and effect as
        of the
        date such initial payment, reduction, or satisfaction occurred. The Guarantor
        shall defend and indemnify the Bank from any claim or loss under this paragraph
        with respect to the Liabilities, including the Bank's attorneys' and paralegal's
        fees and expenses and other expenses in the defense of any such action or
        suit.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      The
        Guarantor agrees that the Guarantor's responsibility under the Guaranty to
        pay
        to the Bank the Liabilities and any payments thereof repaid as preferences
        shall
        not be extinguished or modified by any release of the Borrower or other party
        primarily liable on the Liabilities, whether by voluntary release, settlement
        of
        litigation, settlement of a claim not yet resulting in litigation, settlement
        of
        a preference claim or otherwise. In all events the responsibility of the
        Guarantor to pay the Bank and the Bank's right to recover from the Guarantor
        the
        full amount of the Liabilities shall extend until the Bank has received actual
        payment in full in cash, and performance, of all of the Liabilities, without
        regard to any modification or a release thereof, and shall continue until
        such
        payment, by the passage of time and the statute of limitations, cannot be
        recovered by the Borrower, the Borrower as debtor in possession, a trustee
        in
        bankruptcy of the Borrower or any other person or organization.

      

      This
        Guaranty shall extend to and bind the successors and assigns of the Guarantor.
        This Guaranty shall inure to the benefit of all affiliates, transferees,
        assignees, and/or endorsees of the Bank of any part or parts or all of the
        liabilities and of the Bank's successors and assigns.

      

      THE
        VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
        AND
        THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
        AND
        CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA, WITHOUT REGARD
        TO
        PRINCIPLES OF CONFLICTS OF LAW. THE GUARANTOR AGREES THAT ALL ACTIONS OR
        PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND
        LITIGATED ONLY IN THE STATE COURTS LOCATED IN THE COUNTY OF MARION, STATE
        OF
        INDIANA, OR THE FEDERAL COURTS WHOSE VENUE INCLUDES THE COUNTY OF BOONE,
        STATE
        OF INDIANA, OR, AT THE SOLE OPTION OF THE BANK, IN ANY OTHER COURT IN WHICH
        BANK
        SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
        JURISDICTION OVER THE MATTER IN CONTROVERSY. THE GUARANTOR AND THE BANK (BY
        ITS
        ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY, AND
        UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
        DISPUTE (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) BETWEEN OR AMONG
        THE
        GUARANTOR AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT,
        ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN THE BANK AND THE
        GUARANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE
        THE
        FINANCING DESCRIBED HEREIN OR IN THE LOAN DOCUMENTS.

      

      The
        Guaranty shall terminate and be of no further force and effect upon payment
        in
        full of the amounts due under the Note. 

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      IN
        WITNESS WHEREOF,
        the
        undersigned has executed this Continuing Guaranty effective as of this
        19TH
        day
        of
        April, 2006.

      

      
        	 	
                HALLADOR
                  PETROLEUM COMPANY

              
	 	 
	 	 
	 	
                By:
                  /S/VICTOR P. STABIO

                Victor
                  P. Stabio, 

                President,
                  Chief Executive Officer and

                Chief
                  Financial Officer

              
	 	 
	 	
                U.S.
                  Employer Identification Number:
                  84-1014610

              

      

      

      

      
        	
                STATE
                  OF

              	
                )

              	 	 
	 	
                )

              	
                SS:

              	 
	
                COUNTY
                  OF

              	
                )

              	 	 

      

       

      

      BEFORE
        ME, a Notary Public in and for said County and State, personally appeared
        Victor
        P. Stabio, the duly authorized President, Chief Executive Officer and Chief
        Financial Officer of HALLADOR PETROLEUM COMPANY, a Colorado corporation,
        who
        executed the foregoing instrument on behalf of such corporation and acknowledged
        the signing and execution of said instrument to be his voluntary act and
        deed.

      

      IN
        TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my notarial
        seal, on this 19TH
        day of
        April, 2006. 

