8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): April 25, 2006 (April 19, 2006)

HALLADOR PETROLEUM COMPANY

(Exact Name of Registrant as specified in Charter)

0-14731

(Commission File Number)

Colorado	84-1014610
(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

1660 Lincoln Street, Suite 2700, Denver, Colorado	80264-2701
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code:   303-839-5504     fax:  303-832-3013

________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

____________________________________________________________________________________________

Item 1.01 Entry into a Material Definitive Agreement

On April 19, 2006, Sunrise Coal, LLC, an Indiana limited liability company (“Sunrise”) entered into that certain Loan and Security Agreement (the “Credit Agreement”) with Old National Bank (“Lender”), whereby Lender agreed to loan up to $30,000,000 to Sunrise. Concurrently, the registrant entered into a Continuing Guaranty (the “Guaranty”) in favor of the Lender for the purpose of guaranteeing up to $15,000,000, or such greater amount as Hallador approves, of the obligations incurred by Sunrise pursuant to the Credit Agreement. The obligations of registrant under the Guaranty are secured by that certain Collateral Assignment of Hallador Master Purchase/Sale Agreement, whereby registrant, Hallador Petroleum LLLP, a Colorado limited liability limited partnership, and Hallador Production Company, a Colorado Corporation, agreed to collaterally assign all of their rights to receive payment for gas delivered under that certain Master Purchase/Sale Agreement with Coral Energy Resources, L.P., dated November 12, 2001, to the Bank pursuant to the terms and conditions thereof. Sunrise and the registrant have also entered into that certain Reimbursement Agreement, whereby Sunrise is required to reimburse the registrant for any amounts paid to Lender pursuant to the Guaranty. As previously disclosed, Sunrise and registrant are currently negotiating a plan of merger whereby Sunrise and registrant would become wholly owned subsidiaries of a to-be-formed common parent corporation.

The Guaranty, the Collateral Assignment of Hallador Master Purchase/Sale Agreement and the Reimbursement Agreement are filed as Exhibits 10.1, 10.2 and 10.3, respectively, to this Current Report and are incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an Off- Balance Sheet Arrangement of a Registrant.

See Item 1.01 above.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HALLADOR PETROLEUM COMPANY
Date: April 25, 2006	By:/s/ Victor P. Stabio
	Victor P. Stabio
	Chief Executive Officer and President

Exhibit No.Description of Exhibit

________________________

10.1 Continuing Guaranty, dated April 19, 2006, by Hallador Petroleum Company in favor of Old National Bank

10.2 Collateral Assignment of Hallador Master Purchase/Sale Agreement, dated April 19, 2006, among Hallador Petroleum Company, Hallador Petroleum LLLP, and Hallador Production Company and Old National Bank

10.3 Reimbursement Agreement, dated April 19, 2006, between Hallador Petroleum Company and Sunrise Coal, LLC

EX-10.1

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 LLPand 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 negligenceor 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 19^TH 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 19^TH day of April, 2006.

My Commission Expires:
	_______________________, Notary Public and Resident of _______________ County

EX-10.2

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

EX-10.3

REIMBURSEMENT AGREEMENT

THIS REIMBURSEMENT AGREEMENT dated as of April 19, 2006 (the “Agreement”), is entered by and between SUNRISE COAL, LLC, a Indiana limited liability company (“Sunrise Coal”), and HALLADOR PETROLEUM COMPANY, a Colorado corporation (“Hallador Petroleum”).

RECITALS

A.Sunrise Coal, as borrower, and OLD NATIONAL BANK, as lender (“Bank”), have entered into a Credit Agreement, dated as of the date hereof (the “Credit Agreement”), which provides for, among other things, certain loans (“Loans”) to be made by Bank to Sunrise Coal. To induce Bank to enter into the Credit Agreement and provide the Loans to Sunrise Coal, Hallador Petroleum has agreed to provide a Continuing Guaranty in favor of Bank in the form of Exhibit “A” attached hereto (the “Guaranty”).

