UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-610
EQUITY OIL COMPANY
[Exact name of registrant as specified in its charter]
Colorado 87-0129795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 West Broadway, Suite 806 84101
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 521-3515
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value, $1 per share)
[Title of class]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is contained herein and will be contained to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
As of February 24, 1998, 12,596,500 common shares were outstanding, and the
aggregate market value of voting stock held by non-affiliates of the registrant
was approximately $33,000,000.
Documents Incorporated by Reference
1. Definitive proxy statement to be filed in connection with Issuer's
Annual Stockholders' Meeting to be held on May 13, 1998 and more particularly
the information contained on pages 2 through 5 are incorporated by reference
into Part III of this report.
Total Pages 75.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Equity Oil Company ("Equity" or "the Company") was originally incorporated
in the state of Utah in 1923. In 1958, it was merged into its subsidiary, Weber
Oil Company, a Colorado corporation. The surviving company adopted the name
Equity Oil Company.
Equity is an independent oil and gas exploration and production company,
currently conducting its business in nine states and two Canadian provinces.
Equity is also a 50% shareholder in Symskaya Exploration, Inc., which is
licensed to operate in Russia. Headquartered in Salt Lake City, Utah, the
Company also maintains an exploration office in Denver, Colorado, and a field
office in Vernal, Utah. The Company has 18 full-time employees.
More than 90% of the Company's revenues come from the sale of crude oil and
natural gas. Accordingly, the Company continually seeks to increase its oil and
gas production. The keys to increasing production are the replacement, on an
annual basis, of current production, as well as achieving additional reserve
growth.
The Company's strategy to replace production and increase its oil and
natural gas reserves on an ongoing basis is comprised of a balanced approach in
four areas. The four elements of that strategy are:
*Focused exploration drilling
*Development drilling and exploitation
*Acquisition of proved reserves
*International exploration in Russia
The Company's exploration office in Denver is responsible for the
generation and review of exploration prospects, and participates in the
planning, where necessary, to drill the prospects. These include prospects
developed in-house, as well as those presented by independent third parties. The
general drilling practice of the Company is to participate in projects on a 25%
to 50% working interest basis. Participation varies with each prospect depending
on location and the attendant financial and technical risk.
In addition to its exploration ventures, the Company works in conjunction
with other working interest owners in producing properties to identify projects
that will develop and exploit the productive capacities of existing wells and
fields. These projects include development drilling, production enhancement,
operating cost reductions, and other types of activities.
The Company also investigates opportunities to purchase interests in
properties with existing production. During the last three years, the Company
has replaced a significant amount of its production through the purchase of
producing properties. These purchases have, in turn, produced additional
developmental and enhancement projects.
The Company conducts its international exploration in Russia through its
50% ownership of Symskaya Exploration, Inc. (Symskaya). Symskaya operations were
significantly curtailed during 1997. Further discussion of this venture and
other Company activities is found in ITEM 2. PROPERTIES, under the caption
Present Activity.
NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS AND MARKETS
The Company produces crude oil and natural gas. During the last five years,
revenues from the sales of these products have accounted for more than 90% of
the total revenues of the Company, while remaining revenues have come from other
sources, including interest income on invested funds, partnership income,
operating overhead reimbursements, and the sales of various developed and
undeveloped properties.
The majority of the Company's oil production occurs in Colorado and other
Rocky mountain states, and the Canadian provinces of Alberta and British
Columbia. The Company's crude oil production is sold under short-term contracts
at current posted prices for each geographic area, less applicable quality or
transportation tariffs plus negotiated bonuses. Prices are set by oil
purchasers, and their methods of determining prices are not within the control
of the Company, but it is assumed they are influenced by regional, national and
international factors relating to oil supply and demand. (See discussion under
Major Customers)
The bulk of the Company's natural gas production occurs in Wyoming,
California, the Canadian province of Alberta, and the Gulf Coast of Texas. While
the areas where the Company has its major gas reserves are characterized by
large reserves of other companies, the Company has historically been able to
sell all of its productive capacity, and expects to be able to continue to do so
in the near future. The majority of gas sold in Wyoming is marketed under a
contract at an index price that changes monthly. The contract is subject to
renegotiation on an annual basis. The majority of gas produced by the Company in
other geographic areas is sold on the spot market, where prices also vary on a
monthly basis.
The Company has not historically hedged significant amounts of either oil
or gas production.
SEASONALITY
The Company experiences some seasonality in gas sales revenues. Net sales
prices and production tend to rise during the winter months compared to the rest
of the year. However, since over 70% of the Company's oil and gas revenues come
from the sale of oil, the seasonal impact on gas sales is not significant.
MAJOR CUSTOMERS
All oil and gas produced in the U.S. or Canada is sold to unaffiliated
pipeline, refining, or crude oil purchasing companies. These companies may be
the operators of the fields where the product is produced, or owners of the
pipelines which transport the products. Previous changes of ownership or changes
in operator have not resulted in an interruption of production or
transportation, and consequently have not had a material adverse effect on the
business of the Company.
Approximately 56% of the Company's total oil production, originating from
several different fields, is sold to or marketed through JN Petroleum Marketing,
Inc (JN). The Company does not believe that the loss of JN as a customer would
have any material impact on the Company, as oil production from the various
fields could readily be sold to other crude oil purchasers. No other customer
accounts for more than 10% of the Company's sales.
COMPETITION
Equity is part of a highly competitive industry composed of many companies
that are significantly larger and possess greater resources than the Company.
These include major oil companies as well as large independent exploration and
production companies. Their size and resources may allow these parties to
operate at a greater competitive advantage than Equity.
During 1997 the Company did not experience any competitive factors which
impaired its production or sale of oil and gas, nor did it experience
significant difficulties in contracting for drilling and related equipment.
GOVERNMENT REGULATION
Drilling activities of the Company are regulated by several governmental
agencies in the United States, both federal and state, including the
Environmental Protection Agency, Forest Service, Department of Wildlife, and
Bureau of Land Management, as well as state oil and gas commissions for those
states in which the Company has operations. Canadian and Russian operations are
subject to similar requirements.
The Company believes that it is currently in compliance with all federal,
state, and local environmental regulations, both domestically and abroad.
Further, the Company does not believe that any current environmental regulations
will have a material impact on its capital expenditures or earnings, nor will
they result in any competitive disadvantage to the Company.
FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
Foreign operations of the Company are currently conducted in the Canadian
provinces of Alberta and British Columbia. Financial information concerning
these operations can be found in Footnotes 5 and 9 to the financial statements.
For financial reporting purposes, the Company does not allocate any general and
administrative expenses to its Canadian operations, nor are they burdened with
indirect exploration overhead expenses. Direct exploration expenses are charged
to the geographic area in which they occur. Because the majority of the
Company's exploration efforts occur in the United States, very little
exploration expenses are allocated to the Canadian operations. As a result of
these and other factors, the operating profit of the Canadian operations is
significantly greater than the operating profit in the United States. The
Company does not believe that its Canadian operations are attended with any more
risk than those in the United States.
Symskaya Exploration, Inc., in which the Company owns a 50% interest, is
licensed to operate in Russia. Further discussion of this venture is found in
ITEM 2. PROPERTIES, under the caption Present Activity, and in Footnotes 6 and 9
in the financial statements.
ITEM 2. PROPERTIES
The principal properties of the Company consist of developed and
undeveloped oil and gas leasehold interests. Developed leases are comprised of
properties with existing production, where lease terms continue as long as oil
and/or gas is produced. Undeveloped leases include unproven acreage on both
public and private lands. The leases have set terms and terminate at the time
specified in each lease unless oil and gas in commercial quantities are
discovered prior to that time.
The Company also has a fee interest in 6,996 net acres of oil shale lands
in Colorado. These properties have not generated significant revenue for the
Company. In 1994, the Company entered into a lease agreement with another
company for a five year oil and gas lease on these lands.
RESERVES
The information found in Footnote 9 to the financial statements concerning
proved reserves represents the Company's best estimate of product quantities
expected to be produced from the properties based on geologic and engineering
data, as well as current economic and operating conditions. The presentation is
made in accordance with Securities and Exchange Commission guidelines, and is
based on prices and costs in effect on December 31, 1997.
Estimates of reserve quantities and related future net cash flows are
calculated using unescalated year-end oil and gas prices and operating costs,
and may be subject to substantial fluctuations based on the prices in effect at
the end of each year. Reserve revisions occur when the economic limit of a
property is lengthened or shortened due to changes in commodity pricing. The
following table sets forth a comparison of year-end reserves, the weighted
average prices used in calculating estimated reserve quantities and future net
cash flows, future net cash flows discounted at 10%, and per barrel of oil
equivalent discounted cash flows at the end of 1997, 1996, and 1995 (quantities
in thousands, except for pricing and per barrel of oil equivalent amounts):
Year-end SEC-10
Proved reserves Year-end SEC-10 pre-tax
Oil Gas prices pre-ta values
(MBBLs) (MMCF) BOE* Oil Gas values per BOE
---- ----- --- --- --- ------ -------
12/31/97 ...... 8,420 18,909 11,571 $14.99 $2.03 $37,409 $3.23
12/31/96 ...... 8,369 17,617 11,305 $24.36 $2.84 $79,002 $7.00
12/31/95 ...... 7,750 18,024 10,754 $18.02 $1.38 $42,772 $3.98
No estimates of reserves have been filed with or included in any report to any
other federal agency during 1997.
* - gas converted at 6,000 Mcf per barrel.
<PAGE>
PRODUCTION
The following table sets forth the Company's production, average sales prices,
and average lifting costs by geographic area for 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995 1997 1996 1995
Oil Oil Oil Gas Gas Gas
(Bbls) (Bbls) (Bbls) (MMCF) (MMCF) (MMCF)
------ ------ ------ ------ ------ ------
Production
Area
<S> <C> <C> <C> <C> <C> <C>
Colorado 366,319 363,080 373,766 170 106 84
Texas 25,359 29,186 32,861 211 315 356
Montana 26,103 32,845 23,385 16 17 9
Utah 18,745 16,769 10,069 - - -
Wyoming 76,190 68,924 44,283 660 519 422
North Dakota 7,007 6,768 5,869 3 3 2
Oklahoma 435 607 640 - - -
California - - - 560 365 5
Other States 7 13 6 - - 2
------- ------- ------- ----- ----- ---
Total U.S. 520,165 518,192 490,879 1,620 1,325 880
Alberta 92,376 113,756 116,252 439 586 568
B.C. 23,371 4,769 12,249 10 2 3
------ ----- ------ -- - -
Total Canada 115,747 118,525 128,501 449 588 571
------- ------- ------- --- --- ---
Grand Total 635,912 636,717 619,380 2,069 1,913 1,451
======= ======= ======= ===== ===== =====
Average Price
-------------
U.S. $19.49 $21.49 $17.44 $ 2.21 $1.79 $1.67
Canada $15.36 $16.99 $15.49 $ 1.34 $1.01 $ .74
Total $18.74 $20.65 $17.00 $ 2.02 $1.55 $1.31
Lifting Costs
U.S. $ 7.53 $ 7.92 $ 7.75 $ .85 $ .66 $ .74
Canada $ 4.15 $ 6.09 $ 3.75 $ .36 $ .37 $ .19
------ ------ ------ ------ ----- -----
Total $ 6.92 $ 7.58 $ 6.85 $ .75 $ .57 $ .53
====== ====== ====== ====== ===== =====
</TABLE>
PRODUCTIVE WELLS AND ACREAGE
The location and quantity of Equity's productive wells and acreage as of
December 31, 1997 are as follows:
Productive Wells: Gross Net
Oil:
United States 747 100.932
Canada 243 11.625
Gas:
United States 71 19.768
Canada 9 1.604
----- -------
Total Productive Wells 1,070 133.929
===== =======
Developed Acreage
United States 126,314 12,408
Canada 126,440 2,696
------- -----
Total Developed Acreage 252,754 15,104
======= ======
<PAGE>
UNDEVELOPED LEASEHOLD ACREAGE
The following table sets forth the Company's undeveloped oil and gas lease
acreage as of December 31, 1997 by geographic area:
Gross Net
Area Acreage Acreage
- ---- ------- -------
Colorado 22,744 15,479
Texas 3,992 1,211
Montana 58,673 7,527
Utah 7,950 880
Wyoming 26,573 15,943
California 18,775 13,497
North Dakota 13,809 7,706
------ -----
Total U.S. 152,516 62,243
Alberta 18,877 3,763
------ -----
Total Canada 18,877 3,763
------ -----
Grand Total 171,393 66,006
======= ======
Through its 50% ownership in Symskaya Exploration, Inc., the Company also
has an indirect 50% interest in an additional 1,100,000 gross acres in Russia.
Further discussion of this venture is found in ITEM 2. PROPERTIES, under the
caption Present Activity, and in Footnotes 6 and 9 to the financial statements.
DRILLING ACTIVITY
During 1997, the Company participated in the drilling of 30 gross wells. Of
this total, 18 were completed as producing oil and gas wells and 12 were plugged
and abandoned as dry holes.
