-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Umz2hbuBX61bVfWRCBoU+3iJBqiPSxbh2B6CewYeNjHOtVM4O4zPBQyBblf6i3Hg DZzhSzoHQFcI+pZiWnWRQg== 0000788965-98-000006.txt : 19980817 0000788965-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000788965-98-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALLADOR PETROLEUM CO CENTRAL INDEX KEY: 0000788965 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 841014610 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14731 FILM NUMBER: 98691664 BUSINESS ADDRESS: STREET 1: 1660 LINCOLN ST STE 2700 CITY: DENVER STATE: CO ZIP: 80264 BUSINESS PHONE: 3038395505 MAIL ADDRESS: STREET 1: 1660 LINCOLN STREET STREET 2: SUITE 2700 CITY: DENVER STATE: CO ZIP: 80264 FORMER COMPANY: FORMER CONFORMED NAME: KIMBARK OIL & GAS CO /CO/ DATE OF NAME CHANGE: 19900102 FORMER COMPANY: FORMER CONFORMED NAME: KIMBARK INC DATE OF NAME CHANGE: 19860624 10QSB 1 SECOND QTR FORM 10QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File Number 0-14731 HALLADOR PETROLEUM COMPANY (Exact name of small business issuer as specified in its charter) COLORADO 84-1014610 (State of incorporation) (IRS Employer Identification No.) 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264 (Address of principal executive offices) 303-839-5504 FAX: 303-832-3013 (Issuer's telephone numbers) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Shares outstanding as of August 13, 1998: 7,093,150 1 PART I. FINANCIAL INFORMATION HALLADOR PETROLEUM COMPANY Consolidated Balance Sheet (in thousands)
June 30, December 31, 1998 1997* ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 4,978 $ 6,047 Available-for-sale securities 631 1,800 Accounts receivable- Oil and gas sales 397 331 Well operations 293 336 ------- ------- Total current assets 6,299 8,514 ------- ------- Oil and gas properties (successful efforts), at cost: Unproved properties 627 378 Proved properties 18,683 18,366 Less - accumulated depreciation depletion, amortization and impairment (13,281) (13,039) ------- ------- 6,029 5,705 ------- ------- Other assets 290 266 ------- ------- $ 12,618 $ 14,485 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Brokerage account $ 115 $ Accounts payable and accrued liabilities 253 360 Oil and gas sales payable 199 211 Debt to TCW 3,382 2,492 ------- ------- Total current liabilities 3,949 3,063 ------- ------- Debt to TCW 2,831 ------- Deferred bonus plan 212 205 ------- ------- Other 105 105 ------- ------- Minority interest 4,961 4,926 ------- ------- Stockholders' equity: Net unrealized loss on available-for- sale securities (45) Preferred stock, $.10 par value; 10,000,000 shares authorized; no shares issued Common stock, $.01 par value; 100,000,000 shares authorized; 7,093,150 shares issued 71 71 Additional paid-in capital 18,061 18,061 Accumulated deficit (14,696) (14,777) ------- ------- 3,391 3,355 ------- ------- $ 12,618 $ 14,485 ======= =======
*Derived from the Form 10-KSB. See accompanying notes. 2 HALLADOR PETROLEUM COMPANY Consolidated Statement of Operations (in thousands, except per share amounts)
Six months ended Three months ended June 30, June 30, 1998 1997 1998 1997 ------- ------- ------- ------- (restated) (restated) Revenue: Oil $1,383 $2,029 $ 710 $ 950 Gas 321 167 222 74 NGLs 170 221 85 91 Interest and other 197 86 88 43 Gain on sale of prospects 343 7 23 ----- ----- ----- ----- 2,414 2,510 1,128 1,158 ----- ----- ----- ----- Costs and expenses: Lease operating 1,395 1,282 715 652 Depreciation, depletion and amortization 242 211 142 109 General and administrative 330 203 190 96 Impaired leasehold costs 14 14 Geological and geophysical 102 525 29 130 Dry hole 324 324 Interest 229 254 109 125 ----- ----- ----- ----- 2,298 2,813 1,185 1,450 ----- ----- ----- ----- Income (loss) before minority interest 116 (303) (57) (292) Minority interest (35) 17 ----- ----- ----- ----- Net income (loss) $ 81 $ (303) $ (40) $ (292) ===== ===== ===== ===== Net income (loss) per share $ .01 $ (.04) $ * $ (.04) ===== ===== ===== ===== Weighted average shares outstanding 7,093 7,093 7,093 7,093 ===== ===== ===== =====
_____________________ * Less than one cent. See accompanying notes. 3 HALLADOR PETROLEUM COMPANY Consolidated Statement of Cash Flows (in thousands)
Six months ended June 30, 1998 1997 (restated) Net cash provided by operating activities $ 524 $ 51 ------ ------ Cash flows provided by (used in) investing activities: Short-term investments 1,135 400 Additions to properties (878) (976) Other assets (24) ------ ------ Net cash used in (provided by) investing activities 233 (576) ------ ------ Cash flows from financing activities: Brokerage account 115 Repayments of debt (1,941) (472) ------ ------ Cash flows from financing activities: Net cash used in financing activities (1,826) (472) ------ ------ Net decrease in cash and cash equivalents (1,069) (997) Cash and cash equivalents, beginning of period 6,047 2,898 ------ ------ Cash and cash equivalents, end of period $ 4,978 $ 1,901 ====== ======
See accompanying notes. HALLADOR PETROLEUM COMPANY Notes to Financial Statements 1. The interim financial data is unaudited; however, in the opinion of management,the interim data includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company's financial statements filed as part of the Company's 1997 Form 10-KSB. This quarterly report should be read in conjunction with such annual report. 2. During the fourth quarter of 1997, the Company changed from the full cost method to the successful efforts method of accounting for its oil and operations. 3. Comprehensive income for the six-month period ended June 30, 1998 is approximately $50,000 and the loss for the three-month period ended June 30, 1998 is approximately $72,000. Per share amounts are not meaningful. 4 HALLADOR PETROLEUM COMPANY Management's Discussion and Analysis or Plan of Operation RESULTS OF OPERATIONS YEAR-TO-DATE COMPARISON - ----------------------- The table below provides sales data and average prices for the period.
1998 1997 Sales Volume Average Price Sales Volume Average Price ------------- ------------- ------------ ------------- Oil - barrels 116,753 $11.85 106,396 $19.07 Gas - mcf 153,848 2.09 65,800 2.54 NGLs- barrels 14,512 11.71 15,196 14.54
Significantly lower oil prices caused the reduction in oil revenues. Gas production more than doubled due to the two new gas wells in the Merlin prospect, see below. The increase in oil production is attributable primarily to TCW relinquishing its 18% net profits interest in the South Cuyama field pursuant to the debt restructuring, see below. South Cuyama field oil and gas prices at August 12, 1998, were $11/bbl and $1.90/mcf. Gas prices in the Merlin prospect are currently $2.10/mcf. QUARTER-TO-DATE COMPARISON - -------------------------- The table below provides sales data and average prices for the second quarters.
1998 1997 Sales Volume Average Price Sales Volume Average Price ------------- ------------- ------------ ------------- Oil - barrels 63,244 $11.22 54,761 $17.35 Gas - mcf 109,898 2.02 35,487 2.08 NGLs- barrels 7,994 10.58 7,807 11.65
The explanations above for the year-to-date comparisons also apply to the quarter-to-date comparisons. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash, short-term investments, and cash to be provided from operations are expected to enable the Company to meet its obligations as they come due and fund current planned activities. 5 THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 1997 FORM 10-KSB AND SHOULD BE READ IN CONJUNCTION THEREWITH. PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY THE MERLIN PROSPECT OF THE SAC BASIN - NORTHERN CALIFORNIA ---------------------------------------------------------- On May 10, 1998 the Otto Loshe #1-22 was spud. The well was completed at 5,500' and on June 5 was placed on production. The well is currently producing 1.8 mmcfpd. This was the fifth and final well of this particular area of the prospect. A test of a shallower sand yielded gas at a rate of 6.5 mmcfpd and will be produced at a later date. The initial Merlin prospect gas find, the #1-15 Henning, continues to produce at a rate of 2.3 mmcfpd. The Company anticipates combined gross sales of 5 mmcfpd from both wells. The Company has a 30% WI (24% NRI) in this prospect. An exploratory well is scheduled for a new area of the prospect in mid-September. Furthermore, a second exploratory well is scheduled for late 1998 or early 1999. If either of these two exploratory wells prove successful, more development wells could be drilled in 1999. BIG HORN BASIN - WYOMING ------------------------ In January 1998, the Company sold a half interest in four of the nine prospects it is developing for $597,000 to MCNIC Oil and Gas Corporation, a large public utility headquartered in Detroit, Michigan resulting in a gain of $320,000. Seismic operations are underway at four prospect areas where the Company has working interests ranging from 50% to 100%. The Company intends to spend $50,000 in seismic cost ($25,000 net to the Company), and depending on the results, plans to drill a horizontal well when oil prices improve. The Company will be the operator and the well is estimated to cost $500,000 ($250,000 net to the Company). In late April, the joint venture with Blackstone Energy was terminated; the Company continues to remain active in the area. SOUTH TEXAS ----------- On May 4, 1998, the Company entered into a joint venture with Indexgeo & Associates of Houston, Texas to acquire seismic options in Colorado County, Texas (75 miles west of Houston). The budget for the seismic options to Hallador's 90% JV interest is $100,000. It is the intent of the JV to turn the options to a third party to shoot 3-D seismic. 3-D seismic has been successful in this area in identifying economic drilling locations in the Yegua and Wilcox formations. To date, the Company has entered into options to lease approximately 4,000 acres. On June 13, 1998 the Indexgeo New Henderson Gas Unit #1 was spud. This well is located in Lavaca County, which adjoins Colorado County, Texas. The well was completed at 3,800' and on August 5 was placed on production. 6 The well is currently producing 400 mcfpd. The Company has a 15% WI (11.25% NRI) in this well. The Company's cost was approximately $70,000. No further drilling is planned for this area. PARADOX BASIN ------------- During June, approximately 6,000 acres were leased in the Paradox Basin, Utah (within 25 miles of the Four Corners) within the Rapids Prospect area. Geologic and geophysical studies are underway in support of a future 3-D seismic survey. The Company plans to invest $200,000 in this area. SOUTH CUYAMA FIELD LOW OIL PRICES -------------- Due to low oil prices the Company implemented many cost reduction measures. These included the shut-in of marginal wells and the reduction in the utilization of service rigs. These factors helped the Company achieve very low operating costs, but also resulted in lower production for the second quarter. Approximately 150 bopd in marginal production have been shut-in. Based on current South Cuyama field oil prices of $11.00, the field is at a cash breakeven point. CATALYTIC CONVERTER INVESTMENT ------------------------------ On April 21, 1998, Hallador paid $20,000 for a six-month option to acquire a 5% ownership position in Catalytic Solutions, Inc. (Catalytic) located in Oxnard, California (a Los Angeles suburb). The Company must decide on or before October 19, 1998, whether to invest $300,000 for its 5% ownership. Catalytic is a private company founded in January 1996 to exploit the capabilities of a unique family of metal-oxide materials developed by the company's co-founder, Dr. Steve Golden. The company is developing a new generation of catalytic materials that are not based on precious metals such as platinum, palladium, and rhodium. The worldwide market for catalytic materials is $6 billion annually, and Catalytic believes their product cost will be a fraction of the cost of competing technologies. These catalytic converters are currently being tested in the South Cuyama field. Initial results are encouraging. TCW DEBT - -------- The South Cuyama field, the Company's principal asset, is pledged to TCW. On April 9, 1998, the debt was restructured. In return for (i) a cash payment of $1.8 million on May 1, 1998, (ii) monthly payments of $92,000 beginning June 1, 1998, (iii) a balloon payment approximating $3 million due on June 1, 1999, and (iv) an increase in the interest rate from 9% to 12% TCW agreed to relinquish its 18% net profits interest in the field effective April 1, 1998. 