SECURED PROMISSORY NOTE
$612,395.47 April 23, 1998
1. Principal.
For value received, SANTA BARBARA PARTNERS, an Oklahoma general
partnership ("Borrower"), HALLADOR PETROLEUM, LLP, a Colorado limited
liability partnership, HALLADOR PETROLEUM COMPANY, a Colorado corporation,
HALLADOR PRODUCTION COMPANY, a Colorado corporation, and TRIO PETROLEUM,
INC., a California corporation (collectively, "Maker"), jointly and
severally promise to pay to the order of BANKERS TRUST COMPANY, a New York
corporation, as Trustee under a Trust Agreement dated as of January 1,
1956, with GTE Service Corporation and others and amended and restated
effective March 1, 1981 ("Holder"), the principal sum of Six Hundred
Twelve Thousand Three Hundred Ninety-Five and Forty-Seven/Hundredths
Dollars ($612,395.47) together with accrued interest from the date of
disbursement on the unpaid principal until paid in full at the rates and
times as set forth herein. This Secured Promissory Note (the "Note") is
issued in connection with that certain Term Loan Agreement dated as of May
25, 1990 by and among Borrower, Trust Company of the West, a California
trust company, in the capacities set forth therein ("TCW"), and The TCW
Commingled Debt and Royalty Fund IIIB, a California Limited Partnership
(as heretofore or hereafter amended, modified or supplemented, from time
to time, the "Term Loan Agreement") and replaces the Amended Secured
Promissory Note dated as of May 25, 1990 executed by Borrower, as Maker,
in favor of Holder. As used herein, the term "Holder" shall mean Holder
and any subsequent holder of this Note, whichever is applicable from time.
Capitalized terms used herein without definition shall have the meanings
set forth in the Term Loan Agreement.
2. Maturity Date.
(a) The unpaid principal balance hereof, together with all
unpaid interest accrued thereon, and all other amounts payable by Maker
under the terms of the Loan Documents shall be due and payable on June 1,
1999 (the "Maturity Date") unless sooner paid or as otherwise provided
herein or in the Term Loan Agreement.
(b) If the Maturity Date should fall on a day other than a
Business Day, payment of the outstanding principal and all other amounts
due under the terms hereof shall be made on the immediately preceding
Business Day and such reduction of time shall be included in computing any
interest in respect of such payment.
3. Prepayment.
Upon not less than thirty (30) Business Days' prior notice in
writing to Holder, Maker may, on any Monthly Payment Date (as defined
below) prior to the Maturity Date, prepay all or, in an amount not less
than $100,000 in the aggregate for all of the Secured Promissory Notes of
even date herewith executed by Maker, any part of the outstanding
principal balance of this Note together with all interest accrued on the
principal amount of such prepayment to the date thereof without premium or
penalty.
4. Interest Rate; Calculation.
(a) Interest shall accrue from the date hereof until the
Maturity Date on the unpaid principal amount at the rate of nine percent
(9%) per annum. Any principal or interest payments not paid when due,
whether on the Maturity Date or any Monthly Payment Date, by notice of
prepayment, by acceleration or otherwise, shall bear interest at the rate
of the lesser of sixteen percent (16%) per annum or the maximum rate
permitted by law.
(b) Interest shall be computed on the basis of a 360-day year
and on the actual number of days elapsed in any quarter with respect to
periods of less than one Calendar Quarter.
5. Payment of Principal and Interest.
On the final Business Day of each calendar month (the "Monthly
Payment Date"), commencing on May 29, 1998, Maker shall make a payment to
Holder in the amount of Sixteen Thousand Two Hundred Sixty and
No/Hundredth Dollars ($16,260.00) ("Monthly Payment"). Each such Monthly
Payment shall be applied, first, to the amount of all accrued and unpaid
interest due hereunder, and second, to the payment of principal.
6. No Deductions.
All payments of principal and interest on this Note shall be
made without deduction of any present and future taxes, levies, imposts,
deductions, charges or withholdings, which amounts shall be paid by Maker.
Maker will pay the amounts necessary, such that the gross amount of the
principal and interest received by Holder is not less than that required
by this Note. All stamp and documentary taxes shall be paid by Maker.
If, notwithstanding the foregoing to the contrary, Holder pays such taxes,
Maker will reimburse Holder for the amount paid. Maker will furnish
Holder official tax receipts or other evidence of payment of all taxes.
7. Manner of Payment.
All payments of principal and interest hereunder shall be made
to Holder in immediately available funds at Sanwa Bank California, ABA
Routing No. 122003516, Trust Operations Center, 1977 Saturn Street,
Monterey Park, California 91754 (for credit to the account of Trust
Company of the West, Account No. 40012007, as Agent, Attention: TCW Wire
Transfer Center) or at such other place and in such other manner as shall
be designated by Holder in writing in accordance with the Term Loan
Agreement. Payments shall be deemed received by Holder on the date of
transfer if received by such payee bank or other designee of Holder duly
appointed in accordance with the Term Loan Agreement, at or before 11:30
a.m. Los Angeles time on the date of transfer. Payments received after
that time shall be deemed received by the following Business Day. All
payments received by Agent on behalf of Holder shall be applied in the
manner set forth in Section 5 above.