      

      
        	
                My
                  Commission Expires:

              	 
	 	
                 

                _______________________,
                  Notary Public

                and
                  Resident of _______________ CountyCollateral Assignment

    
      

    

    COLLATERAL
      ASSIGNMENT OF HALLADOR MASTER 

    PURCHASE/SALE
      AGREEMENT

     

    THIS
      COLLATERAL ASSIGNMENT OF HALLADOR MASTER PURCHASE/SALE AGREEMENT (the
“Assignment”) is made by HALLADOR PETROLEUM COMPANY, a Colorado corporation
      (“Hallador”), and certain of its affiliates and subsidiaries made a party
      hereto, to OLD NATIONAL BANK, a national banking association (“Bank”).

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      pursuant to that certain Credit Agreement, dated April 19th, 2006, between
      Sunrise Coal, LLC (the “Borrower”) and Bank (the “Credit Agreement”), Bank has
      agreed to make to Borrower, and Borrower has agreed to accept from Bank, certain
      loans in the total maximum amount of Thirty Million and 00/100 Dollars
      ($30,000,000.00) (collectively,
      the “Loans”);

     

    WHEREAS,
      Bank has agreed to make the Loans to Borrower upon certain terms and conditions,
      including, among other things, that Hallador guaranty the Loans pursuant to
      that
      certain Continuing Guaranty executed by Hallador in favor of the Bank, dated
      of
      even date herewith (the “Guaranty”); 

     

    WHEREAS,
      Hallador Production Company, a Colorado corporation (“Hallador Production”) and
      Hallador are the sole partners of Hallador Petroleum LLLP, a Colorado limited
      liability limited partnership (“Hallador LLLP”);

     

    WHEREAS,
      Hallador Production is a wholly owned subsidiary of Hallador (for purposes
      hereof, Hallador, Hallador Production and Hallador LLLP shall be collectively
      referred to herein as the “Assignor”);

     

    WHEREAS,
      Hallador LLLP has entered into that certain Master Purchase/Sale Agreement
      with
      Coral Energy Resources, L.P. (“Coral”), dated November 12, 2001, a copy of which
      is attached hereto as Exhibit
      A
      (the
“Gas Contract”);

     

    WHEREAS,
      in consideration of the Loans to Borrower and as collateral security for
      Guarantor’s obligations to Bank pursuant to the Guaranty, Assignor has agreed to
      collaterally assign all of its rights to receive payment for Gas delivered
      (as
      described in the Gas Contract) under the Gas Contract to the Bank pursuant
      to
      the terms and conditions of this Assignment.

     

    NOW,
      THEREFORE,
      in order
      to induce the Bank to extend the Loans, and for other good and valuable
      consideration, the Assignor, intending to be legally bound, hereby covenants
      in
      favor of the Bank and agrees as follows:

     

      Assignment.
      The
      Assignor has collaterally granted, transferred and assigned, and does hereby
      collaterally grant, transfer and assign unto the Bank, its successors and
      assigns, Assignor’s rights to receive payment for Gas delivered pursuant to the
      Gas Contract (the “Right to Payment”), as amended, extended, modified,
      supplemented, and all right of the Assignor thereto, to have and to hold unto
      the Bank as security for Hallador’s Guaranty obligations
      and any
      amendments to the Guaranty, and all out-of-pocket costs and expenses of the
      Bank
      incurred in the documentation, negotiation, modification, enforcement,
      collection and otherwise in connection with any of the foregoing, including
      reasonable attorneys’ fees and expenses (hereinafter referred to collectively as
      the “Obligations”). The
      Assignor agrees that the Bank shall have the rights stated in this Assignment
      with respect to the Gas Contract, in addition to the other rights which the
      Bank
      may have by law. The Assignor represents and warrants that: (a) the
      Assignor has not executed any prior assignment of any of its rights under the
      Gas Contract; (b) to Assignor’s knowledge the Gas Contract and the
      obligations thereunder are valid and enforceable and the Assignor has not done
      anything which might prevent the Bank from or limit the Bank in operating under
      any of the provisions of this Assignment; (c) payments provided for under
      the Gas Contract have not been collected in advance of the time when the same
      became due under terms of the Gas Contract; (d) there is no present default
      under the Gas Contract; (e) the Assignor is the sole owner of the entire
      interest in the Gas Contract; (f) the Gas Contract is in full force and
      effect and have not been altered, amended or modified, and (g) Assignor will
      provide notice of this Assignment to Coral as required pursuant to
      Section 13.2 of the Gas Contract.

