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, 1997
[ ] 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 or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264
(Address of principal executive offices)
303-839-5504 FAX: 303-832-3013
(Issuer's telephone number)
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 14, 1997: 7,093,150
This report contains eight pages and the exhibit index is on the last
page.
<PAGE>
PART I. FINANCIAL INFORMATION:
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996*
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,901 $ 2,898
Short-term investments 500 900
Accounts receivable-
Oil and gas sales 360 505
Well operations 330 365
-------- --------
Total current assets 3,091 4,668
-------- --------
Oil and gas properties (full cost
accounting), at cost:
Unproved properties 1,381 711
Evaluated properties 40,665 39,527
Less - accumulated depreciation,
depletion, amortization (32,977) (32,691)
-------- --------
9,069 7,547
Other assets 185 165
-------- --------
$ 12,345 $ 12,380
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 254 $ 317
Oil and gas sales payable 174 169
Debt with recourse only to the
South Cuyama Field 564 590
-------- --------
Total current liabilities 992 1,076
-------- --------
Debt with recourse only to the
South Cuyama Field 4,785 5,231
-------- --------
Deferred bonus plan 195 178
-------- --------
Other 110 110
-------- --------
Stockholders' equity:
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 (11,869) (12,347)
-------- --------
6,263 5,785
-------- --------
$ 12,345 $ 12,380
======== ========
</TABLE>
*Derived from the Form 10-KSB.
See accompanying notes.
<PAGE>
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Oil $ 2,029 $ 2,038 $ 950 $ 1,068
Gas 167 155 74 75
NGLs 221 245 91 117
Interest 86 104 43 51
Other 35
------- ------- ------ -------
2,503 2,577 1,158 1,311
------- ------- ------ -------
Costs and expenses:
Lease operating 1,282 1,411 652 684
Depreciation, depletion
and amortization 286 284 152 143
General and
administrative 203 248 96 159
Interest 254 307 125 150
------- ------- ------ -------
2,025 2,250 1,025 1,136
------- ------- ------ -------
Net income $ 478 $ 327 $ 133 $ 175
======= ======= ====== =======
Net income per share $ .07 $ .05 $ .02 $ .02
======= ======= ====== =======
Weighted average shares
outstanding 7,093 7,145 7,093 7,145
======= ======= ====== =======
</TABLE>
See accompanying notes.
<PAGE>
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities $ 893 $ 894
------ ------
Cash flows used in investing activities:
Short-term investments 400 (2,870)
Additions to properties (1,809) (119)
Other assets (9)
------ ------
Net cash used in investing activities (1,418) (2,989)
------ ------
Cash flows used in financing activities:
Repayments of debt (472) (438)
------ ------
Net decrease in cash and cash equivalents (997) (2,533)
Cash and cash equivalents, beginning of period 2,898 3,459
------ ------
Cash and cash equivalents, end of period $ 1,901 $ 926
====== ======
</TABLE>
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 1996
Form 10-KSB. This quarterly report should be read in conjunction with
such annual report.
<PAGE>
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.
<TABLE>
<CAPTION>
1997 1996
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 106,396 $19.07 110,715 $18.41
Gas - MCF 65,800 2.53 110,980 1.40
NGLs- barrels 15,196 14.54 19,820 12.37
</TABLE>
Revenue stayed about the same for the two periods. Slightly higher oil
prices and significantly higher gas prices almost offset the reduction in
revenue resulting from declining production. Interest income declined due
to a lower level of funds available for investment.
Management expects an increase in LOE during the remaining half of the year,
compared to the first half, due to higher electricity costs associated with
the electric submersible pump program as more fully discussed below.
Slightly higher production levels during the last half of the year are also
anticipated because of the pump program.
Depreciation, depletion and amortization expense is expected to increase
during the last half of the year, compared to the first half, due to costs
associated with the Sacramento Basin prospect moving from unproved properties
to evaluated properties and therefore being subject to amortization.
General and administrative expenses are expected to increase during the last
half of the year, compared to the first half, due to the hiring of a
vice-president on July 7, 1997.
<PAGE>
QUARTER-TO-DATE COMPARISON
The table below provides sales data and average prices for the period.
<TABLE>
<CAPTION>
1997 1996
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 54,761 $17.35 55,020 $19.41
Gas - MCF 35,487 2.06 58,034 1.30
NGLs- barrels 7,807 11.65 10,272 11.46
</TABLE>
Revenue decreased slightly due to declining production and lower average oil
prices. Management expects to maintain or slightly increase the current
production levels due to the pump program discussed more fully below.
<PAGE>
OUTLOOK FOR REMAINDER OF 1997
The following discussion updates the MD&A contained in Item 6 of the 1996
Form 10-KSB and should be read in conjunction therewith.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
At June 30 and August 14, the Company has investments in unproved properties
of $1,381,000 and $1,476,000, respectively. These costs, most of which
represent high-risk, high-reward investments may or may not prove successful.
SACRAMENTO BASIN-CALIFORNIA
The first well was drilled and completed in late May and placed on production
August 4. The well is producing 800 mcf/day from the Kione zone (the Forbes
zone - the primary zone-was dry) and the gas is being sold at $2.14/mcf. Gas
reserves for this well, net to the Company's interest, are estimated to be
180,000 mcf. The Company's net revenue interest in this well, considering
the assignment discussed below, is 24%. The second well, a dry hole,
reached total depth on June 9. In late July, the Company assigned an
undivided 50% of its 60% interest to Equity Oil Company for $158,000 and a
30% carried interest through completion in the next two wells to be drilled
on or before December 31, 1997. After these two wells are drilled, the
Company is responsible for its 30% proportionate share in all future drilling
costs in the prospect. Depending on the success of the next two wells, five
to seven additional wells could be drilled during the next 18 months.
WILLISTON BASIN-NORTH DAKOTA
In the first quarter 1997, the Company entered into a joint venture (JV)
which obtained five-year leases covering 30,000 net acres in North Dakota.
The Company has a 55% profits interest in the JV and, to date, has invested
approximately $626,000; the other party contributed seismic and geological
studies for its 45% profits interest. The Company is entitled to recoup its
investment before the other joint venture partners shares in any profits.
The Company plans to sell the acreage and retain an overriding royalty
interest or carried working interest.
BIG HORN BASIN-WYOMING
In Wyoming the Company continues to acquire acreage on prospects. The
Company plans to sell a 50% interest in the Big Horn Basin to an industry
partner during the first quarter 1998. The horizontal well planned for
August 1997 has been delayed to the second quarter 1998. The Company also
plans to shoot seismic on several prospects in the Big Horn during the months
of August and September 1997.
LIQUIDITY AND CAPITAL RESOURCES
On July 21, Yorktown Energy Partners II and affiliates (Yorktown) invested
$5,000,000 in Hallador Petroleum, LLP, a newly formed limited liability
limited partnership. The Company will be the general partner and have a 70%
interest in return for contributing its net assets and Yorktown will be the
limited partners and have a 30% interest in return for its cash investment.
This additional cash, cash and short-term investments on hand and cash from
operations are expected to enable the company to meet its obligations as they
come due and fund current planned activities.
Due to the cash requirements to fund the pump program, the same level of debt
repayments on the TCW non-recourse debt during the first half of the year are
not anticipated for the last half; consequently interest expense will be
about the same during the last half of the year.
The Company plans to fully consolidate the activities of Hallador Petroleum,
LLP and present the Yorktown investment as a 30% minority interest.
CALIFORNIA OIL PRICES
As of August 14, 1997, the Company was receiving $16.58 for its California
oil production which is $.77 below the average prices received for the second
quarter of 1997 and about $3.00 below the average price received during the
calendar year 1996. Furthermore, on May 1, 1997, KOCH, the Company's
purchaser, advised that it no longer plans to pay the $.30 premium over
postings which has been the arrangement for the last three years. The
new lower pricing goes into effect November 1, 1997. The Company is
attempting to find a new purchaser who will pay a higher price than being
proposed by KOCH.
SOUTH CUYAMA FIELD
The Company is moving forward with its plan to install ten electric
submersible pumps in the South Cuyama Field (the 'Field). This entails
replacing rod pumps, which are powered by natural gas, with submersible pumps
powered by electricity. These pumps cost about $65,000 each. The Company
qualifies for a rebate program with PG&E, who supplies the electricity, which
effectively reimburses the Company $23,000 for each pump purchased. The net
cost to the Company, after the rebate, and considering the Company's 63% net
working interest, is $265,000. Some of the benefits of using electrical
pumps are (I) an increase in natural gas revenue since gas is sold as opposed
to being consumed in the Field, (ii) lower repair and maintenance expense,
(iii) increased oil and gas production because more water is being moved,
and (iv) less emissions, which results in less environmental regulation and
costs. The downside is the capital cost and the higher electricity bills;
the advantages more than offset the disadvantages.
Due to lower oil prices and the costs associated with the pump progam, no new
drilling into the Colgrove formation is planned for the remainder of 1997.
7
<PAGE>
NEW ACCOUNTING RULES
In February 1997, FAS 128 dealing with earnings per share calculations was
issued and will be effective for the 1997 year-end reporting. In addition,
during June, FAS 130 and 131 were issued dealing with comprehensive income
and segment reporting, respectively, and are required for 1998 reporting.
The adoption of 128 and 130 will have no material effect on the Company's
financial reporting. Management is evaluating the disclosure impact of FAS
131.
FUTURE RESULTS OF OPERATIONS
Assuming no success from the current exploration activities and stable
production, management projects 1997 net income to be lower than 1996
reported net income due to declining prices and higher expenses as discussed
above.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.13 -- Contribution Agreement
27 -- Financial Data Schedule; EDGAR filing only.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
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, 1997 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.
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
conolidated balance sheet and consolidated statement of income found on pages
2 and 3 of the Company's form 10-QSB for the year-to-date, and is quailifed
in its entirely by reference to such financial statements.
</LEGEND>
<CIK> 0000788965
<NAME> HALLADOR PETROLEUM COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,901
<SECURITIES> 500
<RECEIVABLES> 690
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,091
<PP&E> 42,046
<DEPRECIATION> 32,997
<TOTAL-ASSETS> 12,345
<CURRENT-LIABILITIES> 992
<BONDS> 4,785
0
0
<COMMON> 71
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,345
<SALES> 0
<TOTAL-REVENUES> 2,503
<CGS> 0
<TOTAL-COSTS> 1771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("Agreement") dated as of July 15,
1997, is entered into among Hallador Petroleum Company, a Colorado
corporation ("Hallador"), Hallador Production Company, a Colorado corporation
("Production") and the LP investors identified on the signature pages hereof
(the "LP Investors").
W I T N E S S E T H :
WHEREAS, Hallador and Production are engaged in the business of
the
exploration for and production of oil and natural gas;
WHEREAS, upon the terms and subject to the conditions set forth
herein, Hallador, Production and the LP Investors will file for record a
certificate of limited partnership and a partnership registration statement
to create Hallador Petroleum, LLP, a Colorado limited liability limited
partnership (the "Partnership") in the office of the Colorado Secretary of
State pursuant to and in accordance with the requirements of the Colorado
Uniform Limited Partnership Act, as amended; and
WHEREAS, upon the terms and subject to the conditions set forth
herein, Hallador, Production and the LP Investors desire to enter into the
Agreement of Limited Liability Limited Partnership (the "Partnership
Agreement") in the form annexed hereto as Exhibit A and to make the capital
contributions to the Partnership described herein and in the Partnership
Agreement for the purpose of having the Partnership conduct the business
currently engaged in by Hallador and Production.
NOW, THEREFORE, in consideration of the premises and of the
respective representations and warranties set forth herein and the covenants
and agreements herein contained, the parties do hereby represent, warrant,
covenant and agree as follows:
ARTICLE 1. DEFINITIONS:
Unless otherwise indicated, the following terms shall have the
following meanings for purposes of this Agreement:
"ACCOUNTS PAYABLE" shall mean all trade accounts payable, accrued
expenses and other current liabilities of Hallador and Production arising out
of the Operations or otherwise.
"ACCOUNTS RECEIVABLE" shall mean all accounts and notes
receivable
of Hallador and Production arising out of the Operations or otherwise.
"AFFILIATE" as to any Person means any other person Controlled
by,
Controlling or under common Control with such Person.
"ASSETS" shall have the meaning set forth in Section
2.2 hereof.
"ASSUMED LIABILITIES" shall have the meaning set
forth in Section 3.1 hereof.
"ASSUMPTION AGREEMENT" means the agreement of the
Partnership to assume, pay and perform all of the liabilities
and obligations of Hallador and of Production (other than the
Excluded Liabilities) as provided in Section 3.1.
"BALANCE SHEET" shall mean the consolidated balance
sheet of Hallador as of March 31, 1997, previously furnished
to the LP Investors or their agent.
"BUSINESS DAY" shall mean each day other than a
Saturday or Sunday on which banking institutions in Denver,
Colorado are not authorized or obligated by law or executive
order to close for business.
"CAPITAL ACCOUNT" shall have the meaning set forth
in Section 2.2.
"CASH" shall mean all cash and cash equivalents
(including, without limitation, obligations of the U.S.
Government) on hand, in banks or wherever located,
certificates of deposit, commercial paper and similar
instruments, such as money market instruments, owned by
Hallador and Production.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended,
or any successor statute or statutes thereto.
"CLOSING" shall have the meaning set forth in
Section 4.1.
"CLOSING DATE" shall be July 15, 1997, or such later
date as agreed to by the parties hereto; but no later than
August 30, 1997.
"CODE" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute or
statutes thereto.
"CONTRACTS" shall mean all contracts, agreements,
instruments and commitments, including, without limitation,
all mortgages on the Assets, debt instruments, loan
agreements, security agreements, promissory notes, deeds of
trust, mortgages, guarantees, indemnities, leases, licenses,
franchises, dealerships, sales contracts, supply contracts,
purchase orders, sales orders and agency, distribution,
dealership, representation and other contracts to which
Hallador and/or Production is a party or by which Hallador
and/or Production is bound or which otherwise affect the
Operations other than the Non-Assignable Contracts (as such
term is defined in Section 2.4).
"CONTROL, CONTROLLING, CONTROLLED" as to any Person
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of
such Person, whether through ownership of securities or
partnership interests, by contract or otherwise.
"CONVEYANCE DOCUMENTS" shall have the meaning set
forth in Section 4.2.
"ENVIRONMENTAL LAWS" shall mean all federal, state
and local laws and regulations, codes, orders, decrees,
judgments, injunctions or consent orders applicable to
Hallador or Production or any of the Assets, and all notices
or requests for information received by Hallador or any of its
Affiliates relating to Hallador or any of the Assets issued,
promulgated, approved or entered thereunder, relating to
public health or safety, worker health or safety, or pollution
(including, without limitation, noise and radiation
pollution), damage to or protection of the environment,
including, without limitation, laws relating to emissions,
discharges, Releases (as defined in CERCLA) or industrial,
toxic or Hazardous Substances, or wastes into the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, generation, disposal, transport or
handling of pollutants, contaminants, chemicals, or
industrial, toxic or Hazardous Substances, or wastes.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, or any successor statute or
statutes thereto.
"EXCLUDED LIABILITIES" shall have the meaning set
forth in Section 3.2
"FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 5.5.
"FIXED ASSETS" shall mean all machinery, parts,
equipment, tools and other fixed assets (including, without
limitation, all fixtures, appurtenances and improvements
thereon and thereto) owned, leased or used by Hallador and/or
Production.
"GAAP" means U.S. generally accepted accounting
principles, consistently applied, in all material respects.
"GOVERNMENTAL ENTITY" shall mean any court,
administrative agency or commission, regulatory authority or
other governmental authority, department, board, agency or
instrumentality, whether city, state, federal or foreign.
"HALLADOR CONTRIBUTION" shall have the meaning set
forth in Section 2.2.
"HAZARDOUS SUBSTANCES" shall mean all Hazardous Sub-
stances as presently defined in CERCLA or in OSHA's Hazardous
Communication Standard and petroleum products and waste and
all radioactive materials and waste.
"INDEMNIFIED PARTY" and "INDEMNIFIED PARTIES" shall
mean, with respect to any Person, its Affiliates and its and
its Affiliates' respective officers, directors, employees,
partners and representatives.
"INTELLECTUAL PROPERTY RIGHTS" shall mean any and
all interests in registered trademarks, trademark
registrations and applications therefor, registered service
marks, service mark registrations and applications therefor,
registered trade names and applications therefor, copyrights,
copyright registrations and applications therefor and patents
and patent right applications, in each case which are owned by
or necessary to or used by Hallador and/or Production in
connection with the Operations, including any modification,
supplement, continuation in part or amendment thereto.
"INVENTORY" shall mean all inventory and other
supplies, whether on hand or on order, of Hallador and/or
Production, including, without limitation, all raw materials
and other materials used or consumed in the course of the
Operations, work in process, products or goods ordered or held
for shipment or in transit and other finished products or
goods.
"LIENS" shall mean any mortgage, chattel mortgage,
pledge, option, charge, encumbrance, lease, lien, statutory
right in rem, title retention, claim, right of first refusal,
defect of title or security interest of any kind or nature
whatsoever,
"LITIGATION" shall have the meaning set forth in
Section 5.10.
"LOSS" and "LOSSES" shall have the meaning set forth
in Section 1 1. l(a).
"MATERIAL ADVERSE EFFECT" shall mean a material
adverse effect on the business, Assets, condition (financial
or otherwise) or economic prospects of Hallador, Production or
the Operations.
"NON-ASSIGNABLE CONTRACTS" shall have the meaning
set forth in Section 2.4.
"OPERATIONS" shall mean the business of Hallador and
Production conducted prior to and on the date hereof,
consisting of the exploration, production, and sale of oil and
natural gas.
"OSHA" shall mean the Occupational Safety and Health
Act of 1970, as amended.
"OTHER AGREEMENTS" shall mean the Partnership
Agreement and the Shareholders Agreement.
"PERMITS" shall mean all permits, licenses,
franchises, approvals, consents, certificates, registrations,
authorizations or other evidences of authority held by
Hallador or Production relating to the Assets or the
Operations.
"PERSON" shall mean an individual or a corporation,
partnership, trust, unincorporated association, Governmental
Entity or other entity.
"PREPAID EXPENSES" shall mean all prepaid expenses
of Hallador and Production relating to the Operations, as
determined under GAAP.
"REAL PROPERTY" shall mean all real property owned,
leased or subleased (including, without limitation, real
property under contract) by Hallador and/or Production, or in
which Hallador or Production has acquired an interest,
including, without limitation, all right, title and interest
of Hallador and/or Production in and to the buildings,
structures. fixtures, easements, rights-of-way, access rights,
mineral rights, licenses, transferable permits and other
appurtenances and improvements erected upon, attached to or
used in connection with such real property.
"RELATED EXPENSES" shall have the meaning set forth
in Section 10.1(b).
"SECURITIES ACT" shall mean the Securities Act of
1933, as amended.
"SHAREHOLDERS AGREEMENT" shall mean the agreement
dated as of November 15, 1996, by and among Hallador and
certain of its shareholders.
"SURVIVAL PERIOD" shall have the meaning set forth
in Section 10.7.
"TAXABLE PERIOD" shall have the meaning set forth in
Section 10.3.
"TAXES " shall have the meaning set forth in Section
10.2.
"TAXING AUTHORITY" shall have the meaning set forth
in Section 10.2.
"TRADE SECRETS" shall mean all proprietary or
confidential trade secrets, know-how and all other technical
and business information, and any rights therefor necessary
to, or used in any manner in connection with, the Operations
all substantial aspects of which are not freely available in
full without restriction. The term "Trade Secrets" shall not
include Intellectual Property Rights.
"UNDISCLOSED LIABILITIES" shall have the meaning set
forth in Section 5.17.
"UNREGISTERED TRADE NAMES" shall mean all trade
names, trademarks and service marks which have not been
registered or applied for under any federal, state law and
which are currently in active use in any manner in connection
with the Operations.