Gross exploratory wells Status 1997 1996 1995
drilled:
United States Productive 13 15 8
Dry 12 6 4
Canada Productive - - -
Dry - - -
Gross development wells
drilled:
United States Productive 5 3 3
Dry - - -
Canada Productive - 1 5
Dry - - -
Net exploratory wells Status 1997 1996 1995
drilled:
United States Productive 4.21 3.95 1.05
Dry 5.99 1.64 1.08
Canada Productive - - -
Dry - - -
Net development wells
drilled:
United States Productive 1.74 1.19 1.30
Dry - - -
Canada Productive - .50 2.14
Dry - - -
PRESENT ACTIVITY
DOMESTIC EXPLORATION
In 1997, the Company participated in the drilling of a total of 25
exploratory wells resulting in 12 gas wells and 1 oil well, an overall
completion success rate of 52%.
As in 1996, drilling for gas on 3-D seismic prospects in the Sacramento
Basin of northern California was the major focus of drilling activity for the
Company. Over the last three years, Equity has participated in a total of nine
3-D seismic surveys in this area, covering a total of 131 square miles. A total
of 40 wells, including the 11 drilled in 1997, have been drilled on these
surveys through the end of this year. Of those, 25 have been completed as gas
wells for an overall 63% success rate. Equity's working interest in the wells
and the associated surveys ranges from 18.75% to 60%.
Equity is the operator of two of the surveys, Davis Ranch and Merlin. The
Company drilled three wells in the Merlin survey in 1997, resulting in one
completion, the Henning #1-15. That well was placed on production in February
1998, producing from perforations at 5,565 to 5,568 feet at a rate of 1.2
million cubic feet per day. During drilling, additional zones from 5,518 to
5,557 feet drill stem tested at a rate of 5.9 million cubic feet per day. This
interval will be completed in March of 1998. Equity has a 50% working interest
in the well and the survey. A fourth well is currently scheduled to be drilled
on the Merlin prospect in the second quarter of 1998.
Should oil prices strengthen from their early 1998 low levels, Equity
expects to participate in the drilling of 11 more wells in the Sacramento Basin
in 1998 in addition to the Merlin well, including 2 in the Davis Ranch prospect
where Equity operates with a 60% working interest, and 9 in other surveys where
Equity has a 25% working interest. Further, the Company believes that there may
be another 40 prospective locations on the surveys that may be drilled in future
years.
In an effort to add oil exploration to existing California activities, in
1997 the Company participated in a 36 square mile 3- D survey in the Southern
San Joaquin Basin. The survey area includes several producing oil fields as well
as numerous undrilled 2-D seismic leads. Shooting for the survey was completed
in January of 1998. Evaluation of the data from the shoot should take
approximately three months, and it is presently expected that at least one
exploratory well will be drilled on the survey in the second half of the year.
Equity has a 30% working interest in the survey.
The Company participated in two exploratory wells in Wyoming in 1997,
resulting in one oil completion. Although exploration drilling in the Rocky
Mountains was limited in 1997, work on several Rocky Mountain prospects will
lead to drilling in 1998. The largest of these is the O'Brien Springs prospect.
This prospect, developed in house by Equity, covers a 19,200 acre lease
block on which a 35 square mile 3-D survey was conducted in the fall of 1997.
The project is located in Carbon County, Wyoming, in an area of complex
structural geology. The prospect area has been lightly explored in the past, and
includes potential multiple pays in the Tensleep, Nugget and Frontier
formations. The processing and evaluation of the survey data has been completed
and the initial exploratory wells on the prospect are scheduled to be drilled in
mid-1998. Equity maintains a 50% operated working interest in the prospect.
Early 1998 drilling on another Rocky Mountain prospect assembled in 1997
has met with initial success. On March 3rd casing was set on a well in Golden
Valley County, North Dakota. The well, in which Equity has a 32.5% working
interest, was drilled on acreage adjacent to a recompletion that Equity
participated in during 1997. During drilling, the well tested oil from two
formations, and is being completed as an oil well. In addition, electric logs
and other tests have identified two additional zones in the well that may be
productive.
EXPLOITATION & DEVELOPMENT DRILLING
In 1997, Equity completed 100% of its five development wells, resulting in
four gas wells and one oil well. Three development wells were drilled in the
Siberia Ridge gas field in Sweetwater County, Wyoming. The Company has a 50%
working interest in two of the wells, and a 40% interest in the other. These
wells are currently on production with a combined productive capacity of 3.3
million cubic feet and 30 barrels of condensate per day. The oil well, in which
Equity has a 46% working interest, was drilled and completed in the Sage Creek
Unit in the Bighorn Basin of Wyoming. In each case, these wells represent part
of the Company's ongoing effort to develop the potential of existing properties.
In addition to development drilling, the Company participated in a broad
range of workovers on existing properties, and committed to a 3-D seismic survey
of the core producing area of the Cessford Field in Alberta, Canada in which
Equity has a 50% working interest. Workover activity in the Milligan Creek Unit
#2, British Columbia, resulted in a dramatic increase in production from 440 to
1,025 barrels per day. Equity maintains a 11.44% working interest in the Unit.
ACQUISITIONS
Equity made one significant acquisition in 1997, the purchase in December
of proved reserves of 1.1 million barrels of oil and 438 million cubic feet of
gas for a total cost of $3.28 million. The reserves are located primarily in the
Bighorn Basin of northwestern Wyoming and consist of 73 active wells in 14
fields. The Company's working interest in the properties range from 17% to 74%
and average approximately 38%. In each case, in addition to the proved producing
reserves, the Company believes there are substantial reserves that can be
developed by further exploitation and drilling in an improved economic climate.
SYMSKAYA EXPLORATION
During 1997, the Company operated its Symskaya project in a maintenance
mode, focusing on two objectives. First, the successful sale or farmout of an
interest in Symskaya to support further drilling, and second, the approval of
the project by the Russian parliament in accordance with the Law on Production
Sharing that was adopted subsequent to the time the original Production Sharing
Agreement was signed. Neither objective has yet been accomplished. The Company
will continue to pursue the same objectives in 1998.
The area covered by Symskaya's License is located in a country that may be
considered economically and politically unstable. As a result, the Symskaya
project is subject to all the risks of frontier exploration in addition to the
economic and political risks associated with the Russian Federation and local
government, including but not necessarily limited to the cancellation or
renegotiation of contracts, expropriation, tax and royalty increases, foreign
exchange controls, import and export regulations, environmental regulations and
other laws that may have an adverse impact on the operation. There are also
increased logistical problems and costs associated with exploration activities
in such a remote region.
DELIVERY COMMITMENTS
The Company is not obligated to provide any fixed or determinable quantity
of oil or gas in the future under any existing contracts or agreements.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to the security holders for a vote, and no proxies were
solicited.
PART II
ITEM 5. Market for the Company's Common Stock and Related Matters
The Company's stock is traded on the over-the-counter market and quoted
over the NASDAQ National Market System using the symbol EQTY. High and low
prices for 1997 and 1996 are as follows:
Quarter High Low
1997 - 4th 3 15/16 2 3/4
3rd 4 1/8 3 3/16
2nd 3 3/8 2 3/4
1st 4 5/16 2 11/16
1996 - 4th 3 5/8 2 13/16
3rd 5 3 1/16
2nd 6 1/2 4 3/8
1st 5 7/8 4
The approximate number of registered stockholders of the Company as of
March 6, 1998 is 1,684.
No unregistered equity securities of the registrant have been sold during
the period covered by this report.
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. Selected Financial Data
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales ................ $ 16,457,048 $ 16,115,125 $ 12,259,739 $ 11,713,498 $ 12,729,899
Other Income ............. 1,023,037 312,759 457,837 196,431 43,096
Lease Operating
Costs .................... 5,940,808 5,912,128 5,093,782 4,658,115 5,293,628
DD&A ..................... 4,675,411 4,292,237 3,843,442 5,011,155 5,090,744
Impairment of
Proved Oil and
Gas Properties ........... 411,894 237,279 2,471,146 -0- -0-
Equity Loss and Impairment
of Investment in Symskaya
Exploration, Inc. ........ 356,661 9,204,394 -0- -0- -0-
Property
Writedowns ............... -0- -0- -0- -0- 3,292,624
3-D Seismic .............. 626,525 757,964 237,604 -0- -0-
Exploration
Expense .................. 3,026,550 2,336,405 1,633,612 1,718,339 1,737,923
General and
Administrative ........... 2,048,194 2,030,811 1,908,778 1,560,675 1,607,892
Basic Income (Loss) Before
Cumulative Effect
of Accounting
Changes .................. (211,156) (5,502,646) (1,254,812) (360,830) (2,476,631)
Basic Income (Loss) Per
Common Share Before
Cumulative Effect of
Accounting Changes ....... $ (.02) $ (.43) $ (.10) $ (.03) $ (.20)
Total Assets ............. $ 53,541,639 $ 50,181,437 $ 53,947,050 $ 51,908,336 $ 53,322,749
Long-Term Debt ........... 13,978,830 8,878,830 4,918,830 460,000 920,000
Cash Dividends
Per Share ................ $ .00 $ .00 $ .00 $ .00 $ .05
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion provides information on the results of operations
for the three years ended December 31, 1997 and the financial condition,
liquidity and capital resources as of December 31, 1997. The financial
statements and the notes thereto contain detailed information that should be
referred to in conjunction with this discussion.
The profitability of the Company's operations in any particular accounting
period will be directly related to the average realized prices of oil and gas
sold, the volume of oil and gas produced and the results of acquisition,
development and exploration activities. The average realized prices of oil and
gas will fluctuate from one period to another due to market conditions. The
aggregate amount of oil and gas produced may fluctuate based on development and
exploitation of oil and gas reserves and other factors. Production rates,
value-based production taxes, labor and maintenance expenses are expected to be
the principal influences on operating costs. Accordingly, the results of
operations of the Company may fluctuate from period to period.
OIL AND GAS RESERVES
Excluding revisions to previous estimates, 1997 drilling and acquisition
activities in the United States and Canada added 1.72 million barrels of oil
equivalent to the Company's proved reserve base, replacing 175% of 1997
production. Sharply lower oil prices caused year-end downward revisions in the
estimates of oil reserves of 555,000 barrels. In total, the Company's proved oil
and gas reserves inreased 5% over 1996 levels. At year end 1997, proved reserves
stood at 8.42 million barrels of oil and 18.9 billion cubic feet of natural gas.
Using a 10% discount rate and year-end oil and gas prices and operating costs as
prescribed by the Securities and Exchange Commission, the pre-tax net present
value of the Company's reserves at year-end 1997 totaled $37 million, compared
to $79 million at year-end 1996. The principal cause of the decline in pre-tax
values are the lower year-end prices in 1997 used to estimate oil reserves.
In 1996 the Company added 1.30 million barrels of oil equivalent, equal to 136%
of 1996 oil and gas production. Year end 1996 proved reserves of oil were 8.37
million barrels, an increase of 8% over year end 1995 reserves of 7.75 million
barrels. Natural gas proved reserves at year end 1996 were 17.62 billion cubic
feet, 2% lower than at year end 1995. Barrel equivalent reserves of 11.31
million barrels were 5% higher on a year to year basis.
EQUITY LOSS AND IMPAIRMENT OF INVESTMENT IN SYMSKAYA EXPLORATION, INC.
In 1996, Symskaya plugged and abandoned the Lemok #1 well, and charged the
drilling costs of the well to expense. Due to the uncertainty relating to
Symskaya's obtaining additional outside financing and proceeding with
development of the License area, all other capitalized costs related to the
Company's investments in and advances to Symskaya were also written off,
resulting in a total charge to expense of $9,204,394. The Company has no current
plans to fund future exploratory drilling in Russia. The Company's 50% share of
Symskaya's net loss in 1997 was $356,661, which resulted primarily from
administrative related epenses. Further discussion of this venture is found in
ITEM 2. PROPERTIES, under the caption PRESENT ACTIVITY, and in Footnotes 6 and 9
to the financial statements.
ADOPTION OF SFAS NO. 121
As discussed in Note 2 to the financial statements, the Company adopted
SFAS No. 121, Accounting for the Impairment of Long Lived Assets and Assets Held
for Disposal, effective July 1, 1995. The adoption of this accounting standard
resulted in non-cash charges for the impairment of proved oil and gas properties
in the amount of $2,471,146 ($1,557,563 after tax) in 1995. Non-cash SFAS No.
121 impairment charges of $411,894 ($259,493 after tax) and $237,279 ($149,557
after tax) were recorded during 1997 and 1996, respectively. SFAS No. 121
requires successful efforts companies to evaluate the recoverability of the
carrying costs of their proved oil and gas properties at a field level, rather
than on a company-wide level as previously allowed by the Securities and
Exchange Commission. The SFAS No. 121 test compares the expected undiscounted
future net revenues from each producing field with the related net capitalized
costs at the end of each period. When the net capitalized costs exceed the
undiscounted future net revenues, the cost of the property is written down to
fair value, which is determined using discounted future net revenues from the
producing field. These are non-cash financial statement events only. There has
been no decrease in the quantity or expected future net revenue from the
Company's reserves, nor is there any impact on the Company's cash flows.
RESULTS OF OPERATIONS
COMPARISON OF 1997 WITH 1996
OIL AND GAS PRODUCTION AND SALES
The Company's 1997 increases in oil and gas sales are due largely to
increases in natural gas production and prices. During 1997, the Company's gas
production increased 8%, from 1.9 Bcf in 1996 to 2.1 Bcf in 1997. Average prices
of $2.02 per Mcf in 1997 were 30% higher than the $1.55 received in 1996. The
increase in gas production reflects the ongoing success and rising contribution
from the Company's exploration and development programs in California and
Wyoming.