B.To induce Hallador Petroleum to execute and deliver the Guaranty to Bank, Sunrise Coal has agreed to reimburse Hallador Petroleum for any amounts paid, or damages or losses incurred, by Hallador Petroleum under or in connection with the Guaranty, pursuant to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, to induce Hallador Petroleum to execute and deliver the Guaranty to Bank and in consideration of the foregoing recitals which by this reference are incorporated herein and the mutual covenants contained herein, the parties hereto, each intending to be legally bound hereby, covenant and agree as follows:

Section 1.   CERTAIN DEFINITIONS.

As used herein, the following respective terms shall have the following respective meanings (terms defined in the plural to include the singular and viceversa):

“Applicable Law” means any law, provision of statute, rule, regulation, or order of a Governmental Authority applicable to a Person, and all orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.

“Authorized Officer” means, with respect to any Person, its chief executive officer, chief financial officer, chief accounting officer, any vice president, or treasurer.

“Base Rate” means, as determined by Hallador Petroleum on a daily basis, the variable rate of interest per annum most recently announced by Wells Fargo Bank, as its “Prime Rate” or “Reference Rate,” as the case may be, whether or not such announced rate is the best rate available from such financial institution.

“Business Day” means any day on which commercial banks are not authorized or required to close in Denver, Colorado.

“Default” means an Event of Default or any other event which with the giving of notice or lapse of time, or both, would become an Event of Default.

“Event of Default” shall have the meaning assigned to such term in Section 7 hereof.

“GAAP” means United States generally accepted accounting principles consistently applied (except for accounting changes in response to FASB releases, or other authoritative pronouncements).

“Governmental Authority” means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, or any arbitrator or arbitration board whose rulings are judicially recognized as lawful and binding, in each case whether of the United States or foreign.

“hereunder”, “herein”, “hereof” and the like mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears.

“Loan Documents” means the Credit Agreement and all promissory notes, security agreements, mortgages, pledge agreements, indemnities, and other agreements, instruments, and documents executed and/or delivered by Sunrise Coal or any other Person with respect to, or in connection with, the Loans.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction).

“Obligations” means the reimbursement obligations of Sunrise Coal under Section 3.A hereof and all other monetary obligations of Sunrise Coal to Hallador Petroleum hereunder, including, without limitation, Sunrise Coal’s obligations set forth in Section 8.D hereof.

“person” or “Person” means any natural person, corporation, division of a corporation, partnership, trust, joint venture, association, company, limited liability company, estate, unincorporated organization or government or any agency or political subdivision thereof.

“Principal Office” means the principal office of Hallador Petroleum presently located at 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264.

Section 2.   GUARANTY.

Hallador Petroleum agrees, on the terms and subject to the conditions set forth in this Agreement, to execute and deliver to Bank the Guaranty.

Section 3.   REIMBURSEMENT; FEES; ETC.

A.Obligation. Sunrise Coal is obligated, and hereby unconditionally agrees, to reimburse Hallador Petroleum on demand for any amounts paid, and all damages, expenses, and losses incurred, by Hallador Petroleum (or its successors and assigns) under or in connection with the Guaranty. The payment obligations of Sunrise Coal hereunder shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms hereof under all circumstances, including, without limitation, the following circumstances:

(i)any lack of validity or enforceability of the Loan Documents or the Guaranty or any other agreement or instrument relating to the Guaranty (collectively, the “Related Documents”);

(ii)any amendment or waiver of, or any consent to departure from, all or any of the Related Documents;

(iii)the existence of any claim, set-off, defense or other right which Sunrise Coal may have at any time against Bank or any transferee or assignee of the Loans or the Loan Documents (or any persons or entities for whom Bank or any such transferee or assignee may be acting), Hallador Petroleum, or any other person or entity, whether in connection herewith, the transactions contemplated herein or in the Related Documents, or any unrelated transaction; or

(iv)any other circumstance or happening whatsoever whether or not similar to any of the foregoing, except as a result of Hallador Petroleum’s own gross negligence or willful misconduct.