7 AVAILABLE-FOR-SALE SECURITIES - ----------------------------- During the second quarter, the Company decided to make several investments in certain publicly traded drilling companies. Management is of the opinion that these particular stocks are trading at a value significantly less than their fair value. As of June 30, 1998 the Company held 15,000 shares of R&B Falcon Drilling (FLC-NYSE) and 15,000 of Rowan Companies (RDC-NYSE) at a cost of $676,000. At June 30, these stocks have a value of $631,000. Management continued this strategy, and as of August 13, the Company owns 26,000 shares of R&B Falcon Corporation, 26,000 shares of Rowan Companies, 16,000 of ENSCO International, Inc. (ESV-NYSE), and 10,000 shares of Pool Energy Services (PESC-NASDAQ), all at a cost of $1,408,000. Based on August 13 closing prices, these stocks have a value of $984,000. Management intends to hold these stocks through the fall of 1999. THE YEAR 2000-Y2K - ----------------- During 1997, the Company installed a new accounting system that is year 2000 compliant. The Company is investigating the computer system used in the operations of the Field to determine what revisions are required in order for the software to be year 2000 compliant. Such costs are not expected to be material. The Company does not anticipate any Y2K problems with any of its significant customers or suppliers. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- None of the new accounting pronouncements that have been issued will affect the Company's future financial reporting. 1998 OUTLOOK - ------------ If the low oil price environment continues, the Company anticipates a loss for the year. Pursuant to FAS 121, Impairment of Long-lived Assets, management periodically assesses the recoverability of the Company's investment in oil and gas properties. Management believes that the low oil price environment will not continue in the near term and that the Company will ultimately recover its investment in the South Cuyama field. Accordingly, no write-down is expected during 1998. 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Reconveyance of Overriding Royalty Interests 10.2 Secured Promissory Note - $1,055,854 - April 23, 1998 10.3 Secured Promissory Note - $1,330,376 - April 23, 1998 10.4 Secured Promissory Note - $122,500 - April 23, 1998 10.5 Secured Promissory Note - $767,894 - April 23, 1998 10.6 Secured Promissory Note - $612,395 - April 23, 1998 10.7 Second Amendment to Amended Deed of Trust, Mortgage, Security Agreement, Financing Statement, Personal Property including hydrocarbons, Assignment of Production and Fixture Filing 27 Financial Data Schedule; EDGAR filing only (b) No reports on Form 8-K were filed during the quarter. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HALLADOR PETROLEUM COMPANY Date: August 14, 1998 By: /s/ Victor P. Stabio Victor P. Stabio Chief Executive Officer and Chief Financial Officer Signing on behalf of the registrant and as principal financial officer. 9 EX-27 2 FINANCIAL DATA SCHEDULE 1
5 0000788965 HALLADOR PETROLEUM COMPANY 1000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 4,978 631 690 0 0 6,299 18,683 13,281 12,618 3,949 3,382 0 0 71 0 12,618 1,874 2,414 0 2,298 0 0 229 81 0 81 0 0 0 81 .01 .01
EX-27 3 FINANCIAL DATA SCHEDULE 2
5 This schedule contains certain restated summary financial information for the six-month period ended June 30, 1997. 0000788965 HALLADOR PETROLEUM COMPANY 1000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,510 0 2,813 0 0 254 (303) 0 (303) 0 0 0 (303) (.04) (.04)
EX-10 4 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angeles, California 90017 Attn: David A. Lamb, Esq. RECONVEYANCE OF OVERRIDING ROYALTY INTERESTS Pursuant to that certain Conveyance of Overriding Royalty Interests dated as of May 25, 1990 and recorded on May 25, 1990 as Instrument No. 90-035584 in the Official Records of Santa Barbara County, California, as amended by that certain Adjustment, Amendment and Restatement of Conveyance of Overriding Royalty dated as of April 10, 1992 and recorded on April 10, 1992 as Instrument No. 92-026154 in the Official Records of Santa Barbara County, California and that certain First Supplement to Adjustment, Amendment and Restatement of Conveyance of Overriding Royalty dated as of June 25, 1992 and recorded on November 18, 1992 as Instrument No. 92-092380 in the Official Records of Santa Barbara County, California (as amended, the "Conveyance"), SANTA BARBARA PARTNERS, an Oklahoma general partnership ("SB Partners"), conveyed to TCW DR III ROYALTY PARTNERSHIP, a California Limited Partnership ("DR III"), a Net Profits ORR Interest (as defined in the Conveyance) in the Subject Interests (as defined in the Conveyance). NOW, THEREFORE, DR III, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, does hereby, without representation or warranty, reconvey, reassign, transfer, set over and deliver the Net Profits ORR Interest, effective as of 7:00 a.m. Los Angeles time, May 1 1998, to SB Partners and does hereby terminate all rights under the Conveyance with respect to periods after the effective date hereof. EXECUTED on April 23, 1998, but effective as of 7:00 a.m. Los Angeles time, May 1, 1998. TCW DR III ROYALTY PARTNERSHIP, a California Limited Partnership By: TCW Royalty Company III, a California corporation, its Managing General Partner By: /S/ARUTHUR R. CARLSON Arthur R. Carlson Vice President EX-10 5 SECURED PROMISSORY NOTE $1,055,854.24 April 23, 1998 1. Principal. For value received, SANTA BARBARA PARTNERS, an Oklahoma general partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation, HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM, INC., a California corporation (collectively, "Maker"), jointly and severally promise to pay to the order of TRUST COMPANY OF THE WEST, as Ancillary Trustee under the Ancillary Trust Agreement dated as of October 16, 1989 between US West, Inc., Boston Safe Deposit and Trust Company of the West ("Holder"), the principal sum of One Million Fifty- Five Thousand Eight Hundred Fifty-Four and Twenty-Four/Hundredths Dollars ($1,055,854.24) together with accrued interest from the date of disbursement on the unpaid principal until paid in full at the rates and times as set forth herein. This Secured Promissory Note (the "Note") is issued in connection with that certain Term Loan Agreement dated as of May 25, 1990 by and among Borrower, Trust Company of the West, a California trust company, in the capacities set forth therein ("TCW"), and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (as heretofore or hereafter amended, modified or supplemented, from time to time, the "Term Loan Agreement") and replaces the Amended Secured Promissory Note dated as of May 25, 1990 executed by Borrower, as Maker, in favor of Holder. As used herein, the term "Holder" shall mean Holder and any subsequent holder of this Note, whichever is applicable from time to time. Capitalized terms used herein without definition shall have the meanings set forth in the Term Loan Agreement. 2. Maturity Date. (a) The unpaid principal balance hereof, together with all unpaid interest accrued thereon, and all other amounts payable by Maker under the terms of the Loan Documents shall be due and payable on June 1, 1999 (the "Maturity Date") unless sooner paid or as otherwise provided herein or in the Term Loan Agreement. (b) If the Maturity Date should fall on a day other than a Business Day, payment of the outstanding principal and all other amounts due under the terms hereof shall be made on the immediately preceding Business Day and such reduction of time shall be included in computing any interest in respect of such payment. 3. Prepayment. Upon not less than thirty (30) Business Days' prior notice in writing to Holder, Maker may, on any Monthly Payment Date (as defined below) prior to the Maturity Date, prepay all or, in an amount not less than $100,000 in the aggregate for all of the Secured Promissory Notes of even date herewith executed by Maker, any part of the outstanding principal balance of this Note together with all interest accrued on the principal amount of such prepayment to the date thereof without premium or penalty. 4. Interest Rate; Calculation. (a) Interest shall accrue from the date hereof until the Maturity Date on the unpaid principal amount at the rate of nine percent (9%) per annum. Any principal or interest payments not paid when due, whether on the Maturity Date or any Monthly Payment Date, by notice of prepayment, by acceleration or otherwise, shall bear interest at the rate of the lesser of sixteen percent (16%) per annum or the maximum rate permitted by law. (b) Interest shall be computed on the basis of a 360-day year and on the actual number of days elapsed in any quarter with respect to periods of less than one Calendar Quarter. 5. Payment of Principal and Interest. On the final Business Day of each calendar month (the "Monthly Payment Date"), commencing on May 29, 1998, Maker shall make a payment to Holder in the amount of Twenty-Eight Thousand Thirty and No/Hundredth Dollars ($28,030.00) ("Monthly Payment"). Each such Monthly Payment shall be applied, first, to the amount of all accrued and unpaid interest due hereunder, and second, to the payment of principal. 6. No Deductions. All payments of principal and interest on this Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker. Maker will pay the amounts necessary, such that the gross amount of the principal and interest received by Holder is not less than that required by this Note. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing to the contrary, Holder pays such taxes, Maker will reimburse Holder for the amount paid. Maker will furnish Holder official tax receipts or other evidence of payment of all taxes. 7. Manner of Payment. All payments of principal and interest hereunder shall be made to Holder in immediately available funds at Sanwa Bank California, ABA Routing No. 122003516, Trust Operations Center, 1977 Saturn Street, Monterey Park, California 91754 (for credit to the account of Trust Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire Transfer Center) or at such other place and in such other manner as shall be designated by Holder in writing in accordance with the Term Loan Agreement. Payments shall be deemed received by Holder on the date of transfer if received by such payee bank or other designee of Holder duly appointed in accordance with the Term Loan Agreement, at or before 11:30 a.m. Los Angeles time on the date of transfer. Payments received after that time shall be deemed received by the following Business Day. All payments received by Agent on behalf of Holder shall be applied in the manner set forth in Section 5 above. 8. Security. This Note is one of Maker's Secured Promissory Notes issued in connection with and entitled to the benefits under the Term Loan Agreement to which reference is hereby made for a complete statement of the terms and conditions under which the Loan evidenced hereby was made. This Note is secured by and entitled to the benefits of certain security agreements, deeds of trust, mortgages, financing statements and other documents delivered pursuant to and referred to in the Term Loan Agreement, including, without limitation, the following: that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 1, 1990, executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for the benefit of Holder and other entities described therein, and recorded May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California, as amended, creating a lien on, and security interest in, certain real and personal property described therein and the production and sales of proceeds therefrom or attributable thereto and that certain Security Agreement executed by Borrower encumbering certain personal property of Borrower described therein. 9. Remedies. Upon the occurrence of a Default, as defined in the Term Loan Agreement, the entire outstanding balance of the principal amount hereof shall immediately become due and payable in the manner, upon the conditions and with the effect provided in the Term Loan Agreement, and, in addition, Holder may, pursuant to the Loan Agreement, exercise all other rights and remedies available to it hereunder or under any or all of the Loan Documents. No delay or omission on the part of Holder hereof in exercising any right under this Note or under any of the Loan Documents shall operate as a waiver of such right. 10. Waiver. Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates, and any other maturity date or the time for payment of any installment due hereunder, accept additional security, release any party liable hereunder and release any security now or hereafter securing this Note. Maker further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note. 11. Attorneys' Fees. If this Note is not paid when due or if any Default (as defined in the Term Loan Agreement) occurs, Maker promises to pay all costs of enforcement and collection, including, but not limited to, Holder's reasonable attorneys' fees and costs, whether or not any action or proceeding is brought to enforce the provisions hereof. 12. Severability. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 13. Limitation of Liability. Except as specifically set forth to the contrary in the Loan Agreement, this Note or other Loan Documents, (a) TCW and the Holders shall not seek, or be entitled to, nor shall any Partner be liable for, any judgment for a deficiency or other money judgment against Trio Petroleum, Inc. ("Trio"), in connection with any action to foreclose any Mortgage, or any action brought under the Loan Agreement, the Notes, the Mortgage, the Security Agreement, or any other Security Documents or any other Loan Document; and (b) in the event any suit is brought on any Loan Document or concerning the Obligations as a part of judicial proceedings to foreclose any Mortgage, any judgment obtained in such suit shall by its terms constitute a lien on, and shall be enforced only against Maker (excluding Trio), any property of Maker (excluding Trio), the Oil and Gas Interests, any other property conveyed or secured by the Mortgages (together with the income therefrom, any funds held by the Agent or the Holders pursuant to this Agreement, insurance and condemnation proceeds and escrow and security deposits) and any other Property of Maker (excluding Trio) serving as Collateral for the Loans, and not against any assets or property of Trio or its respective officers, directors, shareholders or partners or any or them; provided, however, that Trio shall be fully and personally liable for (i) any breach of any covenant, representation, agreement or condition contained in Sections 3.1 and 6.12 of the Loan Agreement relating to Environmental Law Requirements which occurs during the period, if any, that Trio or Trio's Affiliate acts as operator of the Oil and Gas Interests or other Collateral or otherwise directly engages in the operation, management or development of the Oil and Gas Interests or other Collateral, (ii) any fraud or material misrepresentation made by Trio if Trio knew or, with the exercise of due diligence, should have known of its falseness, (iii) any willful misapplication of any insurance proceeds, or condemnation awards, or of any production proceeds (including without limitation, ORR Interest proceeds), Net Cash Flow or other amounts by such Partner(s), which amounts were required by the Loan Agreement, the Notes, the Mortgages or the ORRI Conveyances to be paid or applied in a specified manner with respect to the Oil and Gas Interests or other Collateral, or (iv) any distributions or other payments made to, by or with the approval of Trio in violation of Section 4.1 of the Loan Agreement. Nothing contained in this Section 13 shall be deemed to limit the liability of Maker (other than Trio) with respect to its Obligations or constitute a release or impairment of the Obligations, or the Liens of the Mortgages and other Security Documents on the Oil and Gas Interests and other Collateral, or shall preclude TCW or the Agent from obtaining or enforcing any judgment against Maker or from foreclosing the Mortgages in case of any Default, or preclude TCW, Agent or any Holder from enforcing any of the other rights of TCW, Agent or any Holder under the Loan Agreement, or from enforcing any of the rights of TCW, the Agent, or any Holder against any Person other than Trio at any time liable (under any guaranty, bond, policy of insurance or otherwise) for the payment of the Obligations or for the performance and observance of any of the covenants, agreements and conditions contained in this Agreement, the Notes, the Mortgages or the other Loan Documents. 14. Interest Rate Limitation. It is the intent of Maker and Holder in the execution of this Note and all other instruments securing this Note that the loan evidenced hereby comply with the restrictions of applicable usury law from time to time. In furtherance thereof, Maker and Holder stipulate and agree that none of the terms and provisions contained herein or in any of the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Maker nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of this Note or any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions herein or in any of the Loan Documents which may be in conflict or apparent conflict herewith. TCW and Holders expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of this Note or any Obligation is accelerated. If (a) the maturity of this Note or of any Obligation is accelerated for any reason or (b) TCW or any other Holder of any or all of the Notes or the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Notes or the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of this Note or, at TCW's or such Holder's option, promptly returned to Maker or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, TCW, Holders and Maker (and any other payors thereof) shall, to the greatest extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. 15. Joint and Several Liability. Subject to Section 13 above, if the Maker consists of more than one person or entity, the obligations of Maker under this Note shall be joint and several between and among such persons and entities, such that each such person or entity shall be fully responsible for the Maker's full performance of its obligations hereunder. 16. Number and Gender. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 17. Headings. Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note. 18. CHOICE OF LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE LAWS OF THE UNITED STATES OF AMERICA. 19. Amendment. The terms of this Note are subject to amendment only in the manner provided in the Term Loan Agreement. 20. Conflicts. Notwithstanding anything to the contrary contained here within, if any of the express terms and conditions of this Note conflict with the express terms and conditions contained within the Term Loan Agreement, the Term Loan Agreement shall control. IN WITNESS WHEREOF, Maker has caused its duly authorized representative to execute this Note as of the date first above written. SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership By: HALLADOR PETROLEUM COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President TRIO PETROLEUM, INC., a California corporation By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PRODUCTION COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President HALLADOR PETROLEUM COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President This Note has not been registered under the Securities Act of 1933, as amended, or registered or qualified under any state securities laws. This Note has been acquired for investment and may not be sold, transferred, pledged or hypothecated unless the proposed transaction does not require registration or qualification under federal or state securities laws. EX-10 6 SECURED PROMISSORY NOTE $1,330,376.30 April 23, 1998 1. Principal. For value received, SANTA BARBARA PARTNERS, an Oklahoma general partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation, HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM, INC., a California corporation (collectively, "Maker"), jointly and severally promise to pay to the order of TRUST COMPANY OF THE WEST, as Trustee of The TCW Commingled Debt and Royalty Fund IIIA established pursuant to Declaration of Trust dated as of October 15, 1989 ("Holder"), the principal sum of One Million Three Hundred Thirty Thousand Three Hundred Seventy-Six and Thirty/Hundredths Dollars ($1,330,376.30) together with accrued interest from the date of disbursement on the unpaid principal until paid in full at the rates and times as set forth herein. This Secured Promissory Note (the "Note") is issued in connection with that certain Term Loan Agreement dated as of May 25, 1990 by and among Borrower, Trust Company of the West, a California trust company, in the capacities set forth therein ("TCW"), and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (as heretofore or hereafter amended, modified or supplemented, from time to time, the "Term Loan Agreement") and replaces the Amended Secured Promissory Note dated as of May 25, 1990 executed by Borrower, as Maker, in favor of Holder. As used herein, the term "Holder" shall mean Holder and any subsequent holder of this Note, whichever is applicable from time to time. Capitalized terms used herein without definition shall have the meanings set forth in the Term Loan Agreement. 2. Maturity Date. (a) The unpaid principal balance hereof, together with all unpaid interest accrued thereon, and all other amounts payable by Maker under the terms of the Loan Documents shall be due and payable on June 1, 1999 (the "Maturity Date") unless sooner paid or as otherwise provided herein or in the Term Loan Agreement. (b) If the Maturity Date should fall on a day other than a Business Day, payment of the outstanding principal and all other amounts due under the terms hereof shall be made on the immediately preceding Business Day and such reduction of time shall be included in computing any interest in respect of such payment. 3. Prepayment. Upon not less than thirty (30) Business Days' prior notice in writing to Holder, Maker may, on any Monthly Payment Date (as defined below) prior to the Maturity Date, prepay all or, in an amount not less than $100,000 in the aggregate for all of the Secured Promissory Notes of even date herewith executed by Maker, any part of the outstanding principal balance of this Note together with all interest accrued on the principal amount of such prepayment to the date thereof without premium or penalty. 4. Interest Rate; Calculation. (a) Interest shall accrue from the date hereof until the Maturity Date on the unpaid principal amount at the rate of nine percent (9%) per annum. Any principal or interest payments not paid when due, whether on the Maturity Date or any Monthly Payment Date, by notice of prepayment, by acceleration or otherwise, shall bear interest at the rate of the lesser of sixteen percent (16%) per annum or the maximum rate permitted by law. (b) Interest shall be computed on the basis of a 360-day year and on the actual number of days elapsed in any quarter with respect to periods of less than one Calendar Quarter. 5. Payment of Principal and Interest. On the final Business Day of each calendar month (the "Monthly Payment Date"), commencing on May 29, 1998, Maker shall make a payment to Holder in the amount of Thirty-Five Thousand Three Hundred Twenty and No/Hundredth Dollars ($35,320.00) ("Monthly Payment"). Each such Monthly Payment shall be applied, first, to the amount of all accrued and unpaid interest due hereunder, and second, to the payment of principal. 6. No Deductions. All payments of principal and interest on this Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker. Maker will pay the amounts necessary, such that the gross amount of the principal and interest received by Holder is not less than that required by this Note. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing to the contrary, Holder pays such taxes, Maker will reimburse Holder for the amount paid. Maker will furnish Holder official tax receipts or other evidence of payment of all taxes. 7. Manner of Payment. All payments of principal and interest hereunder shall be made to Holder in immediately available funds at Sanwa Bank California, ABA Routing No. 122003516, Trust Operations Center, 1977 Saturn Street, Monterey Park, California 91754 (for credit to the account of Trust Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire Transfer Center) or at such other place and in such other manner as shall be designated by Holder in writing in accordance with the Term Loan Agreement. Payments shall be deemed received by Holder on the date of transfer if received by such payee bank or other designee of Holder duly appointed in accordance with the Term Loan Agreement, at or before 11:30 a.m. Los Angeles time on the date of transfer. Payments received after that time shall be deemed received by the following Business Day. All payments received by Agent on behalf of Holder shall be applied in the manner set forth in Section 5 above. 