Offsetting the increases in gas production and pricing, oil production was
essentially flat from year to year, with 636,000 barrels produced in 1997,
compared to 637,000 barrels in 1996. While 1997 year-end oil prices experienced
a sharp decline from the prior year, the decline in average prices received
throughout the year was somewhat milder. Average prices of $18.74 per barrel
were 10% lower than the $20.65 per barrel received in 1996. Further details of
production and pricing are found in Item 2. PROPERTIES, under the caption
PRODUCTION.
OTHER INCOME
During the first half of 1997, the Company recorded a gain on the sale of
certain oil and gas properties of approximately $325,000. The properties sold
had reserves of less than 15,000 barrels of oil. There was no corresponding
event in 1996. In addition, during the third quarter of 1997, the Company sold
its minority interest in an oil field technology research company. In connection
with the sale, the Company recognized a gain of approximately $200,000. These
two transactions combined to increase other income by 227% over 1996 levels.
LEASE OPERATING COSTS
Despite a higher number of wells on production during 1997 as compared to
1996, lease operating costs declined on a per-unit basis. The primary factor in
the decline was a reduction in value-based production taxes. As 65% of the
Company's production on a barrel of oil equivalent basis comes from crude oil,
the decline in average oil prices in 1997 brought about a similar decline in
production taxes.
In addition, operating costs associated with natural gas properties are lower on
a barrel of oil equivalent basis than for oil producing properties. The
Company's ratio of gas to oil production is increasing, and as it does so, per
unit costs are likely to decline.
DEPRECIATION, DEPLETION, AND AMORTIZATION (DD&A)
Increased DD&A charges in 1997 were a direct reflection of lower year-end
oil prices used in calculating reserves. Generally speaking, as oil prices
decline, economic oil reserves also decline. As these reserves decline,
extraction percentages increase, resulting in higher DD&A charges.
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES
As discussed previously, included in the Statement of Operations for 1997
and 1996 are non-cash charges for the impairment of proved oil and gas
properties in the amount of $411,894 and $237,239, respectively.
EQUITY LOSS AND IMPAIRMENT OF INVESTMENT IN SYMSKAYA EXPLORATION, INC.
As discussed above, in 1996, Symskaya plugged and abandoned the Lemok #1
well, and charged the drilling costs of the well to expense. Due to the
uncertainty relating to Symskaya's obtaining additional outside financing and
proceeding with development of the License area, all other capitalized costs
related to the Company's investments in and advances to Symskaya were also
written off, resulting in a total charge to expense of $9,204,394 ($6,592,206
after tax). The Company's 50% share of Symskaya's net loss in 1997 was $356,661,
which resulted primarily from administrative related epenses.
3-D SEISMIC AND EXPLORATION EXPENSES
During 1997, the Company incurred $626,525 in 3-D seismic costs related to
its exploration programs, compared to $757,964 in 1996. Exploration expenses
increased as the Company drilled 12 exploratory dry holes in 1997, compared to 6
dry holes in 1996. Successful efforts accounting, the method used by the
Company, requires both 3D seismic costs and exploratory dry hole costs to be
expensed on a current basis.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company recorded increases in compensation expense, along with small
increases in other administrative charges during 1997.
INTEREST EXPENSE
During 1996, because of its ongoing exploration project in Russia, the
Company was required to capitalize most of its interest expense. With activity
in Russia curtailed in 1997, interest is now being charged to expense. Along
with increased borrowing on the Company's revolving credit facility, this caused
interest expense to increase during 1997 over 1996 levels.
INCOME TAX BENEFIT
Income tax expense for 1997 includes additional taxes arising from an audit
of the Company's Canadian tax returns. The adjustment resulted in the accrual of
approximately $375,000 in additional Canadian taxes related to prior years.
Details concerning the components of the tax expense can be found in Footnote 3
to the financial statements.
COMPARISON OF 1996 WITH 1995
OIL AND GAS PRODUCTION AND SALES
The Company recorded increases in oil and gas production and sales during
1996, compared to 1995. Oil production rose 3%, from 619,380 barrels in 1995 to
636,717 barrels in 1996. Gas production rose 32%, from 1.45 Bcf in 1995 to 1.91
Bcf in 1996. The production increases were a direct result of the Company's
successful exploration and development drilling and acquisition programs.
Increases in production were augmented by increases in both oil and gas average
prices received during the year. The Company's average gas price received during
1996 was $1.55, up 18% from $1.31 received during 1995. Oil prices increased 21%
from $17.00 in 1995 to $20.65 in 1996. The combination of increased production
and increased prices resulted in an increase of 31% in oil and gas sales for
1996. Further details of production and pricing are found in Item 2. Properties,
under the caption Production.
OTHER INCOME
Other income in 1995 included the recognition of $178,553 of lease revenue
deferred in 1994. There was no similar transaction in 1996. This reduction in
other income was partially offset by increased overhead fees from operated
properties.
LEASE OPERATING COSTS
Lease operating costs increased 16% in 1996 over 1995 levels. The increase
was directly attributable to the increases in production discussed above, higher
value-based production taxes associated with increased product prices, and a
greater number of wells on production. 1996 was the first full year of
operations for the wells drilled and acquired during 1995. In addition, the
Company added approximately 40 wells during 1996.
DEPRECIATION, DEPLETION, AND AMORTIZATION (DD&A)
Increased DD&A charges in 1996 were a direct reflection of increased
production and the addition of new wells to the Company's depletion base. As
discussed above, 1996 was the first full year of operations for the wells
drilled and acquired during 1995. In addition, the Company added approximately
40 wells during 1996.
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES
As discussed previously, included in the Statement of Operations for 1996
and 1995 are non-cash charges for the impairment of proved oil and gas
properties in the amount of $237,279 and $2,471,146, respectively. The 1995
charge resulted from the Company's adoption of SFAS No. 121, effective July 1,
1995.
EQUITY LOSS AND IMPAIRMENT OF INVESTMENT IN SYMSKAYA EXPLORATION, INC.
As discussed above, In 1996, Symskaya plugged and abandoned the Lemok #1
well, and charged the drilling costs of the well to expense. Due to the
uncertainty relating to Symskaya's obtaining additional outside financing and
proceeding with development of the License area, all other capitalized costs
related to the Company's investments in and advances to Symskaya were also
written off, resulting in a total charge to expense of $9,204,394 ($6,592,206
after tax).
3-D SEISMIC AND EXPLORATION EXPENSES
During 1996, the Company incurred $757,964 in 3-D seismic costs related to
its California exploration programs, compared to $237,604 in 1995. Exploration
expenses increased as the Company drilled 6 dry holes in 1996, including one dry
hole which cost approximately $500,000, compared to 4 dry holes in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company recorded increases in compensation expense, along with small
increases in other administrative charges during 1996.
INTEREST EXPENSE
Subsequent to the plugging of the Lemok #1, the Company discontinued
capitalizing interest expense on the investment in Symakaya Exploration, Inc.
Along with increased borrowing on the Company's revolving credit facility, this
caused interest expense to increase 126% during 1996 over 1995 levels.
INCOME TAX BENEFIT
The Company's income tax benefit was a function of the loss in 1996.
Details concerning the components of the tax benefit can be found in Footnote 3
to the financial statements.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
1997 1996 1995
- ----------------------------------------------------------------
Cash, cash equivalents,
and temporary cash
investments $ 378,801 $ 837,763 $1,467,219
Working capital 2,652,023 2,809,086 3,721,049
Cash provided by
operating activities 4,181,477 5,807,986 4,143,390
Cash (used in)
investing activities (9,260,988) (9,476,999) (8,414,086)
Cash provided by
financing activities 4,670,351 3,945,722 4,418,606
CASH AND WORKING CAPITAL
Total cash balances dropped by 55% from 1996, as a result of a combination
of several events discussed in the following paragraphs. Working capital
decreased by 6%. The Company's ratio of current assets to current liabilities
was 2.33 to 1 at December 31, 1997, compared to 2.17 to 1 at December 31, 1996.
The Company believes that existing cash balances, cash flow from operating
activities, and the remaining borrowing capacity under its revolving credit
facility will provide adequate resources to meet its capital, exploration, and
acquisition spending objectives in 1998.
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow from operating activities declined in 1997 compared to 1996
levels, primarily as a result of a reduction in accounts payable balances, which
is mainly a function of timing. Higher oil and gas sales, which arose from
increased oil and gas production and higher product prices, were the principal
factors behind an increase in cash flow from operating activities from 1995 to
1996.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures in 1997 were 30% higher than the amount recorded in
1996. Included in the 1997 figures were $3.2 million associated with proved
property acquisitions, and $1.2 million associated with unproved property
acquisitions. During 1996, the Company recorded costs of $2 million and $.5
million, respectively, for these property acquisitions. Subsequent to the
plugging of the Lemok #1 in 1996, the Company's advances to Symskaya
Exploration, Inc. decreased significantly. During 1997 the Company advanced
approximately $357,000 to Symskaya, compared to approximately $3.0 million in
1996. The Company expects that advances to Symskaya in 1998 will again be
minimal as the Company has no current plans to fund any exploratory drilling.
The investment activity was partially funded by proceeds from the sale of
properties in 1997, and by the sale of temporary cash investments in both years.
1996 capital expenditures increased 2% over 1995 levels. Funds advanced to
Symskaya Exploration increased from $2,745,319 in 1995 to $3,043,952 in 1996, an
increase of 11%.
CASH FLOWS FROM FINANCING ACTIVITIES
In March of 1995, the Company obtained a $20 million Borrowing Base Credit
Facility (the Facility), with an initial commitment of $10 million. The Company
used proceeds of $5,100,000, $3,960,000 and $4,918,830 in 1997, 1996 and 1995
respectively, from the Facility to fund capital expenditures, retire its
previous outstanding Note Payable in the amount of $920,000, and for working
capital purposes. As of December 31, 1997 the outstanding balance under the
Facility was $13,978,830 at an average interest rate of 7.69%. On October 17,
1997, the Company amended its credit agreement, increasing the current
commitment from $10 million to $15 million.
The Company purchased 135,600 shares of its stock on the open market during 1997
at an average price of $3.17 per share. The purchases were made pursuant to a
share repurchase program adopted by the Company in June of 1997. The Company
purchased 29,000 shares of its stock during 1996 at an average price of $3.40
per share.
COMMITMENTS
Under the terms of Symskaya's License and Production Sharing Contract
(PSC), Equity was committed to advance Symskaya a minimum of $6 million during
the first 5 contract years, representing 50% of the minimum expenditures called
for in the License and PSC, with the remainder being funded by Leucadia National
Corporation, Symskaya's other 50% shareholder. The first contract year began
November 15, 1993. The amounts spent through November 14, 1997, the end of the
fourth contract year, have satisfied all minimum commitments required. Further
discussion of this venture is found in ITEM 2. Properties, under the caption
Present Activity, and in Footnotes 6 and 9 to the financial statements.
OTHER ITEMS
The Company has reviewed all recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have any significant
effects on current or future earnings or operations.
YEAR 2000
The Company uses computers principally for processing and analyzing
geophysical and geological data, map making, and administrative functions such
as word processing, accounting, and financial reporting. The Company's principal
computer systems have been purchased since December 31, 1995. The Company has an
ongoing program to ensure that its operational and financial systems will not be
adversely affect by year 2000 software failures. While the Company believes it
is taking all appropriate steps to assure year 2000 compliance, it is dependent
substantially on vendor compliance. The Company intends to modify or replace
those systems that are not year 2000 compliant. The Company is requiring its
systems and software vendors to represent that the services and products
provided are, or will be, year 2000 compliant, and has planned a program to test
compliance. The Company anticipates completing that test no later than year-end
1998. The Company estimates that any cost to redevelop, replace, or repair its
technology will not be material.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-K, future filings by the Company
with the Securities and Exchange Commission, the Company's press releases and
oral statements by authorized officers of the Company are intended to be subject
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements involve risks
and uncertainty, including without limitation, the risk of a significant natural
disaster, the inability of the Company to ensure against certain risks, the
adequacy of its loss reserves, fluctuations in commodity prices, the inherent
limitations in the inability to estimate oil and gas reserves, changing
government regulations, as well as general market conditions, competition and
pricing. The Company believes that forward-looking statements made by it are
based upon reasonable expectations. However, no assurances can be given that
actual results will not differ materially from those contained in such
forward-looking statements. The words "estimate", "anticipate",
"expect","predict", "believe" and similar expressions are intended to identify
forward-looking statements.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Stockholders and Board of
Directors of Equity Oil Company:
We have audited the financial statements of Equity Oil Company as listed in Item
14(a) of this Form 10-K. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equity Oil Company as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1995 the Company changed
its method of measuring impairment of proved oil and gas properties.
Coopers & Lybrand L.L.P.