8. Security.
This Note is one of Maker's Secured Promissory Notes issued in
connection with and entitled to the benefits under the Term Loan Agreement
to which reference is hereby made for a complete statement of the terms
and conditions under which the Loan evidenced hereby was made. This Note
is secured by and entitled to the benefits of certain security agreements,
deeds of trust, mortgages, financing statements and other documents
delivered pursuant to and referred to in the Term Loan Agreement,
including, without limitation, the following: that certain Deed of Trust,
Mortgage, Security Agreement (Personal Property Including Hydrocarbons),
Assignment of Production and Fixture Filing dated as of May 1, 1990,
executed by Borrower, as Trustor, to Ronald E. Robison, as Trustee, for
the benefit of Holder and other entities described therein, and recorded
May 25, 1990 as Instrument No. 90-035585 in the Official Records of Santa
Barbara County, California, as amended, creating a lien on, and security
interest in, certain real and personal property described therein and the
production and sales of proceeds therefrom or attributable thereto and
that certain Security Agreement executed by Borrower encumbering certain
personal property of Borrower described therein.
9. Remedies.
Upon the occurrence of a Default, as defined in the Term Loan
Agreement, the entire outstanding balance of the principal amount hereof
shall immediately become due and payable in the manner, upon the
conditions and with the effect provided in the Term Loan Agreement, and,
in addition, Holder may, pursuant to the Loan Agreement, exercise all
other rights and remedies available to it hereunder or under any or all of
the Loan Documents. No delay or omission on the part of Holder hereof in
exercising any right under this Note or under any of the Loan Documents
shall operate as a waiver of such right.
10. Waiver.
Maker hereby waives diligence, presentment, protest and demand,
notice of protest, dishonor and nonpayment of this Note and expressly
agrees that, without in any way affecting the liability of Maker
hereunder, Holder may extend the Maturity Date, the Monthly Payment Dates,
and any other maturity date or the time for payment of any installment due
hereunder, accept additional security, release any party liable hereunder
and release any security now or hereafter securing this Note. Maker
further waives, to the full extent permitted by law, the right to plead
any and all statutes of limitations as a defense to any demand on this
Note, or on any deed of trust, security agreement, lease assignment,
guaranty or other agreement now or hereafter securing this Note.
11. Attorneys' Fees.
If this Note is not paid when due or if any Default (as defined
in the Term Loan Agreement) occurs, Maker promises to pay all costs of
enforcement and collection, including, but not limited to, Holder's
reasonable attorneys' fees and costs, whether or not any action or
proceeding is brought to enforce the provisions hereof.
12. Severability.
Every provision of this Note is intended to be severable. In
the event any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
13. Limitation of Liability.
Except as specifically set forth to the contrary in the Loan
Agreement, this Note or other Loan Documents, (a) TCW and the Holders
shall not seek, or be entitled to, nor shall any Partner be liable for,
any judgment for a deficiency or other money judgment against Trio
Petroleum, Inc. ("Trio"), in connection with any action to foreclose any
Mortgage, or any action brought under the Loan Agreement, the Notes, the
Mortgage, the Security Agreement, or any other Security Documents or any
other Loan Document; and (b) in the event any suit is brought on any Loan
Document or concerning the Obligations as a part of judicial proceedings
to foreclose any Mortgage, any judgment obtained in such suit shall by its
terms constitute a lien on, and shall be enforced only against Maker
(excluding Trio), any property of Maker (excluding Trio), the Oil and Gas
Interests, any other property conveyed or secured by the Mortgages
(together with the income therefrom, any funds held by the Agent or the
Holders pursuant to this Agreement, insurance and condemnation proceeds
and escrow and security deposits) and any other Property of Maker
(excluding Trio) serving as Collateral for the Loans, and not against any
assets or property of Trio or its respective officers, directors,
shareholders or partners or any or them; provided, however, that Trio
shall be fully and personally liable for (i) any breach of any covenant,
representation, agreement or condition contained in Sections 3.1 and 6.12
of the Loan Agreement relating to Environmental Law Requirements which
occurs during the period, if any, that Trio or Trio's Affiliate acts as
operator of the Oil and Gas Interests or other Collateral or otherwise
directly engages in the operation, management or development of the Oil
and Gas Interests or other Collateral, (ii) any fraud or material
misrepresentation made by Trio if Trio knew or, with the exercise of due
diligence, should have known of its falseness, (iii) any willful
misapplication of any insurance proceeds, or condemnation awards, or of
any production proceeds (including without limitation, ORR Interest
proceeds), Net Cash Flow or other amounts by such Partner(s), which
amounts were required by the Loan Agreement, the Notes, the Mortgages or
the ORRI Conveyances to be paid or applied in a specified manner with
respect to the Oil and Gas Interests or other Collateral, or (iv) any
distributions or other payments made to, by or with the approval of Trio
in violation of Section 4.1 of the Loan Agreement. Nothing contained in
this Section 13 shall be deemed to limit the liability of Maker (other
than Trio) with respect to its Obligations or constitute a release or
impairment of the Obligations, or the Liens of the Mortgages and other
Security Documents on the Oil and Gas Interests and other Collateral, or
shall preclude TCW or the Agent from obtaining or enforcing any judgment
against Maker or from foreclosing the Mortgages in case of any Default, or
preclude TCW, Agent or any Holder from enforcing any of the other rights
of TCW, Agent or any Holder under the Loan Agreement, or from enforcing
any of the rights of TCW, the Agent, or any Holder against any Person
other than Trio at any time liable (under any guaranty, bond, policy of
insurance or otherwise) for the payment of the Obligations or for the
performance and observance of any of the covenants, agreements and
conditions contained in this Agreement, the Notes, the Mortgages or the
other Loan Documents.