8. Security. This Note is one of Maker's Secured Promissory Notes issued in connection with and entitled to the benefits under the Term Loan Agreement to which reference is hereby made for a complete statement of the terms and conditions under which the Loan evidenced hereby was made. This Note is secured by and entitled to the benefits of certain security agreements, deeds of trust, mortgages, financing statements and other documents delivered pursuant to and referred to in the Term Loan Agreement, including, without limitation, the following: that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 1, 1990, executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for the benefit of Holder and other entities described therein, and recorded May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California, as amended, creating a lien on, and security interest in, certain real and personal property described therein and the production and sales of proceeds therefrom or attributable thereto and that certain Security Agreement executed by Borrower encumbering certain personal property of Borrower described therein. 9. Remedies. Upon the occurrence of a Default, as defined in the Term Loan Agreement, the entire outstanding balance of the principal amount hereof shall immediately become due and payable in the manner, upon the conditions and with the effect provided in the Term Loan Agreement, and, in addition, Holder may, pursuant to the Loan Agreement, exercise all other rights and remedies available to it hereunder or under any or all of the Loan Documents. No delay or omission on the part of Holder hereof in exercising any right under this Note or under any of the Loan Documents shall operate as a waiver of such right. 10. Waiver. Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates, and any other maturity date or the time for payment of any installment due hereunder, accept additional security, release any party liable hereunder and release any security now or hereafter securing this Note. Maker further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note. 11. Attorneys' Fees. If this Note is not paid when due or if any Default (as defined in the Term Loan Agreement) occurs, Maker promises to pay all costs of enforcement and collection, including, but not limited to, Holder's reasonable attorneys' fees and costs, whether or not any action or proceeding is brought to enforce the provisions hereof. 12. Severability. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 13. Limitation of Liability. Except as specifically set forth to the contrary in the Loan Agreement, this Note or other Loan Documents, (a) TCW and the Holders shall not seek, or be entitled to, nor shall any Partner be liable for, any judgment for a deficiency or other money judgment against Trio Petroleum, Inc. ("Trio"), in connection with any action to foreclose any Mortgage, or any action brought under the Loan Agreement, the Notes, the Mortgage, the Security Agreement, or any other Security Documents or any other Loan Document; and (b) in the event any suit is brought on any Loan Document or concerning the Obligations as a part of judicial proceedings to foreclose any Mortgage, any judgment obtained in such suit shall by its terms constitute a lien on, and shall be enforced only against Maker (excluding Trio), any property of Maker (excluding Trio), the Oil and Gas Interests, any other property conveyed or secured by the Mortgages (together with the income therefrom, any funds held by the Agent or the Holders pursuant to this Agreement, insurance and condemnation proceeds and escrow and security deposits) and any other Property of Maker (excluding Trio) serving as Collateral for the Loans, and not against any assets or property of Trio or its respective officers, directors, shareholders or partners or any or them; provided, however, that Trio shall be fully and personally liable for (i) any breach of any covenant, representation, agreement or condition contained in Sections 3.1 and 6.12 of the Loan Agreement relating to Environmental Law Requirements which occurs during the period, if any, that Trio or Trio's Affiliate acts as operator of the Oil and Gas Interests or other Collateral or otherwise directly engages in the operation, management or development of the Oil and Gas Interests or other Collateral, (ii) any fraud or material misrepresentation made by Trio if Trio knew or, with the exercise of due diligence, should have known of its falseness, (iii) any willful misapplication of any insurance proceeds, or condemnation awards, or of any production proceeds (including without limitation, ORR Interest proceeds), Net Cash Flow or other amounts by such Partner(s), which amounts were required by the Loan Agreement, the Notes, the Mortgages or the ORRI Conveyances to be paid or applied in a specified manner with respect to the Oil and Gas Interests or other Collateral, or (iv) any distributions or other payments made to, by or with the approval of Trio in violation of Section 4.1 of the Loan Agreement. Nothing contained in this Section 13 shall be deemed to limit the liability of Maker (other than Trio) with respect to its Obligations or constitute a release or impairment of the Obligations, or the Liens of the Mortgages and other Security Documents on the Oil and Gas Interests and other Collateral, or shall preclude TCW or the Agent from obtaining or enforcing any judgment against Maker or from foreclosing the Mortgages in case of any Default, or preclude TCW, Agent or any Holder from enforcing any of the other rights of TCW, Agent or any Holder under the Loan Agreement, or from enforcing any of the rights of TCW, the Agent, or any Holder against any Person other than Trio at any time liable (under any guaranty, bond, policy of insurance or otherwise) for the payment of the Obligations or for the performance and observance of any of the covenants, agreements and conditions contained in this Agreement, the Notes, the Mortgages or the other Loan Documents. 14. Interest Rate Limitation. It is the intent of Maker and Holder in the execution of this Note and all other instruments securing this Note that the loan evidenced hereby comply with the restrictions of applicable usury law from time to time. In furtherance thereof, Maker and Holder stipulate and agree that none of the terms and provisions contained herein or in any of the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Maker nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of this Note or any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions herein or in any of the Loan Documents which may be in conflict or apparent conflict herewith. TCW and Holders expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of this Note or any Obligation is accelerated. If (a) the maturity of this Note or of any Obligation is accelerated for any reason or (b) TCW or any other Holder of any or all of the Notes or the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Notes or the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of this Note or, at TCW's or such Holder's option, promptly returned to Maker or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, TCW, Holders and Maker (and any other payors thereof) shall, to the greatest extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. 15. Joint and Several Liability. Subject to Section 13 above, if the Maker consists of more than one person or entity, the obligations of Maker under this Note shall be joint and several between and among such persons and entities, such that each such person or entity shall be fully responsible for the Maker's full performance of its obligations hereunder. 16. Number and Gender. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 17. Headings. Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note. 18. CHOICE OF LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE LAWS OF THE UNITED STATES OF AMERICA. 19. Amendment. The terms of this Note are subject to amendment only in the manner provided in the Term Loan Agreement. 20. Conflicts. Notwithstanding anything to the contrary contained here within, if any of the express terms and conditions of this Note conflict with the express terms and conditions contained within the Term Loan Agreement, the Term Loan Agreement shall control. IN WITNESS WHEREOF, Maker has caused its duly authorized representative to execute this Note as of the date first above written. SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership By: HALLADOR PETROLEUM COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President TRIO PETROLEUM, INC., a California corporation By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PRODUCTION COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President HALLADOR PETROLEUM COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President This Note has not been registered under the Securities Act of 1933, as amended, or registered or qualified under any state securities laws. This Note has been acquired for investment and may not be sold, transferred, pledged or hypothecated unless the proposed transaction does not require registration or qualification under federal or state securities laws. EX-10 7 SECURED PROMISSORY NOTE $122,500.00 April 23, 1998 1. Principal. For value received, SANTA BARBARA PARTNERS, an Oklahoma general partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation, HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM, INC., a California corporation (collectively, "Maker"), jointly and severally promise to pay to the order of TCW DR III ROYALTY PARTNERSHIP, a California limited partnership ("Holder"), the principal sum of One Hundred Twenty-Two Thousand Five Hundred and No/Hundredths Dollars ($122,500.00) at the times as set forth herein. This Secured Promissory Note (the "Note") is issued in connection with that certain Term Loan Agreement dated as of May 25, 1990 by and among Borrower, Trust Company of the West, a California trust company, in the capacities set forth therein ("TCW"), and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (as heretofore or hereafter amended, modified or supplemented, from time to time, the "Term Loan Agreement") and in connection with the execution by Holder of the Reconveyance of Overriding Royalty Interest of even date herewith. As used herein, the term "Holder" shall mean Holder and any subsequent holder of this Note, whichever is applicable from time to time. Capitalized terms used herein without definition shall have the meanings set forth in the Term Loan Agreement. 2. Maturity Date. (a) The unpaid principal balance hereof and all other amounts payable by Maker under the terms of the Loan Documents shall be due and payable on June 1, 1999 (the "Maturity Date") unless sooner paid or as otherwise provided herein or in the Term Loan Agreement. (b) If the Maturity Date should fall on a day other than a Business Day, payment of the outstanding principal and all other amounts due under the terms hereof shall be made on the immediately preceding Business Day. 3. Prepayment. Upon not less than thirty (30) Business Days' prior notice in writing to Holder, Maker may prepay all or, in an amount not less than $25,000, any part of the outstanding principal balance of this Note without premium or penalty. 4. Interest Rate; Calculation. (a) Any principal amount not paid when due, whether on the Maturity Date, by notice of prepayment, by acceleration or otherwise, shall bear interest at the rate of the lesser of sixteen percent (16%) per annum or the maximum rate permitted by law. (b) Interest shall be computed on the basis of a 360-day year and on the actual number of days elapsed in any quarter with respect to periods of less than one Calendar Quarter. 5. No Deductions. All payments of principal on this Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker. Maker will pay the amounts necessary, such that the gross amount of the principal received by Holder is not less than that required by this Note. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing to the contrary, Holder pays such taxes, Maker will reimburse Holder for the amount paid. Maker will furnish Holder official tax receipts or other evidence of payment of all taxes. 