B.Interest. Sunrise Coal hereby agrees to pay interest (computed on the basis of a year of 360 days and actual days elapsed) on the amount of any Obligation arising as the result of any payment under or in connection with the Guaranty, in respect of each day during the period from the date of such payment by Hallador Petroleum until the date the same shall be reimbursed in full to Hallador Petroleum, at a rate per annum for each day during such period equal to the Base Rate plus 2% for such day, such interest to be payable on demand. None of the terms and provisions contained in this Agreement, or in other documents or instruments related hereto, shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the maximum interest permitted to be charged by applicable laws or regulation governing the Obligations (“Usury Laws”). Borrower shall never be required to pay interest under this Agreement in excess of the maximum interest that may be lawfully charged under such Usury Laws, as made applicable by the final judgment of a court of competent jurisdiction, and the provisions of this Section shall control over all other provisions hereof and of any other instrument executed in connection herewith or executed to secure the indebtedness evidenced hereby, which may be in apparent conflict with this Section. If Hallador Petroleum collects monies which are deemed to constitute interest which would otherwise increase the effective interest rate on this Agreement to a rate in excess of that permitted to be charged by such Usury Laws, all such sums deemed to constitute interest in excess of the maximum rate shall, at the option of Hallador Petroleum, either be credited to the payment of principal or returned to Sunrise Coal.

C.Payments. All payments by Sunrise Coal to Hallador Petroleum under this Agreement shall be made to Hallador Petroleum at the Principal Office in immediately available funds on or prior to 12:00 noon Mountain time on the due date thereof (any payment made after such time being deemed made on the next succeeding Business Day).

D.Commercial Practices. Sunrise Coal agrees that neither Hallador Petroleum nor any of its officers, directors, employees, agents, or attorneys shall be liable or responsible for, and the obligations of Sunrise Coal to Hallador Petroleum hereunder shall not in any manner be affected by: (i) the use which may be made of the Guaranty or the respective proceeds thereof by Bank or any other Person; or (ii) any other circumstances whatsoever in making or failing to make payment under the Guaranty. In furtherance and not in limitation of the foregoing, Hallador Petroleum may accept documents or notices in connection with requested payments under the Guaranty that appear on their face to be in order without responsibility for further investigation.

Section 4.   REPRESENTATIONS AND WARRANTIES.

Sunrise Coal represents and warrants to Hallador Petroleum that:

A.Existence and Power. Sunrise Coal has been duly organized and is validly existing under the laws of Indiana and is in good standing as a foreign corporation in all jurisdictions where the nature of its properties or business so requires it. Sunrise Coal has the limited liability company power to own its properties and carry on its business as now being conducted, to execute, deliver and perform its obligations under this Agreement and other documents contemplated hereby to which it is a party.

B.Authority and No Violation. The execution, delivery and performance of this Agreement (a) have been duly authorized by all necessary limited liability company action on the part of Sunrise Coal, (b) will not violate any provision of any Applicable Law, any order of any court or other Governmental Authority applicable to Sunrise Coal or any of its properties or assets, (c) will not violate any provision of the Articles of Organization or Operating Agreement of Sunrise Coal or, of any indenture, any agreement for borrowed money, any bond, note or other similar instrument or any other agreement to which Sunrise Coal is a party or by which Sunrise Coal or any of its properties or assets are bound, and (d) will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any property or assets of Sunrise Coal other than pursuant to this Agreement.

C.Governmental Approval.

(a)No action, consent or approval of, or registration or filing with, or any other action by, any Governmental Authority is required in connection with the execution, delivery and performance by Sunrise Coal of this Agreement except for consents, approvals, filings and registrations which have been obtained or made and remain in full force and effect, or which are not yet required to be obtained or made but which will be obtained or made and will be in full force and effect when and to the extent required.

(b)All necessary consents and approvals by Governmental Authorities and other Persons in connection with the transactions contemplated under this Agreement, or otherwise referred to herein, have been obtained and remain and will remain in effect.

D.Financial Statements. The unaudited financial statements of Sunrise Coal at December 31, 2005, each in the form previously delivered to Hallador Petroleum, fairly present in all material respects the financial condition and the results of operations of Sunrise Coal at the date or for the period indicated.