ARTICLE 2. INITIAL CAPITAL CONTRIBUTIONS.
2.1 LP INVESTOR CONTRIBUTIONS. At the Closing,
upon the terms and subject to the conditions set forth in this
Agreement, each of the LP Investors, severally but not jointly
(except to the extent set forth in Article 11), shall
contribute to the Partnership, as a capital contribution, the
amount set forth on the schedule (the "Schedule") attached
hereto after the signature pages hereof (collectively, the
"LP Investor Contribution") against receipt by each such LP
Investor of the limited partnership interest set forth in the
Schedule.
2.2 HALLADOR AND PRODUCTION CONTRIBUTION. At the
Closing, upon the terms and subject to the conditions set
forth in this Agreement, each of Hallador and Production
agrees to assign, convey, transfer and deliver to the
Partnership, as a capital contribution, all of Hallador and
Production's right, title and interest in and to the Assets
(the "Hallador Contribution" and, together with the LP
Investor Contributions, the "Capital Contributions") against
receipt by Hallador of the general partnership interest and by
Production for the limited partnership interest, all as set
forth in the Schedule. The term "Assets" shall include all
the assets, properties and rights (including, without
limitation, rights under leases, licenses, purchase orders,
sales contracts and instruments) owned, leased or licensed by
Hallador or Production or used in connection with the
Operations or in which Hallador or Production otherwise has an
interest as they exist at the time of the Closing, including,
without limitation, the following:
(a) all Real Property and all right, title
and interest of Hallador and Production in and to
easements, licenses, rights-of-way or other
interests in any Real Property,
(b) all Fixed Assets;
(c) all Inventory;
(d) all Contracts;
(e) all Intellectual Property Rights, Trade
Secrets and Unregistered Trade Names, together
with, in each case, the associated goodwill;
(f) all customer and supplier lists, price
lists, advertising and promotional materials and
field performance data, formulas, research
materials, technical information, trade secrets,
proprietary information, technology, know-how,
specifications, designs, drawings, inventions,
processes, procedures, methods and quality control
data owned or licensed;
(g) all Prepaid Expenses;
(h) all rights under warranties and
guarantees, express or implied, which relate to the
Assets;
(i) copies of all books and records relating
to the Assets;
(j) all software and computer programs and
documentation, including, without limitation, flow
charts, diagrams, descriptive texts and programs,
computer printout tapes and databases, which
relate to the Assets,
(k) all Permits;
(1) all rights (including indemnification)
and choses in action (i) against third parties
which affect the use of, or title to, any Real
Property or Fixed Assets (other than the Retained
Assets) (including, without limitation, any zoning
and condemnation matters relating to such Real
Property or Fixed Assets), or which affect the use
of or title to such Real Property or Fixed Assets,
whether arising on or after the Closing Date, or
(ii) which may be asserted as counterclaims, rights
or setoff or defenses in any action brought by a
third party against the Partnership which relate to
the foregoing matters;
(m) all Accounts Receivable;
(n) all claims or rights under insurance
carried in respect of Hallador or the Operations,
all indemnity or similar claims and all fidelity,
surety or similar bonds and the coverages afforded
thereby and letters of credit relating to Hallador
or any of the other Assets; and
(o) all other property of any kind, tangible
and intangible, real, personal and mixed
(including, without limitation those set forth in
the books and records of Hallador and Production),
excluding, however, all shares of capital stock of
Production.
2.3 NON-ASSIGNABLE CONTRACTS. In the case of any
Hallador Contracts or Permits which are by their terms, by
virtue of their subject matter, by virtue of the
administrative difficulty of assignment, or by operation of
applicable law, not assignable to the Partnership without the
consent of a third party (the "Non-Assignable Contracts"),
Hallador agrees to use its best efforts prior to and as soon
as reasonably practicable after the Closing to obtain any
consents necessary to convey to the Partnership such Non-
Assignable Contracts or the benefits thereof. All of the-Non-
Assignable Contracts are, to the best knowledge of Hallador,
set forth on Schedule 2.3. In the event that any such consent
is not obtained, Hallador agrees to provide the Partnership
(at no cost to the Partnership) with the same economic and
other benefits of any such Non-Assignable Contract as if it
had been assigned on the Closing Date. Nothing in this
Agreement shall be construed as an attempt or an agreement to
assign or cause the assignment of any Non-Assignable Contract,
unless such consent shall have been given, or as to which all
the remedies for the enforcement thereof enjoyed by Hallador
would not, as a matter of law, pass to the Partnership as an
incident of the assignments provided by this Agreement.
ARTICLE 3. ASSUMPTION OF LIABILITIES IN CONNECTION WITH
HALLADOR AND PRODUCTION CONTRIBUTION.
3.1 ASSUMPTION OF LIABILITIES. Upon the Closing,
the Partnership will assume and undertake to pay, perform and
discharge, in accordance with and subject to their respective
terms, all of the debts, liabilities and obligations of
Hallador and Production (collectively, the "Assumed
Liabilities") (other than Excluded Liabilities).
3.2 EXCLUDED LIABILITIES. Notwithstanding anything
contained in this Agreement, the Partnership shall not be
liable for any of the following liabilities or obligations of
Hallador or Production ("Excluded Liabilities"), each of which
shall remain a liability solely of Hallador or Production and
not the Partnership:
(a) any liabilities in respect of Taxes on
income of or otherwise payable by Hallador or
Production for periods ending on or prior to the
Closing Date;
(b) any liabilities expressly retained or
assumed by Hallador or Production under Section
10.3 and any other liabilities expressly retained
or assumed by Hallador or Production pursuant to
the terms of this Agreement or any of the Other
Agreements or Conveyance Documents; or
(c) any payables or other liabilities owing
to any of Hallador or Production's shareholders or
Affiliates and arising prior to the Closing, other
than those obligations described in Section 5.19.
ARTICLE 4. CLOSING.
4.1 CLOSING; CLOSING DATE. The Closing of the
Capital Contributions to, and assumption of liabilities by,
the Partnership provided for in this Agreement shall occur at
the offices of Hallador on the Closing Date.
4.2 INSTRUMENTS OF TRANSFER AND CONVEYANCE. The
conveyance, transfer, assignment and delivery of the Assets as
herein provided shall be effected by delivery by Hallador and
Production on the Closing Date of such deeds, bills of sale,
transfer agreements, endorsements, assignments, certificates,
drafts, checks or other instruments of transfer and conveyance
(the "Conveyance Documents"), duly executed by Hallador and
Production as the Partnership shall reasonably deem necessary
to vest on the Closing Date in the Partnership title to the
Assets in the manner provided for herein.
4.3 OTHER DOCUMENTS AND MATTERS TO BE DELIVERED ON
CLOSING DATE. On the Closing Date, Hallador and Production
shall deliver to the Partnership originals, if existing, or
true and correct copies of all documents, agreements, books of
account and other records wherever located which are included
within the Assets or which relate to the conduct of the
Operations. In addition, Hallador and Production shall also
deliver to the Partnership possession of any tangible and
intangible assets included within the Assets.
4.4 BULK SALES LAWS. Without admitting that the
Bulk Sales law of any State is applicable to the transactions
contemplated hereby, it is understood and agreed that the
parties will not comply with the Bulk Sales law of any state
with respect to these transactions.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF HALLADOR AND
PRODUCTION.
Hallador hereby represents and warrants to the LP
Investors as follows:
5.1 CORPORATE ORGANIZATION AND STANDING. Each of
Hallador and Production is duly organized, validly existing
and in good standing under the laws of the State of Colorado
and is duly qualified or registered to transact business and,
to the best of Hallador and Production knowledge, is in good
standing as a foreign corporation in every jurisdiction in
which it is required to qualify or register to conduct its
business as currently conducted or to own or lease the
properties and assets currently owned or leased by it, except
where the failure to so qualify or register would not have a
Material Adverse Effect. Each of Hallador and Production has
full corporate power and authority to own, lease and operate
its properties and assets and to conduct the Operations as
presently conducted by it and as contemplated to be conducted
by the Partnership after the Closing. None of the Operations
are conducted by any Person other than Hallador or Production
except where it is not the operator or for those activities
customarily undertaken by contractors, all on an arm's-length
basis. There are no dissolution, liquidation or bankruptcy
proceedings pending, contemplated or, to the knowledge of
Hallador or Production threatened against Hallador or
Production. Each of Hallador and Production has delivered to
the LP Investors true, correct and complete copies of its
Articles of Incorporation and Bylaws as currently in effect,
and, except for the Shareholders Agreement, there are no
stockholders' agreements or other similar agreements relating
to any equity interest in Hallador or Production, and, to the
best of knowledge of Hallador and Production, no action has
been taken or authorized or is contemplated to amend, modify
or waive any of the terms of any of the foregoing.
5.2 CORPORATE AUTHORIZATION. Each of Hallador and
Production has full corporate power and authority to execute
and deliver this Agreement, the Other Agreements and the
Conveyance Documents delivered or to be delivered by it
pursuant hereto and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of this
Agreement, the Other Agreements and the Conveyance Documents
executed and delivered or to be executed and delivered by
Hallador and Production in connection with the actions
contemplated by this Agreement, the Other Agreements and the
Conveyance Documents have been duly authorized and approved by
all necessary and proper corporate action of Hallador and
Production and constitute, and will constitute, when executed
and delivered, valid and binding agreements of Hallador and
Production, each enforceable in accordance with its respective
terms, except as such enforceability may be limited by or
subject to any bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the
enforcement of creditors' rights generally and by general
equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law.
5.3 NONCONTRAVENTION. The execution and delivery
by Hallador and Production of this Agreement, the Other
Agreements and the Conveyance Documents to which Hallador or
Production is or will be a party and the performance by
Hallador and Production of their obligations hereunder and
thereunder, and the consummation of the transactions
contemplated hereby and thereby, do not and will not (a)
violate any provision of their Articles of Incorporation or
Bylaws, (b) subject only to obtaining the consents described
in Schedule 5.4 hereto, conflict with, violate any provision
of or result in the termination or acceleration of, or entitle
any party to terminate or accelerate (whether with or without
notice, after lapse of time or the happening or occurrence of
any other event) any obligation under any agreement or
instrument to which Hallador or Production is a party or by
which Hallador or Production or any of their assets (other
than the Retained Assets) is bound or affected, or result in
the creation of any Lien on any of the Assets, (c) subject
only to obtaining the approvals described in Schedule 5.4
hereto, result in the loss, suspension, revocation,
rescission, annulment or termination of any permit or legal
privilege or legal right enjoyed or possessed by Hallador or
Production, or (d) to their knowledge, violate any law, rule,
regulation, judgment, order, decree, injunction or arbitration
award binding upon Hallador, Production or any of the Assets
(excluding any Bulk Sales law, as to which this representation
shall not be applicable).
5.4 CONSENTS AND APPROVALS. Except as set forth in
Schedule 5.4 hereto, to the best of knowledge of Hallador and
Production, no approval or authorization of filing or
registration with, or notification to, any Governmental Entity
is required in connection with the execution and delivery of
this Agreement, the Other Agreements and the Conveyance
Documents by Hallador, the performance of their obligations
hereunder or thereunder or the consummation by them of the
transactions contemplated hereby or thereby or is required to
assure the ability of the Partnership to conduct the
Operations from and after the Closing on the basis conducted
by and contemplated to be conducted by Hallador and Production
prior to the Closing, except for any required qualification of
the Partnership to do business in other jurisdictions. All
such approvals, authorizations, filings, registrations and
notifications so set forth on Schedule 5.4 hereto have been or
will be obtained on or prior to the Closing Date, except as
set forth on such Schedule 5.4; provided, however, that
Hallador and Productions agree to obtain such approvals,
authorizations, filings, registrations and notifications set
forth on such Schedule as soon as possible following the
Closing.
5.5 FINANCIAL STATEMENTS. Hallador has delivered
or caused to be delivered, to the LP Investors its
consolidated balance sheet at December 31, 1996, and March 31,
1997, and statements of income of Hallador for the one year
and three month periods then ended (the "Financial
Statements"). The Financial Statements fairly and accurately
present the financial condition and results of operations of
Hallador, and are true and correct in all material respects,
at the date and for the periods indicated.
5.6 REAL PROPERTY. A complete and accurate list of
all Real Property owned or leased by Hallador and Production
has been previously delivered to the LP Investors or their
agent. Hallador and Production each has good and marketable
title to those parcels of and oil and gas leasehold interests
in Real Property within the geographic boundaries of producing
units upon which proved, producing wells are located, and the
unqualified right, subject to any consents set forth on
Schedule 5.4 hereto, to convey, transfer, assign and deliver
such Real Property as described above. Subject to the receipt
of all requisite consents and approvals set forth on Schedule
5,4, the consummation of the transactions contemplated by this
Agreement, the Other Agreements and the Conveyance Documents
will not materially adversely affect the interest of the
Partnership in, or the right to the continued use of, any of
the Real Property on a basis consistent with past practice.
(b) To the best of knowledge of Hallador and
Production, (a) all leases, licenses, easements, rights of
way, access rights and other instruments conveying any
material interest in the Real Properties are valid, binding
and subsisting rights and obligations of Hallador or
Production and the other parties thereto, enforceable against
in accordance with their respective terms (except as such
enforceability may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors rights
generally and by general equity principles regardless of
whether such enforceability is considered in a proceeding in
equity or at law), and (b) Neither Hallador nor Production is
in default in any respect thereunder. Neither Hallador nor
Production is aware of any event which (whether with or
without notice, lapse of time or the happening or occurrence
of any other event) would constitute any such default.
(c) To the best of knowledge of Hallador and
Production, no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence
of any other event) constitutes or would constitute a default
by Hallador or Production under any instrument evidencing any
Lien on Hallador or Production's interest in the Real
Property. To the best of knowledge of Hallador and
Production, the activities, operations and uses engaged in on
the Real Property by Hallador and Production comply with and
do not violate the requirements of insurance policies
presently maintained with respect to such properties or the
use, occupancy, activities and operations conducted thereon.
5.7 Personal Property Hallador and Production have
good and marketable title to the personal property owned by
Hallador and Production and have the unqualified right to
convey, transfer, assign and deliver all such personal
property, free and clear of any Liens other than those Liens
disclosed on Schedule 5.7 hereto.
5.8 Condition of Assets. To the best of knowledge
of Hallador and Production, since April 1, 1997, (a) there has
been no material adverse change in the suitability of the
Fixed Assets for the purposes for which they are being used,
and (b) the Fixed Assets are on the date hereof, and will be
on the Closing Date, in good operating condition, order and
repair, ordinary wear and tear excepted, subject only to
repairs in the ordinary course of business.
5.9 INSURANCE. To the best of knowledge of
Hallador and Production, Hallador and Production maintain
policies of fire and casualty, liability and other forms of
insurance as are usual and customary in amounts (including
deductibles) and type to those carried by other organizations
of similar size engaged in a similar business. On and after
the Closing Date, such insurance will continue to protect the
Partnership against claims arising out of or relating to
events occurring prior to and following the Closing Date.
5.10 LITIGATION AND COMPLIANCE. (a) Schedule 5.10
hereto sets forth a complete and accurate list of all material
legal or administrative actions, arbitrations, suits, claims,
proceedings (including, without limitation, any foreclosure,
condemnation, eminent domain or adverse possession
proceeding), whether at law or in equity, or governmental or
administrative investigation (collectively, "Litigation") with
respect to the Operations or any of the Assets or brought by
or against Hallador or Production or by or on behalf of
Hallador or Production and pending as of the date hereof.
There is no Litigation pending, or to the knowledge of
Hallador or Production, threatened against Hallador or
Production which questions or challenges the validity of this
Agreement or any of the Other Agreements or Conveyance
Documents or any action taken or to be taken by Hallador,
Production or the Partnership pursuant to this Agreement or
any of the Other Agreements or Conveyance Documents.
(b) To the best knowledge of Hallador and
Production, each of Hallador and Production has conducted, and
is currently conducting, the Operations in compliance with all
applicable domestic and foreign laws, rules, regulations,
judgments, and court or administrative orders or decrees,
permits and approvals (including, without limitation, OSHA and
any law, rule, regulation, judgment, order, permit, license or
approval that relates to the sale and/or distribution of
products and services, anti-competitive practices, employee
health and safety, collective bargaining and equal
opportunity, or related to the use or occupancy of any Real
Property. Neither Hallador nor Production has received any
notice alleging a material lack of compliance and otherwise
has no knowledge of any information which indicates a material
lack of compliance therewith. Neither Hallador nor Production
is subject to any judgment, order or decree or arbitration
award.
5.11 INTELLECTUAL PROPERTY RIGHTS ETC. Neither
Hallador nor Production is the owner or the licensee of any
Intellectual Property Right.
5.12 CONTRACTS. To the best of knowledge of
Hallador and Production, there are no existing material
defaults under any Contracts or Non-Assignable Contracts and:
(a) all such contracts are in full force and
effect and Hallador or Production has performed in
all material respects all the obligations required
to be performed by it under the Contracts;
(b) there has been no threatened cancellation
or termination thereof and there are no outstanding
disputes thereunder;
(c) each is with an unrelated third party and
was entered into on an arm's-length basis;
(d) no event, act or omission has occurred
which (with or without notice, lapse of time or the
happening or occurrence of any other event) could
result in a material default by Hallador or
Production thereunder or would cause the
termination thereof, or give rise to the payment of
any material amount by either party thereunder
other than in the ordinary course of business as
provided therein; and
(e) Neither Hallador nor Production is a
party to any tax sharing agreement.
5.13 ABSENCE OF CERTAIN CHANGES ETC. Since April 1,
1997, except for transactions specifically contemplated in
this Agreement, there has not been any:
(a) transaction by Hallador or Production or
occurrence of any material liability, contingent,
absolute or otherwise, not in the ordinary course
of business and consistent with past practice;
(b) material adverse change in the financial
condition of Hallador or Production;
(c) material labor dispute, strike, work
stoppage or other such event or occurrence
involving the employees of Hallador or Production;
(d) material change in the accounting methods
or practices by Hallador or Production;
(e) loan by Hallador or Production, or
guaranty by Hallador or Production of any loan,
which loan or guaranty is to be assumed by the
Partnership pursuant to the provisions of this
Agreement, whether in the ordinary course of
business or otherwise;
(f) any other event or condition of any
character that has had or might reasonably be
expected to have a Material Adverse Effect;
(g) institution or use by Hallador or
Production of any unusual or novel methods of
purchase, sale, lease, management, accounting or
operation that varies materially from those methods
previously used by Hallador; or
(h) agreement by Hallador or Production or
any of their Affiliates to do any of the things
with respect to Hallador or Production described in
the preceding clauses (a) through (g).
5.14 TAXES. All Taxes due and payable by Hallador
and Production for all periods through the Closing Date have
been paid or provided for through a reserve established in
accordance with GAAP through the Closing Date. There are no
asserted claims for any Taxes for which Hallador, Production
or the Partnership is or may become liable which have not been
settled and paid. There are no Taxes with respect to the
Hallador Contribution for which the Partnership may become
liable. Each of Hallador and Production has filed any and all
Tax Returns required by law to be filed on or prior to the
Closing Date.
5.15 COMPENSATION AND BENEFIT PLANS. (a) As of the
date hereof, neither Hallador nor Production maintains or
contributes to any employee benefit plan (within the meaning
of Section 3(3) of ERISA) except as set forth in the Financial
Statements referred to in Section 5.5.
(b) None of the employees of Hallador or Production
is covered by the terms of a collective bargaining agreement
with any labor organization, and there are no known pending or
threatened organizational efforts with respect to such
employees. To its knowledge, each of Hallador and Production
has complied in all material respects with all laws, orders
and regulations regarding nondiscrimination in employment,
payment of wages, hours of employment, confidentiality of
employee information and other employment-related matters.