6. Manner of Payment. All payments of principal hereunder shall be made to Holder in immediately available funds at Sanwa Bank California, ABA Routing No. 122003516, Trust Operations Center, 1977 Saturn Street, Monterey Park, California 91754 (for credit to the account of Trust Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire Transfer Center) or at such other place and in such other manner as shall be designated by Holder in writing in accordance with the Term Loan Agreement. Payments shall be deemed received by Holder on the date of transfer if received by such payee bank or other designee of Holder duly appointed in accordance with the Term Loan Agreement, at or before 11:30 a.m. Los Angeles time on the date of transfer. Payments received after that time shall be deemed received by the following Business Day. 7. Security. This Note is one of Maker's Secured Promissory Notes issued in connection with and entitled to the benefits under the Term Loan Agreement to which reference is hereby made for a complete statement of the terms and conditions under which the Loan evidenced hereby was made. This Note is secured by and entitled to the benefits of certain security agreements, deeds of trust, mortgages, financing statements and other documents delivered pursuant to and referred to in the Term Loan Agreement, including, without limitation, the following: that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 1, 1990, executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for the benefit of Holder and other entities described therein, and recorded May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California, as amended, creating a lien on, and security interest in, certain real and personal property described therein and the production and sales of proceeds therefrom or attributable thereto and that certain Security Agreement executed by Borrower encumbering certain personal property of Borrower described therein. 8. Remedies. Upon the occurrence of a Default, as defined in the Term Loan Agreement, the entire outstanding balance of the principal amount hereof shall immediately become due and payable in the manner, upon the conditions and with the effect provided in the Term Loan Agreement, and, in addition, Holder may, pursuant to the Loan Agreement, exercise all other rights and remedies available to it hereunder or under any or all of the Loan Documents. No delay or omission on the part of Holder hereof in exercising any right under this Note or under any of the Loan Documents shall operate as a waiver of such right. 9. Waiver. Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates, and any other maturity date or the time for payment of any installment due hereunder, accept additional security, release any party liable hereunder and release any security now or hereafter securing this Note. Maker further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note. 10. Attorneys' Fees. If this Note is not paid when due or if any Default (as defined in the Term Loan Agreement) occurs, Maker promises to pay all costs of enforcement and collection, including, but not limited to, Holder's reasonable attorneys' fees and costs, whether or not any action or proceeding is brought to enforce the provisions hereof. 11. Severability. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 12. Limitation of Liability. Except as specifically set forth to the contrary in the Loan Agreement, this Note or other Loan Documents, (a) TCW and the Holders shall not seek, or be entitled to, nor shall any Partner be liable for, any judgment for a deficiency or other money judgment against Trio Petroleum, Inc. ("Trio"), in connection with any action to foreclose any Mortgage, or any action brought under the Loan Agreement, the Notes, the Mortgage, the Security Agreement, or any other Security Documents or any other Loan Document; and (b) in the event any suit is brought on any Loan Document or concerning the Obligations as a part of judicial proceedings to foreclose any Mortgage, any judgment obtained in such suit shall by its terms constitute a lien on, and shall be enforced only against Maker (excluding Trio), any property of Maker (excluding Trio), the Oil and Gas Interests, any other property conveyed or secured by the Mortgages (together with the income therefrom, any funds held by the Agent or the Holders pursuant to this Agreement, insurance and condemnation proceeds and escrow and security deposits) and any other Property of Maker (excluding Trio) serving as Collateral for the Loans, and not against any assets or property of Trio or its respective officers, directors, shareholders or partners or any or them; provided, however, that Trio shall be fully and personally liable for (i) any breach of any covenant, representation, agreement or condition contained in Sections 3.1 and 6.12 of the Loan Agreement relating to Environmental Law Requirements which occurs during the period, if any, that Trio or Trio's Affiliate acts as operator of the Oil and Gas Interests or other Collateral or otherwise directly engages in the operation, management or development of the Oil and Gas Interests or other Collateral, (ii) any fraud or material misrepresentation made by Trio if Trio knew or, with the exercise of due diligence, should have known of its falseness, (iii) any willful misapplication of any insurance proceeds, or condemnation awards, or of any production proceeds (including without limitation, ORR Interest proceeds), Net Cash Flow or other amounts by such Partner(s), which amounts were required by the Loan Agreement, the Notes, the Mortgages or the ORRI Conveyances to be paid or applied in a specified manner with respect to the Oil and Gas Interests or other Collateral, or (iv) any distributions or other payments made to, by or with the approval of Trio in violation of Section 4.1 of the Loan Agreement. Nothing contained in this Section 13 shall be deemed to limit the liability of Maker (other than Trio) with respect to its Obligations or constitute a release or impairment of the Obligations, or the Liens of the Mortgages and other Security Documents on the Oil and Gas Interests and other Collateral, or shall preclude TCW or the Agent from obtaining or enforcing any judgment against Maker or from foreclosing the Mortgages in case of any Default, or preclude TCW, Agent or any Holder from enforcing any of the other rights of TCW, Agent or any Holder under the Loan Agreement, or from enforcing any of the rights of TCW, the Agent, or any Holder against any Person other than Trio at any time liable (under any guaranty, bond, policy of insurance or otherwise) for the payment of the Obligations or for the performance and observance of any of the covenants, agreements and conditions contained in this Agreement, the Notes, the Mortgages or the other Loan Documents. 13. Joint and Several Liability. Subject to Section 12 above, if the Maker consists of more than one person or entity, the obligations of Maker under this Note shall be joint and several between and among such persons and entities, such that each such person or entity shall be fully responsible for the Maker's full performance of its obligations hereunder. 14. Number and Gender. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 15. Headings. Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note. 16. CHOICE OF LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE LAWS OF THE UNITED STATES OF AMERICA. 17. Amendment. The terms of this Note are subject to amendment only in the manner provided in the Term Loan Agreement. 18. Conflicts. Notwithstanding anything to the contrary contained here within, if any of the express terms and conditions of this Note conflict with the express terms and conditions contained within the Term Loan Agreement, the Term Loan Agreement shall control. IN WITNESS WHEREOF, Maker has caused its duly authorized representative to execute this Note as of the date first above written. SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership By: HALLADOR PETROLEUM COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President TRIO PETROLEUM, INC., a California corporation By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PRODUCTION COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President HALLADOR PETROLEUM COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President This Note has not been registered under the Securities Act of 1933, as amended, or registered or qualified under any state securities laws. This Note has been acquired for investment and may not be sold, transferred, pledged or hypothecated unless the proposed transaction does not require registration or qualification under federal or state securities laws. EX-10 8 SECURED PROMISSORY NOTE $767,893.99 April 23, 1998 1. Principal. For value received, SANTA BARBARA PARTNERS, an Oklahoma general partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation, HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM, INC., a California corporation (collectively, "Maker"), jointly and severally promise to pay to the order of THE TCW COMMINGLED DEBT AND ROYALTY FUND IIIB, a California Limited Partnership ("Holder"), the principal sum of Seven Hundred Sixty-Seven Thousand Eight Hundred Ninety-Three and Ninety-Nine/Hundredths Dollars ($767,893.99) together with accrued interest from the date of disbursement on the unpaid principal until paid in full at the rates and times as set forth herein. This Secured Promissory Note (the "Note") is issued in connection with that certain Term Loan Agreement dated as of May 25, 1990 by and among Borrower, Trust Company of the West, a California trust company, in the capacities set forth therein ("TCW"), and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (as heretofore or hereafter amended, modified or supplemented, from time to time, the "Term Loan Agreement") and replaces the Amended Secured Promissory Note dated as of May 25, 1990 executed by Borrower, as Maker, in favor of Holder. As used herein, the term "Holder" shall mean Holder and any subsequent holder of this Note, whichever is applicable from time to time. Capitalized terms used herein without definition shall have the meanings set forth in the Term Loan Agreement. 2. Maturity Date. (a) The unpaid principal balance hereof, together with all unpaid interest accrued thereon, and all other amounts payable by Maker under the terms of the Loan Documents shall be due and payable on June 1, 1999 (the "Maturity Date") unless sooner paid or as otherwise provided herein or in the Term Loan Agreement. (b) If the Maturity Date should fall on a day other than a Business Day, payment of the outstanding principal and all other amounts due under the terms hereof shall be made on the immediately preceding Business Day and such reduction of time shall be included in computing any interest in respect of such payment. 3. Prepayment. Upon not less than thirty (30) Business Days' prior notice in writing to Holder, Maker may, on any Monthly Payment Date (as defined below) prior to the Maturity Date, prepay all or, in an amount not less than $100,000 in the aggregate for all of the Secured Promissory Notes of even date herewith executed by Maker, any part of the outstanding principal balance of this Note together with all interest accrued on the principal amount of such prepayment to the date thereof without premium or penalty. 4. Interest Rate; Calculation. (a) Interest shall accrue from the date hereof until the Maturity Date on the unpaid principal amount at the rate of nine percent (9%) per annum. Any principal or interest payments not paid when due, whether on the Maturity Date or any Monthly Payment Date, by notice of prepayment, by acceleration or otherwise, shall bear interest at the rate of the lesser of sixteen percent (16%) per annum or the maximum rate permitted by law. (b) Interest shall be computed on the basis of a 360-day year and on the actual number of days elapsed in any quarter with respect to periods of less than one Calendar Quarter. 5. Payment of Principal and Interest. On the final Business Day of each calendar month (the "Monthly Payment Date"), commencing on May 29, 1998, Maker shall make a payment to Holder in the amount of Twenty Thousand Three Hundred Ninety and No/Hundredth Dollars ($20,390.00) ("Monthly Payment"). Each such Monthly Payment shall be applied, first, to the amount of all accrued and unpaid interest due hereunder, and second, to the payment of principal. 6. No Deductions. All payments of principal and interest on this Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker. Maker will pay the amounts necessary, such that the gross amount of the principal and interest received by Holder is not less than that required by this Note. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing to the contrary, Holder pays such taxes, Maker will reimburse Holder for the amount paid. Maker will furnish Holder official tax receipts or other evidence of payment of all taxes. 