E.No Material Adverse Change. Except as previously disclosed in writing to Hallador Petroleum, since December 31, 2005, there has been no material adverse change in the business, assets, property, condition (financial or otherwise), or results of operations of Sunrise Coal.

F.Litigation; Compliance with Laws.

(a)Except as previously disclosed in writing to Hallador Petroleum, there are no actions, lawsuits or other proceedings pending (including, but not limited to, matters relating to environmental liability), or, to the knowledge of Sunrise Coal, threatened, against or affecting Sunrise Coal or any of its properties, by or before any Governmental Authority, arbitration panel, or arbitrator, which could reasonably be expected to have a material adverse effect on the business, assets, property, condition (financial or otherwise), prospects or results of operations of Sunrise Coal or which seeks to restrain, prevent, impose materially adverse conditions upon, hinder or delay any of the transactions contemplated hereby.

(b)The transactions contemplated hereby will not violate any Applicable Law.

G.Federal Reserve Regulations. No part of the proceeds of any extension of credit under this Agreement will be used, directly or indirectly, and whether immediately, incidentally or ultimately for any purpose violative of or inconsistent with any of the provisions of any regulations of the Board of Governors of the Federal Reserve System, including, without limitation, Regulations T, U and X thereto.

H.Investment Company Act. Sunrise Coal is not, and will not during the term of this Agreement be, (x) an “investment company,” within the meaning of the Investment Company Act of 1940, as amended or (y) subject to regulation under the Public Utility Holding Company Act of 2005, the Federal Power Act or any foreign, federal or local statute or regulation limiting its ability to incur indebtedness for money borrowed as contemplated hereby.

I.Enforceability. This Agreement constitutes the legal, valid and enforceable obligation of Sunrise Coal (subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and to general principles of equity).

Section 5.   CONDITIONS PRECEDENT.

The obligation of Hallador Petroleum to execute and deliver the Guaranty to Bank is subject to the following conditions precedent:

A.Sunrise Coal shall have executed and delivered to Hallador Petroleum this Agreement and any other agreement, document, or instrument requested by Hallador Petroleum.

B.The representations and warranties set forth in Section 4 hereof shall be true and correct in all material respects.

C.No Default or Event of Default shall have occurred and be continuing or will result from the execution and delivery of the Guaranty.

Section 6.   COVENANTS OF SUNRISE COAL.

From the date hereof and so long as the Guaranty shall be outstanding and until the payment in full of all of the Obligations, Sunrise Coal hereby agrees as follows:

A.Financial Statements and Reports.

(a)As soon as is practicable, but in any event within 90 days after the end of each fiscal year, Sunrise Coal will furnish or cause to be furnished to Hallador Petroleum the audited balance sheet of Sunrise Coal as at the end of, and the related statements of income, shareholders’ equity and cash flow for, such year, and the corresponding figures as at the end of, and for, the preceding fiscal year, accompanied by an opinion of Clifton Gunderson LLP or EKS & H, which report and opinion shall be prepared in accordance with generally accepted auditing standards relating to reporting and which report and opinion shall (i) be unqualified as to going concern and scope of audit and shall state that such financial statements fairly present the financial condition of Sunrise Coal as at the dates indicated and the results of operations and cash flows for the periods indicated, and (ii) contain no material exceptions or qualifications except for qualifications relating to accounting changes (with which such independent public accountants concur) in response to FASB releases or other authoritative pronouncements;

(b)As soon as is practicable, but in any event within 30 days after the end of each of the first three fiscal quarters of each of its fiscal years, Sunrise Coal will furnish or cause to be furnished to Hallador Petroleum the unaudited balance sheet of Sunrise Coal as at the end of, and the related unaudited statements of income, shareholders’ equity and cash flow for, such quarter, and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter and, the corresponding figures as at the end of, and for, the corresponding period in the preceding fiscal year, together with a certificate signed by an Authorized Officer of Sunrise Coal, on behalf of Sunrise Coal, to the effect that such financial statements, while not examined by independent public accountants, reflect, in his or her opinion and in the opinion of Sunrise Coal, all adjustments necessary to present fairly in all material respects the financial position of Sunrise Coal as at the end of the fiscal quarter and the results of its operations for the quarter then ended in conformity with GAAP consistently applied, subject only to year-end adjustments and to the absence of footnote disclosure; and

(c)From time to time, Sunrise Coal will furnish or cause to be furnished to Hallador Petroleum such additional information regarding the financial condition or business of Sunrise Coal as Hallador Petroleum may reasonably request.