14. Interest Rate Limitation.
It is the intent of Maker and Holder in the execution of this
Note and all other instruments securing this Note that the loan evidenced
hereby comply with the restrictions of applicable usury law from time to
time. In furtherance thereof, Maker and Holder stipulate and agree that
none of the terms and provisions contained herein or in any of the Loan
Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be charged by applicable law from time to
time in effect. Neither Maker nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of this
Note or any Obligation shall ever be liable for unearned interest thereon
or shall ever be required to pay interest thereon in excess of the maximum
amount that may be lawfully charged under applicable law from time to time
in effect, and the provisions of this section shall control over all other
provisions herein or in any of the Loan Documents which may be in conflict
or apparent conflict herewith. TCW and Holders expressly disavow any
intention to charge or collect excessive unearned interest or finance
charges in the event the maturity of this Note or any Obligation is
accelerated. If (a) the maturity of this Note or of any Obligation is
accelerated for any reason or (b) TCW or any other Holder of any or all of
the Notes or the Obligations shall otherwise collect moneys which are
determined to constitute interest which would otherwise increase the
interest on any or all of the Notes or the Obligations to an amount in
excess of that permitted to be charged by applicable law then in effect,
then all such sums determined to constitute interest in excess of such
legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of this Note or, at TCW's or such Holder's option,
promptly returned to Maker or the other payor thereof upon such
determination. In determining whether or not the interest paid or
payable, under any specific circumstance, exceeds the maximum amount
permitted under applicable law, TCW, Holders and Maker (and any other
payors thereof) shall, to the greatest extent permitted under applicable
law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof and (iii) amortize, prorate, allocate and spread the
total amount of interest throughout the entire contemplated term of the
instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable
law.
15. Joint and Several Liability.
Subject to Section 13 above, if the Maker consists of more than
one person or entity, the obligations of Maker under this Note shall be
joint and several between and among such persons and entities, such that
each such person or entity shall be fully responsible for the Maker's full
performance of its obligations hereunder.
16. Number and Gender.
In this Note the singular shall include the plural and the
masculine shall include the feminine and neuter gender, and vice versa, if
the context so requires.
17. Headings.
Headings at the beginning of each numbered Paragraph of this
Note are intended solely for convenience and are not to be deemed or
construed to be a part of this Note.
18. CHOICE OF LAW.
THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER
THE LAWS OF THE STATE OF CALIFORNIA AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND
THE LAWS OF THE UNITED STATES OF AMERICA.
19. Amendment.
The terms of this Note are subject to amendment only in the
manner provided in the Term Loan Agreement.
20. Conflicts.
Notwithstanding anything to the contrary contained here within,
if any of the express terms and conditions of this Note conflict with the
express terms and conditions contained within the Term Loan Agreement, the
Term Loan Agreement shall control.
IN WITNESS WHEREOF, Maker has caused its duly authorized
representative to execute this Note as of the date first above written.
SANTA BARBARA PARTNERS,
an Oklahoma general partnership
By: HALLADOR PRODUCTION COMPANY,
a Colorado corporation,
its General Partner
By:/S/VICTOR P. STABIO
Victor P. Stabio
President
By: TRIO PETROLEUM, INC.
a California corporation,
its General Partner
By:/S/CHARLES C. HORACE
Charles C. Horace
President
HALLADOR PETROLEUM, LLP,
a Colorado limited liability
partnership
By: HALLADOR PETROLEUM COMPANY,
a Colorado corporation,
its General Partner
By:/S/VICTOR P. STABIO
Victor P. Stabio
President
TRIO PETROLEUM, INC.,
a California corporation
By:/S/CHARLES C. HORACE
Charles C. Horace
President
HALLADOR PRODUCTION COMPANY,
a Colorado corporation
By:/S/VICTOR P. STABIO
Victor P. Stabio
President
HALLADOR PETROLEUM COMPANY,
a Colorado corporation
By:/S/VICTOR P. STABIO
Victor P. Stabio
President
This Note has not been registered under the Securities Act of 1933,
as amended, or registered or qualified under any state securities
laws. This Note has been acquired for investment and may not be
sold, transferred, pledged or hypothecated unless the proposed
transaction does not require registration or qualification under
federal or state securities laws.