7. Manner of Payment. All payments of principal and interest hereunder shall be made to Holder in immediately available funds at Sanwa Bank California, ABA Routing No. 122003516, Trust Operations Center, 1977 Saturn Street, Monterey Park, California 91754 (for credit to the account of Trust Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire Transfer Center) or at such other place and in such other manner as shall be designated by Holder in writing in accordance with the Term Loan Agreement. Payments shall be deemed received by Holder on the date of transfer if received by such payee bank or other designee of Holder duly appointed in accordance with the Term Loan Agreement, at or before 11:30 a.m. Los Angeles time on the date of transfer. Payments received after that time shall be deemed received by the following Business Day. All payments received by Agent on behalf of Holder shall be applied in the manner set forth in Section 5 above. 8. Security. This Note is one of Maker's Secured Promissory Notes issued in connection with and entitled to the benefits under the Term Loan Agreement to which reference is hereby made for a complete statement of the terms and conditions under which the Loan evidenced hereby was made. This Note is secured by and entitled to the benefits of certain security agreements, deeds of trust, mortgages, financing statements and other documents delivered pursuant to and referred to in the Term Loan Agreement, including, without limitation, the following: that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 1, 1990, executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for the benefit of Holder and other entities described therein, and recorded May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California, as amended, creating a lien on, and security interest in, certain real and personal property described therein and the production and sales of proceeds therefrom or attributable thereto and that certain Security Agreement executed by Borrower encumbering certain personal property of Borrower described therein. 9. Remedies. Upon the occurrence of a Default, as defined in the Term Loan Agreement, the entire outstanding balance of the principal amount hereof shall immediately become due and payable in the manner, upon the conditions and with the effect provided in the Term Loan Agreement, and, in addition, Holder may, pursuant to the Loan Agreement, exercise all other rights and remedies available to it hereunder or under any or all of the Loan Documents. No delay or omission on the part of Holder hereof in exercising any right under this Note or under any of the Loan Documents shall operate as a waiver of such right. 10. Waiver. Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates, and any other maturity date or the time for payment of any installment due hereunder, accept additional security, release any party liable hereunder and release any security now or hereafter securing this Note. Maker further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note. 11. Attorneys' Fees. If this Note is not paid when due or if any Default (as defined in the Term Loan Agreement) occurs, Maker promises to pay all costs of enforcement and collection, including, but not limited to, Holder's reasonable attorneys' fees and costs, whether or not any action or proceeding is brought to enforce the provisions hereof. 13. Severability. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 13. Limitation of Liability. Except as specifically set forth to the contrary in the Loan Agreement, this Note or other Loan Documents, (a) TCW and the Holders shall not seek, or be entitled to, nor shall any Partner be liable for, any judgment for a deficiency or other money judgment against Trio Petroleum, Inc. ("Trio"), in connection with any action to foreclose any Mortgage, or any action brought under the Loan Agreement, the Notes, the Mortgage, the Security Agreement, or any other Security Documents or any other Loan Document; and (b) in the event any suit is brought on any Loan Document or concerning the Obligations as a part of judicial proceedings to foreclose any Mortgage, any judgment obtained in such suit shall by its terms constitute a lien on, and shall be enforced only against Maker (excluding Trio), any property of Maker (excluding Trio), the Oil and Gas Interests, any other property conveyed or secured by the Mortgages (together with the income therefrom, any funds held by the Agent or the Holders pursuant to this Agreement, insurance and condemnation proceeds and escrow and security deposits) and any other Property of Maker (excluding Trio) serving as Collateral for the Loans, and not against any assets or property of Trio or its respective officers, directors, shareholders or partners or any or them; provided, however, that Trio shall be fully and personally liable for (i) any breach of any covenant, representation, agreement or condition contained in Sections 3.1 and 6.12 of the Loan Agreement relating to Environmental Law Requirements which occurs during the period, if any, that Trio or Trio's Affiliate acts as operator of the Oil and Gas Interests or other Collateral or otherwise directly engages in the operation, management or development of the Oil and Gas Interests or other Collateral, (ii) any fraud or material misrepresentation made by Trio if Trio knew or, with the exercise of due diligence, should have known of its falseness, (iii) any willful misapplication of any insurance proceeds, or condemnation awards, or of any production proceeds (including without limitation, ORR Interest proceeds), Net Cash Flow or other amounts by such Partner(s), which amounts were required by the Loan Agreement, the Notes, the Mortgages or the ORRI Conveyances to be paid or applied in a specified manner with respect to the Oil and Gas Interests or other Collateral, or (iv) any distributions or other payments made to, by or with the approval of Trio in violation of Section 4.1 of the Loan Agreement. Nothing contained in this Section 13 shall be deemed to limit the liability of Maker (other than Trio) with respect to its Obligations or constitute a release or impairment of the Obligations, or the Liens of the Mortgages and other Security Documents on the Oil and Gas Interests and other Collateral, or shall preclude TCW or the Agent from obtaining or enforcing any judgment against Maker or from foreclosing the Mortgages in case of any Default, or preclude TCW, Agent or any Holder from enforcing any of the other rights of TCW, Agent or any Holder under the Loan Agreement, or from enforcing any of the rights of TCW, the Agent, or any Holder against any Person other than Trio at any time liable (under any guaranty, bond, policy of insurance or otherwise) for the payment of the Obligations or for the performance and observance of any of the covenants, agreements and conditions contained in this Agreement, the Notes, the Mortgages or the other Loan Documents. 14. Interest Rate Limitation. It is the intent of Maker and Holder in the execution of this Note and all other instruments securing this Note that the loan evidenced hereby comply with the restrictions of applicable usury law from time to time. In furtherance thereof, Maker and Holder stipulate and agree that none of the terms and provisions contained herein or in any of the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Maker nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of this Note or any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions herein or in any of the Loan Documents which may be in conflict or apparent conflict herewith. TCW and Holders expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of this Note or any Obligation is accelerated. If (a) the maturity of this Note or of any Obligation is accelerated for any reason or (b) TCW or any other Holder of any or all of the Notes or the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Notes or the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of this Note or, at TCW's or such Holder's option, promptly returned to Maker or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, TCW, Holders and Maker (and any other payors thereof) shall, to the greatest extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. 15. Joint and Several Liability. Subject to Section 13 above, if the Maker consists of more than one person or entity, the obligations of Maker under this Note shall be joint and several between and among such persons and entities, such that each such person or entity shall be fully responsible for the Maker's full performance of its obligations hereunder. 16. Number and Gender. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 17. Headings. Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note. 18. CHOICE OF LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE LAWS OF THE UNITED STATES OF AMERICA. 19. Amendment. The terms of this Note are subject to amendment only in the manner provided in the Term Loan Agreement. 20. Conflicts. Notwithstanding anything to the contrary contained here within, if any of the express terms and conditions of this Note conflict with the express terms and conditions contained within the Term Loan Agreement, the Term Loan Agreement shall control. IN WITNESS WHEREOF, Maker has caused its duly authorized representative to execute this Note as of the date first above written. SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership By: HALLADOR PETROLEUM COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President TRIO PETROLEUM, INC., a California corporation By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PRODUCTION COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President HALLADOR PETROLEUM COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President This Note has not been registered under the Securities Act of 1933, as amended, or registered or qualified under any state securities laws. This Note has been acquired for investment and may not be sold, transferred, pledged or hypothecated unless the proposed transaction does not require registration or qualification under federal or state securities laws. EX-10 9 SECURED PROMISSORY NOTE $612,395.47 April 23, 1998 1. Principal. For value received, SANTA BARBARA PARTNERS, an Oklahoma general partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation, HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM, INC., a California corporation (collectively, "Maker"), jointly and severally promise to pay to the order of BANKERS TRUST COMPANY, a New York corporation, as Trustee under a Trust Agreement dated as of January 1, 1956, with GTE Service Corporation and others and amended and restated effective March 1, 1981 ("Holder"), the principal sum of Six Hundred Twelve Thousand Three Hundred Ninety-Five and Forty-Seven/Hundredths Dollars ($612,395.47) together with accrued interest from the date of disbursement on the unpaid principal until paid in full at the rates and times as set forth herein. This Secured Promissory Note (the "Note") is issued in connection with that certain Term Loan Agreement dated as of May 25, 1990 by and among Borrower, Trust Company of the West, a California trust company, in the capacities set forth therein ("TCW"), and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (as heretofore or hereafter amended, modified or supplemented, from time to time, the "Term Loan Agreement") and replaces the Amended Secured Promissory Note dated as of May 25, 1990 executed by Borrower, as Maker, in favor of Holder. As used herein, the term "Holder" shall mean Holder and any subsequent holder of this Note, whichever is applicable from time. Capitalized terms used herein without definition shall have the meanings set forth in the Term Loan Agreement. 2. Maturity Date. (a) The unpaid principal balance hereof, together with all unpaid interest accrued thereon, and all other amounts payable by Maker under the terms of the Loan Documents shall be due and payable on June 1, 1999 (the "Maturity Date") unless sooner paid or as otherwise provided herein or in the Term Loan Agreement. (b) If the Maturity Date should fall on a day other than a Business Day, payment of the outstanding principal and all other amounts due under the terms hereof shall be made on the immediately preceding Business Day and such reduction of time shall be included in computing any interest in respect of such payment. 3. Prepayment. Upon not less than thirty (30) Business Days' prior notice in writing to Holder, Maker may, on any Monthly Payment Date (as defined below) prior to the Maturity Date, prepay all or, in an amount not less than $100,000 in the aggregate for all of the Secured Promissory Notes of even date herewith executed by Maker, any part of the outstanding principal balance of this Note together with all interest accrued on the principal amount of such prepayment to the date thereof without premium or penalty. 