B.Existence, Properties, etc. Sunrise Coal will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its limited liability company existence, rights, licenses, permits and franchises, and comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, any Governmental Authority.

C.Books and Records. Sunrise Coal will maintain or cause to be maintained at all times books and records of its financial operations which are true and correct in all material respects and provide Hallador Petroleum and its representatives reasonable access to such books and records during regular business hours in order that Hallador Petroleum may make such audits and examinations and make abstracts from such books, accounts, records and other papers and may discuss the affairs, finances and accounts with, and be advised as to the same by, officers and independent accountants, all as Hallador Petroleum may deem appropriate for the purpose of verifying the accuracy of the various reports delivered by Sunrise Coal to Hallador Petroleum pursuant to this Agreement or for otherwise ascertaining compliance with this Agreement.

Section 7.   EVENTS OF DEFAULT.

In case of the happening and during the continuance of any of the following events (herein called “Events of Default”):

A.Sunrise Coal shall fail to pay when due any Obligation or any other amount payable to Hallador Petroleum under this Agreement;

B.Sunrise Coal shall fail to observe or perform any other covenant, condition or agreement to be observed or performed pursuant to the terms of this Agreement, and such default shall continue unremedied for ten (10) consecutive days after Sunrise Coal receives written notice of such occurrence from Hallador Petroleum;

C.Sunrise Coal shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or Sunrise Coal shall commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property or shall file an answer or other pleading in any such case, proceeding or other action admitting the material allegations of any petition, complaint or similar pleading filed against it or consenting to the relief sought therein; or Sunrise Coal shall take any action to authorize any of the foregoing; or

D.Without the application or consent of Sunrise Coal, any involuntary case, proceeding or other action against Sunrise Coal shall be commenced seeking to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of any order for relief against it or (ii) shall remain undismissed for a period of thirty (30) days;

then, in every such event and at any time thereafter during the continuance of such event, Hallador Petroleum may, by notice to Sunrise Coal, declare an Event of Default (except with respect to the occurrence of an Event of Default under Section 7.C or Section 7.D hereof, as to which no notice or declaration need be given) and (a) terminate the obligation of Hallador Petroleum to execute and deliver the Guaranty to Bank (if the same has not yet been executed and delivered) or (b) declare all amounts owing hereunder to be due and payable, or both, whereupon such obligation shall terminate, or all such amounts shall become due and payable, or both; provided, however, that upon the occurrence of an Event of Default specified in Section 7.C or Section 7.D, such obligation shall terminate and all such amounts shall become immediately due and owing in each case automatically, without any action on the part of Hallador Petroleum and without any notice, protest, presentment or demand, all of which are hereby expressly waived by Sunrise Coal.

Section 8.   MISCELLANEOUS.

A.Notices. Except when otherwise required by law, any notice which a party is required or may desire to give the other under or in connection with this Agreement shall be in writing and may be sent by personal delivery or by mail (either (i) by United States registered or certified mail, return receipt requested, postage prepaid, or (ii) by Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery), addressed as provided below in this Section 8.A. Any notice so given by mail shall be deemed to have been given as of the date of delivery (whether accepted or refused) established by U.S. Post Office return receipt or the overnight carrier’s proof of delivery, as the case may be. Any such notice not so given shall be deemed given upon receipt of the same by the party to whom the same is to be given.