5.16 ENVIRONMENTAL MATTERS. To the best knowledge
of Hallador and Production, (a) all Hazardous Substances
manufactured, generated, used or processed by Hallador or
Production have been handled, stored, transported, treated or
disposed of in accordance with the Environmental Laws, (b)
there is no ground water contamination within or under or
stemming from any Real Property, (c) no property which is now
or previously owned, leased, operated, or controlled by
Hallador or Production is (i) listed or proposed for listing
on the National Priorities List under CERCLA or is (ii) listed
in the Comprehensive Environmental Response, Compensation,
Liability Information System List under CERCLA or is (iii)
listed in the Comprehensive Environmental Response,
Compensation, Liability Information System List promulgated
pursuant to CERCLA, or on any comparable list maintained by
any governmental authority, (d) neither Hallador nor
Production has received a request for information under CERCLA
or any comparable state law, or notice that it has been
identified as a potentially responsible party, under CERCLA or
any comparable state law, nor has it received any notification
that any Hazardous Material that it has generated, stored,
treated, handled, transported or disposed of has been released
at any site at which any Person intends to conduct or is
conducting a remedial investigation or other action pursuant
to any Environmental Law, and (e) other than as set forth on
Schedule 5.16 hereto, there are no past or present events,
conditions, liens, circumstances, activities, practices,
incidents, actions or plans that could interfere with or
prevent compliance by Hallador or Production, or give rise to
an action or liability under any Environmental Law.
5.17 NO UNDISCLOSED LIABILITIES. Except as
disclosed on Schedule 5.17, to the best of knowledge of
Hallador and Production, neither Hallador nor Production has
any material liabilities of any nature (whether due or to
become due, absolute, contingent or otherwise. including,
without limitation, any liability or obligation on account of
Taxes or any governmental charge or penalty interest or
fines), except (a) liabilities reflected on the Balance Sheet
that have not been discharged since April 1, 1997, (b)
liabilities incurred in the ordinary course of business and
consistent with past practice since the date of the Balance
Sheet, and (c) liabilities incurred in connection with
transactions provided for in this Agreement, the Other
Agreements and the Conveyance Documents (as so excepted,
"Undisclosed Liabilities").
5.18 PERMITS. To the best of knowledge of Hallador
and Production, none of the Permits reasonably necessary to,
used in or useful to the Operations has been suspended,
revoked, rescinded, annulled or otherwise terminated, nor has
any action, investigation or proceeding been commenced, or
threatened, to effect such suspension, revocation, rescission,
annulment or termination. To the best knowledge of Hallador
and Production, neither Hallador nor Production is or has been
operated, and no portion of the Operations or any of the
Assets has been or is being conducted, in any material respect
in violation of any of the provisions or requirements of any
of the Permits, provided, however, that it is understood that
such representation does not extend to the transfer of the
Permits listed on Schedule 5.4 hereto which are indicated
thereon as being transferred subsequent to the Closing.
5.19 RELATED PARTY TRANSACTIONS. Schedule 5.19
hereto sets forth all outstanding obligations of Hallador and
Production to any of its shareholders or Affiliates that will
be assumed by the Partnership in connection with the Closing.
5.20 OFFERING. (a) The sale of the limited
partnership interests hereunder and under the Partnership
Agreement is exempt from the registration and prospectus
delivery requirements of the Securities Act and all applicable
state securities laws (collectively, the "Blue Sky Laws").
Neither the Partnership nor any one acting on its behalf has
offered the limited partnership interests so as to bring the
issuance and sale of limited partnership interests to the LP
Investors within the provisions of Section 5 of the Securities
Act.
(b) In the case of each offer or sale of a limited
partnership interest, no form of general solicitation or
general advertisement was used by the Partnership, Hallador,
Production or anyone acting on behalf of any of them.
(c) Insofar as the representations in the foregoing
subsections involve Dillon, Read & Co. Inc. or any of its
Affiliates, they are made solely on the basis of the
representations contained in Article 6 hereof.
5.21 DISCLOSURE. This Agreement, including the
Schedules hereto, does not and will not contain any untrue
statement of a fact or omit to state a fact necessary to make
the statements contained herein not misleading.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE LP
INVESTORS.
Each LP Investor and, as to Section 6.2(a) and
6.2(f) only, Dillon, Read & Co. Inc., represents and warrants,
severally as to itself and not jointly, to each of Hallador,
Production and the Partnership as follows:
6.1 AUTHORIZATION AND ENFORCEABILITY. Such LP
Investor is authorized to enter into this Agreement and the
Other Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Other
Agreements executed and delivered or to be executed and
delivered by such LP Investor in connection with the
transactions contemplated by this Agreement and the Other
Agreements have been duly authorized and approved by all
necessary and proper action of such LP Investor and
constitute, and will constitute when executed and delivered by
such LP Investor, valid and binding agreements of such LP
Investor, each enforceable in accordance with its respective
terms, except as such enforceability may be limited by or
subject to any bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights
generally and by general equity principles, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
6.2 INVESTMENT. (a) Such LP Investor is making its
LP Investor Capital Contribution for its own account (except
that Dillon, Read & Co. Inc. ("Dillon Read") is acting as the
duly authorized agent of the LP Investors listed on the
Schedule to the Partnership Agreement, all of whom Dillon Read
represents are "accredited investors" within the meaning of
Rule 501 under the Securities Act, pursuant to valid powers of
attorney duly executed by such Persons which are in full force
and effect on the date hereof) solely for investment and with
no intention of distributing or reselling its limited
partnership interest or any interest therein in any
transaction that would be in violation of the securities laws
of the United States of America or any State thereof, without
prejudice to such LP Investor's right at all times to
otherwise sell or assign all or any part of its limited
partnership interest pursuant to the terms of any of the Other
Agreements if such transaction is pursuant to an effective
registration statement under the Securities Act and applicable
state securities laws, or under an exemption available from
such registration available under the Securities Act and
applicable state securities laws, and subject, nevertheless,
to the disposition of such LP Investor's property being at all
times within its control.
(b) Such LP Investor further represents and
warrants that it is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and that such LP
Investor, together with any of its advisors, has such
knowledge, experience and sophistication in business and
financial matters so as to be capable of evaluating the risks
of an investment in the Partnership and making an informed
decision with respect thereto and is able to bear the economic
risk of such investment and able to bear a complete loss of
such investment.
(c) Such LP Investor further represents and
warrants that he or it has had a reasonable opportunity to ask
questions of and has received answers from Hallador or a
person or persons acting on Hallador's behalf concerning an
investment in the Partnership and all such questions have been
answered to the full satisfaction of such LP Investor.
(d) Such LP Investor further represents and
warrants that, if an entity, such LP Investor was not formed
with the specific purpose of acquiring the limited partnership
interests in the Partnership.
(e) Such LP Investor further represents and
warrants that he or it understands that (i) the limited
partnership interests in the Partnership have not been and
will not be registered under the Securities Act, in reliance
upon an exemption therefrom for non-public offerings; (ii)
such interests have not been and will not be registered under
applicable state securities laws in reliance on various
exemptions from registration provided therein; (iii) such
interests must be held indefinitely unless the sale thereof is
registered under such securities laws or an exemption from
registration is available; (iv) the exemption provided by Rule
144 under the Securities Act will not be available to the LP
Investors with respect to their limited partnership interests
in the Partnership; (v) the Partnership is under no obligation
to register the limited partnership interests in the
Partnership on behalf of any LP Investor or to assist any LP
Investor in complying with any exemption from registration;
(vi) he or it may not be able to sell or dispose of his or its
limited partnership interest in the Partnership as there will
be no public market therefor; and (vii) his or its right to
transfer his or its limited partnership interest in the
Partnership will be subject to certain restrictions against
transfer unless the transfer is in compliance with the
Securities Act and applicable state securities laws (including
investor suitability standards) and the terms and conditions
of the Partnership Agreement.
(f) Such LP Investor, if a corporation,
partnership, trust or other entity, further represents and
warrants that it is authorized and otherwise duly qualified to
purchase and hold a limited partnership interest in the
Partnership.
(g) Other than the LP Investors, Hallador and
Production, to the best knowledge of the LP Investors and
Dillon Read, no person other than certain Managing Directors,
Directors and Officers and other Affiliates of Dillon Read has
received any offer to purchase the limited partnership
interests in the Partnership and no form of general
solicitation or general advertisement was used in connection
with the offering of such Interests.
ARTICLE 7. ADDITIONAL COVENANTS OF THE PARTIES
7.1 FURTHER ASSURANCES. Following the Closing,
each of Hallador, Production and the LP Investors agrees to do
or cause to be done such further acts and deeds and deliver or
cause to be delivered to each of the others and/or its
designees such additional assignments, agreements, powers and
instruments, as the others and/or its designees may reasonably
require or deem advisable to carry into effect the purposes of
this Agreement, the Other Agreements and the Conveyance
Documents or to better assure and confirm unto the others
and/or its designees its interests, rights, powers and
remedies hereunder and thereunder.
7.2 PARTNERSHIP NAME. Hallador agrees that, from
and after the Closing, the Partnership shall have the right to
use, on a perpetual royalty-free basis, the term "Hallador" in
its name, or in any phrase or logo used in or on any of its
literature, or otherwise in connection with the marketing or
sale of any product or service or in any other manner in the
operation of the Partnership's business, including in the name
of the Partnership.
7.3 TAX MATTERS. (a) All Tax Returns required to be
filed after the Closing Date by Hallador and Production with
respect to Taxes which, if unpaid, would result in a Lien on
any of the Assets or the Partnership or Hallador or
Production's interest therein or on Hallador or Production's
interest in the Partnership or on the interest of Hallador's
shareholders in Hallador will be filed and all Taxes payable
pursuant thereto will be timely paid by Hallador or
Production.
(b) Subject to the provisions of the Partnership
Agreement, Hallador and Production agree to provide such
documents, information and cooperation as shall reasonably be
requested by the Partnership in connection with the
preparation of any Tax Return or the conduct of any
proceedings relating to Taxes of the Partnership or any
Partner.
7.4 EXPENSES. Hallador may cause the Partnership
to reimburse it and the LP Investors, as the case may be, for
any reasonable expenses incurred by it or the LP Investors in
connection with the transactions contemplated hereby including
the reasonable fees and out-of-pocket expenses of counsel to
Hallador, Production and the LP Investors.
ARTICLE 8. CONDITIONS TO OBLIGATIONS OF LP INVESTORS.
The obligations of each LP Investor under this
Agreement shall be subject to the fulfillment or satisfaction,
prior to or at the time of the Closing, of the following
conditions precedent (any of which may be waived in writing as
a condition in whole or in part by such LP Investor in its
sole discretion).
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING.
The representations and warranties made by Hallador and
Production in this Agreement, the Other Agreements and the
Conveyance Documents and in any certificate or other
instrument delivered by Hallador or Production pursuant to the
provisions hereof or otherwise in connection with the
transactions contemplated hereby or thereby shall be true and
correct in all material respects at and as of the Closing
Date, as if made on that date.
8.2 PERFORMANCE. Hallador and Production shall
have performed and complied in all respects with all
agreements and conditions required by this Agreement, the
Other Agreements and the Conveyance Documents to be performed
or complied with by them and the Partnership prior to or in
connection with the Closing.
8.3 PARTNERSHIP IN EFFECT. The Certificate and the
partnership registration statement will be duly filed in
accordance with the requirements of applicable law within one
business day after the Partnership Agreement shall have been
executed and delivered by the other parties hereto. Effective
on such filing, the Partnership shall have been duly organized
and validly existing as a limited liability limited
partnership under the laws of the State of Colorado and have
full partnership power and authority to carry on its business
as contemplated to be conducted, except as otherwise noted
herein, and to execute, deliver and perform its obligations
hereunder and under any of the Other Agreements to which it is
a party.
8.4 OTHER AGREEMENTS AND NON-COMPETITION
AGREEMENTS. Each of the Other Agreements shall have been
executed and delivered by the other parties thereto and such
other parties shall have performed all obligations, if any,
required to be performed thereunder prior to or in connection
with the Closing.
8.5 CONVEYANCE DOCUMENTS AND HALLADOR CONTRIBUTION.
Hallador and Production shall have executed and delivered to
the Partnership the Conveyance Documents, as provided by
Section 4.2 hereof, and, at the time of the Closing, shall
have made the Hallador Contribution.
8.6 LITIGATION AND PROCEEDINGS1. (a) No claim,
suit, action, arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending
which in such LP Investor's reasonable judgment might have the
effect of restraining or prohibiting, and no injunction or
restraining order shall have been granted that would restrain
or prohibit in any respect the transactions contemplated
hereby or by the Other Agreements and Conveyance Documents.
(b) No order, statute, rule, regulation, executive
order, injunction, stay, decree or restraining order shall
have been enacted, entered, promulgated or enforced by or
before any Governmental Entity which prohibits or restricts
the consummation of any of the transactions contemplated
hereby or by the Other Agreements or the Conveyance Documents.
(c) All authorizations, consents, orders or
approvals of, or declaration or filings with (except for the
expiration of waiting periods imposed by any Governmental
Entity and generally obtained after Closing and set forth in
Schedule 5.4) with any Governmental Entity necessary for the
consummation of any of the transactions contemplated hereby or
by the Other Agreements or the Conveyance Documents shall have
been filed, have occurred or have been obtained, as the case
may be.
(d) No action, suit, claim or proceeding by or
before any Governmental Entity shall have been commenced and
be pending, or in the judgment of such LP Investor shall be
threatened or likely, which (i) seeks to restrain, prevent or
materially delay or restructure the transactions contemplated
hereby or by the Other Agreements or the Conveyance Documents,
(ii) seeks to obtain any material damages in respect of a
claim in connection with the Assets or the Operations or the
transactions contemplated hereby or by the Other Agreements or
the Conveyance Documents, (iii) seeks to prohibit or impose
any material limitation on the ownership or operation by the
Partnership of all or any pardon of the Assets, or (iv)
otherwise questions the validity or legality of any such
transactions and, in the case of any of the foregoing, the
same might, in the reasonable judgment of such LP Investor, be
adversely determined and such adverse determination would have
a Material Adverse Effect.
8.7 APPROVALS AND CONSENTS. Except as set forth in
Schedule 5.4, all approvals and consents of any third parties
(except for filings or consents in connection with the non-
transferred Permits and the Non-Assignable Contracts) and all
amendments of agreements, the granting or execution and
delivery of which are necessary for the consummation of the
transactions contemplated hereby or for preventing the
termination of any material right, privilege, license, or
other agreement or Permit of, or any material loss to, the
Operations upon the consummation of the transactions
contemplated hereby, shall (except as otherwise noted herein)
have been obtained and all such approvals and consents shall
be reasonably satisfactory in form and substance to such LP
Investor and shall not impose a condition to such consent
which is unduly burdensome to the Partnership or such LP
Investor or any of such LP Investor's Affiliates.
8.8 CERTIFICATE OF HALLADOR AND PRODUCTION. Such
LP Investor shall have received a certificate, dated the
Closing Date, signed by the President and Chief Executive
Officer of Hallador and Production, certifying that the
conditions specified in Sections 8.1 and 8.2 have been
fulfilled and as to such other matters reasonably requested by
such LP Investor and its counsel.
8.9 RESOLUTIONS; INCUMBENCY; GOOD STANDING. Such
LP Investor shall have received the following, dated as of the
Closing Date:
(a) certified copies of the resolutions of
the Board of Directors of Hallador and Production
approving the execution, delivery and performance
of this Agreement, the Other Agreements and the
Conveyance Documents and of all documents
evidencing other necessary corporation action and
governmental approvals, if any, with respect to
this Agreement, the Other Agreements and the
Conveyance Documents; and
(b) a Certificate of the Secretary or
Assistant Secretary of Hallador and Production
certifying the names and true signatures of the
officers of Hallador and production authorized to
sign this Agreement and the other documents to be
delivered hereunder.
8.10 OPINION OF COUNSEL. The LP Investors shall
have received the executed opinion of Heppenstall, Savage,
Hillyard & Muller, LLC, counsel to Hallador and Production, in
substantially the form attached hereto as Exhibit B.
8.11 SATISFACTORY FORM. All proceedings taken in
connection with the transactions contemplated hereby and all
instruments and documents required in connection therewith or
incident thereto shall be reasonably satisfactory to such LP
Investor and its counsel.
ARTICLE 9. CONDITIONS TO OBLIGATIONS OF HALLADOR AND
PRODUCTION.
The obligations of Hallador and Production under
this Agreement shall be subject to the fulfillment or
satisfaction, prior to or at the time of the Closing, of each
of the following conditions precedent on or prior to the
Closing Date (any of which may be waived in writing as a
condition in whole or in part by Hallador):
9.1 REPRESENTATIONS AND WARRANTIES AT CLOSING. The
representations and warranties made by each LP Investor in
this Agreement and the Other Agreements and in any certificate
or other instrument delivered pursuant to the provisions
hereof or otherwise in connection with the transactions
contemplated hereby or thereby shall be true and correct in
all material respects at and as of the Closing Date, as if
made on that date.
9.2 PERFORMANCE. Each LP Investor shall have
performed and complied with all agreements and conditions
required by this Agreement and the Other Agreements to be
performed or complied with by him or it prior to or on the
Closing Date.
9.3 EXECUTION OF PARTNERSHIP AGREEMENT. Each LP
Investor shall have executed the Partnership Agreement.
9.4 OTHER AGREEMENTS. Each of the Other Agreements
shall have been executed and delivered by the other parties
thereto and such other parties shall have performed all
obligations, if any, required to be performed thereunder
prior to or in connection with the Closing.
9.5 LP INVESTOR CONTRIBUTION. At the time of the
Closing, the LP Investors shall have made the LP Investor
Contributions.
9.6 LITIGATION AND PROCEEDINGS. (a) No claim,
suit, action arbitration or legal, administrative or other
proceeding or governmental investigation shall be pending or
threatened which in the reasonable judgment of Hallador and
Production might have the effect of restraining or
prohibiting, and no injunction or restraining order shall have
been granted that would restrain or prohibit, in any respect
the transactions contemplated hereby or by the Other
Agreements or the Conveyance Documents.
(b) No order, statute, rule, regulation, executive
order, injunction, stay, decree or restraining order shall
have been enacted, entered, promulgated or enforced by or
before any Governmental Entity which prohibits or restricts
the consummation of any of the transactions contemplated
hereby or by the Other Agreements or the Conveyance Documents.
(c) All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration
of waiting periods imposed by, any Governmental Entity
necessary for the consummation of any of the transactions
contemplated hereby or by the Other Agreements or the
Conveyance Documents shall have been filed, have occurred or
have been obtained, as the case may be, except for filings or
consents in connection with the Non-Transferred Permits and
the Non-Assignable Contracts.
(d) No action, suit, claim or proceeding by or
before any Governmental Entity shall have been commenced and
be pending, or in the judgment of Hallador shall be
threatened, which (i) seeks to restrain, prevent or materially
delay or restructure the transactions contemplated hereby or
by the Other Agreements or the Conveyance Documents or (ii)
seeks to prohibit or impose any material limitation on the
ownership or operation by the Partnership of all or any
portion of the Assets.
9.7 CERTIFICATE OF LP INVESTORS. Hallador and
Production shall have received a Certificate, dated the
Closing Date, signed by or on behalf of each of the LP
Investors, certifying that the conditions specified in
Sections 9.1 and 9.2 have been fulfilled and as to such other
matters reasonably requested by Hallador, Production and their
counsel.
9.8 LEGAL OPINION. Hallador and Production shall
have received the executed opinion of Brock Fensterstock
Silverstein McAuliffe & Wade LLC, counsel to the LP Investors,
in substantially the form attached hereto as Exhibit C.
9.9 SATISFACTORY FORMS. All proceedings taken in
connection with the transactions contemplated hereby and all
instruments and documents required in connection therewith or
incident thereto shall be reasonably satisfactory to Hallador,
Production and their counsel.
ARTICLE 10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY HALLADOR AND PRODUCTION.