     

      Performance
      of Gas Contract by Assignor.
      The
      Assignor agrees to faithfully abide by, perform and discharge each and every
      obligation of the Gas Contract that is to be performed by the Assignor. As
      long
      as no Default (as defined in the Credit Agreement) exists, Assignor shall be
      entitled to enforce all of its rights under the Gas Contract, including the
      Right to Payment. The Assignor shall use its best efforts to enforce or secure
      the performance of each and every term of the Gas Contract. The Assignor agrees
      to provide prompt written notice to the Bank of the occurrence or existence
      of
      any default by any party to either Gas Contract.

     

      Power
      to Modify the Gas Contract.
      The
      Assignor hereby expressly releases, relinquishes and surrenders all of the
      Assignor’s right, power and authority to in any material way, amend or modify
      any of the financial terms of the Gas Contract or Assignor’s Right to Payment,
      in either case without the Bank’s prior written consent, which consent shall not
      be unreasonably withheld, conditioned or delayed. Any attempt on the part of
      the
      Assignor to exercise any such right, power or authority without the Bank’s prior
      written consent shall constitute a default hereunder.

     

      Assignment
      of the Gas Contract.
      The
      Assignor will not make additional assignments of the Right to Payment under
      the
      Gas Contract or assign the Gas Contract or any part thereof without the Bank’s
      prior written consent. No such assignment shall discharge the Assignor from
      its
      liability hereunder, or arising out of the Obligations or under any other
      agreement between the Assignor and the Bank.

     

      Bank’s
      Right to Make Payments Under the Gas Contract.
      If the
      Assignor fails to make any payment or to do any act as provided herein or in
      the
      Gas Contract, then the Bank may, but shall not be obligated to, make or do
      the
      same in such manner and to such extent as the Bank may deem necessary to protect
      the Right to Payment and the security hereof. 

     

      Bank’s
      Right to Enforce and Perform Under the Gas Contract.
      Upon
      the
      occurrence of and during the continuance of a Default, the Bank, in addition
      to
      its rights and remedies under the Credit Agreement and the agreements and
      instruments executed in connection therewith (collectively, the “Loan
      Documents”) evidencing and securing the Loans and applicable law may, at its
      option, upon at least 48 hours prior written notice to the Assignor, and without
      waiving or releasing any Obligations, either in person or by agent with or
      without bringing any action or proceeding or by a receiver to be appointed
      by a
      court, to the extent permitted by law and the express requirements of the Gas
      Contract, cure defaults in the Assignor’s performance under the Gas Contract,
      negotiate with the other parties to the Gas Contract regarding the Right to
      Payment, and do any and all other acts which the Bank deems reasonably necessary
      to protect the Right to Payment, the security hereof and the lien hereof.

     

      Bank
      Not Obligated to Perform.
      This
      Assignment is given only as collateral security, and the Bank shall not be
      obligated to perform or discharge any obligation or liability of the Assignor
      under the Gas Contract. No payment, action or inaction of the Bank under or
      in
      connection with the Gas Contract shall in any manner release the Assignor from
      its obligations under this Assignment or the Obligations. 