Salt Lake City, Utah
January 16, 1998
<PAGE>
<TABLE>
<CAPTION>
EQUITY OIL COMPANY
BALANCE SHEET
December 31, 1997 and 1996
ASSETS 1997 1996
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................... $ 378,801 $ 787,961
Temporary cash investments .............................. -- 49,802
Accounts receivable ..................................... 2,957,677 2,911,637
Operator advances ....................................... 683,858 749,033
Federal, state and foreign income
taxes receivable ...................................... 88,174 311,393
Deferred income taxes ................................... 18,934 31,053
Other current assets .................................... 514,713 372,701
------------- -------------
Total current assets ............................ 4,642,157 5,213,580
------------- -------------
Property and equipment, at cost (successful efforts method):
Unproved oil and gas properties ......................... 3,504,362 2,565,727
Proved oil and gas properties:
Developed leaseholds .................................. 13,049,597 10,548,580
Intangible drilling costs ............................. 68,324,359 65,983,136
Equipment ............................................. 27,733,805 26,284,602
Other property and equipment ............................ 759,768 765,100
------------- -------------
113,371,891 106,147,145
Less accumulated depreciation,
depletion and amortization ...................... (64,846,514) (61,732,014)
------------- -------------
48,525,377 44,415,131
------------- -------------
Other assets:
Investment in Raven Ridge Pipeline
Partnership ........................................... 268,821 405,328
Other assets ............................................ 105,284 147,398
------------- -------------
374,105 552,726
------------- -------------
Total assets .................................... $ 53,541,639 $ 50,181,437
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY ....................
Current liabilities:
Accounts payable ........................................ $ 1,327,120 $ 1,880,418
Accrued liabilities ..................................... 120,039 153,467
Federal, state and foreign income
taxes payable ......................................... 354,002 191,509
Accrued profit-sharing contribution ..................... 188,973 179,100
------------- -------------
Total current liabilities ....................... 1,990,134 2,404,494
------------- -------------
Revolving credit facility .................................. 13,978,830 8,878,830
Deferred income taxes ...................................... 4,851,966 5,565,973
------------- -------------
18,830,796 14,444,803
------------- -------------
Commitments (Note 6)
Stockholders' equity:
Common stock, $1 par value:
Authorized: 25,000,000 shares
Issued: 12,761,100 shares in 1997
and 12,751,100 shares in 1996 ...................... 12,761,100 12,751,100
Paid in capital ......................................... 3,667,707 3,648,333
Retained earnings ....................................... 16,820,204 17,031,360
------------- -------------
33,249,011 33,430,793
Less treasury stock, at cost ............................ (528,302) (98,653)
------------- -------------
32,720,709 33,332,140
------------- -------------
Total liabilities and
stockholders' equity ............................ $ 53,541,639 $ 50,181,437
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
EQUITY OIL COMPANY
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenues:
<S> <C> <C> <C>
Oil and gas sales ......................... $ 16,457,048 $ 16,115,125 $ 12,259,739
Partnership income ........................ 311,215 306,114 311,960
Interest .................................. 153,672 140,053 221,020
Other income .............................. 1,023,037 312,759 457,837
------------ ------------ ------------
17,944,972 16,874,051 13,250,556
------------ ------------ ------------
Expenses:
Oil and gas leasehold operating costs ..... 5,940,808 5,912,128 5,093,782
Depreciation, depletion and amortization .. 4,675,411 4,292,237 3,843,442
Impairment of proved oil and gas properties 411,894 237,279 2,471,146
Equity loss and impairment of investment
in Symskaya Exploration, Inc. ........... 356,661 9,204,394 --
Leasehold abandonments .................... 86,542 87,464 30,597
3-D seismic ............................... 626,525 757,964 237,604
Exploration ............................... 3,026,550 2,336,405 1,633,612
General and administrative ................ 2,048,194 2,030,811 1,908,778
Interest, net of interest capitalized
of $364,637 in 1996 and $70,000 in 1995 . 733,980 164,678 72,625
------------ ------------ ------------
17,906,565 25,023,360 15,291,586
------------ ------------ ------------
Income (loss) before income taxes .... 38,407 (8,149,309) (2,041,030)
Provision for (benefit from) income taxes ..... 249,563 (2,646,663) (786,218)
------------ ------------ ------------
Net loss ............................. $ (211,156) $ (5,502,646) $ (1,254,812)
============ ============ ============
Basic and diluted net loss per common share ... $ (.02) $ (.43) $ (.10)
============ ============ ============
Basic and diluted weighted
average shares outstanding ................. 12,686,211 12,733,864 12,597,238
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
EQUITY OIL COMPANY
STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY for the years ended
December 31, 1997, 1996 and 1995
Common Stock Paid in Retained Treasury Stock
Shares Amount Capital Earnings Shares Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ................ 12,593,631 $ 12,593,631 $ 2,934,792 $ 23,788,818 52,031 $ (112,210)
Net loss ............................... (1,254,812)
Treasury stock purchased,
$3.79 per share ...................... 13,500 (51,181)
Common stock issued for services,
$3.88 per share ...................... 12,000 12,000 34,500
Treasury stock canceled, $2.49 per share (65,531) (65,531) (97,860) (65,531) 163,391
Common stock issued on exercise
of incentive stock options ........... 171,000 171,000 510,525
Income tax benefit from exercise
of incentive stock options ........... 103,530
Balance at December 31, 1995 .............. 12,711,100 12,711,100 3,485,487 22,534,006 -- --
Net loss ............................... (5,502,646)
Treasury stock purchased,
$3.40 per share ...................... 29,000 (98,653)
Common stock issued for services,
$5.04 per share ...................... 20,500 20,500 82,813
Common stock issued on exercise
of incentive stock options ........... 19,500 19,500 64,875
Income tax benefit from exercise
of incentive stock options ........... 15,158
Balance at December 31, 1996 .............. 12,751,100 12,751,100 3,648,333 17,031,360 29,000 (98,653)
Net loss ............................... (211,156)
Treasury stock purchased,
$3.17 per share ...................... 135,600 (429,649)
Common stock issued for services,
$2.94 per share ...................... 10,000 10,000 19,374
Balance at December 31, 1997 .............. 12,761,100 $ 12,761,100 $ 3,667,707 $ 16,820,204 164,600 $ (528,302)
============ ============ ============ ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
EQUITY OIL COMPANY
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss .................................................................... $ (211,156) $(5,502,646) $(1,254,812)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Impairment of proved oil and gas properties ............................. 411,894 237,279 2,471,146
Equity loss and impairment of investment
in Symskaya Exploration, Inc. ........................................ 356,661 9,204,394 --
Depreciation, depletion and amortization ................................ 4,675,411 4,292,237 3,843,442
Partnership distributions in excess of income ........................... 136,508 134,892 144,717
(Gain) loss on property dispositions .................................... (243,423) 87,464 43,227
Change in other assets .................................................. 42,114 42,113 21,057
Deferred income tax benefit ............................................. (701,888) (3,130,574) (1,374,414)
Common stock issued for services ........................................ 29,374 103,313 46,500
Cash provided by operating activities before ----------- ----------- -----------
changes in working capital items 4,495,495 5,468,472 3,940,863
Increase (decrease) from changes in:
Accounts receivable and operator advances ............................ 19,135 (406,805) 133,624
Other current assets ................................................. (142,012) 5,893 (784)
Accounts payable and accrued liabilities ............................. (576,853) 735,915 11,438
Deferred lease rental revenue ........................................ -- -- (178,553)
Income taxes payable/receivable ...................................... 385,712 4,511 236,802
----------- ----------- -----------
Net cash provided by operating activities .......................... 4,181,477 5,807,986 4,143,390
----------- ----------- -----------
Cash flows from investing activities:
Sale of temporary cash investments .......................................... 49,802 906,165 1,510,761
Advances to Symskaya Exploration ............................................ (356,661) (3,043,952) (2,745,319)
Capital expenditures ........................................................ (9,547,036) (7,339,212) (7,179,528)
Proceeds from sale of oil and gas property .................................. 592,907 -- --
----------- ----------- -----------
Net cash used in investing activities .............................. (9,260,988) (9,476,999) (8,414,086)
----------- ----------- -----------
Cash flows from financing activities:
Exercise of incentive stock options ......................................... -- 84,375 681,525
Increase in other assets .................................................... -- -- (210,568)
Purchase of treasury stock .................................................. (429,649) (98,653) (51,181)
Borrowings under revolving credit facility .................................. 5,100,000 3,960,000 4,918,830
Payments on note payable .................................................... -- -- (920,000)
----------- ----------- -----------
Net cash provided by financing activities ............................ 4,670,351 3,945,722 4,418,606
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents ........................... (409,160) 276,709 147,910
Cash and cash equivalents at beginning of year ................................. 787,961 511,252 363,342
----------- ----------- -----------
Cash and cash equivalents at end of year ....................................... $ 378,801 $ 787,961 $ 511,252
=========== =========== ===========
Cash, cash equivalents and temporary
cash investments at end of year .............................................. $ 378,801 $ 837,763 $ 1,467,219
=========== =========== ===========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Income taxes .............................................................. $ 701,694 $ 419,121 $ 355,993
Interest .................................................................. $ 733,980 $ 164,678 $ 72,625
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
A. The Company:
Equity Oil Company (the Company) is a Colorado corporation
engaged in oil and gas exploration, development and production in
the United States, Canada and Russia.
B. Temporary Cash Investments and Cash Equivalents:
Temporary cash investments consist of U.S. Treasury Notes stated
at cost which approximates market. The Company considers all
highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
C. Accounting for Oil and Gas Operations:
The Company reports using the "successful efforts" method of
accounting for oil and gas operations. The use of this method
results in capitalization of those costs identified with the
acquisition, exploration and development of properties that
produce revenue or, if in the development stage, are anticipated
to produce future revenue. Costs of unsuccessful exploration
efforts are expensed in the period in which it is determined that
such costs are not recoverable through future revenues.
Exploratory geological and geophysical costs are expensed as
incurred. The costs of development wells are capitalized whether
productive or nonproductive.
The Company annually assesses undeveloped oil and gas properties
for impairment. The annual impairment represents management's
estimate of the decline in realizable value experienced during
the year. The costs of proved properties which management
determines are not recoverable are written down in the period
such determination is made. The net capitalized costs of proved
oil and gas properties are measured for impairment in accordance
with SFAS No. 121 (see Note 2).
The provision for depreciation, depletion and amortization of
proved oil and gas properties is computed using the unit of
production method, based on
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, Continued:
proved oil and gas reserves. Estimated dismantlement, restoration
and abandonment costs are expected to be offset by estimated
residual values of lease and well equipment. Thus, no accrual for
such costs has been recorded.
D. Concentration of Credit Risk:
Substantially all of the Company's accounts receivable are within
the oil and gas industry, primarily from purchasers of oil and
gas (see Note 5). Although diversified within many companies,
collectibility is dependent upon the general economic conditions
of the industry. The receivables are not collateralized and, to
date, the Company has experienced minimal bad debts. The majority
of the Company's cash, cash equivalents and temporary cash
investments is held by three financial institutions located in
Salt Lake City, Utah, and by one financial institution in
Calgary, Alberta.
E. Equipment:
The provision for depreciation of equipment (other than oil and
gas equipment) is based on the straight-line method using asset
lives as follows:
Office equipment 10 years
Automobiles 3 years
When equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the Statement of
Operations.
F. Foreign Operations:
Operations and investments in Canada have been translated into
U.S. dollar equivalents at the average rate of exchange in effect
at the transaction date. Foreign exchange gains or losses during
1997, 1996 and 1995 were not material.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, Continued:
G. Income (Loss) Per Common Share:
In 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share". All prior periods have been restated to
conform to the new requirements. Basic earnings per share was
computed by dividing the net loss by the weighted average number
of common shares outstanding and the effect of dilutive
unexercised stock options. Options to purchase 1,141,000,
1,076,000 and 904,000 shares of common stock at prices ranging
from $3.56 to $6.00 per share were outstanding at December 31,
1997, 1996 and 1995, respectively, but were not included in the
computation of diluted earnings per share because the effect
would have been antidilutive.
H. Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Impairment of Proved Oil and Gas Properties:
Included in the Statement of Operations for 1995 is a non-cash charge
for the impairment of proved oil and gas properties in the amount of
$2,471,146 ($1,557,563 after tax), which results from the Company's
adoption of SFAS No.121, Accounting for the Impairment of Long Lived
Assets and for Assets Held for Disposal (SFAS No. 121), effective July
1, 1995. SFAS No.121 requires successful efforts companies to evaluate
the recoverability of the net capitalized costs of their proved oil and
gas properties at a field level, rather than on a company-wide level as
previously allowed by the Securities and Exchange Commission. The SFAS
No.121 impairment test compares the expected undiscounted future net
revenues from each producing field with the related net capitalized
costs at the end of each period. When the net capitalized costs exceed
the undiscounted future net revenues, the cost of the property is
written down to fair value, which is determined using discounted future
net revenues from the producing field.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
The Company recorded non-cash impairment charges of $411,894 and
$237,279 for 1997 and 1996, respectively.
3. Income Taxes:
<TABLE>
<CAPTION>
The provision for (benefit from) income taxes consists of the
following:
1997 1996 1995
---- ---- ----
Currently payable (receivable):
U.S. income taxes (including
<S> <C> <C> <C>
alternative minimum tax) $ 18,584 $ 185,082 $ 188,666
State income taxes 70,512 108,463 26,262
Canadian income taxes 471,064 190,366 373,268
Taxes due from Canadian audit 391,291 - -
Deferred tax benefit (701,888) (3,130,574) (1,374,414)
--------- ---------- -------------
$ 249,563 $ (2,646,663) $ (786,218)
======== ============= ===========
</TABLE>
The Company accounts for income taxes in accordance with SFAS No. 109.