From and after the Closing, Hallador and Production shall
jointly and severally indemnify and hold harmless the
Partnership and the LP Investors from and against, for and in
respect of:
(a) any and all damages, losses, penalties,
fines, settlement payments, obligations,
liabilities, claims, actions or causes of action
(actual or threatened, matured or unmatured, known
or unknown, contingent or otherwise), encumbrances
and costs and expenses suffered, sustained,
incurred or required to be paid by the Partnership
or the LP Investors or any of their subsidiaries,
including, without limitation, any costs of
investigation (individually, a "Loss" and
collectively, "Losses"), based upon or arising out
of:
(i) the untruth, inaccuracy or breach
of any representation, warranty, agreement or
covenant by Hallador or Production, contained
in or made in this Agreement, any of the Other
Agreements, any of the Conveyance Documents or
any Schedule hereto or list, certificate,
document or written statement delivered
pursuant to any of the foregoing or in
connection therewith;
(ii) any claim or Loss (other than
claims or Losses directly related to the
Assumed Liabilities) based upon, arising out
of or related to the Bulk Sales laws of any
State, province or other jurisdiction; and
(iii) any of the Excluded Liabilities
(but not the Assumed Liabilities);
(b) subject to the last sentence of Section
10.4, all reasonable costs and expenses (including,
without limitation, attorneys' fees and expenses,
interest and penalties) incurred by the Partnership
in connection with any actual or threatened action,
suit, proceeding, demand, investigation,
information request, assessment or judgment
("Related Expenses") incident to any of the matters
indemnified against in Section 10.1(a);
provided, however, that Hallador and Production shall not be
obligated to indemnify the Partnership under Section 10.1(a)
for any Loss or Losses (A) to the extent such Loss or Losses
result from consequential damages, (B) to the extent that
insurance proceeds are available to offset the claim, or (C)
to the extent of any Tax savings realized by virtue of the
payment of such claim; provided, further, that, in the absence
of fraud committed by or on behalf of Hallador or any of its
Affiliates, Hallador and Production shall not be obligated to
indemnify the Partnership under Section 10.1(a) for any Loss
or Losses to the extent they exceed in the aggregate
$2,000,000.
10.2 INDEMNIFICATION BY THE LP INVESTORS. From and
after the Closing, the LP Investors shall indemnify and hold
harmless the Partnership, Hallador and Production from,
against, for and in respect of:
(a) any and all Losses suffered, sustained,
incurred or required to be paid by the Partnership,
Hallador, Production or any of their respective
Affiliates, including, without limitation, any
costs of investigation, based upon or arising out
of the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant by
the LP Investors, contained in or made in this
Agreement, any of the Other Agreements, or any
Schedule hereto list, certificate, document or
written statement delivered pursuant to any of the
foregoing or in connection therewith;
(b) subject to the last sentence of Section
10.4, all reasonable costs and expenses (including,
without limitation, attorneys' fees and expenses,
interest and penalties) incurred by the
Partnership, Hallador, Production and their
Affiliates in connection with any actual or
threatened action, suit, proceeding, demand,
investigation, information request, assessment or
judgment ("Related Expenses") incident to any of
the matters indemnified against in Section 10.2(a);
provided, however, that the LP Investors shall not be
obligated to indemnify the Partnership or Hallador under
Section 10.2(a) for any Loss or Losses (A) to the extent such
Loss or Losses result from consequential damages, (B) to the
extent that insurance proceeds are available to offset the
claim, or (C) to the extent of any Tax savings realized by
virtue of the payment of such claim; provided, however, that,
in the absence of fraud committed by or on behalf of the LP
Investors or any of their respective Affiliates, the LP
Investors shall not be obligated to indemnity the Partnership,
Hallador, Production or their Affiliates under Section 10.2(a)
for any Loss or Losses to the extent they exceed in the
aggregate $2,000,000.
10.3 RESPONSIBILITY FOR TAXES. (a) Hallador and
Production shall be liable for and shall indemnify and
reimburse the Partnership and its subsidiaries and the LP
Investors and their respective Indemnified Parties for (i) all
Taxes payable by or with respect to Hallador, Production or
the Operations with respect to Taxable Periods ending on or
prior to the Closing Date, (ii) the portion of any Taxes
payable by or with respect to Hallador, Production and the
Operations for any Taxable Period that includes and ends after
the Closing Date attributable to the period prior to and
including the Closing Date (determined by closing the books at
the close of business on the Closing Date), (iii) any Taxes
payable by or with respect to Hallador or Production from and
after the Closing Date, and (iv) any other Taxes attributable
to the Hallador Contribution.
(b) The LP Investors shall be liable for and shall
indemnify and reimburse the Partnership and its subsidiaries
and Hallador and their respective Indemnified Parties for (i)
all Taxes payable by or with respect to any of the LP
Investors with respect to Taxable Periods ending on or prior
to the Closing Date, (ii) the portion of any Taxes payable by
or with respect to any LP Investor), of the LP Investors for
any Taxable Period that includes and ends after the Closing
Date attributable to the period prior to and including the
Closing Date (determined by closing the books at the close of
business on the Closing Date), (iii) any Taxes payable by or
with respect to any of the LP Investors from and after the
Closing Date, and (iv) any other Taxes attributable to the LP
Investor Contribution.
(c) Payment by Hallador, Production or the LP
Investors, as the case may be, of any amounts due under this
paragraph shall be made within 15 calendar days following
receipt of written notice that payment of such amounts to the
appropriate Taxing Authority (as such term is defined below)
is due or will be due within the next 15 calendar days.
(d) The amounts of any refunds of Taxes with
respect to Hallador and Production for any Taxable Period
ending on or prior to the Closing Date shall be for the
account of, and shall, if received by the Partnership, be paid
to Hallador and Production. The amounts of any refunds of
Taxes with respect to Hallador and Production for any Taxable
Period ending on or after the Closing Date shall be allocated
between Hallador and Production, on the one hand, and the
Partnership, on the other hand, in accordance with the
principles of Section 10.3(a), unless reflected on the Balance
Sheet, in which event the refund shall be paid to the
Partnership.
(e) For purposes of this Agreement, "Tax" or
"Taxes" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall
profits taxes, environmental taxes, customs duties, capital
stock, franchise, employees' income withholding, foreign or
domestic withholding, social security, unemployment,
disability, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other
tax, fee, assessment or charge of any kind whatsoever
including any interest penalties or additions to Tax or
additional amounts in respect of the foregoing, For purposes
of this Agreement, "Tax Returns" shall mean any return,
report, information return or other document (including any
related or supporting information) filed or required to be
filed with any governmental taxing authority (a "Taxing
Authority") in connection with the determination, assessment,
collection or administration of any Taxes. For purposes of
this Agreement, "Taxable Period" shall mean any period for
which a Tax Return is required to be filed.
10.4 PROCEDURE FOR INDEMNIFICATION. (a) With respect
to any indemnification claim made under Section 10.1, 10.2 or
10.3 hereof, subject to the last sentence of this Section
10.4, any indemnifying party shall promptly, upon demand,
reimburse any Indemnified Party for, as incurred, or pay any
Losses and Related Expenses as to which an indemnifying party
has agreed to indemnity an Indemnified Party pursuant to this
Article 10. The Indemnified Party shall promptly notify in
writing the indemnifying party of any known claim for payment
of any Losses or Related Expenses (regardless of the provisos
set forth in Section 10.1). The Indemnified Party shall have
the right to employ counsel of its choice reasonably
satisfactory to the indemnifying party and conduct the defense
and settlement relating to any Loss (regardless of the
provisos set forth in Sections 10.1 and 10.2) that is the
subject of any cause of action or proceeding between or among
Hallador, the Partnership or any LP Investor or any of its
Indemnified Parties, on the one hand, and a third party, on
the other hand (regardless of who is the Indemnified Party),
and Hallador, the Partnership or the LP Investors, as the case
may be, shall reasonably cooperate therewith, which costs and
expenses shall be paid by the indemnifying party upon demand
therefor by the Indemnified Party. In addition, any
indemnifying party shall indemnify and hold harmless the
Indemnified Parties from any and all reasonable legal expenses
incurred by the Indemnified Parties in connection with
enforcing their rights to indemnity under this Article I as
Related Expenses; provided, however, that, in the case of any
claim for indemnity (i) by the Partnership, any LP Investor or
one of their Indemnified Parties pursuant to Section 10.1, or
(ii) by the Partnership, Hallador, Production or one of their
respective Indemnified Parties pursuant to Section 10.2 (in
each case, the "Instituting Party") in respect of, in each
case, a claim instigated by such Instituting Party (and not as
a result of a claim made by any third party), it is agreed
that if the indemnifying party disputes any such claim for
indemnity the fees and expenses of counsel employed by such
Instituting Party need not be paid on demand by the
indemnifying party until such time as either the dispute is
resolved between the Instituting Party and the indemnifying
party or an arbitral decision is obtained by the Instituting
Party,
(b) In the event of any payment, and only to such
extent, under this Section 10.4 to an Indemnified Party, the
indemnifying party shall be subrogated to all of such
Indemnified Party's rights in respect of such Losses and
Related Expenses against any Person other than such
Indemnified Party and its Affiliates and such Indemnified
Party shall execute and deliver such instruments and take such
other action as the indemnifying party shall reasonably
request in order to effect such subrogation, all at the
expense of the indemnifying party; provided, however, that the
indemnifying party shall not interfere with any proceedings
between the Indemnified Party and any third party. If payment
is made by an indemnifying party under this Section 10.4 and
the Indemnified Party subsequently recovers from a third party
any Losses or Related Expenses for which such payment was
made, such Indemnified Party shall receive in trust for the
indemnifying party the proceeds of such recovery and promptly
pay such proceeds to the indemnifying party.
10.5 RIGHT OF LP INVESTORS TO INSTITUTE PROCEEDINGS.
Hallador agrees that the LP Investors shall have the right to
institute arbitration proceedings in the name of and on behalf
of the Partnership to enforce the Partnership's rights against
Hallador under this Article 10.
10.6 RIGHT OF OFFSET. In addition to any right
which an LP Investor may have under applicable law, Hallador,
Production and the LP Investors agree that each shall, to the
extent that as a result of any arbitral or other decision
obtained for any claim made pursuant to the indemnification
provisions of Section 10.1 or 10.2, Hallador, Production or
the LP Investors, as the case may be, either (a) would not
have adequate assets to satisfy such judgment or (b) would be
rendered insolvent by satisfying such judgment, the
Partnership shall be obligated to offset such amount of any
such judgment against each distribution or other payment made
by the Partnership to Hallador, Production or the LP
Investors, as the case may be, until the award has been
satisfied in full. It is further agreed that to the extent
Hallador, Production or the LP Investors acknowledge in
writing liability to the Partnership in respect of a claim
made pursuant to such indemnification provisions, but
certifies to the satisfaction of a majority of the Interests
(as defined in the Partnership Agreement) that it would be
unable to satisfy such claim by reason of the foregoing
clauses (a) and (b), the Partnership shall also be obligated
to exercise such right of offset.
10.7 SURVIVAL. The representations and warranties
of Hallador to the Partnership and the LP Investors will
survive the Closing for a period of one year following the
Closing Date (the "Survival Period"). The representations and
warranties of the LP Investors will survive the Closing for
the Survival Period.
10.8 LP INVESTOR REMEDIES. Each of the LP Investors
agrees not to institute any action or proceeding against the
Partnership, Hallador or Production which is based upon or
arises out of a breach by another LP Investor of any
representation or warranty contained in Article 7 or which is
based upon a breach of any representation or warranty of
Hallador, Production or the Partnership of which the LP
Investor had actual knowledge on or prior to the Closing Date.
ARTICLE 11. SUBSTITUTION OF LP INVESTORS.
Notwithstanding any provision hereof to the
contrary, in the event that one or more of the LP Investors (a
"Non-Investor") docs not make all or part of such LP
Investor's LP Investor Contribution, Yorktown Energy Partners
II, L.P. shall assume the obligations of such Non-Investor to
make its LP Investor Contribution and the obligations of such
Non-Investor shall cease. Such assumption by Yorktown Energy
Partners II, L.P. shall mean that no default by such Non-
Investor shall have occurred hereunder and that neither
Hallador, the Partnership nor any of their respective
Affiliates or shareholders shall have any claim by reason of
such Non-Investor's actions.
ARTICLE 12. MISCELLANEOUS.
12.1 GOVERNING LAW; ASSIGNMENT; SUCCESSORS AND
ASSIGNS; COUNTERPARTS; ENTIRE AGREEMENT. (a) This Agreement:
(i) shall be construed under and in accordance with the laws
of the State of Colorado without regard to conflict of laws
provisions, (ii) may not be assigned by any party without the
consent of the other party and any such assignment without
such consent shall be void, except to the extent such
assignment is otherwise specifically permitted by the terms of
this Agreement, (iii) shall be binding upon and shall inure to
the benefit of the parties hereto and their respective
successors and permitted assigns, (iv) together with the other
Agreements, the Conveyance Documents and the Schedules,
annexes and exhibits hereto and thereto constitute the entire
agreement and understanding, and supersede all prior
agreements, representations and understandings, both written
and oral, between the parties hereto relating to the subject
matter hereof, and (v) may not be amended or modified except
by written agreement executed by each of the parties hereto.
Any party may waive any or all of the provisions or conditions
herein contained to which its obligations hereunder are
subject; provided, however, that no provisions or conditions
shall be deemed waived (even if the Closing has occurred)
unless such waiver is in writing, A waiver of any breach or
failure to enforce any of the terms or conditions of this
Agreement shall not in any way affect, limit or waive a
party's rights hereunder at any time to enforce strict
compliance thereafter with every term or condition of this
Agreement; provided further, that in the event that,
subsequent to the Closing, Hallador, Production or the
Partnership promptly cures any breach of any provision
contained herein after notice thereof, no party hereto shall
have any recision rights.
(b) Any assignee shall have all the rights and
obligations of the assignor with respect to the rights
assigned to it and all references hereunder or any of the
Other Agreements or the Conveyance Documents to such party
shall, to such extent, include such assignee. Each party
agrees to enter into such agreements as is reasonably
necessary to effect any such assignment.
12.2 NOTICES. All notices, requests, demands, and
other communications hereunder shall be in writing and shall
be deemed to have been duly given, except as otherwise
provided herein, when delivered in person or by telex,
telegram, telecopier or other standard form of written
telecommunication, or three days after being deposited in the
U.S. mail, by certified mail, return receipt requested,
postage prepaid, in each case to the parties at the addresses
set forth on the signature pages hereof or at such other
address as any party may have furnished to the other party in
writing.
12.3 HEADINGS. The table of contents, section and
other headings in this Agreement are for the purpose of
reference only, and shall not limit or otherwise affect the
meaning or interpretation of any of the terms or provisions
hereof. References to Sections, except as otherwise indicated
are references to Sections of this Agreement.
12.4 TERMINATION. This Agreement may be terminated
and abandoned by notice given at any time prior to the Closing
in the manner hereinafter provided:
(a) by Hallador or Production if there has
been a material misrepresentation or a material
default or breach by the LP Investors with respect
to their representations and warranties in this
Agreement or the due and timely performance of any
of the LP Investors covenants and agreements
contained in this Agreement and such
misrepresentation, default or breach shall not have
been cured within 10 days after receipt by the LP
Investors of notice specifying particularly such
misrepresentation, default or breach; or
(b) by the LP Investors if there has been a
material misrepresentation or a material default or
breach by Hallador, Production or the Partnership
with respect to their respective representations
and warranties in this Agreement or the due and
timely performance of their respective covenants
and agreements contained in this Agreement, and
such misrepresentation, default or breach shall not
have been cured within 10 days after receipt by
Hallador, Production or the Partnership, as the
case may be, of notice specifying particularly such
misrepresentation, default or breach; or
(c) by mutual agreement of Hallador,
Production and the LP Investors; or
(d) by Hallador, Production or the LP
Investors if the Closing shall not have occurred on
or before August 30, 1997, and if the failure to
consummate the Closing on or before such date did
not result from the failure by the party seeking
termination of this Agreement to fulfill any
undertaking or commitment provided for herein that
is required to be fulfilled prior to the Closing.
12.5 EXPENSES. Except as otherwise expressly
provided in Section 7.6 of this Agreement, each of the parties
will pay its own expenses incident to the preparation and
carrying out of this Agreement and the Other Agreements and
the Conveyance Documents and the expenses and fees involved in
the preparation and delivery of all documents, reports and
opinions required to be delivered by or on behalf of it
hereunder, whether or not the transactions contemplated hereby
are consummated.
12.6 RISK OF LOSS. Legal title and risk of loss
with respect to any Asset shall not pass to the Partnership
until the Assets are transferred to the Partnership at the
Closing.
12.7 COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same agreement.
12.8 INCORPORATION OF SCHEDULES, ETC. All
Schedules and Exhibits hereto are hereby made a part hereof
the same as if herein specifically set forth.
12.9 SEVERABILITY. In the event that any one or
more of the provisions contained in this Agreement shall be
determined to be invalid, illegal or unenforceable in any
respect for any reason, (a) a suitable and equitable provision
or provisions shall be substituted therefore in order to carry
out, so far as may be valid and enforceable, the intent and
purpose of such invalid or unenforceable provision or
provisions and (b) the remainder of this Agreement and the
validity, legality and enforceability of any such provision or
provisions in every other respect an the remaining provisions
of this Agreement shall not be in any way impaired.
12.10 ARBITRATION. If any controversy arises
between or among any of the parties hereto, including the
Partnership, with respect to any matter, such controversy
shall be submitted to and determined by a board of three
arbitrators which shall sit in Denver, Colorado. The parties
intend that arbitration shall be the sole judicial or quasi-
judicial remedy available to enforce their rights and the
board of arbitrators is hereby empowered to have all of the
powers and remedies available to it as are available to any
U.S. federal district court as well as to any federal court of
appeals including, without limitation, the powers of such a
court sitting in equity. Also, the board of arbitrators shall
be vested with all other powers as may be provided by the
laws of the United States and Colorado. If the arbitration is
not accomplished as set forth herein, then this agreement for
the submission to arbitration shall be enforced by appropriate
proceedings at the request of any party.
Any party may notify the other party or parties in
writing of its desire to have arbitration and of the name of the
arbitrator selected by the party(ies) giving such notice.
Within 20 actual (not business) days after receipt of such
notice, the party(ies) receiving the same shall select the
second arbitrator and notify the party giving notice of the name
of such second arbitrator. If the party(ies) receiving such
notice shall fail to name a second arbitrator within such 20
days, the party giving such notice shall name a second
arbitrator. The parties hereby agree that this procedure is
equitable in a situation where the notified party fails to name
its arbitrator within such 20 days. If the two arbitrators so
named shall fail within 20 actual days after the appointment of
the second arbitrator to agree upon and select a third
arbitrator, then each arbitrator shall, on the second business
day in Colorado following the expiration of such 20 days,
simultaneously submit to the other arbitrator a list of five
persons willing to serve as, and suggested by the arbitrator to
be, the third arbitrator. Within ten business days in Colorado
thereafter, the two appointed arbitrators shall meet in person
at a place of their choosing. At such meeting, each arbitrator
shall select one person from the other arbitrator's list of five
names and a coin shall be flipped to determine which of the two
selected persons shall be the third arbitrator.
The arbitrators shall, as quickly as practicable, fix
a reasonable time and place for hearings, at which each party
may submit such evidence as it may see fit, and the parties
hereby expressly waive the rules of discovery, procedure and
evidence which would apply in cases at law or in equity and
agree that the arbitrators may establish their own rules of
discovery, procedure and evidence. The decision of the
arbitrators shall be made within 30 days, or such longer period
as may be required in unusual circumstances, after the
conclusion of any hearing. The decision of the arbitrators
shall be in writing, signed by the arbitrators or a majority of
them, and shall be final and binding upon the parties and be
non-appealable, except for actual common law fraud perpetrated
by a majority of the arbitrators.