(a)If to Hallador Petroleum, at:

1660 Lincoln Street, Suite 2700

Denver, Colorado 80264

Attn: Victor Stabio

(b)If to Sunrise Coal, at:

6641 S. State Road 46

Terre Haute, Indiana 47802

Attention: Brent Bilsland

B.Survival of Covenants. All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the execution and delivery of the Guaranty by Hallador Petroleum and shall continue in full force and effect so long as the Guaranty is outstanding and until the Obligations and all other obligations of Sunrise Coal hereunder shall have been paid and performed in full. Whenever in this Agreement any of the parties hereto is referred to, such reference shall, subject to the last sentence of this Section 8.B, be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of Sunrise Coal which are contained in this Agreement shall inure to the benefit of the successors and assigns of Hallador Petroleum. Sunrise Coal may not transfer its rights or obligations under this Agreement without the prior written consent of Hallador Petroleum.

C.Expenses. Each party agrees to pay its own expenses incurred in connection with the preparation and administration of this Agreement (whether or not the transactions hereby contemplated shall be consummated). Sunrise Coal agrees to pay all out-of-pocket expenses incurred by Hallador Petroleum in connection with enforcement of the rights of Hallador Petroleum in connection with this Agreement, including, but not limited to, the fees and disbursements of counsel to Hallador Petroleum.

D.Indemnification. Sunrise Coal hereby indemnifies and holds harmless Hallador Petroleum from and against any and all claims and damages, losses, liabilities, costs and expenses which Hallador Petroleum may incur (or which may be claimed against Hallador Petroleum by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Guaranty; provided that Sunrise Coal shall not be required to indemnify Hallador Petroleum for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence of Hallador Petroleum as determined by a final order issued by a court of competent jurisdiction.

E.No Waiver. Neither any failure nor any delay on the part of Hallador Petroleum in exercising any right, power or privilege hereunder, nor any course of dealing with respect to any of the same, shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. The remedies herein provided are cumulative, and not exclusive of any remedies provided by Applicable Law.

F.Modification, Amendment, Waiver, etc. No modification, amendment or waiver of any provision of this Agreement, and no consent to any departure by Sunrise Coal herefrom, shall be effective unless the same shall be in writing and signed by Hallador Petroleum 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 Sunrise Coal shall entitle Sunrise Coal to any other or further notice or demand in the same, similar or other circumstances.

G.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but when taken together shall constitute but one agreement and any of the parties hereto may execute this Agreement by signing any such counterpart.

H.Accounting Terms and Principles. Except as otherwise expressly stated or defined herein, all computations required hereunder shall be made by the application of, and each accounting term used herein shall have the meaning given to it under, United States generally accepted accounting principles applied on a basis consistent with that used in the preparation of the audited financial statements referred to in Section 4.D hereof.

I.Headings. The table of contents and the section and subsection headings used herein have been inserted for convenience of reference only and do not constitute matters to be considered in interpreting this Agreement.

J.Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.

(a)This Agreement shall be governed by, and construed in accordance with, the laws of the State of Colorado.

(b)Sunrise Coal 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 from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and Sunrise Coal hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such Colorado State or, to the extent permitted by law, in such federal court. Sunrise Coal 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. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction.

(c)Sunrise Coal irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any Colorado State or federal court. Sunrise Coal hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)WAIVER OF RIGHT TO JURY TRIAL. SUNRISE COAL HEREBY WAIVES TRIAL BY JURY, AND SUNRISE COAL HEREBY WAIVES RIGHTS OF SETOFF AND THE RIGHT TO IMPOSE COUNTERCLAIMS, IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF HALLADOR PETROLEUM IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN HALLADOR PETROLEUM AND SUNRISE COAL, AND SUNRISE COAL CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND IT HAS RECEIVED THE ADVICE OF COUNSEL WITH REGARD TO THE FOREGOING WAIVERS.

[Signatures on next page]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

                                                                           SUNRISE COAL, LLC,

                                                                          an Indiana limited liability company

                                                                         By:  /s/ BRENT BILSLAND

  Print Name: Brent Bilsland

                                                                          Title:  Member

                                                                          HALLADOR PETROLEUM COMPANY,

                                                                          a Colorado corporation

                                                                          By: /S/VICTOR P. STABIO

Print Name:  Victor P. Stabio

Title: President, CEO and CFO

EXHIBIT “A”

FORM OF GUARANTY

(see attached copy)