HALLADOR ENERGY CO

There have been no material changes to the risk factors disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 12, 2026, except as set forth below. Certain of the risk factors set forth below supplement and update the corresponding risk factors included in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 and, therefore, supersede such risk factors.

We have made substantial payments to acquire turbine equipment and will require significant additional capital to transport, refurbish, and deploy it and to complete the Turtle Creek Project, and our failure to obtain that capital or to perform our obligations under the related agreements could have a material adverse effect on our business, financial condition, and results of operations.

On May 30, 2026, we entered into an Asset Purchase Agreement (the “APA”) with Energy World Corporation Ltd. (the “Seller”) to acquire approximately 460 MW of Siemens gas turbines, generators, a steam turbine, and ancillary equipment for a total purchase price of $350.0 million, plus approximately $100.0 million of additional costs we expect to incur for transportation, refur bishment, insurance, and logistics. As of September 30, 2026, we have paid $23.8 million of the purchase price, and we paid an additional $326.0 million from October 1 through October 31, 2026 in accordance with the APA. The remaining balance of approximately $0.2 million is expected to become payable in the fourth quarter of 2026.

Although we have paid substantially all of the purchase price with proceeds of the KLIM Facility, we expect to incur approximately $100.0 million of additional costs for transportation, refurbishment, insurance, and logistics, together with significant additional costs to complete the Turtle Creek Project. The amounts available to us for these purposes, including the $50.0 million delayed draw term loan commitment under the KLIM Facility (which is subject to funding conditions and may be used only to fund the Turtle Creek Project), may not be sufficient to fund these costs. We estimate the total costs of the Turtle Creek Project to be less than $800.0 million. Following the expenditures to date, including the October 2026 payments made in connection with the APA, we still have significant capital requirements to complete the project including: refurbishment, engineering, construction, transportation, insurance, logistics, and other costs. We have not secured commitments for any additional financing, and there can be no assurance that additional financing will be available to us on acceptable terms, or at all, particularly in light of the restrictions on additional indebtedness and liens in the KLIM Credit Agreement. If we are unable to obtain sufficient financing on a timely basis, we may be unable to complete the Turtle Creek Project by the date required under the KLIM Credit Agreement, the failure of which would constitute an event of default, and we may be required to delay, scale back, or abandon the project, any of which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

The turbine equipment we are acquiring is intended to support our proposed expansion of generation capacity through MISO’s ERAS program. Our ability to complete that expansion and to realize the anticipated benefits of the equipment is subject to execution of a generator interconnection agreement and other construction, permitting, financing, and regulatory contingencies, many of which are outside our control and have not yet been satisfied. If we do not obtain the necessary approvals, or if the expansion project does not otherwise proceed, we may be unable to deploy the equipment as planned, and our alternatives may be limited to selling the project together with the equipment or selling the equipment on a standalone basis, potentially at a loss and on terms less favorable than we currently anticipate. Any such sale could require a mandatory prepayment of the KLIM Facility, and any repayment of the KLIM Facility in full would require payment of the MOIC Premium.

The turbine equipment must be transported internationally and domestically through a complex, multi-stage logistics process, and delays, damage, or cost overruns in that process could adversely affect the cost, timing, and expected benefits of our planned expansion.

The turbine equipment we are acquiring under the APA is currently located outside the United States and must be transported through a complex, multi-stage logistics process before it can be placed into service, including the remainder of its ocean shipment to the United States, customs and import clearance, and overland transport to a Siemens facility for inspection and refurbishment, followed by transport to the site of our planned expansion at our Merom Station in Sullivan County, Indiana. The equipment consists of large, heavy, and specialized components that require heavy-lift vessels, specialized rigging and transport equipment, and oversize and overweight load permits, and we will rely on the Seller, its designated vendors, Siemens, and other third-party carriers and logistics providers, whose performance is largely outside our control.

This process is subject to numerous risks, including damage to or loss of the equipment in transit; limited availability of qualified vessels, carriers, and equipment; port congestion and labor disruptions; adverse weather; delays in obtaining export licenses, import clearances, and transport permits; geopolitical events and disruptions to shipping lanes; and the imposition of, or changes in, tariffs, duties, and other trade measures applicable to imports into the United States. The equipment includes long-lead-time components that would be difficult, time-consuming, and costly to repair or replace if damaged or lost in transit. Any insurance we maintain on the equipment during transport may not be sufficient to cover all losses and would not compensate us for delays to our planned expansion.