Unless otherwise ordered by the arbitrators, each
party shall pay the fees and expenses of the arbitrator selected
by it and one-half of the fees and expenses of the third
arbitrator. All other fees and expenses of each party,
including without limitation, the fees and expenses of its
counsel, witnesses and others acting for it, shall be paid as
determined by the arbitrators or a majority of them.
12.11 PRESS RELEASES. Neither Hallador (unless
otherwise required by law) nor the LP Investors shall make any
public announcement of record or press release regarding this
transaction without the consent of the other party, which shall
not be unreasonably withheld.
IN WITNESS WHEREOF, the parties hereto have hereunto
set their hands as of the date first above written.
HALLADOR
Address: HALLADOR PETROLEUM COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
By /S/VICTOR P. STABIO
---------------------------
Victor P. Stabio,
President
PRODUCTION
Address: HALLADOR PRODUCTION COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
By /S/VICTOR P. STABIO
---------------------------
Victor P. Stabio,
President
LP INVESTORS
c/o Dillon, Read & Co. Inc. YORKTOWN ENERGY PARTNERS II,
535 Madison Avenue L.P.
New York, NY 10022
By Yorktown II Corp.,
its General Partner
By /S/BRYAN H. LAWRENCE
---------------------------
Bryan H. Lawrence
DILLON, READ & CO. INC., as
agent
535 Madison Avenue
New York, NY 10022
By /S/BRYAN H. LAWRENCE
---------------------------
Bryan H. Lawrence
Managing Director
PINNACLE ENGINE COMPANY LLC
370 17th Street, Suite 2750
Denver, CO 80202 By /S/CORTLANDT S. DIETLER
---------------------------
Cortlandt S. Dietler
DAVID C. HARDIE TRUST, DATED
SEPTEMBER 13, 1972
740 University Avenue, Suite 110
Sacramento, CA 95825 By /S/DAVID C. HARDIE
---------------------------
David C. Hardie, Trustee
STEVEN R. HARDIE TRUST,
---------------------------
DATED SEPTEMBER 13, 1972
1407 Upper River Road
Gold Hill, OR 97525 By /S/STEVEN R. HARDIE
---------------------------
Steven R. Hardie, Trustee
REXONAD BEAUFORT, INC.
470 Amethyst Street
New Orleans, LA 70124 By /S/EDWIN C. JAMES
---------------------------
Edwin C. James, President
SCHEDULE
<TABLE>
<CAPTION>
Amount of Amount of
Name and Address Contribution Partnership Interest
- --------------------------- ---------------- --------------------
<S> <C> <C>
Hallador Petroleum Company All of its assets 35.45% (a)
1660 Lincoln, suite 2700 and liabilities
Denver, CO 80264 valued at
303-839-5506 $6,000,000
Fax 303-832-3013
Hallador Production Company All of its assets 34.86% (b)
1660 Lincoln, Suite 2700 and liabilities
Denver, CO 80264 valued at
303-839-5506 $5,900,000
Fax 303-832-3013
Yorktown Energy Partners II, L.P. $3,968,100 cash 23.45% (b)
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, NY 10022
212-906-7145
Fax 212-906-8690
Dillon, Read & Co. Inc., as Agent $ 831,900 cash 4.92% (b)
535 Madison Avenue
New York, NY 10022
212-906-7145
Fax 212-906-8690
Pinnacle Engine Company LLC $ 100,000 cash 0.59% (b)
Attn: Cortlandt S. Dietler
370 17th Street, Suite 2750
P. O. Box 5660
Denver, CO 80217
303-626-8200
Fax 303-626-8228
David C. Hardie Trust $ 50,000 cash 0.29% (b)
dated September 13, 1972
Suite 110
740 University Ave.
Sacramento, CA 95825
916-920-0191
Fax 916-920-3018
Steven R. Hardie Trust $ 50,000 cash 0.29% (b)
dated September 13, 1972
1407 Upper River Road
Gold Hill, OR 97525
541-855-8747
Fax 541-955-9011
Rexonad Beaufort, Inc. $ 25,000 cash 0.15% (b)
Attn: Mr. Edwin C. James
470 Amethyst Street
New Orleans, LA 70124
504-288-4326
Fax 504-288-7329
$16,925,000 100.00%
</TABLE>
- ------------------
(a) General partnership interest
(b) Limited partnership interest
(a) General partnership interest
(b) Limited partnership interest
EXHIBIT A
THE PARTNERSHIP INTERESTS REFERRED TO IN THIS LIMITED LIABILITY
LIMITED PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
UNDER ANY STATE OR OTHER APPLICABLE SECURITIES LAWS, IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH LAWS. NEITHER SUCH INTERESTS NOR ANY
PART THEREOF MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
SOLD, ASSIGNED OR OTHERWISE TRANSFERRED AT ANY TIME EXCEPT IN
COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE STATE
SECURITIES LAWS, AND ANY OTHER APPLICABLE SECURITIES LAWS, AND (II)
THE TERMS AND CONDITIONS OF THIS AGREEMENT.
AGREEMENT OF LIMITED LIABILITY LIMITED PARTNERSHIP
OF
HALLADOR PETROLEUM, LLP
THIS AGREEMENT OF LIMITED LIABILITY LIMITED PARTNERSHIP
("Agreement") made as of July 15, 1997, by and among Hallador Petroleum
Company, a Colorado corporation ("Hallador"), as general partner (which
entity,
together with any other person who, in accordance with the terms hereof, may
be
admitted hereafter as a general partner, is herein referred to as the
"General
Partner"), and the persons and entities identified as limited partners in
Schedule A hereto, as limited partners (which persons and entities, together
with any other persons who, in accordance with the terms hereof, may be
admitted hereinafter as limited partners, are herein referred to as the
"Limited Partners"). The General Partner and the Limited Partners are
sometimes referred to herein collectively as the "Partners".*
W I T N E S S E T H :
The parties desire to form a limited liability limited partnership
pursuant to the Colorado Uniform Limited Partnership Act, as amended from
time to time (the "Act").
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
FORMATION OF THE PARTNERSHIP
1.1 (a) Formation. The parties to this Agreement
hereby create a limited liability limited partnership under
and pursuant to the Act upon the terms and subject to the
conditions set forth in this Agreement. The General Partner
shall cause a certificate of limited partnership (the
"Certificate"), a partnership registration statement (the
"Registration Statement") and any other documents or
instruments to be completed, signed by the General Partner and
the Limited Partners, and filed in the appropriate offices in
the State of Colorado such documents as shall be necessary or
appropriate to form the Partnership.
(b) Partnership Name. The name of the Partnership
shall be Hallador Petroleum, LLP. The Partnership's business
may be conducted under any other name or names deemed
advisable by the General Partner. The words "Limited
Partnership" or the abbreviation "LLP" or derivatives thereof
shall be included in the Partnership's name where necessary
for the purposes of complying with the laws of any
jurisdiction that so requires.
1.2 Purpose and Powers of the Partnership. The purpose
of the Partnership shall be to engage in any lawful business
which may be engaged in by a limited partnership organized
under the Act including, but not limited to, the acquisition,
working or disposition of mineral leases and other interests
in oil and gas properties, by purchase or otherwise, and
drilling for and participating directly or indirectly in the
drilling for oil and natural gas located in, on or under such
properties and investing and engaging in any and all phases of
the oil and gas business and any and all activities incident
thereto. Such business purposes shall also include, without
limitation, the purchase, sale, acquisition, disposition,
development, operation and production of and exploration for
oil and gas, and the doing of all things incident thereto or
connected therewith.
1.3 Term. The term of the Partnership shall commence on
the date of the filing of the Certificate in the office of the
State of Colorado and shall continue until December 31, 2050,
or until the earlier termination of the Partnership in
accordance with the provisions of Article VI.
1.4 Principal Place of Business. The principal place of
business of the Partnership shall be at Hallador Petroleum
Company, 1660 Lincoln, Suite 2700, Denver, Colorado 80264 or
such other place or places as may be designated at any time
and from time to time by the General Partner. The General
Partner shall promptly inform the Limited Partners of any
change in the principal office of the Partnership.
1.5 Agent for Service of Process. The name of the
Partnership's initial agent for service of process at the
principal office is Victor P. Stabio.
1.6 Fiscal Year. The fiscal year of the Partnership
shall end on December 31.
1.7 Documents.
(a) The Partners authorize the filing of the
Certificate, the Registration Statement by the General Partner
and such other certificates or filings as may be required for
the formation and operation of a limited liability limited
partnership in the State of Colorado or any other jurisdiction
in which the Partnership elects to do business. The General
Partner shall thereafter file any necessary amendments to the
Certificate, and shall otherwise do all things (including,
without limitation, the appointment of registered agents of
the Partnership and maintenance of registered offices of the
Partnership) requisite to the maintenance of the Partnership
as a limited liability limited partnership under the laws of
the State of Colorado or any other jurisdiction in which the
Partnership may elect to do business.
(b) The General Partner shall use its best efforts
to qualify to do business or become licensed in each
jurisdiction where the activities of the Partnership make such
qualification or licensing necessary or appropriate.
1.8 Power of Attorney.
(a) The Limited Partners hereby constitute and
appoint each of the General Partner and, if a Liquidator
(other than the General Partner) shall have been selected
pursuant to Section 6.2, the Liquidator severally (and any
successor to either thereof by merger, transfer, assignment,
election or otherwise) and each of their authorized officers
and attorneys-in-fact, with full power and authority in their
name, place and stead, to execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices
(i) all certificates, partnership registration statements,
documents and other instruments (including, without
limitation, this Agreement and the Certificate and all
amendments or restatements thereof) that the General Partner
or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the
Partnership as a limited liability limited partnership (or a
partnership in which the limited partners have limited
liability) in the State of Colorado and in all other
jurisdictions in which the Partnership or any of its
subsidiaries may conduct business or own property; (ii) all
certificates, amendments to this Agreement, partnership
registration statements, documents and other instruments that
the General Partner or the Liquidator deems necessary or
appropriate to reflect or to effect, in accordance with its
terms, any amendment, change, modification or restatement of
this Agreement; (iii) all certificates, documents and other
instruments (including, without limitation, conveyances and a
certificate of cancellation) that the General Partner or the
Liquidator deems necessary or appropriate to reflect or to
effect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement; and (iv) all
certificates, amendments to this Agreement, documents and
other instruments relating to the admission, withdrawal or
substitution of any Partner or the capital contribution of any
Partner. With respect to matters on which this Agreement
expressly provides for the vote, consent or approval of the
Limited Partners or the Executive Committee, the General
Partner or the Liquidator may exercise the power of attorney
made in this Section 1.8(a) only after the necessary vote,
consent or approval of the Limited Partners or the Executive
Committee, as the case may be. Nothing contained in this
Section 1.8(a) shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with
Section 10.7, or as is otherwise expressly provided for in
this Agreement.
(b) The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an
interest, and it shall survive and not be affected by the
subsequent death, incompetency, dissolution, bankruptcy or
termination of a Limited Partner and the transfer of all or
any portion of such Limited Partner's Interest and shall
extend to such Limited Partner's successors and assigns.
1.9 Ownership of Property. Legal title to all assets,
rights and property, whether real, personal or mixed and
whether tangible or intangible, acquired by the Partnership
shall be acquired, held, owned and subsequently conveyed in
the name of the Partnership or in the name of a subsidiary of
the Partnership and no Partner, individually or collectively,
shall have any ownership interest in such Partnership
Properties or any portion thereof
The Partnership shall have the power to acquire, own,
lease, sublease, manage, operate, hold, deal in, control or
dispose of any interest in real property in any jurisdiction,
foreign or domestic. The Partnership shall also have the
power to acquire, own, hold, manage, sell, transfer, convey,
assign, exchange, pledge or otherwise dispose of the stock of
or other interest in any corporation or other business entity,
foreign or domestic, or in any corporation or other business
entity formed or organized under the laws of the United States
or any other jurisdiction.
1.10 Definitions. For the purposes of this Agreement, the
following terms shall have the following meanings.
"Adjusted Capital Account Deficit" means, with
respect to any Partner, the deficit balance, if any, in such
Partner's Capital Account as of the end of the relevant fiscal
period, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts
which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be
obligated to restore pursuant to the penultimate sentence
of Treasury Regulation Sections 1.704-l(b)(4)(iv) and
1.704-2 or would be deemed obligated to restore if
Partner Loan Nonrecourse Deductions were treated as
Nonrecourse Deductions; and
(b) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the
Treasury Regulations.
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of
Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations
and shall be interpreted consistently therewith.
"Adjusted Capital Contributions" means, as of any day,
a Partner's Capital Contributions adjusted as follows:
(a) Increased by the amount of any Partnership
liabilities which, in connection with distributions
pursuant to Section 6.2 hereof, are assumed by such
Partner or are secured by any Partnership Property
distributed to such Partner.
(b) Increased by any amounts actually paid by
such Partner to any Partnership lender pursuant to the
terms of any Assumption Agreement; and
(c) Reduced by the amount of cash and the
Carrying Value of any Partnership Property distributed to
such Partner pursuant to Section 6.2 hereof and the
amount of any liabilities of such Partner assumed by the
Partnership or which are secured by any property
contributed by such Partner to the Partnership.
In the event any Partner transfers all or any
portion of his Interest in accordance with the terms of this
Agreement, his transferee shall succeed to the Adjusted
Capital Contribution of the transferor to the extent it
relates to the transferred Interest.
"Affiliate" means, in connection with a specified
Person, a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is
under common control with, the Person specified and shall
include any partnership in which such Person is a general
partner or limited liability company in which such Person is
a manager so long as such Person is a general partner or
manager or otherwise legal or contractual operating control of
such entity, respectively. In no event shall any Limited
Partner be deemed to be an Affiliate of the Partnership or the
General Partner.
"Agreement" means this Agreement of Limited
Liability Limited Partnership, as amended from time to time.
"Assumption Agreement" means any agreement among the
Partnership, any of the Partners, and any Person to whom the
Partnership is indebted pursuant to a loan agreement, any
seller financing with respect to an installment sale, a
reimbursement, keepwell or guaranty agreement, or any other
arrangement (collectively referred to as a "Loan" for purposes
of this Agreement) pursuant to which any Partner expressly
assumes or guaranties, on a personal basis, any liability with
respect to such Loan. The amount of any such loan shall be
treated as assumed by the Partner or Partners so assuming or
guaranteeing for all purposes under this Agreement in the
proportions set forth in such Assumption Agreement and their
respective amounts so assumed or guaranteed shall be credited
to their respective Capital Accounts. To the extent such Loan
is repaid by the Partnership, the Partners' Capital Accounts
shall be debited with their respective shares of the
repayments. To the extent such Loan is repaid by some or all
of the Partners from their own funds, there shall be no
adjustments to their Capital Accounts.
"Bankruptcy" shall mean, with respect to a Partner,
any of the following:
(a) The valid appointment of a receiver or
trustee or other representative to administer all or a
substantial portion of the Partner's assets or the
Partner's Interest;
(b) The filing by the Partner of a voluntary
petition for relief under the bankruptcy, insolvency or
similar laws of the United States or any jurisdiction
thereof or of a pleading in any court admitting in
writing its inability to pay its debts as they become
due,
(c) The making by the Partner of a general
assignment for the benefit of creditors;
(d) The filing by the Partner of an answer
admitting the material allegations of, or its consenting
to or defaulting in answering, a petition for relief
filed against it in any proceeding under the bankruptcy,
insolvency or similar laws of the United States or any
jurisdiction thereof; or
(e) The entry of an order, judgment or decree
by any court of competent jurisdiction, granting relief
against the Partner in a proceeding under the bankruptcy,
insolvency or similar laws of the United States or any
jurisdiction there, and such order, judgment or decree
continuing unstayed and in effect for a period of ninety
(90) days after such entry.
"Capital Account" means, with respect to any
Partner, the Capital Account maintained in the Partnership for
such Person in accordance with the following provisions:
(a) To each Person's Capital Account there
shall be credited such Person's Capital Contributions,
such Person's distributive share of Profits, Simulated
Gains, and any items in the nature of income or gain that
are specifically allocated pursuant to Sections 3.4 and
3.5 hereof, and the amount of any Partnership liabilities
explicitly assumed by such Person or which are secured by
any Property distributed to such Person.
(b) To each Person's's Capital Account there
shall be debited the amount of cash and the Carrying
Value of any Property distributed to such Person pursuant
to any provision of this Agreement, such Person's
distributive share of Losses, Simulated Losses, Simulated
Depletion Deductions, and any items in the nature of
expenses or losses that are specially allocated pursuant
to Sections 3.4 and 3.5 hereof, and the amount of any
liabilities of such Person assumed by the Partnership or
which are secured by any property contributed by such
Person to the Partnership.
(c) In the event all or a portion of an
Interest in the Partnership is transferred in accordance
with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the
extent it relates to the transferred interest.
(d) In determining the amount of any liability
for purposes of subsections (a) and (b) above and for
purposes of determining Adjusted Capital Contributions,
there shall be taken into account Code Section 752(c) and
any other applicable provisions of the Code and the
Treasury Regulations.
(e) For purposes of computing the Partners'
Capital Accounts, Simulated Depletion Deductions,
Simulated Gains, and Simulated Losses shall be allocated
among the Partners in the same proportions as they (or
their predecessors in interest) were allocated the basis
of Partnership oil and gas properties pursuant to Code
Section 613A(c)(7)(D), the Treasury Regulations
thereunder, and Section 1.704-1(b)(4)(v) of the Treasury
Regulations. Pursuant to Code Section 613A(c)(7)(D) and
the Treasury Regulations thereunder and Section 1.704-
1(b)(4)(v) of the Treasury Regulations, the adjusted
basis of all oil and gas properties shall be shared by
the Partners in the same proportions as they share Net
Income pursuant to Section 3.2 hereof.
The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are
intended to comply with Treasury Regulation Section 1.704-
1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General
Partner shall reasonably and in good faith, after consultation
with Yorktown, determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits
relating to liabilities that are secured by contributed or
distributed property or that are assumed by the Partnership or
the General Partner), are computed in order to comply with
such Treasury Regulations, the General Partner may make such
modification, provided that it is not likely to have either a
material disproportionate effect on one or more of the Limited
Partners or a material effect on the amounts distributable to
any Partner pursuant to Section 6.2 hereof upon the
dissolution of the Partnership. The General Partner also
shall (a) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts
of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet as computed for
book purposes in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(q), and (b) make any appropriate
modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Treasury
Regulation Section 1.704-1(b).
"Capital Contribution" means, with respect to any
Partner, the amount of money and the initial Carrying Value of
any property (other than money) contributed to the Partnership
with respect to the interest in the Partnership held by such
Person. The principal amount of a promissory note which is
not readily traded on an established securities market and
which is contributed to the Partnership by the maker of the
note shall not be included in the Capital Account of any
Person until the Partnership makes a taxable disposition of
the note or until (and to the extent) principal payments are
made on the note, all in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(d)(2).
"Carrying Value" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes,
except as follows:
(a) The initial Carrying Value of any asset
contributed by a Partner to the Partnership shall be the
gross fair market value of such asset, as determined by
the contributing Partner and the Partnership;
(b) The Carrying Value of all Partnership
assets shall be adjusted to reflect their respective fair
market values, as reasonably and in good faith determined
by the General Partner after consultations with Yorktown,
as of the following times: (i) the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis
Capital Contribution, (ii) the distribution by the
Partnership to a Partner of more than a de minimis amount
of Partnership Property as consideration for an Interest
in the Partnership, and (iii) the liquidation of the
Partnership within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g), provided, however, that
adjustments pursuant to clauses (i) and (ii) above shall
be made only if the General Partner reasonably determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners
in the Partnership;
(c) The Carrying Value of any Partnership
asset distributed to any Partner shall be the fair market
value of such asset on the date of distribution; and
(d) The Carrying Values of Partnership assets
shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant
to Section 734(b) or Section 743(b) of the Code, but only
to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m),
provided, however, that Carrying Values shall not be
adjusted pursuant to this Section to the extent the
General Partner determines that an adjustment pursuant to
section (b) above is necessary or appropriate in
connection with a transaction that would otherwise result
in an adjustment pursuant to this section (d).