4. Interest Rate; Calculation. (a) Interest shall accrue from the date hereof until the Maturity Date on the unpaid principal amount at the rate of nine percent (9%) per annum. Any principal or interest payments not paid when due, whether on the Maturity Date or any Monthly Payment Date, by notice of prepayment, by acceleration or otherwise, shall bear interest at the rate of the lesser of sixteen percent (16%) per annum or the maximum rate permitted by law. (b) Interest shall be computed on the basis of a 360-day year and on the actual number of days elapsed in any quarter with respect to periods of less than one Calendar Quarter. 5. Payment of Principal and Interest. On the final Business Day of each calendar month (the "Monthly Payment Date"), commencing on May 29, 1998, Maker shall make a payment to Holder in the amount of Sixteen Thousand Two Hundred Sixty and No/Hundredth Dollars ($16,260.00) ("Monthly Payment"). Each such Monthly Payment shall be applied, first, to the amount of all accrued and unpaid interest due hereunder, and second, to the payment of principal. 6. No Deductions. All payments of principal and interest on this Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker. Maker will pay the amounts necessary, such that the gross amount of the principal and interest received by Holder is not less than that required by this Note. All stamp and documentary taxes shall be paid by Maker. If, notwithstanding the foregoing to the contrary, Holder pays such taxes, Maker will reimburse Holder for the amount paid. Maker will furnish Holder official tax receipts or other evidence of payment of all taxes. 7. Manner of Payment. All payments of principal and interest hereunder shall be made to Holder in immediately available funds at Sanwa Bank California, ABA Routing No. 122003516, Trust Operations Center, 1977 Saturn Street, Monterey Park, California 91754 (for credit to the account of Trust Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire Transfer Center) or at such other place and in such other manner as shall be designated by Holder in writing in accordance with the Term Loan Agreement. Payments shall be deemed received by Holder on the date of transfer if received by such payee bank or other designee of Holder duly appointed in accordance with the Term Loan Agreement, at or before 11:30 a.m. Los Angeles time on the date of transfer. Payments received after that time shall be deemed received by the following Business Day. All payments received by Agent on behalf of Holder shall be applied in the manner set forth in Section 5 above. 8. Security. This Note is one of Maker's Secured Promissory Notes issued in connection with and entitled to the benefits under the Term Loan Agreement to which reference is hereby made for a complete statement of the terms and conditions under which the Loan evidenced hereby was made. This Note is secured by and entitled to the benefits of certain security agreements, deeds of trust, mortgages, financing statements and other documents delivered pursuant to and referred to in the Term Loan Agreement, including, without limitation, the following: that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 1, 1990, executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for the benefit of Holder and other entities described therein, and recorded May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California, as amended, creating a lien on, and security interest in, certain real and personal property described therein and the production and sales of proceeds therefrom or attributable thereto and that certain Security Agreement executed by Borrower encumbering certain personal property of Borrower described therein. 9. Remedies. Upon the occurrence of a Default, as defined in the Term Loan Agreement, the entire outstanding balance of the principal amount hereof shall immediately become due and payable in the manner, upon the conditions and with the effect provided in the Term Loan Agreement, and, in addition, Holder may, pursuant to the Loan Agreement, exercise all other rights and remedies available to it hereunder or under any or all of the Loan Documents. No delay or omission on the part of Holder hereof in exercising any right under this Note or under any of the Loan Documents shall operate as a waiver of such right. 10. Waiver. Maker hereby waives diligence, presentment, protest and demand, notice of protest, dishonor and nonpayment of this Note and expressly agrees that, without in any way affecting the liability of Maker hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates, and any other maturity date or the time for payment of any installment due hereunder, accept additional security, release any party liable hereunder and release any security now or hereafter securing this Note. Maker further waives, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any deed of trust, security agreement, lease assignment, guaranty or other agreement now or hereafter securing this Note. 11. Attorneys' Fees. If this Note is not paid when due or if any Default (as defined in the Term Loan Agreement) occurs, Maker promises to pay all costs of enforcement and collection, including, but not limited to, Holder's reasonable attorneys' fees and costs, whether or not any action or proceeding is brought to enforce the provisions hereof. 12. Severability. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. 13. Limitation of Liability. Except as specifically set forth to the contrary in the Loan Agreement, this Note or other Loan Documents, (a) TCW and the Holders shall not seek, or be entitled to, nor shall any Partner be liable for, any judgment for a deficiency or other money judgment against Trio Petroleum, Inc. ("Trio"), in connection with any action to foreclose any Mortgage, or any action brought under the Loan Agreement, the Notes, the Mortgage, the Security Agreement, or any other Security Documents or any other Loan Document; and (b) in the event any suit is brought on any Loan Document or concerning the Obligations as a part of judicial proceedings to foreclose any Mortgage, any judgment obtained in such suit shall by its terms constitute a lien on, and shall be enforced only against Maker (excluding Trio), any property of Maker (excluding Trio), the Oil and Gas Interests, any other property conveyed or secured by the Mortgages (together with the income therefrom, any funds held by the Agent or the Holders pursuant to this Agreement, insurance and condemnation proceeds and escrow and security deposits) and any other Property of Maker (excluding Trio) serving as Collateral for the Loans, and not against any assets or property of Trio or its respective officers, directors, shareholders or partners or any or them; provided, however, that Trio shall be fully and personally liable for (i) any breach of any covenant, representation, agreement or condition contained in Sections 3.1 and 6.12 of the Loan Agreement relating to Environmental Law Requirements which occurs during the period, if any, that Trio or Trio's Affiliate acts as operator of the Oil and Gas Interests or other Collateral or otherwise directly engages in the operation, management or development of the Oil and Gas Interests or other Collateral, (ii) any fraud or material misrepresentation made by Trio if Trio knew or, with the exercise of due diligence, should have known of its falseness, (iii) any willful misapplication of any insurance proceeds, or condemnation awards, or of any production proceeds (including without limitation, ORR Interest proceeds), Net Cash Flow or other amounts by such Partner(s), which amounts were required by the Loan Agreement, the Notes, the Mortgages or the ORRI Conveyances to be paid or applied in a specified manner with respect to the Oil and Gas Interests or other Collateral, or (iv) any distributions or other payments made to, by or with the approval of Trio in violation of Section 4.1 of the Loan Agreement. Nothing contained in this Section 13 shall be deemed to limit the liability of Maker (other than Trio) with respect to its Obligations or constitute a release or impairment of the Obligations, or the Liens of the Mortgages and other Security Documents on the Oil and Gas Interests and other Collateral, or shall preclude TCW or the Agent from obtaining or enforcing any judgment against Maker or from foreclosing the Mortgages in case of any Default, or preclude TCW, Agent or any Holder from enforcing any of the other rights of TCW, Agent or any Holder under the Loan Agreement, or from enforcing any of the rights of TCW, the Agent, or any Holder against any Person other than Trio at any time liable (under any guaranty, bond, policy of insurance or otherwise) for the payment of the Obligations or for the performance and observance of any of the covenants, agreements and conditions contained in this Agreement, the Notes, the Mortgages or the other Loan Documents. 14. Interest Rate Limitation. It is the intent of Maker and Holder in the execution of this Note and all other instruments securing this Note that the loan evidenced hereby comply with the restrictions of applicable usury law from time to time. In furtherance thereof, Maker and Holder stipulate and agree that none of the terms and provisions contained herein or in any of the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. Neither Maker nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of this Note or any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this section shall control over all other provisions herein or in any of the Loan Documents which may be in conflict or apparent conflict herewith. TCW and Holders expressly disavow any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of this Note or any Obligation is accelerated. If (a) the maturity of this Note or of any Obligation is accelerated for any reason or (b) TCW or any other Holder of any or all of the Notes or the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Notes or the Obligations to an amount in excess of that permitted to be charged by applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of this Note or, at TCW's or such Holder's option, promptly returned to Maker or the other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable law, TCW, Holders and Maker (and any other payors thereof) shall, to the greatest extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof and (iii) amortize, prorate, allocate and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable law in order to lawfully charge the maximum amount of interest permitted under applicable law. 15. Joint and Several Liability. Subject to Section 13 above, if the Maker consists of more than one person or entity, the obligations of Maker under this Note shall be joint and several between and among such persons and entities, such that each such person or entity shall be fully responsible for the Maker's full performance of its obligations hereunder. 16. Number and Gender. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 17. Headings. Headings at the beginning of each numbered Paragraph of this Note are intended solely for convenience and are not to be deemed or construed to be a part of this Note. 18. CHOICE OF LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE LAWS OF THE UNITED STATES OF AMERICA. 19. Amendment. The terms of this Note are subject to amendment only in the manner provided in the Term Loan Agreement. 