Deferred income taxes are provided on the difference between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in taxable or deductible amounts in future
years when the reported amount of the asset or liability is recovered
or settled, respectively.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. Income Taxes, Continued:
The components of the net deferred tax liability as of December 31,
1997 and 1996 were as follows:
1997 1996
---- ----
Deferred tax assets:
AMT credit carryforward $ 293,789 $ 326,104
State income taxes 26,068 42,347
Deferred compensation 13,370 9,211
Geological and geophysical costs 637,371 439,306
Capitalized interest 433,750 204,755
Foreign tax credit carryforward 501,257 265,301
Equity loss and impairment of investment
in Symskaya Exploration, Inc. 2,687,806 3,283,105
--------- ---------
4,593,411 4,570,129
Valuation allowance (501,257) (992,458)
--------- ---------
Total deferred tax asset 4,092,154 3,577,671
--------- ---------
Deferred tax liabilities:
Deferred income 95,465 20,505
Property and equipment 8,802,389 9,012,408
Pipeline partnership 27,332 79,678
--------- ---------
Total deferred tax liability 8,925,186 9,112,591
--------- ---------
Net deferred tax liability $4,833,032 $5,534,920
========= =========
The net deferred tax liability as of December 31, 1997 and 1996 is
reflected in the balance sheet as follows:
Current deferred tax asset (18,934) (31,053)
Long-term deferred tax liability 4,851,966 5,565,973
--------- ---------
$4,833,032 $5,534,920
========= =========
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. Income Taxes, Continued:
<TABLE>
<CAPTION>
The provision for (benefit from) income taxes differs from the amount
that would be provided by applying the statutory U.S. Federal income
tax rate to the income (loss) before income taxes for the following
reasons:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax expense (benefit) . $ 13,058 $(2,770,765) $ (693,948)
Increase (reduction) in taxes
resulting from:
State taxes (net of federal
benefit) .......................... (5,323) (198,849) (68,376)
Canadian taxes (net of foreign
tax credits) .................... 113,882 (107,549) 287,670
Excess allowable percentage
depletion ......................... (162,297) (171,724) (166,509)
Investment tax and other credits ... (84,136) (124,933) (145,055)
Taxes due from Canadian audit ...... 374,379 -- --
Unrecognized capital loss related
to impairment of investment
in Symskaya Exploration, Inc. ... -- 727,157 --
----------- ----------- -----------
Provision for (benefit from) income taxes $ 249,563 $(2,646,663) $ (786,218)
=========== =========== ===========
</TABLE>
At December 31, 1997, the Company had approximately $294,000 of
alternative minimum tax credit carryforwards which can be carried
forward indefinitely, and approximately $501,000 of foreign tax credit
carryforwards which expire in 2001.
4. Stock-Based Compensation Plan:
At December 31, 1997, the Company had one stock-based compensation
plan, which is described below. The Company applies APB Opinion No. 25
and related Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for its fixed stock option plan.
Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, the
Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
4. Stock-Based Compensation Plan, Continued:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ---------
<S> <C> <C> <C>
Net loss .......................... As reported $ (211,156) $ (5,502,646) $ (1,254,812)
Pro forma $ (336,511) $ (5,635,133) $ (1,297,811)
Net loss per share ................ As reported $ (.02) $ (.43) $ (.10)
Pro forma $ (.03) $ (.44) $ (.10)
</TABLE>
Note: Basic and diluted loss per share are the same.
Under the 1993 Equity Oil Company Incentive Stock Option Plan, the
Company may grant options to its employees for up to 1.4 million shares
of common stock. The options may take the form of incentive stock
options, non-qualified stock options, and non-qualified stock options
with tandem stock appreciation rights. The exercise price of each
option equals the market price of the Company's stock on the date of
grant, and an option's maximum term is 10 years. Options are granted
from time to time at the discretion of the Board of Directors, and vest
over periods of one to five years from the grant date.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996, and 1995
respectively: expected volatility of 50, 67 and 65 percent, risk-free
interest rates of 6.3, 5.4 and 7.2 percent; expected life of 5 years
and dividend yield of zero for all three years.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
4. Stock-Based Compensation Plan, Continued:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
Fixed Options (000) Exercise Price (000) Exercise Price (000) Exercise Price
- ------------- --------- --------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,076 $4.42 904 $4.22 1,047 $4.28
Granted ........................ 121 3.56 222 5.13 102 3.63
Exercised ...................... -- -- (39) 3.94 (171) 3.98
Forfeited ...................... (56) 4.37 (11) 4.38 (74) 4.75
--- ---- --- ---- --- ----
Outstanding at end of year .... 1,141 4.33 1,076 4.42 904 4.22
Options exercisable at year-end 880 775 743
===== ===== =====
Weighted-average fair value of
options granted during the year $1.56 $3.06 $2.18
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
Options Outstanding Options Exercisable
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ------------------- --------------- -------------------- ------------------ --------------- ----------------
<C> <C> <C> <C> <C> <C>
$3.56 to $3.56 260,500 7.98 years $3.56 139,000 $3.56
$3.63 to $4.00 290,000 5.52 $3.86 263,600 $3.88
$4.22 to $5.00 292,000 6.44 $4.51 263,200 $4.53
$5.13 to $5.50 257,500 8.64 $5.18 172,700 $5.20
$6.00 to $6.00 41,000 2.16 $6.00 41,000 $6.00
--------- ---- ----- ------- -----
1,141,000 6.90 $4.33 879,500 $4.38
========= ==== ===== ======= =====
</TABLE>
5. Geographic Segment Information:
The Company has oil and gas operations in the U.S., Canada and
Russia. Operating profit is total revenue less operating expenses.
In computing operating profit, general and administrative expenses
and interest expense have not been deducted. Identifiable assets
are those assets of the Company that are identifiable with the
operations of each geographical area.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
5. Geographic Segment Information, Continued:
Revenue from a major U.S. oil company accounted for approximately
38 percent of total revenues in 1997, 45 percent of total revenues
in 1996, and 51 percent of total revenues in 1995.
<TABLE>
<CAPTION>
Information about the Company's operations in the U.S., Canada and
Russia for the years ended December 31, 1997, 1996, and 1995 is as
follows:
1997: United States Canada Russia Total
<S> <C> <C> <C> <C>
Revenues $ 15,631,738 $ 2,313,234 $ - $ 17,944,972
================== ================ ================ ================
Operating profit (loss) $ 1,815,391 $ 1,361,851 $ (356,661) $ 2,820,581
General and administrative
expenses (2,048,194) - - (2,048,194)
Interest expense (733,980) - - (733,980)
----------------- ---------------- ---------------- ----------------
Income (loss) before
income taxes $ (966,783) $ 1,361,851 $ (356,661) $ 38,407
================== ================ ================ ================
Identifiable assets at
December 31, 1997 $ 49,661,110 $ 3,880,529 $ - $ 53,541,639
================== ================ ================ ================
Additions to property and
equipment $ 9,291,931 $ 255,105 $ - $ 9,547,036
================== ================ ================ ================
Depreciation, depletion and
amortization $ 4,385,013 $ 290,398 $ - $ 4,675,411
================== ================ ================ ================
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
5. Geographic Segment Information, Continued:
<TABLE>
<CAPTION>
1996: United States Canada Russia Total
<S> <C> <C> <C> <C>
Revenues $14,230,763 $ 2,643,288 $ - $16,874,051
========== ========= ========= ===========
Operating profit (loss) $ 2,024,752 $ 1,225,822 $ (9,204,394) $(5,953,820)
General and administrative
expenses (2,030,811) - - (2,030,811)
Interest expense (164,678) - - (164,678)
---------- --------- ---------- -----------
Income (loss) before
income taxes $ (170,737) $ 1,225,822 $ (9,204,394) $(8,149,309)
Identifiable assets at
December 31, 1996 $46,031,896 $ 4,149,541 $ - $50,181,437
Additions to property and
equipment $ 7,241,452 $ 97,760 $ - $ 7,339,212
========== ========= ========= ==========
Depreciation, depletion and
amortization $ 3,838,202 $ 454,035 $ - $ 4,292,237
========== ========= ========= ==========
1995: United States Canada Russia Total
Revenues $10,819,553 $ 2,431,003 $ - $13,250,556
========== ========= ========= ==========
Operating profit (loss) $(1,391,469) $ 1,331,842 - $ (59,627)
General and administrative
expenses (1,908,778) - - (1,908,778)
Interest expense (72,625) - $ - $ (72,625)
---------- --------- --------- ----------
Income (loss)
before income taxes $(3,372,872) $ 1,331,842 $ - $(2,041,030)
========== ========= ========= ==========
Identifiable assets at
December 31, 1995 $43,512,850 $ 4,273,758 $ 6,160,442 $53,947,050
========== ========= ========= ==========
Additions to property and
equipment $ 6,127,455 $ 1,052,073 $ - $ 7,179,528
========== ========= ========= ==========
Depreciation, depletion and
amortization $ 3,406,947 $ 436,495 $ - $ 3,843,442
========== ========= ========= ==========
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. Symskaya Exploration:
Symskaya Exploration, Inc., a company in the development stage and
a Texas corporation (Symskaya), was formed on November 25, 1991,
and is engaged in oil and gas exploration in Russia. Symskaya
holds a Combined License (License) which grants it the exclusive
right to explore, develop and produce hydrocarbons on a contract
area totaling approximately 1,100,000 acres in the Yenisysk
District of the Krasnoyarsk Krai in the Russian Federation. The
License has a primary term of 25 years from November 15, 1993.
The work to be performed and the obligations and rights of
Symskaya are set forth in the License and a Production Sharing
Agreement (PSA) which is an integral part of the License. Under
the License and PSA, Symskaya will provide funding for all
exploration and development and will recover these costs from 80%
of hydrocarbon production after payment of an 8% royalty. The
remaining 20% of any hydrocarbon production, net of royalty, will
be shared by Symskaya and the Russian government based on the rate
of production. As of December 31, 1997, the Symskaya area had not
received approval by the Russian federal government as a
production sharing area.
Minimum expenditures required under the License and PSA total
$12,000,000 during the first five years of the License term, which
began on November 15, 1993. As of December 31, 1997, Symskaya had
satisfied all of the minimum expenditures required.
Symskaya is owned 50% each by Equity Oil Company (Equity) and
Leucadia National Corporation, (Leucadia). Leucadia acquired 50%
of the stock of Symskaya effective January 1, 1994, in exchange
for their commitment to spend up to $6,000,000, in an amount equal
to that spent by Equity, towards the Symskaya project through the
drilling, completion and/or plugging and abandonment of the
initial test well, the Lemok #1. Pursuant to a Shareholders'
Agreement, Leucadia was not required to pay any part of the
amounts previously advanced by Equity under a Loan Agreement with
Symskaya, with the exception of one-half (1/2) of the interest on
a $1,740,519 loan between Equity and Symskaya. The loan reflects
the initial investment by Equity in Symskaya prior to Leucadia's
ownership.
Amounts advanced by Equity and Leucadia after January 1, 1994 are
treated as interest-bearing notes payable or equity, as mutually
agreed upon by the respective companies. The shareholder agreement
with Leucadia also requires that Leucadia share equally in the
payment of the one (1%) percent royalty obligation in favor of
Coastline Exploration, Inc. on future revenues from the Symskaya
project. The Company's President serves on Leucadia's Board of
Directors.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. Symskaya Exploration, Continued:
The Company's investment in Symskaya is being accounted for using
the equity method of accounting.
In 1996, Symskaya plugged and abandoned the Lemok #1 well, and
charged the drilling costs of the well to expense. Due to the
uncertainty relating to Symskaya's obtaining additional outside
financing and proceeding with development of the License area, all
other capitalized costs were also written off, resulting in a
total charge to expense of $9,204,394. Subsequent to the plugging
of the Lemok #1 well, the Company and Leucadia agreed to suspend
interest payments on Symskaya's note with the Company. The Company
has no current plans to fund future exploratory drilling. The
Company's 50% share of Symskaya's net loss in 1997 was $356,661.
Summarized financial information concerning Symskaya Exploration,
Inc. is as follows:
As of As of
December 31, December 31,
1997 1996
Current assets $ 87,695 $ 249,692
Non-current assets 6,053,629 5,876,700
Total assets 6,141,324 6,126,392
Current liabilities 13,699 98,210
Non-current liabilities 14,242,094 12,653,243
Accumulated deficit (12,776,251) (11,102,325)
Total liabilities and
stockholders' equity $ 6,141,324 $ 6,126,392
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. Symskaya Exploration, Continued:
For the year ended For the year ended
December 31, December 31,
1997 1996
Gross revenues $ 14,217 $ 59,405
Net (loss) $ (1,673,926) $(10,974,120)
7. Note Payable:
In March of 1995, the Company obtained a $20 million Borrowing
Base Credit Facility (the Facility), with an initial commitment of
$10 million. The commitment was raised to $15 million during 1997.
The terms of the Facility call for interest payments only, at the
lower of prime or LIBOR plus 2%, until June 30, 1999, at which
time it converts to a 4 year term note. An unused commitment fee
of 3/8% will be charged to the Company based on the average daily
unused portion of the Facility. The Facility is collateralized by
all assets of the Company. As of December 31, 1997 the outstanding
balance under the Facility was $13,978,830 at an average interest
rate of 7.69%.