     

      Indemnity.
      The
      Assignor agrees to indemnify each of the Bank, each legal entity, if any, who
      controls the Bank and each of their respective directors, officers and employees
      (collectively, the “Indemnified Parties” and each individually an “Indemnified
      Party”), and to hold each Indemnified Party harmless from and against, any and
      all claims, damages, losses, liabilities and expenses (including all reasonable
      fees and charges of counsel with whom any Indemnified Party may consult and
      all
      reasonable expenses of litigation and preparation therefor) which any
      Indemnified Party may incur, or which may be asserted against any Indemnified
      Party by any person, entity or governmental authority (including any person
      or
      entity claiming derivatively on behalf of the Assignor), in connection with
      or
      arising out of or relating to the Gas Contract or arising out of or by reason
      of
      this Assignment, whether: (a) arising from or incurred in connection with
      any breach of a representation, warranty or covenant by the Assignor; or
      (b) arising out of or resulting from any suit, action, claim, proceeding or
      governmental investigation, pending or threatened, whether based on statute,
      regulation or order, or tort, or contract or otherwise, before any court or
      governmental authority; provided, however, that the foregoing indemnity
      agreement shall not apply to any claims, damages, losses, liabilities and
      expenses solely attributable to an Indemnified Party’s gross negligence or
      willful misconduct. The indemnity agreement contained in this Section shall
      survive the termination of this Assignment, payment of any Loans and assignment
      of any rights hereunder. The Assignor may participate at its expense in the
      defense of any such action or claim.

     

      Default.
      If
      any
      Default or any default by Assignor under either Gas Contract exists, then,
      and
      at any time thereafter: (a) the Bank shall have, in addition to any
      remedies provided herein or by any applicable law or in equity, all the remedies
      of a secured party under the Indiana Uniform Commercial Code as the same may
      be
      amended from time to time; and (b) the Bank may, at its election and in
      addition to all other remedies, declare this Assignment to be absolute and
      not
      merely a collateral assignment, and thereupon this Assignment shall become
      and
      be absolute and in full force and effect.

     

      Power
      of Attorney.
      The
      Assignor hereby irrevocably constitutes and appoints the Bank and any officer
      thereof, with full power of substitution, as its true and lawful
      attorney-in-fact with full irrevocable power and authority in the place and
      stead of the Assignor or in its name, from time to time in the Bank’s discretion
      for the purpose of carrying out the terms of this Assignment, to take any and
      all appropriate action and to execute any and all documents and instruments
      which may be necessary or desirable to accomplish the purposes of this
      Assignment and, without limiting the generality of the foregoing, the Assignor
      hereby gives the Bank the power and right on behalf of the Assignor, during
      a
      Default, and without notice to or assent by the Assignor, to do the
      following:

     

      to
      receive payment of, endorse, and receipt for, any and all monies, claims and
      other amounts due and to become due at any time in respect of or arising out
      of
      the Gas Contract;

     

      to
      commence and prosecute any suits, actions or proceeding at law or in equity
      in
      any court of competent jurisdiction to collect any amounts due under the Gas
      Contract and to enforce any other right in respect of the Right of Payment
      pursuant to the Gas Contract;

     

      to
      settle, compromise or adjust any suit, action or proceeding described above,
      and, in connection therewith, to give such discharges or releases as the Bank
      may deem appropriate; 

     

      to
      negotiate with, enter into further agreements with, and otherwise deal with
      the
      other parties to the Gas Contract with respect to the Right of Payment pursuant
      to the Gas Contract and the subject matter thereof; and

     

      to
      do at
      any time, or from time to time, all acts and things which the Bank deems
      necessary to protect or preserve the Right of Payment pursuant to the Gas
      Contract and the Bank’s security interest and rights therein in order to effect
      the intent of this Assignment, all as fully and effectively as the Assignor
      might do.

     

    The
      Assignor hereby ratifies all that such attorneys shall lawfully do or cause
      to
      be done by virtue hereof. This power of attorney is a power coupled with an
      interest, will be irrevocable and shall terminate only upon payment in full
      of
      the Obligations and the termination of this Assignment. The powers conferred
      upon the Bank hereunder are solely to protect the Bank’s interests in the Gas
      Contract and will not impose any duty upon it to exercise any such powers.
      The
      Bank will be accountable only for amounts that it actually receives as a result
      of the exercise of such powers.