20. Conflicts. Notwithstanding anything to the contrary contained here within, if any of the express terms and conditions of this Note conflict with the express terms and conditions contained within the Term Loan Agreement, the Term Loan Agreement shall control. IN WITNESS WHEREOF, Maker has caused its duly authorized representative to execute this Note as of the date first above written. SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PETROLEUM, LLP, a Colorado limited liability partnership By: HALLADOR PETROLEUM COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President TRIO PETROLEUM, INC., a California corporation By:/S/CHARLES C. HORACE Charles C. Horace President HALLADOR PRODUCTION COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President HALLADOR PETROLEUM COMPANY, a Colorado corporation By:/S/VICTOR P. STABIO Victor P. Stabio President This Note has not been registered under the Securities Act of 1933, as amended, or registered or qualified under any state securities laws. This Note has been acquired for investment and may not be sold, transferred, pledged or hypothecated unless the proposed transaction does not require registration or qualification under federal or state securities laws. EX-10 10 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 30th Floor Los Angles, California 90017 Attention: David A. Lamb, Esq. SECOND AMENDMENT TO AMENDED DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT, PERSONAL PROPERTY INCLUDING HYDROCARBONS, ASSIGNMENT OF PRODUCTION AND FIXTURE FILING THIS SECOND AMENDMENT TO AMENDED DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT (PERSONAL PROPERTY INCLUDING HYDROCARBONS), ASSIGNMENT OF PRODUCTION AND FIXTURE FILING (this "Second Amendment") is made on May 1, 1998 by Santa Barbara Partners, an Oklahoma general partnership ("Trustor"), with an address of c/o Hallador Production Company, 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264 to RONALD E. ROBISON, an individual whose address is c/o Trust Company of the West, 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017, as Trustee ("Trustee") for the benefit of (i) TRUST COMPANY OF THE WEST, a California trust company, as collateral agent for the equal and ratable benefit of and on behalf of the Lenders named in the Amended Deed of Trust (as defined below) ("Agent") with an address at 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017, Attention: Arthur R. Carlson, and (ii) any other agent designated by the Lenders pursuant to Section 8.13 of the Amended Deed of Trust or its successor as collateral agent for the Lenders hereunder (Agent and any other such collateral agent appointed by the Lenders pursuant to Section 8.13, in such capacity, or such successor, are collectively referred to herein as "Secured Party"; Agent and Secured Party shall be collectively referred to herein as "Beneficiary"). WHEREAS, Trustor executed and delivered to Beneficiary that certain Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of May 25, 1990, but effective on May 1, 1990 (the "Deed of Trust"), and recorded on May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa Barbara County, California to secure certain obligations created under that certain Term Loan Agreement dated as of May 25, 1990 between Trustor, Trust Company of the West, in the capacities described therein, and The TCW Commingled Debt and Royalty Fund IIIB, a California Limited Partnership (the "Loan Agreement"); WHEREAS, in connection with certain amendments to the Loan Agreement, the Deed of Trust was amended by that certain First Amendment to and Partial Release of Deed of Trust, Mortgage, Security Agreement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated April 10, 1992 between Trustor, Agent and Secured Party (the "First Amendment to Deed of Trust") and recorded on April 10, 1992 as Instrument No. 92-026155 in the Official Records of Santa Barbara County, California (the Deed of Trust as amended by the First Amendment to Deed of Trust shall be referred to herein as the "Amended Deed of Trust"). Capitalized terms appearing herein without definition shall have the meanings set forth in the Amended Deed of Trust; WHEREAS, pursuant to a First Supplement to Amended Deed of Trust, Mortgage, Security Agreement, Financing Statement (Personal Property Including Hydrocarbons), Assignment of Production and Fixture Filing dated as of June 25, 1992 ("First Supplement") and recorded November 18, 1992 as Instrument No. 92-092379 in the Official Records of Santa Barbara County, California, the Amended Deed of Trust was amended to add certain additional oil, gas and mineral properties; WHEREAS, the Holders of those certain Amended Secured Promissory Notes dated May 25, 1990 and executed by Trustor, as Maker (as amended, the "Amended Notes"), pursuant to the Loan Agreement have agreed to cancel the Amended Notes in exchange for certain Secured Promissory Notes dated as of the date hereof and executed by those parties set forth below; NOW THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, Trustor and Beneficiary hereby agree to amend the Amended Deed of Trust, as amended by the First Supplement, as follows: 1. Amended Obligations. Section 1.01(A) of the Deed of Trust entitled "Obligations" is hereby deleted and shall be replaced with the following: "A. Payment of all indebtedness and liabilities and the performance of each and every obligation, covenant and agreement of every kind and character now existing or hereafter arising to any or all of the Lenders (including, without limitation, those Lenders listed below) pursuant to the Term Loan Agreement as modified by the First Amendment to Term Loan Agreement dated as of May 25, 1990, and Other Loan Documents, dated as of August 1, 1990, between Trustor and TCW, the Agreement Regarding Term Loan Agreement dated as of October 1, 1991 between Trustor, Hallador Production Company ("Production"), Trio Petroleum, Inc. ("Trio"), and TCW, and the Second Amendment to Term Loan Agreement dated April 10, 1992, between Trustor, TCW and TCW DR III ROYALTY PARTNERSHIP, a California Limited Partnership ("DR III"), those certain Secured Promissory Notes dated as of April 23, 1998, in the aggregate original principal amount of Three Million Seven Hundred Sixty-Six Thousand Five Hundred Twenty and No/Hundredths Dollars ($3,766,520.00) made jointly and severally by Trustor, Hallador Petroleum Company ("Company"), Hallador Petroleum LLP ("LLP"), Production and Trio in favor of the first four Payees listed below, that certain Secured Promissory Note dated as of April 23, 1998, in the original principal amount of One Hundred Twenty-Two Thousand Five Hundred and No/Hundredths Dollars ($122,500.00) made jointly and severally by Company, LLP, Production, and Trio in favor of DR III, and the other Loan Documents, as well as any amendments, extensions, replacements and renewals thereof, together with the payment of all sums advanced by or on behalf of Trustee or Secured Party to protect the Collateral with interest on such advanced sums at the rate of the lesser of sixteen percent (16%) or the maximum rate permitted by law: Face Amounts Payee of Notes TRUST COMPANY OF THE WEST, as Trustee $1,330,376.30 of the TCW Commingled Debt and Royalty Fund IIIA established pursuant to Declaration of Trust dated as of October 15, 1989 THE TCW COMMINGLED DEBT AND ROYALTY $ 767,893.99 FUND IIIB, a California Limited Partnership BANKERS TRUST COMPANY, a New York $ 612,395.47 corporation, as Trustee under a Trust Agreement dated as of January 1, 1956, with GTE Service Corporation and others, and amended and restated effective March 1, 1981 TRUST COMPANY OF THE WEST, as $1,055,854.24 ancillary trustee under the Ancillary Trust Agreement dated as of October 16, 1989 between U S West, Inc., Boston Safe Deposit and Trust Company and Trust Company of the West. TCW DR III ROYALTY PARTNERSHIP, $ 122,500.00 a California Limited Partnership 2. Counterparts. This Second Amendment may be executed in any number of multiple counterparts, each of which shall be deemed to be an original instrument, but all of which shall together constitute but one instrument. 3. Ratification. The Amended Deed of Trust, as supplemented by the First Supplement and amended by this Second Amendment, is hereby ratified, confirmed and approved in its entirety and shall continue in full force and effect uninterrupted and unabated. IN WITNESS WHEREOF, Trustor has executed this Second Amendment on the date first written above. TRUSTOR: SANTA BARBARA PARTNERS, an Oklahoma general partnership By: HALLADOR PRODUCTION COMPANY, a Colorado corporation, its General Partner By:/S/VICTOR P. STABIO Victor P. Stabio President By: TRIO PETROLEUM, INC. a California corporation, its General Partner By: /S/CHARLES C. HORACE Charles C. Horace President AGENT: TRUST COMPANY OF THE WEST, a California trust company, as collateral agent for the equal and ratable benefit of the Lender By: /S/ARTHUR R. CARLSON Arthur R. Carlson Managing Director By: /S/THOMAS F. MEHLBERG Thomas F. Mehlberg Managing Director CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT State of California) ) County of Kern ) On April 22, 1998, before me, Marcia K. Lundy, Notary Public personally appeared Charles C. Horace XX personally known to me - OR - ____proved to me on the basis of satisfactory evidence to be the person(s) whose name is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their Authorized capacity, and that by his/her/their signature on the instrument the person(s) executed the instrument. /S/MARCIA K. LUNDY Signature of Notary *******OPTIONAL SECTION******* CAPACITY CLAIMED BY SIGNER Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document. ____ Individual ____ Corporate Officer(s) XXX President Title(s) ____ Partner(s) ____ Limited ____ General ____ Attorney-In-Fact ____ Trustee(s) ____ Guardian/Conservator ____ Other: ____________________ ___________________________ ___________________________ SIGNER IS REPRESENTING: Name of Persons(s) or Entity(ies) Trio Petroleum, Inc. ________________________________ ******** OPTIONAL SECTION******** THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED AT RIGHT: _____________________________________ Though the data requested here is not required by law, it could prevent fraudulent reattachment of this form. TITLE OR TYPE OF DOCUMENT ____________________________________________ NUMBER OF PAGES __________ DATE OF DOCUMENT _________________________ SIGNER(S) OTHER THAN NAMED ABOVE _____________________________________ CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT State of California ) ) County of Los Angeles) On April 23, 1998, before me, Phil Abejar, Notary Public personally appeared Arthur R. Carlson, Managing Director and Thomas F. Mehlberg Managing Director of Trust Company of the West. XX personally known to me - OR - ____proved to me on the basis of satisfactory evidence to be the person(s) whose name is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their Authorized capacity, and that by his/her/their signature on the instrument the person(s) executed the instrument. WITNESS my hand and official seal. /S/PHIL ABEJAR Signature of Notary *******OPTIONAL SECTION******* CAPACITY CLAIMED BY SIGNER Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document. ____ Individual ____ Corporate Officer(s) __________________ Title(s) ____ Partner(s) ____ Limited ____ General ____ Attorney-In-Fact ____ Trustee(s) ____ Guardian/Conservator ____ Other: ____________________ ___________________________ ___________________________ SIGNER IS REPRESENTING: Name of Persons(s) or Entity(ies) Trio Petroleum, Inc. ________________________________ ******** OPTIONAL SECTION******** THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED AT RIGHT: _____________________________________ Though the data requested here is not required by law, it could prevent fraudulent reattachment of this form. TITLE OR TYPE OF DOCUMENT ____________________________________________ NUMBER OF PAGES __________ DATE OF DOCUMENT _________________________ CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT State of California ) ) County of Los Angeles) On April 23, 1998, before me, Phil Abejar, Notary Public personally appeared Victor P. Stabio, President of Hallador Production Company __ personally known to me - OR - xxx_proved to me on the basis of satisfactory evidence to be the person(s) whose name is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their Authorized capacity, and that by his/her/their signature on the instrument the person(s) executed the instrument. WITNESS my hand and official seal. /S/PHIL ABEJAR Signature of Notary *******OPTIONAL SECTION******* CAPACITY CLAIMED BY SIGNER Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document. ____ Individual ____ Corporate Officer(s) _____________________ Title(s) ____ Partner(s) ____ Limited ____ General ____ Attorney-In-Fact ____ Trustee(s) ____ Guardian/Conservator ____ Other: ____________________ ___________________________ ___________________________ SIGNER IS REPRESENTING: Name of Persons(s) or Entity(ies) Trio Petroleum, Inc. ________________________________ ******** OPTIONAL SECTION******** THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED AT RIGHT: _____________________________________ Though the data requested here is not required by law, it could prevent fraudulent reattachment of this form. TITLE OR TYPE OF DOCUMENT ____________________________________________ NUMBER OF PAGES __________ DATE OF DOCUMENT _________________________ -----END PRIVACY-ENHANCED MESSAGE-----