If the Carrying Value of an asset has been
determined or adjusted pursuant to sections (a), (b), or
(d) hereof, such Carrying Value shall thereafter be
adjusted by the Simulated Depletion Deductions or
Depreciation taken into account with respect to such
asset for purposes of computing Net Income and Net Loss.
"Certificate" means the Certificate of Limited
Partnership to be filed in the office of the Colorado
Secretary of State pursuant to the Act as the Certificate may
be amended from time to time in accordance with the Act.
"Closing" shall have the meaning specified in the
Contribution Agreement.
"Closing Date" shall have the meaning specified in
the Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of
succeeding law).
"Consent Action" shall have the meaning specified in
Section 2.12.
"Consent Interest" shall have the meaning specified
in Section 2.12.
"Contribution Agreement" shall mean the Contribution
Agreement, dated as of July 15, 1997, by and among the General
Partner and the Limited Partners.
"Depreciation" means, for each fiscal year or other
period, an amount equal to the depreciation, amortization, or
other cost recovery deduction allowable with respect to an
asset under the Code for such year or other period, except
that if the Carrying Value of an asset differs from its
adjusted basis for federal income tax purposes at the
beginning of such year or other period, Depreciation shall be
an amount which bears the same ratio to such beginning
Carrying Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis,
provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction
for such year is zero. Depreciation shall be determined with
reference to such beginning Carrying Value using any
reasonable method selected by the General Partner and
acceptable under the Code.
"Event of Termination" shall have the meaning set
forth in Section 6.1.
"Event of Withdrawal" shall mean, with respect to
the General Partner, any Bankruptcy of the General Partner
and, if the General Partner is an individual, any death or
incapacity of the General Partner.
"Executive Committee" shall have the meaning
specified in Section 2.3(a).
"General Partner" means any Person who or which (a)
is referred to as a General Partner in the first paragraph of
this Agreement or has become a General Partner pursuant to the
terms of this Agreement, and (b) has not ceased to be a
General Partner pursuant to the terms of this Agreement.
"General Partners" means all such Persons. The initial
General Partner is Hallador.
"Indemnitee" shall have the meaning set forth in
Section 2.8.
"Initial Capital Contribution" shall mean the amount
that a Partner has contributed to the capital of the
Partnership, specified in Schedule A hereto.
"Limited Partner" means any Person whose name is set
forth on Schedule A hereto as a Limited Partner or who has
become a Limited Partner pursuant to the terms of this
Agreement. "Limited Partners" means all such Persons.
"Liquidator" shall have the meaning set forth in
Section 6.2.
"Majority in Interest", or other specified
percentage in interest, as the case may be, shall mean Limited
Partners representing Consent Interests as set forth in
Section 2.12 which aggregate to more than 50%, or more than
such specified percentage, as the case may be, of the
aggregate Capital Contributions by all the Limited Partners.
References to all Limited Partners or unanimous consent herein
shall be deemed to refer to 100% in interest.
"Net Income" or "Net Loss" means for each fiscal
year or other period, the taxable income or taxable loss of
the Partnership for such year or period as determined in
accordance with Section 703(a) of the Code (for this purpose,
all items of income, gain, loss or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code
shall be included in taxable income or loss), increased by the
amount, if any, of tax-exempt income received or accrued by
the Partnership, reduced by the amount, if any, of all
expenditures of the Partnership described in Section
705(a)(2)(B) of the Code (including expenditures treated as
described in Section 705(a)(2)(B) of the Code under Treasury
Regulation section 1.704-1(b)(2)(iv)(i)) and any amounts
allocated pursuant to Section 3.4, Section 3.5 or Section 3.6
hereof, and adjusted, with respect to any property having a
Carrying Value that differs from its tax basis, as described
in the following sentence: For purposes of computing Net
Income or Net Loss, the amount of Depreciation for any taxable
year with respect to any such property shall equal the amount
that bears the same ratio to the Carrying Value of such
property at the time that such property was contributed to the
Partnership (or at the time that the Carrying Value of such
property was redetermined) as the Depreciation computed for
federal income tax purposes with respect to such property for
such taxable years bears to the adjusted federal income tax
basis of such property at such time (provided, however, that
if such property has an adjusted federal income tax basis of
zero at the time such property is contributed, Depreciation
shall be determined using any reasonable method selected by
the General Partner). In the event the Carrying Value of any
Partnership property is adjusted pursuant to the definition of
Carrying Value, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such
property for purposes of computing Net Income and Net Loss;
and gain or loss with respect to the disposition of any such
property with respect to which gain or loss is recognized for
federal income tax purposes shall be determined by the
difference between (a) the amount realized with respect to
such disposition, and (b) the Carrying Value of the property.
"1933 Act" shall mean the Securities Act of 1933, as
amended.
"Nonrecourse Deductions" has the meaning set forth
in Sections 1.704-2(b)(1) and 1.704-2(d) of the Regulations.
The amount of Nonrecourse Deductions for a Partnership fiscal
year equals the net increase, if any, in the amount of
Partnership Minimum Gain during that fiscal year, determined
according to the provisions of such Sections of the Treasury
Regulations.
"Ownership Percentage Interests" means and refers to
the Partners' Partnership Interests expressed as a pro rata
portion of 100% as set forth opposite each Partner's name on
Schedule A, as such Ownership Percentage Interests may be
modified from time to time in accordance with this Agreement.
"Partner Loan Nonrecourse Deductions" means any
Partnership deductions that would be Nonrecourse Deductions if
they were not attributable to a loan made or guaranteed by a
Partner within the meaning of Regulations Section 1.704-
2(b)(1) or (4).
"Partnership" means the partnership formed pursuant
to this Agreement and the Certificate and the entity
continuing the business of the Partnership in the event of
dissolution as provided in this Agreement.
"Partnership Interest" or "Interest" means, as to
any Partner, such Partner's rights to participate in the
income, gains, losses, deductions and credits of the
Partnership, together with all other rights and obligations of
such Partner under this Agreement and the Act.
"Partnership Loan" shall have the meaning set forth
in Section 2.14.
"Partnership Minimum Gain" has the meaning set forth
in Section 1.704-2(d) of the Treasury Regulations.
"Person" means an individual, trust, estate,
partnership, association, company, corporation, governmental
authority or any other entity,
"Property" means all real and personal property
acquired by the Partnership and any improvements thereto, and
shall include both tangible and intangible property.
"Representatives" shall have the meaning specified
in Section 2.3(a).
"Simulated Depletion Deductions" means the simulated
or actual depletion allowance computed by the Partnership with
respect to its oil and gas properties pursuant to Section
1.704-1(b)(2)(iv)(k) of the Treasury Regulations. In
computing such amounts, the General Partner shall have
complete and absolute discretion to make any and all
permissible elections.
"Simulated Gains" and "Simulated Losses" means,
respectively, the simulated gains or simulated losses computed
by the Partnership with respect to its oil and gas properties
pursuant to Section 1.704-1(b)(2)(iv)(k) of the Treasury
Regulations. In computing such simulated gains or losses, the
General Partner shall have complete and absolute discretion to
make any and all permissible elections.
"Tax Matters Partner" shall have the meaning
specified in Section 8.3.
"Transfer" shall mean the direct or indirect sale,
donation, assignment (as collateral or otherwise), pledge,
hypothecation, encumbrance, transfer or disposition of any
Interest.
"Treasury Regulations" means the Income Tax
Regulations promulgated under the Code, as such regulations
may be amended from time to time (including corresponding
provisions of succeeding regulations).
ARTICLE II
MANAGEMENT OF THE PARTNERSHIP
2.1 Management Generally. Except as expressly set forth
herein, the General Partner shall have full control of the
management of the Partnership business and affairs. No
Limited Partner shall, in his or its capacity as such, execute
any documents for the Partnership or transact any business on
the Partnership's account on its behalf. Except as may
otherwise be specifically provided in this Agreement, the
General Partner shall have the right, power and authority on
behalf of and in the name of the Partnership to further any of
the objects and purposes of the Partnership set forth in
Section 1.2 hereof and to do any and all acts and things which
it may deem necessary, proper or expedient to carry out such
purposes.
2.2 Authority of the General Partner. The General
Partner shall have the power by itself (except as herein
otherwise provided) on behalf of and in the name of the
Partnership to carry out and implement any and all of the
objects and purposes of the Partnership set forth in Section
1.2 hereof, subject to the remaining provisions of this
Article II and without limiting the generality of the
foregoing:
(a) to open, maintain and close bank accounts and
to draw checks and other orders for the payment of money;
(b) to enter into, make and perform all contracts,
agreements or other undertakings as may be necessary,
advisable or incident to carrying out the Partnership's
purposes;
(c) to control any matters affecting the rights and
obligations of the Partnership, including the conduct of
litigation and the incurring of legal expenses and the
settlement (or consent to judgment) of claims and
litigation;
(d) to use of the assets of the Partnership
(including, without limitation, cash on hand) for any
purpose consistent with the terms of this Agreement,
including, without limitation, the financing of the
conduct of the operations of the Partnership, the lending
of funds to other Persons and the repayment of
obligations of the Partnership;
(e) to select and dismiss employees and agents,
outside attorneys, accountants, consultants and
contractors and to determine their compensation and other
terms of employment or hiring;
(f) to maintain such insurance for the benefit of
the Partnership and the Partners as it deems necessary or
appropriate, consistent with customary industry
practices;
(g) to indemnify any Person against liabilities and
contingencies to the extent permitted by law; and
(h) to take all such other actions on behalf of the
Partnership as it may deem necessary or advisable in
connection with the conduct of the affairs of the
Partnership.
2.3 Executive Committee.
(a) From and after the Closing Date, the General
Partner shall designate three individuals and, for so
long as Yorktown Energy Partners, II, L.P. is a Limited
Partner, Yorktown shall designate two individuals (each,
a "Representative") to serve on a committee (the
"Executive Committee") which shall be responsible for
making recommendations to and advising the General
Partner, and approving or disapproving the actions set
forth in Sections 2.4(a) and 2.4(b) below. The initial
designees of the General Partner are David C. Hardie,
Steven Hardie and Victor P. Stabio. The initial
designees of Yorktown are Bryan H. Lawrence and Cortland
S. Dietler. Each Representative shall have one vote at
all meetings of the Executive Committee, which votes may
be exercised in person or by proxy.
(b) Any of the above Partners may at any time, by
written notice to the Executive Committee, remove any or
all of its Representatives, with or without cause, and
appoint substitute Representatives to serve in their
stead. No Representative shall be removed from office,
with or without cause, without the consent of the Partner
that designated such Representative.
(c) The Partnership shall reimburse the
Representatives for all reasonable out-of-pocket expenses
incurred by them in connection with their duties and
responsibilities under this Agreement.
2.4 Certain Actions.
(a) Following the Closing Date, the General Partner
may take or may cause the Partnership to take the
following actions only with the prior approval of the
majority of the Executive Committee:
(i) the making of any cash distributions or
non-cash distributions, excluding distributions
made pursuant to Section 4.1(a) provided, however,
that the Partnership shall cause to be distributed
only such amounts as shall be reasonable and
prudent in accordance with the exercise of
reasonable business judgment;
(ii) the sale, disposition or other transfer
of up to fifty percent (50%) in value of the assets
of the Partnership (valuing such assets, for this
purpose, by using the criteria specified in Section
2.4(a)(ix) below) other than in the ordinary course
of business;
(iii) the changing of the Partnership's
independent certified public accountants to one of
the Big Six accounting firms or other reputable
firm;
(iv) the adoption or modification of any
signi-ficant accounting policy provided such is in
accord with generally accepted accounting
principles;
(v) the establishment of employee benefit,
equity participation or bonus plans provided,
however, that such employee benefit, equity
participation and bonus plans shall not provide for
equity participation in the Partnership of more
than ten percent (10%);
(vi) the establishment of any material new
banking or lending relationships;
(vii) the issuance of any securities of the
Partnership which, in the case of equity interests
(other than securities issued pursuant to an
employee benefit, equity participation or bonus
plan pursuant to Section 2.4(a)(v)), shall be
subject to pro rata preemptive rights based on
relative Ownership Percentage Interests and in
favor of all Partners in accordance with Section
9.3);
(viii) the establishment of annual capital and
operating budgets; and
(ix) the borrowing of funds on a recourse or
nonrecourse basis, including from a Partner,
provided, however, that such borrowings shall not
exceed 50% of the net value of all Partnership
Property on the date of the loan, assuming for
purposes of such valuation that all producing oil
and gas properties held by the Partnership will be
valued at PV 10% (using flat pricing and flat
expenses) and all other Partnership Property will
be valued at book value using generally accepted
accounting principles, consistently applied.
(b) Notwithstanding any other provision of this
Agreement to the contrary, except as set forth below, the
General Partner may take or may cause the Partnership to
take the following actions only with the prior unanimous
approval of the Executive Committee:
(i) the selection and dismissal of senior
employees of the Partnership and the determination
of their compensation and terms of employment;
(ii) the sale, disposition or transfer of
more than 50% in value of the assets of the
Partnership (valuing such assets, for this purpose,
by using the criteria specified in Section
2.4(a)(ix) above) other than in the ordinary course
of business;
(iii) any merger or consolidation involving
the Partnership;
(iv) any termination or dissolution of the
Partnership prior to December 31, 2050, other than
a dissolution and termination caused by the
occurrence of an event described in Section 6.1;
(v) the initiation or modification of the
terms of any material transaction between the
General Partner and the Partnership; and
(vi) the commencement of any voluntary
bankruptcy action by the Partnership.
2.5 Reliance by Third Parties. Third parties dealing
with the Partnership are entitled to rely conclusively upon
the power and authority of the General Partner as hereinabove
set forth in this Article.
2.6 Relationship Between the General Partner and the
Limited Partners
(a) Notwithstanding anything to the contrary
contained herein, the acts of the General Partner in
carrying on the business of the Partnership as authorized
herein shall bind the Partnership. Hallador agrees that
it shall remain the General Partner of the Partnership
until an Event of Withdrawal and shall not liquidate to
effect a withdrawal from the Partnership.
(b) A Limited Partner shall have no right to, and
shall not, (i) take part in the management or control
(within the meaning of the Act) of the Partnership's
business, (ii) act for or bind the Partnership, (iii)
transact any business in the name of or on behalf of the
Partnership, or (iv) withdraw from the Partnership as a
limited partner until such Limited Partner has assigned
its Interest pursuant to and in accordance with the
provisions of Section 9.2. The Limited Partners, as
Limited Partners, shall only have the rights and powers
specifically granted to the Limited Partners in this
Agreement and pursuant to the Act, or which arise out of
the participation of the Limited Partners in the
Executive Committee actions as set forth in Section 2.4
of this Agreement.
(c) The General Partner shall not be obligated to
make any additional contributions to the capital of the
Partnership after the Initial Capital Contribution.
2.7 Liability of the Limited Partners. The liability of
the Limited Partners to third parties shall be limited as
provided in the Act. The Limited Partners acknowledge and
agree that they shall be liable to the Partnership for any
money or other property distributed, paid or conveyed to them
by the Partnership, to the extent required by applicable law.
The Limited Partners shall not be obligated to make any
additional contributions to the capital of the Partnership
after the Initial Capital Contribution. In the event the
Limited Partners are required under the Act to return to the
Partnership, for the benefit of creditors of the Partnership,
amounts previously distributed to the Limited Partners, the
obligation of the Limited Partners to return any such amount
to the Partnership shall be the obligation of the Limited
Partners and not the obligation of the General Partner. No
Limited Partner shall be liable to any third party with whom
or which the Partnership transacts any business by virtue of
such Limited Partner's appointment of a Representative to the
Executive Committee, and such appointment shall in no way
expand such Limited Partner's liabilities or obligations
hereunder.
2.8 Indemnification of General Partner, Limited Partners
and Representatives.
(a) To the fullest extent permitted by applicable
law, the employees and agents of the Partnership, the
General Partner and the Limited Partners and their
respective Affiliates, shareholders, directors, officers,
employees, servants and agents and each Representative
(each individually, an "Indemnitee") shall each be
indemnified and held harmless by the Partnership from and
against any and all damages, losses, penalties, fines,
settlement payments, obligations, liabilities, claims,
actions and causes of action (actual or threatened,
matured or unmatured, known or unknown, contingent or
otherwise) and costs and expenses suffered, sustained,
incurred or required to be paid by an Indemnitee,
including, without limitation, any costs of investigation
and counsel fees and expenses, based upon or arising from
any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or
investigative (including, without limitation, an action
by or in the right of the Partnership) which arise
primarily out of or relate primarily to the operations of
the Partnership, in which the Indemnitee may be involved,
or threatened to be involved, as a party or otherwise by
reason of its status as an employee or agent of the
Partnership, or as the General Partner, Limited Partners
or an Affiliate, shareholder, director, officer,
employee, servant or agent of the General Partner or a
Limited Partner or as a Representative, regardless of
whether the Indemnitee continues to be an employee or
agent of the Partnership or the General Partner, a
Limited Partner or an Affiliate, shareholder, officer,
employee, servant or agent of the General Partner or a
Limited Partner or a Representative at the time any such
liability or expense is paid or incurred, if (i) the
Indemnitee acted in good faith and in a manner he or it
reasonably believed to be in, or not opposed to, the best
interests of the Partnership, and, with respect to any
criminal proceeding, had no reasonable cause to believe
his or its conduct was unlawful, and (ii) the
Indemnitee's conduct did not constitute gross negligence
or willful or wanton misconduct. The termination of any
action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere,
or its equivalent, shall not, of itself, create a
presumption that the Indemnitee acted in a manner
contrary to that specified in (i) or (ii) above.
(b) To the fullest extent permitted by applicable
law, reasonable expenses (including counsel fees and
expenses) incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to this
Section 2.8 shall, from time to time, be advanced by the
Partnership prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the
Partnership of an undertaking by or on behalf of the
Indemnitee to repay such amount if it shall be determined
that such Person is not entitled to be indemnified as
authorized in this Section 2.8.
(c) The indemnification provided by this Section
2.8 shall be in addition to any other rights to which
those indemnified may be entitled under any agreement,
vote of the Partners, as a matter of law or otherwise,
both as to actions in the Indemnitee's capacity as an
employee or agent of the Partnership, the General
Partner, a Limited Partner, an Affiliate, shareholder,
director, officer, employee, servant or agent of the
General Partner or a Limited Partner or as a
Representative and to actions in any other capacity, and
shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of
the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain
insurance on behalf of the General Partner, the Limited
Partners, the Representatives and such other persons as
the General Partner shall reasonably determine, against
any liability that may be asserted against or expense
that may be incurred by such person in connection with
the Partnership's activities, regardless of whether the
Partnership would have the power to indemnity such person
against such liability under the provisions of this
Agreement.
(e) In no event may an Indemnitee subject the
Limited Partners, a Representative or the shareholders of
the General Partner to personal liability by reason of
these indemnification provisions.
(f) An Indemnitee shall not be denied
indemnification in whole or in part under this Section
2.8 because the Indemnitee had an interest or a conflict
of interest with the Partnership in the transaction with
respect to which the indemnification applies if the
transaction did not contravene or was not otherwise
prohibited by the terms of this Agreement.
(g) To the extent that, at law or in equity, an
Indemnitee has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to the
Partners, any Indemnitee acting under this Agreement or
otherwise, including as a director, officer, shareholder,
agent or employee of a General Partner, shall not be
liable to the Partnership or to any Partner for its good
faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they
expand or restrict the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are
agreed by the Partners to replace such other duties and
liabilities of such Indemnitee.