     

      Notices.
      All
      notices, demands, requests, consents, approvals and other communications
      required or permitted hereunder (“Notices”) must be in writing and will be
      effective upon receipt. Notices may be given in any manner to which the parties
      may separately agree, including electronic mail. Without limiting the foregoing,
      first-class mail, facsimile transmission and commercial courier service are
      hereby agreed to as acceptable methods for giving Notices. Regardless of the
      manner in which provided, Notices may be sent to a party’s address as set forth
      in the Credit Agreement or to such other address as any party may give to the
      other for such purpose in accordance with this section.

     

      Preservation
      of Rights.  No
      delay or omission on the Bank’s part to exercise any right or power arising
      hereunder will impair any such right or power or be considered a waiver of
      any
      such right or power, nor will the Bank’s action or inaction impair any such
      right or power. The Bank’s rights and remedies hereunder are cumulative and not
      exclusive of any other rights or remedies which the Bank may have under other
      agreements, at law or in equity.

     

      Illegality.
      If
      any
      provision contained in this Agreement should be invalid, illegal or
      unenforceable in any respect, it shall not affect or impair the validity,
      legality and enforceability of the remaining provisions of this
      Agreement.

     

      Changes
      in Writing.
      No
      modification, amendment or waiver of, or consent to any departure by the
      Assignor from, any provision of this Agreement will be effective unless made
      in
      a writing signed by the Bank, and then such waiver or consent shall be effective
      only in the specific instance and for the purpose for which given. No notice
      to
      or demand on the Assignor will entitle the Assignor to any other or further
      notice or demand in the same, similar or other circumstance.

     

      Successors
      and Assigns.
      This
      Assignment will be binding upon and inure to the benefit of the Assignor and
      the
      Bank and their respective successors and assigns; provided, however, that the
      Assignor may not assign this Assignment in whole or in part without the Bank’s
      prior written consent and the Bank at any time may assign this Assignment in
      whole or in part.

     

      Interpretation.
      In
      this
      Assignment, unless the Bank and the Assignor otherwise agree in writing, the
      singular includes the plural and the plural the singular; words importing any
      gender include the other genders; references to statutes are to be construed
      as
      including all statutory provisions consolidating, amending or replacing the
      statute referred to; the word “or” shall be deemed to include “and/or”, the
      words “including”, “includes” and “include” shall be deemed to be followed by
      the words “without limitation”; references to articles, sections (or
      subdivisions of sections) or exhibits are to those of this Assignment; and
      references to agreements and other contractual instruments shall be deemed
      to
      include all subsequent amendments and other modifications to such instruments,
      but only to the extent such amendments and other modifications are not
      prohibited by the terms of this Assignment. Section headings in this Assignment
      are included for convenience of reference only and shall not constitute a part
      of this Assignment for any other purpose. Defined terms not otherwise defined
      herein shall have the meaning ascribed to such term in the Credit
      Agreement.

     

      Defeasance.
      Upon
      payment in full of the Obligations, this Assignment shall become null and void
      and of no force and effect.

     

      Governing
      Law and Jurisdiction.
      This
      Assignment has
      been
      executed and delivered and is intended to be performed in the State of Indiana
      and shall be governed, construed and enforced in all respects in accordance
      with
      the laws of the State of Indiana, without regard to principles of conflicts
      of
      law. ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS ASSIGNMENT
      SHALL
      BE TRIED AND LITIGATED ONLY IN THE STATE COURTS LOCATED IN THE COUNTY OF MARION,
      STATE OF INDIANA, OR THE FEDERAL COURTS WHOSE VENUE INCLUDES THE COUNTY OF
      MARION, STATE OF INDIANA, OR, AT THE SOLE OPTION OF BANK, IN ANY OTHER COURT
      IN
      WHICH BANK SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
      MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE ASSIGNOR AND BANK HEREBY
      VOLUNTARILY, KNOWINGLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE ANY RIGHT TO
      HAVE
      A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT,
      OR OTHERWISE) BETWEEN OR AMONG ASSIGNOR AND BANK ARISING OUT OF OR IN ANY WAY
      RELATED TO THIS ASSIGNMENT, OR ANY RELATIONSHIP BETWEEN BANK AND ASSIGNOR.
      THIS
      PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE LOANS OR IN THE LOAN
      DOCUMENTS. Whenever possible, each provision of this Assignment or any related
      agreement or instrument shall be interpreted in such manner as to be effective
      and valid under applicable law, but if any such provision shall be prohibited
      by
      or invalid under applicable law, such provision shall be ineffective to the
      extent of such prohibition or invalidity, without invalidating the remainder
      of
      such provision or the remaining provisions of this or any related agreement
      or
      instrument.