Our estimate of approximately $100.0 million of transportation, refurbishment, insurance, and logistics costs is based on assumptions regarding, among other things, shipping costs, carrier and equipment availability, tariff and duty rates, permitting timelines, and the scope of refurbishment work required, any of which may prove inaccurate, and actual costs could materially exceed that estimate, increasing the amount of financing we require. In addition, because we have paid substantially all of the purchase price and bear the risk of loss of the equipment in transit, delays or losses in the logistics process could increase our costs and affect our financing plans without any corresponding reduction in our payment obligations. Any material delay, damage, or cost overrun could delay our planned expansion, jeopardize milestones associated with MISO's ERAS program, increase project costs, and impair our ability to realize the anticipated benefits of the equipment, any of which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

Our indebtedness under the KLIM Facility is substantial and costly, is secured by substantially all of our assets, and contains restrictive covenants, and a failure to comply with its terms or to repay it when due could have a material adverse effect on our business and financial condition.

On September 15, 2026, we and Turtle Creek incurred $550.0 million of term loans under the KLIM Facility, and a further $50.0 million is available under the delayed draw term loan commitment solely to fund the Turtle Creek Project. The KLIM Facility bears a substantially higher interest rate than our prior credit facilities, a portion of which accrues as paid-in-kind ("PIK") interest that increases the principal amount we must repay, and, upon repayment, requires payment of a premium (the MOIC Premium) sufficient for the lenders to receive at least 1.35 times their funded term commitment (1.50 times if the maturity date is extended). The Closing Date Intercompany Loan was not repaid by October 31, 2026, and as a result the PIK interest rate has increased; it will increase further if the loan remains outstanding after January 15, 2027. We and Turtle Creek are jointly and severally liable for the KLIM Facility, which is secured by first-priority liens on substantially all of our assets, including the Merom Station and certain mining assets. Beginning with the test period ending December 31, 2026, we must maintain unrestricted cash of at least $10.0 million, which is not subject to a cure right, and a minimum debt service coverage ratio, and following the Commercial Operation Date we must also comply with maximum leverage ratios. The KLIM Facility also restricts the transfer of cash from Turtle Creek and its subsidiaries to us, requires mandatory prepayments from excess cash flow and certain asset sales, contains cross-default provisions, and provides that it is an event of default if the Commercial Operation Date has not occurred on or before June 30, 2029. The KLIM Facility matures on September 15, 2029 unless extended with lender consent and payment of an extension fee, and we may not be able to refinance it on acceptable terms, or at all. A default could permit the lenders to accelerate the obligations, require payment of the MOIC Premium, and foreclose on our collateral, including Merom, which would materially and adversely affect our business, financial condition, and results of operations.

We may be unable to complete the Turtle Creek Project on time, within our budget, or at all.

The Turtle Creek Project requires, among other things, execution of a generator interconnection agreement, engineering and construction contracts, interconnection, air and other permits, and natural gas supply and transportation arrangements, some of which have not been obtained or finalized, and the performance of contractors, equipment suppliers, and other counterparties. We expect the project to reach commercial operation in the second half of 2028, but delays, cost overruns, or other events could prevent us from achieving the Commercial Operation Date by June 30, 2029, which would constitute an event of default under the KLIM Credit Agreement. We may be required to obtain additional financing to complete the project. Failure to complete the project, or to complete it on the anticipated timeline and budget, could materially and adversely affect our business, financial condition, and results of operations.

Our contracted forward sales position includes agreements that are unit contingent or subject to customer volume options, and the revenue we expect to realize from them may differ materially from our estimates.

The Energy PPA is unit contingent, so that base quantities are reduced if one or both Merom Station generating units are not producing energy above a certain threshold, and it permits the Indiana Utility to reduce the base energy quantity to zero for up to 90 days per year. Our estimates of energy quantities and revenue under the Energy PPA are based on forward energy curve pricing and management’s assumptions regarding Merom Station’s availability, which was adversely affected in 2026 by equipment issues and unplanned outages. As a result, the revenue we ultimately realize from our forward sales position could be materially lower than the amounts presented in the Forward Sales Position table.

Merom Station has experienced significant outages in 2026, and its estimated useful life through 2040 may not prove accurate.

During 2026, Merom Station experienced equipment issues, a planned major maintenance outage, and unplanned outages that reduced generation and increased the cost of purchased power, maintenance, and fuel oil. We extended the estimated useful life of Merom Station through 2040 as a change in accounting estimate effective June 1, 2026, which reduced depreciation expense. If Merom Station is unable to operate economically through 2040, including as a result of its age, environmental compliance costs, market conditions, or regulatory changes, we could be required to shorten its estimated useful life or record impairment charges, which could materially and adversely affect our results of operations.