2.9 Other Matters Concerning, the General Partner, the
Partners and the Representatives.
(a) Any Partner and its Representatives may rely
on, and shall be protected in acting or refraining from
acting in reliance upon, any resolution, certificate,
statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture or other paper or
document believed to be genuine and to have been signed
or presented by the proper party or parties.
(b) The General Partner, the Limited Partners and
the Representatives may consult with legal counsel,
accountants, appraisers, management consultants,
investment bankers and other consultants and advisers
selected by them and any opinion of any such person as to
matters that the General Partner, a Limited Partner or a
Representative reasonably believes to be within its
professional or expert competence shall be full and
complete authorization and protection in respect of any
action taken or suffered or omitted by the General
Partner, a Limited Partner or a Representative hereunder
in good faith and in accordance with such opinion.
(c) Notwithstanding any other term of this
Agreement, whether express or implied, none of the
General Partner, Limited Partners, their respective
shareholders, directors, officers, employees, servants,
agents or Affiliates, the employees or agents of the
Partnership, or the Representatives shall be liable to
the Partnership or any other Partner or any officer,
director, partner, shareholder, employee, agent or
Affiliate of any such Partner or of any Affiliate of any
such Partner for any act or omission taken or omitted in
good faith by the General Partner or such other persons,
provided that such act or omission did not constitute
fraud, willful violation of law, willful violation of
this Agreement, reckless disregard of the duties of such
Person or gross negligence in the performance of its
duties, in each such case in relationship to the
Partnership.
2.10 Expenses. The Partnership will pay all its and the
General Partner's expenses.
2.11 Assumption of Liabilities. The Partnership hereby
assumes and undertakes to pay, perform and discharge, in
accordance with and subject to their respective terms, all of
the debts, liabilities and obligations of Hallador and
Production other than Excluded Liabilities as defined in the
Contribution Agreement.
2.12 Partnership Funds. The funds of the Partnership
shall be deposited in such account or accounts as are
designated by the General Partner and shall not be commingled
with the funds of, or used as compensating balances on behalf
of, the General Partner, any of its Affiliates or any of its
shareholders; provided, however, that nothing in this Section
shall be construed as preventing the General Partner, any of
its Affiliates or any of its shareholders from maintaining
deposit and other accounts at the same financial institutions
at which the Partnership maintains such accounts. All
withdrawals from or charges against the Partnership's accounts
shall be made by the General Partner or by its agents.
Surplus funds of the Partnership may be invested in New York
Stock Exchange listed securities, bonds carrying an "A" or
better rating, U.S. Treasury securities, money market
instruments or funds, certificates of deposit, savings
accounts and similar investments, all as determined by the
General Partner on the exercise of its prudent business
judgment.
2.13 Limited Partners' Consent Interests. With respect
to any action (a "Consent Action") requiring the consent
hereunder of a Majority in Interest or a specified percentage
in interest, as the case may be, of the Limited Partners, the
"Consent Interest" of any Limited Partner shall be equal to
such Limited Partner's Ownership Percentage Interest as a
proportion of all Ownership Percentage Interests held by all
Limited Partners. In the event any Consent Action is proposed
to be taken, the General Partner shall give notice to each
Limited Partner describing such proposed Consent Action in
reasonable detail at least 30 days prior to the proposed
action. Within 20 days following the giving of such notice,
each Limited Partner shall give notice to the General Partner
stating whether such Limited Partner approves such Consent
Action (and any failure to give such notice shall be deemed to
constitute approval by such Limited Partner),
2.14 Information. Each Partner shall furnish the other
Partners such information concerning itself as it may possess,
or obtain with reasonable effort, as the Partner may
reasonably request in order to comply with applicable law.
2.15 Loans to or from the General Partner.
(a) The General Partner or any of its Affiliates
may lend to the Partnership funds (a "Partnership Loan")
needed by the Partnership for such periods of time as the
General Partner may determine; provided, however, that
(i) interest on such indebtedness shall not exceed the
actual interest cost (including points or other financing
charges or fees, if any) that the General Partner or
lending Affiliate is required to pay on funds borrowed by
it or the highest lawful rate, whichever is less, and
(ii) in no event shall such indebtedness be on terms and
conditions less favorable than those that the Partnership
could obtain from unaffiliated third parties or banks for
the same purpose (without reference to the General
Partner's financial abilities or guarantees).
(b) The Partnership shall not make any loan or
advances to, or other investments in, the General
Partner, its shareholders or any of their Affiliates,
except with the approval of the Executive Committee as
provided in Section 2.4.
ARTICLE III
CAPITAL: ALLOCATIONS OF NET INCOME AND NET LOSS
3.1 Capital Contributions. Each Partner has, as of the
date hereof, made a Capital Contribution to the original
capital of the Partnership in the amount set forth opposite
such Partner's name in Schedule A hereto in the form of cash,
property or promissory notes. No Partner shall be entitled to
interest on his or its Capital Contributions and no such
interest shall be accrued.
3.2 Allocation of Net Income. After giving effect to
the special allocations set forth in Sections 3.4 and 3.5, the
Net Income of the Partnership for any fiscal year shall be
allocated to the Partners in accordance with their Ownership
Percentage Interests.
3.3 Allocation of Net Loss. After giving effect to the
special allocations set forth in Sections 3.4 and 3.5, Net
Loss of the Partnership shall be allocated to the Partners in
accordance with their Ownership Percentage Interest.
3.4 Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Notwithstanding any
other provision of this Agreement, if there is a net
decrease in Partnership Minimum Gain during any
Partnership fiscal year, the Partners who would otherwise
have an Adjusted Capital Account Deficit shall be
allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount
and manner sufficient to eliminate such Adjusted Capital
Account Deficit as quickly as possible. Any items so
allocated shall be determined in accordance with Treasury
Regulation Section 1.704-2. This Section 3.4(a) is
intended to comply with the minimum gain chargeback
requirement in such Section of the Treasury Regulations
and shall be interpreted consistently therewith.
(b) Qualified Income Offset. In the event any
Partner who is not a General Partner unexpectedly
receives an adjustment, allocation or distribution
described in (4), (5) or (6) of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d), items of Partnership income
and gain shall be specifically allocated in an amount and
manner sufficient to eliminate, to the extent required by
the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided
that an allocation pursuant to this Section 3.4(b) shall
be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article have been
tentatively made as if this Section 3.4 were not in this
Agreement.
(c) Gross Income Allocation. In the event any
Partner who is not a General Partner has a deficit
Capital Account at the end of any Partnership fiscal year
that is in excess of the sum of (a) the amount such
Partner is obligated to restore pursuant to any provision
of this Agreement; (b) the amount such Partner is deemed
to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulation Section 1.704-2(f); and
(c) the amount such Partner would be deemed obligated to
restore if Partner Loan Nonrecourse Deductions were
treated as Nonrecourse Deductions, each such Partner
shall be specially allocated items of Partnership income
and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this
Section 3.4(c) shall be made if and only to the extent
that such Partner would have a deficit Capital Account in
excess of such sum after all other allocations provided
for in this Article have been tentatively made as if
Section 3.4(b) hereof and this Section 3.4(c) were not in
the Agreement.
(d) Partner Loan Nonrecourse Deductions. Any
Partner Loan Nonrecourse Deductions for any fiscal year
or other period shall be allocated to the Partner who
bears the risk of loss with respect to the loan to which
such Partner Loan Nonrecourse Deductions are attributable
in accordance with Treasury Regulation Section 1.704-2.
(e) Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership
asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such
adjustment taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or
loss shall be specially allocated to the General Partner
and Limited Partners in a manner consistent with the
manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Treasury
Regulations.
3.5 Curative Allocations. The allocations set forth in
Sections 3.4(a), 3.4(b), 3.4(c)and 3.4(d) hereof (the
"Regulatory Allocations") are intended to comply with certain
requirements of Treasury Regulation Section 1.704-1(b).
Notwithstanding any other provision of this Article III (other
than the Regulatory Allocations), the Regulatory Allocations
shall be taken into account in allocating other Net Income,
Net Loss, and items of income, gain, loss, and deduction among
the General Partner and Limited Partners so that, to the
extent possible, the net amount of such allocations of other
Net Income, Net Loss, and other items and the Regulatory
Allocations to each General Partner and Limited Partner shall
be equal to the net amount that would have been allocated to
each such General Partner and Limited Partner if the
Regulatory Allocations had not occurred. Notwithstanding the
preceding sentence, Regulatory Allocations relating to (a)
Nonrecourse Deductions shall not be taken into account except
to the extent that there has been a reduction in Partnership
Minimum Gain, and (b) Partner Loan Nonrecourse Deductions
shall not be taken into account except to the extent that
there would have been a reduction in Partnership Minimum Gain
if the loan to which such deductions are attributable were not
made or guaranteed by a Partner within the meaning of Treasury
Regulation Section 1.704-2.
3.6 Other Allocation Rules.
(a) For purposes of determining the Net Income, Net
Loss, or any other items allocable to any period, Net
Income, Net Loss and any such other items shall be
determined on a daily, monthly, or other basis, as
determined by the General Partner using any permissible
method under Code Section 706 and the Treasury
Regulations thereunder.
(b) All allocations to the Limited Partners
pursuant to this Article III shall, except as otherwise
provided, be divided among them in proportion to the
Ownership Percentage Interests held by each. In the
event there is more than one General Partner, all such
allocations to the General Partners shall be divided
among them as they may agree.
(c) Except as otherwise provided in this Agreement,
all items of Partnership income, gain, loss, deduction,
and any other allocations not otherwise provided for
shall be divided among the General Partners and Limited
Partners in the same proportions as they share Net Income
or Net Loss, as the case may be, for the year.
(d) The Partners are aware of the income tax
consequences of the allocations made by this Article III
and hereby agree to be bound by the provisions of this
Article III in reporting their shares of Partnership
income and loss for income tax purposes.
ARTICLE IV
DISTRIBUTIONS
4.1 (a) Distributions for Tax Purposes. The
Partnership shall distribute to the Partners pro rata in
accordance with each Partner's respective share of the
Partnership's taxable income for federal income tax purposes
("Taxable Income") with respect to a taxable year, an amount
equal to 35% of the Partnership's Taxable Income for such
taxable year; provided that the percentage of Taxable Income
to be distributed pursuant to this clause (a) will be
increased from 35% if the marginal rate of the aggregate of
federal, state and local income taxes of any of the General
Partner's shareholders increases to a level over 35%.
(b) Quarterly Distributions. The Partnership will
use its reasonable best efforts to distribute on or prior to
April 10, June 10 and September 10 of any year and January 10
of the following year, an amount equal to 25% of the General
Partner's good faith estimate of the total amount to be
distributed for the current taxable year pursuant to Section
4.1(a). Any excess of the total amount to be distributed
pursuant to the previous sentence shall be distributed, if
practicable, on or before April 10 of the following year.
(c) Additional Distributions. Additional
distributions will be made to any Partner in an amount equal
to any tax deficiency (including interest) that results to
such Partner (or shareholders of a Partner in the case of the
General Partner) from a reallocation of Partnership Taxable
Income. Such distributions will be disregarded in determining
the Ownership Percentage Interest of each Partner, but will be
taken into account in determining such Partner's proceeds on
the liquidation of the Partnership.
(d) Discretionary Distributions of Net Income. At
the discretion of the Executive Committee, any remaining Net
Income, cash or other assets may be distributed to the General
Partner and the Limited Partners in accordance with their
respective Ownership Percentage Interests.
(e) Amounts Withheld. All amounts withheld
pursuant to the Code or any provision of any state or local
tax law with respect to any payment or distribution to the
Partnership or the Partners shall be treated as amounts
distributed to the Partners pursuant to this Section 4.1 for
all purposes under this Agreement.
4.2 Revaluation of Capital Accounts. Immediately
preceding the admission of additional Limited Partners (as
opposed to a substitution of a Limited Partner), the
Partnership shall be valued with reference to the amount paid
for the Interest being acquired by the additional Limited
Partner. The increase or decrease in the value of the
Partnership since the last such valuation shall be allocated
to the General Partner and the Limited Partners pro rata in
accordance with their relative Ownership Percentage Interests
immediately preceding such revaluation.
ARTICLE V
REPORTS TO PARTNERS
5.l Records and Accounting. The General Partner, at the
expense of the Partnership, shall keep or cause to be kept
full, accurate and complete books of account of the
Partnership, which shall record and reflect all of the
contributions to the capital of the Partnership and all of the
income, expenses and transactions of the Partnership. Such
books of account shall be kept at the principal place of
business of the Partnership, and each General Partner and
Limited Partner and his or its authorized representatives
shall have at all times, during reasonable business hours,
free access to and the right to inspect and copy such books of
account. Any records maintained by the Partnership in the
regular course of its business, including the records of the
holders of Limited Partnership Interests, books of account and
records of Partnership proceedings, may be kept on or be in
the form of punch cards, magnetic tape, photographs,
micrographics or any other information storage device,
provided that the records so kept are convertible into clearly
legible written form within a reasonable period of time. The
Partnership shall maintain such additional books and records
as are necessary to prepare annual financial statements of the
Partnership that are in conformity with generally accepted
accounting principles. All decisions as to accounting
matters, except as specifically provided to the contrary
herein, shall be made by the General Partner in its
reasonable, good faith judgment.
5.2 Reports.
(a) Within 60 days of the end of each calendar
quarter, the General Partner shall cause to be mailed to
each Limited Partner an unaudited quarterly income
statement, balance sheet and cash flow statement.
(b) Within 120 days after the end of each fiscal
year, the General Partner shall cause to be prepared and
mailed to each Limited Partner audited financial
statements, audited by a public accounting firm selected
by the General Partner.
ARTICLE VI
TERMINATION AND DISSOLUTION
6.1 Events of Termination. The Partnership shall be
dissolved and its affairs wound up pursuant to Section 6.2,
and this Agreement shall terminate, upon the first to occur of
any of the following events (each of which is referred to in
this Agreement as an "Event of Termination"):
(a) the execution by each Partner of a unanimous
written consent to dissolution;
(b) the unanimous consent of the Representatives of
the Executive Committee;
(c) the sale or other disposition or all or
substantially all of the assets of the Partnership;
(d) the dissolution, winding-up, cessation of
business of the Partnership or the withdrawal of all of
the Partners;
(e) an Event of Withdrawal unless (i) at the time
of the occurrence of such Event of Withdrawal there is at
least one other General Partner who is hereby authorized
and agrees to continue the Partnership without
dissolution, or (ii) within 90 days after the occurrence
of such Event of Withdrawal, all the Partners agree in
writing to continue the Partnership and the appointment,
effective as of the date of such Event of Withdrawal, of
one or more additional general partners of the
Partnership; or
(f) December 31, 2050.
6.2 Winding-Up. Upon the occurrence of an Event of
Termination, the Partnership's affairs shall be wound up as
follows:
(a) The General Partner or a person designated by
the General Partner (or, in the case of an Event of
Withdrawal, a person designated by a Majority in Interest
of the Limited Partners) (in any such case, the
"Liquidator") shall cause to be prepared a balance sheet
of the Partnership as of the date of dissolution and a
proper accounting of the items of income, gain, loss,
deduction and credit of the Partnership from the date of
the last previous accounting to the date of dissolution.
Financial statements presenting such accounting shall
include a report of an independent certified public
accountant.
(b) The assets and properties of the Partnership
shall be liquidated as promptly as possible and
receivables collected, all in an orderly and business-
like manner so as not to involve undue sacrifice.
Notwithstanding the foregoing, but subject to the order
or priorities set forth in Section 6.2(c), if on
dissolution of the Partnership the Liquidator determines
that an immediate sale of part or all of the
Partnership's assets and properties would be impractical
or would cause undue loss to the Partners, the Liquidator
may, in its absolute discretion, defer for a reasonable
time the liquidation of any Partnership Properties
(except those necessary to satisfy debts, liabilities and
reserves of the Partnership referred to in Section
6.2(c)).
(c) The proceeds of liquidation under Section
6.2(b) and all other assets and properties of the
Partnership shall be applied and distributed in the
following order of priority, unless otherwise required by
mandatory provisions of applicable law:
(i) to the payment of the debts and
liabilities of the Partnership and the expense of
liquidation including the establishment of any
reserves that the Liquidator, acting in accordance
with sound business judgment, deems reasonably
necessary for any contingent, conditional or
unmatured liabilities or obligations of the
Partnership, which reserves may be paid over by the
Liquidator to an escrow agent selected by him to be
held by such agent for the purpose of (A)
distributing such reserves in payment of the
aforementioned contingencies and (B) upon the
expiration of such period as the Liquidator may
deem advisable, distributing the balance thereof in
the manner provided in this Section 6.2(c); and
(ii) to the Partners in accordance with their
positive Capital Account balances. Distributions
pursuant to this Section 6.2(c)(ii) may be
distributed to a trust or an entity established for
the benefit of the Partners for the purposes of
liquidating Partnership assets, collecting amounts
owed to the Partnership and paying any contingent
or unforeseen liabilities or obligations of the
Partnership or of any Partner arising out of or in
connection with the Partnership. The assets of any
such trust or entity shall be distributed to the
Partners from time to time in accordance with each
Partner's Ownership Percentage Interest.
(d) The Partners shall comply with all requirements
of applicable law pertaining to the winding-up of the
Partnership.
(e) The Liquidator (if other than the General
Partner) shall be entitled to receive such compensation
for its services as may be approved by a Majority in
Interest of the Limited Partners, which approval shall
not be unreasonably withheld. Such compensation shall
constitute an expense of liquidation borne by the
Partnership and governed by Section 6.2(c)(i). The
Liquidator shall agree not to resign at any time without
60 days' prior written notice and may be removed at any
time, with or without cause, by notice of removal
approved by unanimous consent of the Limited Partners.
Upon dissolution, removal or resignation of the
Liquidator, a successor or substitute Liquidator (who
shall have and succeed to all rights, powers and duties
of the original Liquidator) shall, within 90 days
thereafter, be approved by the Limited Partners. The
right to approve a successor or substitute Liquidator in
the manner provided herein shall be recurring and
continuing for so long as the functions and services of
the Liquidator are authorized to continue under the
provisions hereof, and every reference herein to the
Liquidator will be deemed to refer also to any such
successor or substitute Liquidator approved in the manner
herein provided. Except as expressly provided in this
Article VI, the Liquidator approved in the manner
provided herein shall have and may exercise, without
further authorization or consent of any of the Partners,
all of the powers conferred upon the General Partner
under the terms of this Agreement (but subject to all of
the applicable limitations, contractual and otherwise,
upon the exercise of such powers) to the extent necessary
or desirable in the good faith judgment of the Liquidator
to carry out the duties and functions of the Liquidator
hereunder (including the establishment of reserves for
liabilities that are contingent or uncertain in amount)
for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to
complete the winding-up and liquidation of the
Partnership as provided for herein.
ARTICLE VII
RIGHTS IN PARTNERSHIP NAME
7.1 License to Use Name. The Partnership grants to
Hallador a perpetual, non-exclusive, royalty free, assignable
license to use the Partnership name or any derivative thereof.
ARTICLE VIII
TAX MATTERS
8.1 Preparation of Tax Returns. The General Partner
shall arrange for the preparation and timely filing of all
returns of Partnership income, gains, deductions, losses and
other items necessary for federal and state income tax
purposes and shall use all reasonable efforts to furnish to
Partners within 90 days of the close of the taxable year the
tax information reasonably required for federal and state
income tax reporting purposes. The classification,
realization and recognition of income, gain, losses and
deductions and other items shall be on the cash or accrual
method of accounting for federal income tax purposes, as the
General Partner shall determine in its sole discretion. The
taxable year of the Partnership shall be the calendar year,
unless the General Partner shall upon request by any Partner
determine otherwise in its sole discretion.
8.2 Tax Elections. The General Partner shall, in its
sole discretion, determine whether to make any available
election pursuant to the Code including the election under
Section 754 of the Code in accordance with applicable
regulations thereunder.