     

    The
      Assignor acknowledges that it has read and understood all the provisions of
      this
      Agreement, including the waiver of jury trial, and has been advised by counsel
      as necessary or appropriate.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, Assignor, by its duly authorized representative, has executed
      this Collateral Assignment of Hallador Master Purchase/Sale Agreement as of
      the
      date and year first written above.

     

    

     

    
      	 	
              “ASSIGNOR”

               

              HALLADOR
                PETROLEUM COMPANY

               

            
	 	
                   By: 
                /S/VICTOR P. STABIO

               Victor
                P. Stabio,  

               President,
                Chief Executive Officer

               and
                Chief Financial Officer

            
	 	 
	 	
              HALLADOR
                PRODUCTION COMPANY

               

            
	 	
                   By:
                /S/VICTOR P. STABIO

               Victor
                P. Stabio, 

               President

               

            
	 	 
	 	
              HALLADOR
                PETROLEUM LLLP 

               

              By:
                Hallador Petroleum Company, its General Partner

               

            
	 	
                  
                By /S/VICTOR P. STABIO

              Victor
                P. Stabio, 

              President,
                Chief Executive Officer

              and
                Chief Financial Officer

               

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                STATE
                  OF

              	
                )

              	 	 
	 	
                )

              	
                SS:

              	 
	
                COUNTY
                  OF

              	
                )

              	 	 

      

       

    

    Subscribed
      and sworn to before me, a Notary Public, in and for said county and state,
      this
      19th day of April, 2006, at which time Victor P. Stabio, the
      authorized ______________  of Hallador Petroleum Company, a Colorado
      corporation, personally appeared and acknowledged the execution of the above
      and
      foregoing to be his voluntary act and deed on behalf of such
      corporation.

     

    My
      Commission Expires:   

    ,
      Notary
      Public

    A
      resident of     County

     

    
      
        	
                STATE
                  OF

              	
                )

              	 	 
	 	
                )

              	
                SS:

              	 
	
                COUNTY
                  OF

              	
                )

              	 	 

      

       

      Subscribed
        and sworn to before me, a Notary Public, in and for said county and state,
        this
        19th day of April, 2006, at which time Victor P. Stabio, the authorized

      of
        Hallador Production Company, a Colorado corporation, personally appeared
        and
        acknowledged the execution of the above and foregoing to be his voluntary
        act
        and deed on behalf of such corporation.

    

     

    My
      Commission Expires:   

    ,
      Notary
      Public

    A
      resident of     County

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                STATE
                  OF

              	
                )

              	 	 
	 	
                )

              	
                SS:

              	 
	
                COUNTY
                  OF

              	
                )

              	 	 

      

       

       

    

    Subscribed
      and sworn to before me, a Notary Public, in and for said county and state,
      this
      19th day of April, 2006, at which time, Victor P. Stabio, the authorized of
      Hallador Petroleum LLLP, a Colorado limited liability limited partnership,
      personally appeared and acknowledged the execution of the above and foregoing
      to
      be his voluntary act and deed on behalf of such limited liability limited
      partnership.

     

    My
      Commission Expires:   

    ,
      Notary
      Public

    A
      resident of     County

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