Future maturities on the Facility as of December 31, 1997 are as
follows:
1998 $ -
1999 1,747,354
2000 3,494,708
2001 3,494,708
2002 3,494,708
2003 1,747,352
---------
$13,978,830
The Facility contains provisions relating to maintenance of
certain financial ratios, as well as restrictions governing its
use. Under covenants contained in the Facility, the Company has
agreed, among other things, not to advance any proceeds from the
Facility to Symskaya, not to pay dividends, and not to merge with
or acquire any other company without the prior approval of the
bank.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
7. Note Payable, Continued:
As of December 31, 1997, the Company was in compliance with all
covenants contained in the Facility. Facility fees, which are
reflected as other assets in the accompanying Balance Sheet, are
being amortized on a straight line basis over 60 months.
8. Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
Quarterly financial information for the years ended December 31,
1997 and 1996 is as follows:
1997 Quarter Ended: . December 31 September 30 June 30 March 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues ........ $ 4,038,890 $ 3,833,655 $ 3,978,440 $ 4,917,278
Gross margin ........ (844,586) (415,603) 712,019 1,531,928
Net income (loss) ... (1,104,583) (48,158) 161,210 780,375
Net income (loss) per
common share ..... $ (.09) $ (.00) $ .01 $ .06
=========== =========== =========== ===========
1996 Quarter Ended: . December 31 September 30 June 30 March 31
----------- ----------- ----------- -----------
Net revenues ........ $ 4,653,388 $ 4,049,173 $ 3,985,332 $ 3,733,346
Gross margin ........ (4,056,478) (4,401,235) 1,372,329 678,753
Net income (loss) ... (3,563,431) (2,760,271) 715,349 105,707
Net income (loss) per
common share ..... $ (.28) $ (.22) $ .06 $ .01
=========== =========== =========== ===========
</TABLE>
Note: Third quarter gross margin in 1996 includes the effects of
the equity loss in Symskaya Exploration, Inc. Fourth quarter
gross margin in 1996 includes the writedown of the Company's
remaining investment in Symskaya Exploration, Inc. See Note 6.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities:
<TABLE>
<CAPTION>
Capitalized Costs:
United States Canada Russia Total
1997:
Unproved oil and gas
<S> <C> <C> <C> <C>
properties $ 3,471,138 $ 33,224 $ 3,504,362
Proved oil and gas
properties 99,863,977 9,243,784 109,107,761
----------- ---------- -----------
103,335,115 9,277,008 112,612,123
Accumulated depreciation,
depletion and amortization (58,065,779) (6,292,480) (64,358,259)
----------- ---------- -----------
Net capitalized costs $ 45,269,336 $ 2,984,528 $ 48,253,864
=========== ========== ===========
Symskaya, equity method
(see Note 6) $ -
==========
1996:
Unproved oil and gas
properties $ 2,532,503 $ 33,224 $ 2,565,727
Proved oil and gas
properties 93,837,818 8,978,498 102,816,316
----------- ---------- -----------
96,370,321 9,011,722 105,382,043
Accumulated depreciation,
depletion and amortization (55,259,210) (5,996,677) (61,255,887)
----------- ---------- -----------
Net capitalized costs $ 41,111,111 $ 3,015,045 $ 44,126,156
=========== ========== ===========
Symskaya, equity method
(see Note 6) $ -
==========
1995:
Unproved oil and gas
properties $ 2,378,122 $ 90,290 $ 2,468,412
Proved oil and gas
properties 87,200,659 8,894,955 96,095,614
----------- ---------- -----------
89,578,781 8,985,245 98,564,026
Accumulated depreciation,
depletion and amortization (51,531,172) (5,601,882) (57,133,054)
----------- ---------- -----------
Net capitalized costs $ 38,047,609 $ 3,383,363 $ 41,430,972
=========== ========== ===========
Symskaya, equity method
(see Note 6) $ 6,160,442 $ 6,160,442
========== ===========
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
<TABLE>
<CAPTION>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities:
1997: United States Canada Russia Total
Acquisition of properties:
<S> <C> <C> <C> <C>
Proved $ 3,226,494 - - $ 3,226,494
Unproved 1,227,117 - - 1,227,117
Exploration costs 4,468,531 $ 25,103 - 4,493,634
Development costs 4,169,802 43,125 - 4,212,927
Symskaya, equity method - - $ 356,661 356,661
1996:
Acquisition of properties:
Proved $ 2,038,244 - - $ 2,038,244
Unproved 474,757 - - 474,757
Exploration costs 4,492,876 $ 30,838 - 4,523,714
Development costs 3,287,637 43,728 - 3,331,365
Symskaya, equity method - - $3,043,952 3,043,952
1995:
Acquisition of properties:
Proved $ 2,654,651 $ 405,410 - $ 3,060,061
Unproved 674,146 - - 674,146
Exploration costs 1,654,022 30,969 - 1,684,991
Development costs 2,709,192 835,415 - 3,544,607
Symskaya, equity method - - $2,745,319 2,745,319
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
<TABLE>
<CAPTION>
Results of Operations (Unaudited):
1997: United States Canada Russia Total
<S> <C> <C> <C> <C>
Oil and gas sales $14,150,670 $2,306,378 $16,457,048
Production costs (5,300,909) (639,899) (5,940,808)
Exploration expenses (3,718,531) (21,086) (3,739,617)
Depreciation, depletion and amortization (4,385,015) (290,398) (4,675,413)
Impairment of proved
oil and gas properties (411,894) (411,894)
Equity loss in Symskaya Exploration, Inc. $ (356,661) (356,661)
----------- --------- ---------- ----------
334,321 1,354,995 (356,661) 1,332,655
Imputed income tax benefit (expense) 77,745 (245,790) 133,748 (34,297)
----------- --------- ---------- ----------
Results of operations from producing activities $ 412,066 $1,109,205 $ (222,913) $ 1,298,358
=========== ========= ========== ==========
1996:
Oil and gas sales $13,508,077 $2,607,048 $16,115,125
Production costs (4,976,633) (935,495) (5,912,128)
Exploration expenses (3,153,897) (27,936) (3,181,833)
Depreciation, depletion and amortization (3,838,202) (454,035) (4,292,237)
Impairment of proved
oil and gas properties (237,279) (237,279)
Equity loss and impairment of investment
in Symskaya Exploration, Inc. $(9,204,394) (9,204,394)
---------- ---------- ----------- -----------
1,302,066 1,189,582 (9,204,394) (6,712,746)
Imputed income tax benefit (expense) (239,514) (258,048) 3,283,105 2,785,543
---------- ---------- ----------- -----------
Results of operations from producing activities $ 1,062,552 $ 931,534 $(5,921,289) $ (3,927,203)
=========== ========== ========== ===========
1995:
Oil and gas sales $ 9,803,677 $2,456,062 $12,259,739
Production costs (4,455,069) (638,713) (5,093,782)
Exploration expenses (1,877,840) (23,973) (1,901,813)
Depreciation, depletion and amortization (3,406,947) (436,495) (3,843,442)
Impairment of proved
oil and gas properties (2,471,146) (2,471,146)
---------- ---------- -----------
(2,407,325) 1,356,881 (1,050,444)
Imputed income tax benefit (expense) 1,056,755 (534,319) 522,436
---------- ---------- -----------
Results of operations from producing activities $(1,350,570) $ 822,562 $ (528,008)
========== ========== ===========
</TABLE>
The imputed income tax benefit (expense) is hypothetical and determined without
regard to the Company's deduction for general and administrative and interest
expense.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
Reserves and Future Net Cash Flows (Unaudited):
Estimates of reserve quantities and related future net cash
flows are calculated using unescalated year-end oil and gas
prices and operating costs, and may be subject to substantial
fluctuations based on the prices in effect at the end of each
year. Reserve revisions occur when the economic limit of a
property is lengthend or shortened due to changes in commodity
pricing. The following table sets forth the weighted average
prices used in calculating estimated reserve quantities and
future net cash flows at the end of 1997, 1996, and 1995:
<TABLE>
<CAPTION>
United States Canada Total
Oil Gas Oil Gas Oil Gas
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 $15.49 $2.13 $12.35 $1.51 $14.99 $2.03
December 31, 1996 $24.80 $3.28 $22.26 $1.52 $24.36 $2.84
December 31, 1995 $19.04 $1.52 $14.48 $1.10 $18.02 $1.38
</TABLE>
Estimates of Proved Oil and Gas Reserves:
The following tables present the Company's estimates of its
proved oil and gas reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and
gas properties. Accordingly, the estimates are expected to change
as future information becomes available. Reserve estimates are
prepared by the Company, and audited by the Company's independent
petroleum reservoir engineers, Fred S. Reynolds and Associates,
who have issued a report expressing their opinion that the
reserve information in the following tables complies with the
applicable rules promulgated by the Securities and Exchange
Commission and the Financial Accounting Standards Board. The
volumes presented on the following pages are in thousands of
barrels for oil and thousands of mcf for gas.
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
9. Estimates of Proved Oil and Gas Reserves, Continued:
United States Canada Total
December 31, 1997: Oil Gas Oil Gas Oil Gas
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Proved developed and undeveloped reserves:
<S> <C> <C> <C> <C> <C> <C>
Beginning of year ........................................ 7,252 14,910 1,117 2,707 8,369 17,617
Revisions of previous estimates .......................... (806) (694) 251 1,194 (555) 500
Acquisition of minerals in place ......................... 1,085 438 -- -- 1,085 438
Extensions and discoveries ............................... 202 2,423 -- -- 202 2,423
Sales of minerals in place ............................... (45) -- -- -- (45) --
Production ............................................... (520) (1,620) (116) (449) (636) (2,069)
------- ------- ------- ------- ------- -------
End of year .............................................. 7,168 15,457 1,252 3,452 8,420 18,909
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year ........................................ 7,219 11,133 1,117 2,707 8,336 13,840
End of year .............................................. 6,972 11,932 1,252 3,452 8,224 15,384
United States Canada Total
December 31, 1996: Oil Gas Oil Gas Oil Gas
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Proved developed and undeveloped reserves:
Beginning of year ........................................ 6,563 14,819 1,187 3,205 7,750 18,024
Revisions of previous estimates .......................... 176 (234) 49 104 225 (130)
Acquisitions of minerals in place ........................ 949 38 -- -- 949 38
Sales of minerals in place ............................... (6) (214) -- (54) (6) (268)
Extensions and discoveries ............................... 88 1,827 -- 40 88 1,867
Production ............................................... (518) (1,326) (119) (588) (637) (1,914)
------- ------- ------- ------- ------- -------
End of year .............................................. 7,252 14,910 1,117 2,707 8,369 17,617
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year ........................................ 6,527 11,238 1,139 3,068 7,666 14,306
End of year .............................................. 7,219 11,133 1,117 2,707 8,336 13,840
United States Canada Total
December 31, 1995: Oil Gas Oil Gas Oil Gas
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Proved developed and undeveloped reserves:
Beginning of year ........................................ 6,252 13,673 1,055 3,539 7,307 17,212
Revisions of previous estimates .......................... 98 (23) 4 (189) 102 (212)
Acquisition of minerals in place ......................... 701 1,129 61 152 762 1,281
Extensions and discoveries ............................... 3 920 196 274 199 1,194
Production ............................................... (491) (880) (129) (571) (620) (1,451)
------- ------- ------- ------- ------- -------
End of year .............................................. 6,563 14,819 1,187 3,205 7,750 18,024
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year ........................................ 6,185 8,490 1,042 3,539 7,227 12,029
End of year .............................................. 6,527 11,238 1,139 3,068 7,666 14,306
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves
(Unaudited):
Thousands of Dollars
1997: United States Canada Total
<S> <C> <C> <C>
Future cash inflows ........................... $ 149,066 $ 19,350 $ 168,416
Future production and development costs ....... (93,945) (8,470) (102,415)
--------- --------- ---------
Future net cash flows before income taxes ..... 55,121 10,880 66,001
10% annual discount for estimated timing
of cash flows .............................. (24,778) (3,814) (28,592)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 30,343 7,066 37,409
Future income taxes, net of 10% annual discount (6,071) (2,439) (8,510)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 24,272 $ 4,627 $ 28,899
========= ========= =========
Thousands of Dollars
1996: United States Canada Total
Future cash inflows ........................... $ 230,760 $ 28,073 $ 258,833
Future production and development costs ....... (98,696) (6,263) (104,959)
--------- --------- ---------
Future net cash flows before income taxes ..... 132,064 21,810 153,874
10% annual discount for estimated timing
of cash flows .............................. (64,955) (9,917) (74,872)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 67,109 11,893 79,002
Future income taxes, net of 10% annual discount (19,462) (4,804) (24,266)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 47,647 $ 7,089 $ 54,736
========= ========= =========
</TABLE>
Continued
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves
(Unaudited), Continued:
Thousands of Dollars
1995: United States Canada Total
<S> <C> <C> <C>
Future cash inflows ........................... $ 148,257 $ 20,381 $ 168,638
Future production and development costs ....... (76,234) (4,705) (80,939)
--------- --------- ---------
Future net cash flows before income taxes ..... 72,023 15,676 87,699
10% annual discount for estimated timing
of cash flows .............................. (38,438) (6,489) (44,927)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 33,585 9,187 42,772
Future income taxes, net of 10% annual discount (8,756) (3,569) (12,325)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 24,829 $ 5,618 $ 30,447
========= ========= =========
</TABLE>
Future net cash flows were computed using year-end prices and
costs, and year-end statutory tax rates with consideration of
future tax rates already legislated (adjusted for permanent
differences that related to proved oil and gas reserves).