8.3 Tax Controversies. Subject to the provisions
hereof, the General Partner is designated the Tax Matters
Partner (as defined in Section 6231 of the Code), and is
authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of
the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to
expend Partnership funds for professional services and costs
associated therewith. Each Partner agrees to cooperate with
the General Partner and to do or refrain from doing any or
all things reasonably required by the General Partner to
conduct such proceedings.
ARTICLE IX
ARBITRATION
9.1 Arbitration. If any controversy arises between or
among any of the parties hereto, including the Partnership,
with respect to any matter, such controversy shall be
submitted to and determined by a board of three arbitrators
which shall sit in Denver, Colorado. The parties intend that
arbitration shall be the sole judicial or quasi-judicial
remedy available to enforce their rights and the board of
arbitrators is hereby empowered to have all of the powers and
remedies available to it as are available to any U.S. federal
district court as well as to any federal court of appeals
including, without limitation, the powers of such a court
sitting in equity. Also, the board of arbitrators shall be
vested with all other powers as may be provided by the laws of
the United States and Colorado. If the arbitration is not
accomplished as set forth herein, then this agreement for the
submission to arbitration shall be enforced by appropriate-
proceedings at the request of any party.
Any party may notify the other party or parties in
writing of its desire to have arbitration and of the name of
the arbitrator selected by the party(ies) giving such notice.
Within 20 actual (not business) days after receipt of such
notice, the party(ies) receiving the same shall select the
second arbitrator and notify the party giving notice of the
name of such second arbitrator. If the party(ies) receiving
such notice shall fail to name a second arbitrator within such
20 days, the party giving such notice shall name a second
arbitrator. The parties hereby agree that this procedure is
equitable in a situation where the notified party fails to
name its arbitrator within such 20 days. If the two
arbitrators so named shall fail within 20 actual days after
the appointment of the second arbitrator to agree upon and
select a third arbitrator, then each arbitrator shall, on the
second business day in Colorado following the expiration of
such 20 days, simultaneously submit to the other arbitrator a
list of five persons willing to serve as, and suggested by the
arbitrator to be, the third arbitrator. Within ten business
days in Colorado thereafter, the two appointed arbitrators
shall meet in person at a place of their choosing. At such
meeting, each arbitrator shall select one person from the
other arbitrator's list of five names and a coin shall be
flipped to determine which of the two selected persons shall
be the third arbitrator.
The arbitrators shall, as quickly as practicable, fix a
reasonable time and place for hearings, at which each party
may submit such evidence as it may see fit, and the parties
hereby expressly waive the rules of discovery, procedure and
evidence which would apply in cases at law or in equity and
agree that the arbitrators may establish their own rules of
discovery, procedure and evidence. The decision of the
arbitrators shall be made within 30 days, or such longer
period as may be required in unusual circumstances, after the
conclusion of any hearing. The decision of the arbitrators
shall be in writing, signed by the arbitrators or a majority
of them, and shall be final and binding upon the parties and
be non-appealable, except for actual common law fraud
perpetrated by a majority of the arbitrators.
Unless otherwise ordered by the arbitrators, each party
shall pay the fees and expenses of the arbitrator selected by
it and one-half of the fees and expenses of the third
arbitrator. All other fees and expenses of each party,
including without limitation, the fees and expenses of its
counsel, witnesses and others acting for it, shall be paid as
determined by the arbitrators or a majority of them.
ARTICLE X
MISCELLANEOUS
10.1 Further Assurances. Each of the parties hereto
agrees that he or it will make, execute and acknowledge such
instruments, documents and certificates as from time to time
may be required by law or may otherwise be necessary or
convenient to effectuate the provisions of this Agreement and
that if any action shall be taken pursuant to this Agreement
by the required percentage of all or any of the Partners (or
by their Representatives) or by the General Partner, when
authorized hereunder, even though such party may not have
assented thereto, or may have objected thereto, it will
nevertheless execute any such writing or instrument as may be
necessary to carry out and perfect such action, including
without limitation any Certificate of Limited Partnership or
amendment thereto, any instrument effecting or evidencing the
admission or withdrawal of a Partner and any amendment or
supplement to this Agreement.
10.2 Transfers of Interests; Admission of Additional
Partners.
(a) Subject to applicable requirements of the Act
and the other provisions hereof, the Limited Partners may
Transfer all or any portion of their Interest or any
interest therein only (i) if the transaction complies
with and does not violate any federal or state securities
law, will not subject the Partnership, any other Partner
or any Affiliate thereof to additional regulatory
requirements and will not cause the termination or
dissolution of the Partnership or cause it to be
classified other than as a partnership for United States
federal income tax purposes, (ii) with the prior written
consent of the General Partner, and (iii) with the prior
written consent of 80% in Interest of the Limited
Partners; provided, however, the Transfer of a Limited
Partner's Interest to its Affiliates or their respective
partners, investors, security holders or beneficial
holders, if required by its organizational documents or
other agreements, shall not require the consent of any
Partner.
(b) Upon compliance with Section 10.2(a) with
respect to the transfer of all or any portion of an
Interest, the Transferee shall, to the extent previously
consented to by the General Partner and the Limited
Partners (if required), become a Limited Partner and
shall succeed proportionately to the Interest Transferred
by the Transferor and shall become subject to all of the
obligations of the Transferor with respect to such
Interest only upon compliance with the following
additional conditions: (i) the proposed Transferee shall
have executed an amendment to this Agreement, and shall
have executed such other instruments as the General
Partner may reasonably deem necessary or desirable, to
admit such Transferee as a Partner (including the
execution of a counterpart of this Agreement and an
appropriate supplement to this Agreement pursuant to
which such Partner shall agree to be bound by and comply
with the terms and provisions hereof); and (ii) the
Transferor shall have paid or caused to have been paid
to the Partnership all of the Partnership's expenses
connected with such Transfer and substitution (including,
but not limited to, the reasonable legal and accounting
fees of the Partnership).
(c) Upon compliance with the terms of Section
10.2(a) and (b) above, the Transferee shall be admitted
to the Partnership as a limited partner of the
Partnership when such Transferee is listed as a limited
partner of the Partnership on the books and records of
the Partnership.
(d) Any purported Transfer by any Partner
(including assignees thereof or substituted partners
therefor) of any Interest not made strictly in accordance
with the provisions of this Section 10.2 or otherwise
permitted by this Agreement shall be entirely null and
void.
(e) Upon approval and at the direction of the
Executive Committee (which approval and direction shall
not be required prior to the Closing Date), the General
Partner shall admit additional Limited Partners to the
Partnership on such terms and conditions as the Executive
Committee may establish in its sole discretion upon
compliance with the following conditions: (i) the
transaction will comply with and will not violate any
federal or state securities law, will not subject the
Partnership, any other Partner or any Affiliate of any of
them to additional regulatory requirements, and will not
cause the termination or dissolution of the Partnership
or cause it to be classified other than as a partnership
for federal income tax purposes; (ii) the person proposed
to be admitted as an additional Limited Partner shall
have executed an amendment to this Agreement pursuant to
which such person shall agree to be bound by and comply
with the terms and provisions hereof, and shall have
executed such other instruments as the General Partner
may deem necessary or desirable, to admit such person as
an additional Limited Partner, and (iii) the proposed
additional Limited Partner (if not an employee of the
Partnership, the General Partner or one of its
Affiliates) shall have paid or caused to have paid to the
Partnership all of the Partnership's expenses connected
with such admission (including, but not limited to, the
reasonable legal and accounting fees of the Partnership).
(f) The term "Limited Partner" used in this
Agreement shall be deemed to apply to and include each
additional and substituted Limited Partner admitted to
the Partnership pursuant to this Section 10.2.
(g) Notwithstanding any provision of this Agreement
to the contrary, no Transfer of any Interest shall be
effective to convey any Interest in the Partnership until
the Transferee executes all necessary certificates or
other documents and performs all acts required in
accordance with the laws of the State of Colorado and any
other applicable law, and any and all documents as shall
be required from time to time by the rules and
regulations of any regulatory body or commission having
jurisdiction over the Partnership, to the full extent the
same may be necessary to constitute such Transferee a
Partner and preserve the status of the Partnership as a
partnership after the completion of such Transfer in
accordance with such laws. Each such Transferee by
accepting the Transfer of an Interest agrees upon the
request of a Partner to execute such certificates or
other documents and to perform such acts and gives the
power of attorney set forth in Section 1.8 as fully as
though such Transferee was an original signatory hereto.
(h) If any Interest is sold, assigned, or
transferred during any taxable year of the Partnership in
compliance with the provisions of this Section 9.2, Net
Income, Net Loss, each item thereof, and all other items
attributable to such Interest for such period shall be
divided and allocated between the transferor and the
transferee by taking into account their varying interest
during the period in accordance with Code Section 706(d),
using any conventions permitted by law and selected by
the General Partner. All distributions on or before the
date of such transfer shall be made to the transferor,
and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such
allocations and distributions, the Partnership shall
recognize such transfer not later than the end of the
calendar month during which it is given notice of such
transfer.
10.3 Preemptive Rights. The General Partner and the
Limited Partners shall have preemptive rights regarding the
sale or issuance of any Interests in the Partnership (other
than any Interests issued pursuant to an employee benefit
equity participation or bonus plan under Section 2.4(a)).
Prior to issuing any Interest in the Partnership (other than
Interests issued pursuant to Section 2.4(a)), the Partnership
shall by prompt written notice first offer such Interest to
the Partners existing on the date that the Executive Committee
authorizes the issuance of Interests under Section
2.4(a)(vii). The written notice shall indicate the
subscription price for such Interest and the other terms and
conditions of the proposed issuance. For a period of 20 days
after the date of the notice (the "Primary Rights Period"),
the Partners shall have a right to purchase all, part or none
of the offered Interest in proportion to their respective
Ownership Percentage Interests. If the Partners fail to
exercise their rights as to the entire Interest offered, then
the Partners who or which exercised their preemptive rights
during the Primary Rights Period (if any) shall, for a period
of 10 days after the expiration of the Primary Rights Period
(the "Secondary Rights Period"), have the right to purchase
any remaining Interest in proportion to their respective
Ownership Percentage Interests (without regard to the
Ownership Percentage Interests of those Partners who or which
failed to exercise their fights during the Primary Rights
Period). In the event that any Interest remains after the
expiration of the Primary Rights Period and the Secondary
Rights Period, such Interest may, for a period of 90 days
thereafter, be offered and sold to any Person (subject to the
other provisions of this Agreement) on terms and conditions no
more favorable than those offered to the Partners. If the
offers and sales to other Persons are not consummated within
such 90-day period, the Interest shall again be offered to the
Partners in the manner described above prior to any offer and
sale to any other Persons.
10.4 Binding Agreement. Except as otherwise provided
herein to the contrary, this Agreement shall be binding upon
and inure to the benefit of the legal representatives, heirs,
distributees, permitted successors and assigns of each of the
Partners.
10.5 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, and all such counterparts shall together constitute
but one and the same instrument.
10.6 Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in
writing and shall be deemed to have been given at the time
when mailed in any general or branch United States post office
by certified mail, return receipt requested, postage prepaid,
by reputable overnight delivery service (such as Federal
Express), by hand or by facsimile transmission (provided,
however, that any notice sent by facsimile transmission shall
also be sent by at least one other method provided for herein)
addressed, if to the Partnership, to the address of its
principal office, and if to any of the Partners, to the
address specified in Schedule A hereto or to such changed
address as such Partner may have given notice as provided in
this Section 9.6, provided however, that any notice of change
of address of a Partner shall be effective only upon receipt.
10.7 Amendments. Any waiver, modification or amendment
to this Agreement may be proposed by any Partner. Any such
waiver, modification or amendment shall be proposed by
submitting to all other Partners in writing the proposed
waiver, modification or amendment. Subject to Section 2.4,
any such waiver, modification or amendment shall become
effective upon the consent of the General Partner and a
Majority Interest of the Limited Partners, provided, however,
that no provision of this Agreement calling for the
affirmative vote or consent of a specified percentage in
interest of the Limited Partners may be approved without the
approval of the General Partner and at least such percentage
in interest of the Limited Partners and provided, further,
that no amendment shall modify the provisions of Article III
or IV without the consent of each Partner affected. The
General Partner shall notify all Partners upon the final
adoption of any proposed amendment and such amendment shall be
in writing.
10.8 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto with respect to its
subject matter and shall not be changed or terminated orally.
10.9 Governing Law. This Agreement, and its validity,
construction and performance, shall be governed by the laws of
the State of Colorado, without regard to conflict of laws or
other rules (whether of the State of Colorado or any other
jurisdiction) that would result in the application of the laws
of any jurisdiction other than the State of Colorado.
10.10 Headings and Captions. Article titles and
other headings and captions in this Agreement are inserted
only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
10.11 Severability. In case any one or more of the
provisions contained in this Agreement or any application
thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the
remaining provisions contained herein and other applications
thereof shall not in any way be affected or impaired thereby.
10.12 No Assets of Employee Benefit Plans. Each of
the Partners covenants and agrees on behalf of itself and each
of its partners that (a) it has not used, nor will it use, the
assets of an employee benefit plan as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as
amended, in the exercise of any of its obligations or rights
specified herein or in the performance of any transaction
contemplated hereunder or thereunder; and (b) it will not
transfer its interest in the Partnership to a person or entity
which could not make the covenants and warranties set forth in
clause (a) above. The General Partner agrees that it will not
admit to the Partnership any Partner who shall be unable to
make the covenants and warranties set forth in clause (a)
above.
10.13 Survival of Certain Provisions. Each of the
Partners agrees that the covenants and agreements set forth in
Sections 2.7, 2.8, 2.9, 6.2, 7.1, 8.1, 8.2, 8.3, 10.14, 10.15
and 10.16 shall survive the dissolution and termination of the
Partnership.
10.14 Waiver of Partition. Except as may be
otherwise provided by law in connection with the winding up,
liquidation and dissolution of the Partnership, each Partner
hereby irrevocably waives any and all rights that it may have
to maintain an action for partition of any of the Partnership
Properties.
10.15 Property Rights; Confidentiality. All books,
records and accounts maintained exclusively for the
Partnership (including, without limitation, marketing reports
and all other data whether stored on paper or in electronic or
other form), and any contracts or agreements entered into by
or exclusively on behalf of the Partnership, and all
technology developed by the Partnership shall at all times be
the exclusive property of the Partnership. All property (real
or personal or mixed) purchased with Partnership funds, and
all moneys held or collected for or on behalf of the
Partnership shall at all times be the exclusive property of
the Partnership. No Partner shall, during the period such
Partner is a Partner and for a period of three years after
such Partner has ceased to be a Partner, disclose any
confidential or proprietary information with respect to the
Partnership to any person, except (a) with the prior written
consent of the other Partners; (b) to the extent necessary to
comply with law or an order of a court or administrative
authority of competent jurisdiction, in which event the Person
making such disclosure shall so notify the other as promptly
as practicable (and, if possible, prior to making such
disclosure) and shall seek confidential treatment of such
information; (c) as part of its normal reporting or review
procedure to its parent company or Affiliates, its auditors
and its attorneys; (d) in connection with the enforcement of
such Partner's rights hereunder; (e) disclosures to an
Affiliate of, or professional advisor to, such Partner; (f) to
a prospective Transferee of all or a portion of such Partner's
Interest in connection with a Transfer of such Interest in
accordance with the terms of this Agreement provided, however,
that such Transferee has entered into a confidentiality
undertaking containing provisions substantially similar to
those provided for herein , (g) to the extent such information
is or becomes generally available to the public other than as
a result of the disclosure by such Partner; and (h) in the
case of Hallador or its Affiliates, to the extent necessary
for it, him or them to conduct business activities after the
dissolution and termination of the Partnership. Except as
provided in the immediately preceding sentence, no Partner,
nor any of its Affiliates, shall, during the periods referred
to in such sentence, use any confidential or proprietary
information with respect to the Partnership other than for the
benefit of the Partnership provided, however, that in the case
of disclosure pursuant to clauses (c), (e) or (f), such
Partner shall cause the person to whom such information is
disclosed to maintain the confidentiality of such information
except as otherwise permitted by this Section 9.15.
10.16 Creditors. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any
creditors of the Partnership.
IN WITNESS WHEREOF, the parties hereto have hereunto set
their hands as of the date first above written.
HALLADOR
Address: HALLADOR PETROLEUM COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
By /S/VICTOR P. STABIO
---------------------------
Victor P. Stabio,
President
PRODUCTION
Address: HALLADOR PRODUCTION COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
By /S/VICTOR P. STABIO
---------------------------
Victor P. Stabio,
President
LP INVESTORS
c/o Dillon, Read & Co. Inc. YORKTOWN ENERGY PARTNERS II,
535 Madison Avenue L.P.
New York, NY 10022
By Yorktown II Corp.,
its General Partner
By /S/BRYAN H. LAWRENCE
---------------------------
Bryan H. Lawrence
DILLON, READ & CO. INC., as
agent
535 Madison Avenue
New York, NY 10022
By /S/BRYAN H. LAWRENCE
---------------------------
Bryan H. Lawrence
Managing Director
PINNACLE ENGINE COMPANY LLC
370 17th Street, Suite 2750
Denver, CO 80202 By /S/CORTLANDT S. DIETLER
---------------------------
Cortlandt S. Dietler
DAVID C. HARDIE TRUST, DATED
SEPTEMBER 13, 1972
740 University Avenue, Suite 110
Sacramento, CA 95825 By /S/DAVID C. HARDIE
---------------------------
David C. Hardie, Trustee
STEVEN R. HARDIE TRUST,
---------------------------
DATED SEPTEMBER 13, 1972
1407 Upper River Road
Gold Hill, OR 97525 By /S/STEVEN R. HARDIE
---------------------------
Steven R. Hardie, Trustee
REXONAD BEAUFORT, INC.
470 Amethyst Street
New Orleans, LA 70124 By /S/EDWIN C. JAMES
---------------------------
Edwin C. James, President
SCHEDULE
<TABLE>
<CAPTION>
Amount of Amount of
Name and Address Contribution Partnership Interest
- --------------------------- ---------------- --------------------
<S> <C> <C>
Hallador Petroleum Company All of its assets 35.45% (a)
1660 Lincoln, suite 2700 and liabilities
Denver, CO 80264 valued at
303-839-5506 $6,000,000
Fax 303-832-3013
Hallador Production Company All of its assets 34.86% (b)
1660 Lincoln, Suite 2700 and liabilities
Denver, CO 80264 valued at
303-839-5506 $5,900,000
Fax 303-832-3013
Yorktown Energy Partners II, L.P. $3,968,100 cash 23.45% (b)
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, NY 10022
212-906-7145
Fax 212-906-8690
Dillon, Read & Co. Inc., as Agent $ 831,900 cash 4.92% (b)
535 Madison Avenue
New York, NY 10022
212-906-7145
Fax 212-906-8690
Pinnacle Engine Company LLC $ 100,000 cash 0.59% (b)
Attn: Cortlandt S. Dietler
370 17th Street, Suite 2750
P. O. Box 5660
Denver, CO 80217
303-626-8200
Fax 303-626-8228
David C. Hardie Trust $ 50,000 cash 0.29% (b)
dated September 13, 1972
Suite 110
740 University Ave.
Sacramento, CA 95825
916-920-0191
Fax 916-920-3018
Steven R. Hardie Trust $ 50,000 cash 0.29% (b)
dated September 13, 1972
1407 Upper River Road
Gold Hill, OR 97525
541-855-8747
Fax 541-955-9011
Rexonad Beaufort, Inc. $ 25,000 cash 0.15% (b)
Attn: Mr. Edwin C. James
470 Amethyst Street
New Orleans, LA 70124
504-288-4326
Fax 504-288-7329
$16,925,000 100.00%
</TABLE>
- ------------------
(a) General partnership interest
(b) Limited partnership interest