<TABLE>
<CAPTION>
Principal Sources of Change in the Standardized Measure of
Discounted Future Net Cash Flow:
Thousands of Dollars
1997 1996 1995
Sales and transfers of oil and gas produced,
<S> <C> <C> <C>
net of production costs ................... $(10,516) $(10,203) $ (7,166)
Net changes in prices and production costs ... (45,280) 27,483 3,147
Extensions and discoveries, less related costs 1,639 2,374 1,274
Purchases of minerals in place ............... 3,787 7,174 3,804
Sales of minerals in place ................... (339) (116) --
Changes in estimated future development costs (1,447) 938 (203)
Revisions of previous quantity estimates ..... (1,573) 1,495 369
Accretion of discount ........................ 7,912 4,286 3,409
Net change in income taxes ................... 18,100 (12,045) (1,969)
Changes in production rates (timing) and other 1,880 2,903 3,561
-------- -------- --------
$(25,837) $ 24,289 $ 6,226
======== ======== ========
</TABLE>
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
ITEM 9. Disagreements on Accounting and Financial Disclosures:
None
PART III
ITEM 10. Directors and Executive Officers of Company:
The information contained under the headings Election of Directors and
Continuing Directors and Executive Officers contained on pages 2 and 3 in the
definitive proxy statement to be filed in connection with the Company's annual
meeting on May 13, 1998 is incorporated herein by refer ence in answer to this
item.
ITEM 11. Executive Compensation
The information contained under the heading Executive Compensation on pages 6
through 9 in the definitive proxy statement to be filed in connection with the
Company's annual meeting on May 13, 1998 is incorporated herein by reference in
answer to this item.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management:
The information contained under the headings Security Ownership of Management
and Voting Securities & Principal Holders Thereof, contained on pages 4 and 11
in the definitive proxy statement to be filed in connection with the Company's
annual meeting on May 13, 1998 is incorporated herein by reference in answer to
this item.
ITEM 13. Certain Relationships and Related Transactions
None.
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K:
(a) (1) Financial Statements: Page
Report of Independent Accountants 16
Financial Statements:
Balance Sheet as of December 31, 1997 and 1996 17
Statement of Operations for the years ended
December 31, 1997, 1996 and 1995 18
Statement of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996
and 1995 19
Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 20
Notes to Financial Statements 21
(3) Exhibits
(3) (i) Restated Articles of Incorporation. Incorporated by reference
from the annual report on Form 10K for the year ended December 31,
1995.
(ii) Amended By-Laws. 45
(10) Material Contracts. Change in Control Compensation Agreements
for Paul M. Dougan, James B. Larson, and Clay Newton. 56
(21) Subsidiaries. Incorporated by reference from the annual report on
Form 10K for the year ended December 31, 1995.
(23) Consent of Experts. Consent of Coopers & Lybrand L.L.P.
regarding Form S-8 Registration. 74
(b)Reports on Form 8-K
None
<PAGE>
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EQUITY OIL COMPANY
By /s/ Paul M. Dougan
Paul M. Dougan
President
Chief Executive Officer
By /s/ Clay Newton
Clay Newton
Treasurer
Chief Financial Officer
Principal Accounting Officer
Date: March 10, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Douglas W. Brandrup /s/ Joseph C. Bennett
Director Director
March 10, 1997 March 10, 1998
- -------------------------- ---------------------
Date Date
/s/ William D. Forster /s/ Philip J. Bernhisel
Director Director
March 10, 1997 March 10, 1998
- -------------------------- ---------------------
Date Date
/s/ Randolph G. Abood /s/ W. Durand Eppler
Director Director
March 10, 1997 March 10, 1998
- -------------------------- ---------------------
Date Date
/s/ William P. Hartl
Director
March 10, 1997
- ---------------------------
Date
EQUITY OIL COMPANY
AMENDED BY-LAWS
Section 2.02 of the by-laws of Equity Oil Company was amended by striking
the words "of record" shown below in capital letters.
2.02 Number, Tenure and Qualifications. The number of directors of the
corporation shall be not less than six nor more than nine, as may be fixed from
time to time within such range by resolution of the board of directors.
Directors shall be elected at each annual meeting of shareholders and hold
office for staggered terms as provided in the Articles of Incorporation. Each
director shall hold office until the director's successor shall have been
elected and qualified, or until the director's earlier death, resignation or
removal. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Directors must be the holders "OF
RECORD" of at least one share of stock in the company and natural persons
eighteen years of age or older.
A complete copy of the by-laws as amended is attached.
<PAGE>
AMENDED BYLAWS
OF
EQUITY OIL COMPANY
ARTICLE I
SHAREHOLDERS
1.01 Annual Meeting. The corporation shall hold an annual meeting of the
shareholders on the second Wednesday of May of each year, at such time and place
as designated by the board of directors for the purpose of electing directors
and for the transaction of such other business as may properly come before the
meeting. If the annual meeting cannot be held on the day designated as provided
herein for any reason or at any adjournment thereof, the board of directors
shall cause such meeting to be held as soon thereafter as convenient.
1.02 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, may be called by the president or the chairman of the
board, if there be one, or by the board of directors. The corporation shall also
hold a special meeting of the shareholders in the event it receives one or more
written demands for the meeting stating the purpose or purposes for which it is
to be held, signed and dated by the holders of shares representing at least ten
percent of all the votes entitled to be cast on any issue proposed to be
considered at the meeting. Special meetings shall be held at the principal
office of the corporation or at such other place as the board of directors,
president or chairman of the board, if there be one, may determine.
1.03 Notice of Meeting. Except as otherwise required by law, the articles
of incorporation or these bylaws, notice of each meeting of shareholders stating
the date, time and place of the meeting shall be given (and shall be effective),
in accordance with Section 6.03, to each shareholder of record entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting, except that if the authorized capital stock is to be increased, at
least thirty days notice shall be given. Notice of each meeting and, if required
by law, of each annual meeting of shareholders shall include a description of
the purpose or purposes for which the meeting is called. If a meeting is
adjourned to another date, time or place, notice need not be given of the new
date, time or place if the new date, time or place is announced at the meeting
at which the adjournment is taken. If after the adjournment a new record date is
or must be fixed under Section 1.05 for the adjourned meeting, notice of the
adjourned meeting shall be given to each shareholder of record entitled thereto
as of the new record date.
1.04 Waiver of Notice. A shareholder may waive any notice required by law,
the articles of incorporation or these bylaws before, at or after the date or
time stated in the notice as the date or time when any action will occur or has
occurred. Any such waiver must be in writing, signed by the shareholder entitled
thereto and delivered to the corporation for inclusion in the minutes or filing
with the corporate records, but such delivery and filing shall not be conditions
to its effectiveness. By attending a meeting, a shareholder (a) waives objection
to lack of notice or defective notice of such meeting unless the shareholder, at
the beginning of the meeting, objects to the holding of the meeting or the
transacting of business at the meeting because of lack of notice or defective
notice, and (b) waives objection to consideration at such meeting of a
particular matter not within the purpose or purposes described in the notice of
such meeting unless, when the matter is presented for consideration, the
shareholder objects to its consideration.
1.05 Record Date. In order to make a determination of shareholders entitled
to notice of or to vote at any meeting of shareholders, entitled to demand a
special meeting of shareholders pursuant to Section 1.02, entitled to take any
other action, entitled to receive a distribution or payment of a share dividend,
or for any other purpose, the board of directors may fix a future date as the
record date for any such determination of shareholders, except that the record
date for determining shareholders entitled to take action without a meeting
pursuant to Section 1.12 shall be determined as provided in such Section. A
record date fixed under this Section shall be not more than seventy and, in the
case of a meeting of shareholders, not less than ten (thirty if the authorized
stock is to be increased) days before the meeting or action requiring the
determination of shareholders. Unless otherwise specified when the record date
is fixed, any such determination of shareholders shall be made as of the
corporation's close of business on the record date.
If a record date is not otherwise fixed under this Section, the record date
shall be (a) for the determination of shareholders entitled to notice of or to
vote at a meeting, the day before the first notice of the meeting is given to
shareholders, (b) for the determination of shareholders entitled to demand a
special meeting pursuant to Section 1.02, the date of the earliest of any of the
demands pursuant to which the meeting is called or the date that is sixty days
before the date the first of such demands is received by the corporation,
whichever is later, (c) for the determination of shareholders entitled to a
distribution, payment of a share dividend or for any other purpose determined by
the board of directors, the date the board of directors authorized the
distribution, payment or action; and (d) for the determination of shareholders
for any other purpose, the date the action requiring such determination is first
taken.
A determination of shareholders entitled to be given notice of or to vote
at any meeting of shareholders made as provided in this Section is effective for
any adjournment thereof unless the board of directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
1.06 Shareholders' List for Meeting. Prior to each meeting of shareholders,
the corporation shall prepare a list of the names of the shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by voting
groups, if there be voting groups, and within each voting group by class or
series of shares, shall be alphabetical within each class or series and shall
show the address of, and the number of shares of each class and series that are
held by, each shareholder. This list shall be kept on file at the corporation's
principal office or at a place identified in the notice of the meeting in the
city where the meeting will be held beginning the earlier of ten days before the
meeting for which the list was prepared or two business days after notice of the
meeting is given and continuing through the meeting, and any adjournment
thereof. Subject to any restrictions and conditions imposed or allowed by law,
any shareholder or such shareholder's agent or attorney, on written demand, may
inspect or copy the shareholders' list for any purpose reasonably related to the
shareholder's interest as a shareholder during regular business hours and during
the period it is available for inspection. The corporation shall make the
shareholders' list available at the meeting and, not withstanding the foregoing,
any shareholder or agent or attorney of a shareholder may inspect the list at
any time during the meeting or any adjournment.
1.07 Voting Entitlement of Shares. Except as otherwise provided by law or
the articles of incorporation and subject to the provisions of Sections 1.05 and
1.09, each outstanding share, regardless of class, is entitled to one vote on
each matter submitted to a vote of shareholders.
1.08 Quorum. Except as otherwise provided by law or the articles of
corporation, at all meetings of shareholders, a majority of the votes entitled
to be cast on a matter shall constitute a quorum for action on such matter. Once
a share is represented for any purpose at a meeting, including the purpose of
determining that a quorum exists, it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting, unless
otherwise provided in the articles of incorporation or unless a new record date
is or must be fixed for that adjourned meeting as provided in Section 1.05. If a
quorum does not exist the presiding officer or any shareholder or proxy that is
present at the meeting may adjourn the meeting to a different date, time or
place, and (subject to the next sentence) notice need not be given of the new
date, time or place if the new date, time or place is announced at the meeting
before adjournment. If a new record date for the adjourned meeting is or must be
fixed pursuant to Section 1.05, notice of the adjourned meeting shall be given
pursuant to Section 1.03 to persons that are shareholders as of the new record
date. At any adjourned meeting at which a quorum exists, any matter may be acted
upon that could have been acted upon at the meeting originally called; provided,
however, if new notice is given of the adjourned meeting, then such notice shall
state the purpose or purposes of the adjourned meeting sufficiently to permit
action on such matter.
1.09 Manner of Acting. If a quorum is present at a meeting of shareholders
as required by Section 1.08, action on a matter is approved if the votes
favoring the action exceed the votes opposing the action, unless a greater
number of affirmative votes, is required by law or the articles of
incorporation. Notwithstanding the foregoing and unless the articles of
incorporation provide otherwise, in the election of directors each shareholder
entitled to vote at such election shall have the right to vote the number of
shares owned by such shareholder for as many persons as there are directors to
be elected, and for whose election the shareholder has the right to vote. Those
candidates receiving the highest number of votes cast in their favor (equal to
the number of directors to be elected) are elected to the board of directors.
Cumulative voting is not allowed.
1.10 Proxies. Subject to applicable provisions of law, a shareholder may
vote by proxy appointed by a writing signed by the shareholder or by the
shareholder's duly authorized attorney-in-fact or otherwise appointed as allowed
by law. An appointment of a proxy is effective against the corporation when
received by the corporation in any manner permitted by law. An appointment is
effective for 11 months, unless otherwise provided in the appointment form.
1.11 Organization. The president shall act as chairman of all meetings of
shareholders. In the absence of the president, the chairman of the board, if
there be one, shall act as chairman. In the absence of the chairman of the
board, the vice president, if there be one, shall act as chairman of such
meeting. In the absence of the president, chairman of the board, and vice
president, any stockholder or the proxy of any stockholder may call the meeting
to order and a chairman shall be elected.
The secretary of the corporation shall act as secretary of all meetings of
the stockholders, but in his absence the chairman of the meeting may appoint any
person to act as secretary thereof.
ARTICLE II
BOARD OF DIRECTORS
2.01 General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, a board of directors, except as otherwise
provided by law, the articles of incorporation or these bylaws.
2.02 Number, Tenure and Qualifications. The number of directors of the
corporation shall be not less than six nor more than nine, as may be fixed from
time to time within such range by resolution of the board of directors.
Directors shall be elected at each annual meeting of shareholders and hold
office for staggered terms as provided in the Articles of Incorporation. Each
director shall hold office until the director's successor shall have been
elected and qualified, or until the director's earlier death, resignation or
removal. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Directors must be the holders of
at least one share of stock in the company and natural persons eighteen years of
age or older.
2.03 Removal and Resignation. Subject to the rights of the holders of any
series of preferred shares then outstanding, any director or the entire board,
director, may be removed from office at any time, but only by its affirmative
vote of the holders of at least 80% of the voting power of all of the shares of
the corporation entitled to vote for the election of directors. Any director may
resign at any time by giving written notice of resignation to the chairman of
the board, if there be one, any other director or (if the director is not also
that officer) to the president or the secretary. Such resignation shall be
effective when it is received by the chairman, other director, the president or
the secretary, as the case may be, unless the notice of resignation specifies a
later effective date. Unless otherwise specified in the notice of resignation,
acceptance of such resignation shall not be necessary to make it effective.
2.04 Vacancies. Any vacancy occurring on the board of directors, including
a vacancy resulting from an increase in the number of directors, may be filled
by the directors as provided in the articles of incorporation or by the
shareholders at an annual meeting or at a special meeting of shareholders called
for that purpose. If the directors remaining in office constitute fewer than a
quorum, they may fill the vacancy by the affirmative vote of a majority of all
of those remaining.
2.05 Meetings. The board of directors may hold regular or special meetings,
in or out of Colorado. The board of directors may provide, by resolution, the
time and place for holding regular meetings without other notice than such
resolution. Special meetings may be called by or at the request of the chairman
of the board, if there be one, or by the president or by two or more directors
and shall be held at the principal office of the corporation unless otherwise
specified in the notice of the meeting.
2.06 Notice. Notice of each meeting of the board of directors (except those
regular meetings for which notice is not required) stating the place, date and
time of the meeting shall be given (and shall be effective) in accordance with
Section 6.03, to all directors at least three days before the date of the
meeting. The method of notice need not be the same for each director. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
2.07 Waiver of Notice. A director may waive any notice of a meeting
required by these bylaws before, at or after the date or time of the meeting
stated in the notice. Except as provided in the next sentence, any such waiver
must be in writing, signed by the director entitled thereto and delivered to the
corporation for filing with the corporate records, but such delivery and filing
shall not be conditions to its effectiveness. A director's attendance at or
participation in a meeting waives any required notice to such director of the
meeting unless, at the beginning of the meeting or promptly upon the director's
later arrival, the director objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice and does
not thereafter vote for or assent to action taken at the meeting.
2.08 Quorum and Manner of Acting. Except as otherwise may be required by
law, the articles of incorporation or these bylaws, a majority of the directors
fixed in accordance with Section 2.02, present in person, shall constitute a
quorum for the transaction of business at any meeting of the board of directors.
Except as otherwise required by law, the act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors. No director may vote or act by proxy or power of attorney at any
meeting of directors.
2.09 Presumption of Assent. A director who is present at a meeting of the
board of directors at which action on any corporate matter is taken is deemed to
have assented to all action taken at the meeting unless the director (a) objects
at the beginning of the meeting, or promptly upon the director's arrival, to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting; (b)
contemporaneously requests that his or her dissent or abstention as to any
specific action taken be entered in the minutes of the meeting; or (c) causes
written notice of such dissent or abstention as to any specific action to be
received by the presiding officer of the meeting before adjournment of the
meeting or by the corporation promptly after adjournment of the meeting. The
right of dissent or abstention pursuant to this Section as to specific action is
not available to a director who votes in favor of the action taken.
2.10 Meetings by Telecommunication. One or more directors may participate
in any meeting of the board by, or the meeting may be conducted through the use
of, any means of communication by which all directors participating can hear
each other during the meeting. Such participation shall constitute presence in
person at the meeting.
2.11 Director Action without a Meeting. Any action required or permitted to
be taken at a meeting of the board of directors may be taken without a meeting
if all members of the board consent to such action in writing. The action shall
be deemed to have been so taken by the board at the time the last director signs
a writing describing the action taken, unless, before such time, any director
has revoked his or her consent by a writing signed by the director and received
by the president or secretary or any other person authorized by the board of
directors to receive such a revocation. Such action shall be effective at the
time and date it is taken unless the directors establish a different effective
time or date. Such action has the same effect as action taken at a meeting of
directors and may be described as such in any document.
2.12 Committees. The Company shall have an executive committee, audit
committee, compensation committee, and nominating committee as provided in these
bylaws. Subject to applicable provisions of law, the board of directors, by
resolution adopted by a majority of all directors then in office, may create
other committees and appoint one or members of the board of directors to serve
on them. The provisions of these bylaws governing meetings, action without
meetings, notice, waiver of notice and quorum and voting requirements of the
board of directors shall apply to any committees so created or established under
these bylaws and to the members appointed thereto. Each committee created by the
board or established under these bylaws shall have and may exercise the
authority of the board of directors to the extent specified in the resolution
creating such committee, except that no such committee shall have authority to:
(a) Declare dividends or distributions;
(b) Approve or recommend to shareholders actions or proposals required by
Colorado law to be approved by shareholders;
(c) Fill vacancies on the board of directors or any of its committees;
(d) Adopt, amend or repeal by-laws;
(e) Approve a plan of merger not requiring shareholder approval;
(f) Authorize or approve reacquisition of shares except according to a
formula or method prescribed by the board of directors; and
(g) Authorize or approve the issuance or sale of shares or a contract for the
sale of shares or determine the designation and
relative rights preferences and class or series of
shares; except that the board of directors
may authorize a committee or an officer to do so within the limits
specifically prescribed by the board of directors.
(h) Any other action prohibited under the Colorado
Corporation Act as the same may be amended from time to time.
2.13 Executive Committee. The executive committee shall consist of the
president, chairman of the board, if there be one, and such other directors as
the board may determine. The president shall act as chairman of the committee.
The executive committee shall have and may exercise all authority of the board
of directors subject to such limitations, if any, as may be prescribed by
resolution of the board and by-laws of the corporation, and except as provided
by law.
2.14 Audit Committee. The board of directors shall, by resolution or
resolutions, designate three or more of its independent outside directors to
serve on the audit committee of the board. The board shall designate one person
from the members so selected to act as chairman of the committee. The audit
committee shall implement and support the oversight function of the board by
reviewing on a periodic basis the corporation's processes for producing
financial data, its internal controls, and the independence of the corporation's
external auditor. In addition, it shall:
(a) Recommend the firm to be employed as the corporation's external
auditor and review the proposed discharge of any such firm;
(b) Review the external auditor's compensation and the proposed terms of its
engagement;
(c) Review the appointment and replacement of the chief financial officer of
the company;
(d) Serve as a channel of communication between the external auditor and
the board and between the chief financial officer of the company, and the
board;
(e) Review the results of each external audit of the corporation and any
Recommendations made by the external auditor and the responses of
management to such recommendations; and
(f) Such other matters as the audit committee, in its sole discretion, deems
advisable and necessary.
2.15 Compensation Committee. The compensation committee shall be comprised
of all of the independent outside directors of the company. Each year following
the annual meeting of shareholders, the board of directors shall appoint a
chairman of the compensation committee. The compensation committee shall:
(a) Review and recommend to the board, or determine, the annual salary,
bonus, stock options, and other benefits, direct and indirect, of the
officers of the company;
(b) Review new executive compensation programs; review on a periodic basis
the operation of the corporation's executive
compensation programs to determine whether they are
properly coordinated; establish and periodically
review policies for the administration of executive
compensation programs; and take steps to modify any
executive compensation programs that yield payments
and benefits that are not reasonably related to
executive performance;
(c) Establish and periodically review policies in the area of management
perquisites;
(d) Be responsible for insuring that a proper system of compensation is in
place to provide performance oriented incentives to management; and
(e) Evaluate the president and chief financial officer's performance for
incentive purposes.
2.16 Nominating Committee. The whole board of directors shall act as a
nominating committee for the election of new directors of the company. The
nominating committee shall:
(a) By February 1 of each year, nominate candidates for all directorships to
be filled by the shareholders or the board;
(b) Consider, in making its selection, candidates for
directorships proposed by the chief executive
officer, the chairman of the board, if any, and
within the bounds of practicability, by any other
senior executive or any director or shareholder;
(c) In selecting a candidate, consideration should be
given to the skills and characteristics required of
board members in the context of the current makeup of
the board and the business of the company. The
assessment should include, but not be limited to,
issues of diversity, age and skills such as an
understanding of exploration, production, marketing,
finance, regulation, public and international
markets;
(d) Each proposed nominee shall provide the corporation
with such information concerning himself as is
required under law, to be included in the
corporation's proxy statement soliciting proxies for
his election as director; and
(e) Substitution of Nominees. In the event that a person
is validly designated as a nominee in accordance with
paragraph (b) hereof and shall thereafter become
unable or unwilling to stand for the election to the
board of directors may designate a substitute
nominee.
2.17 Compensation. The members of the board of directors shall be entitled
to reasonable compensation for their personal services as such, and shall be
paid such compensation as the directors may from time to time determine.
However, no director who is also a salaried, full time officer of the
corporation shall receive compensation for his services as a director.
2.18 Extra Services. If any director performs extra services for the
corporation at the request of the board of directors, the corporation may
remunerate the director for so doing in such manner as may be determined by the
board including the payment of expenses incurred in connection with such extra
services.
ARTICLE III
OFFICERS
3.01 General. The corporation shall have as officers a president, a
secretary, and a treasurer, who shall be appointed by the board of directors.
The board of directors may designate and appoint a chairman and other officers
of the board. The board of directors may also designate, as additional offices,
those of vice presidents, assistant secretaries, assistant treasurers, and such
other offices as it may deem necessary or appropriate; and the board of
directors, the president, and such other officers as the board of directors may
authorize, acting singly, may make appointments to such offices. The officers of
the corporation shall exercise such authority and perform such duties as shall
be determined by these by-laws or the board of directors. Any two or more
offices may be held by the same person. The officers of the corporation shall be
natural persons at least eighteen years old.
3.02 Term of Office. The officers of the corporation shall be appointed by
the board of directors at each annual meeting of the board of directors held
after each annual meeting of the shareholders. If the appointment of officers is
not made at such meeting, or if an officer or officers are to be appointed by
another officer or officers of the corporation, such appointments shall be made
as soon thereafter as convenient . Except as otherwise provided in Section 3.03,
each officer sh all hold office for the term specified in the officer's
appointment and, if applicable, until the officer's successor shall have been
appointed and qualified, or until the officer's earlier death, resignation or
removal.
3.03 Removal and Resignation. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any officer
appointed by the president or other person may be removed at any time by the
board of directors or by the appointing person. Any officer may resign at any
time by giving written notice of resignation to any director (or to any director
other than the resigning officer if the officer is also a director), to the
president, to the secretary, or to the officer who appointed. Acceptance of such
resignation shall not be necessary to make it effective, unless the notice so
provides.
3.04 Compensation. Officers shall receive such compensation for their
services as may be fixed by the board of directors or by any officer authorized
by the board of directors to fix compensation of other officers. No officer
shall be prevented from receiving compensation by reason of the fact that he or
she is also a director of the corporation. Appointment as an officer shall not
of itself create a contract or other right to compensation for services
performed by such officer.
3.05 Chairman of the Board. The board of directors may elect from its
number a chairman of the board. The chairman of the board, if there be one,
shall be an independent outside director and shall preside at all meetings of
the board of directors. The chairman shall act in a non-executive capacity;
shall have access to all corporate information; monitor officers' performance;
aid and consult with the president; assist the president in setting board
meeting agendas; facilitate communications among other members of the board as
the president and chairman mutually agree. He shall have such other powers and
duties as may be prescribed by these by-laws and by the board of directors from
time to time.
3.06 President. Subject to the direction and control of the board of
directors, the president shall be the chief executive officer of the corporation
and as such shall have general and active control of its affairs and business
and general supervision of its officers, agents and employees and shall see that
all orders and resolutions of the board of directors are carried into effect.
The president may negotiate, execute, and deliver such contracts, deeds, and
other instruments on behalf of the corporation as are necessary and appropriate
to the conduct of the business and affairs of the corporation or as are approved
by the board of directors. The president shall preside at all meetings of
shareholders, and the executive committee. The president shall also preside at
all meetings of the board of directors unless the board of directors has
appointed a chairman of the board. The president shall have such additional
authority and duties as are appropriate and customary for the office of
president and chief executive officer, except as the same may be expanded or
limited by the board of directors from time to time.
3.07 Vice Presidents. The vice president, if any (or if there is more
than one, then each vice president), shall assist the president and shall
perform such duties as may be assigned by the president or the board of
directors. The vice president, if there is one (or if there is more than one,
then the vice president designated by the board of directors, or if there is no
such designation, then the vice presidents in the order of their appointment)
shall, at the request of the president, or in the president's absence or
inability or refusal to act, have the powers and perform the duties of the
president.
3.08 Secretary. The secretary shall, except to the extent delegated by
the board of directors to another officer or officers: (a) be responsible for
the preparation and maintenance of the minutes of the proceedings of the
shareholders, the board of directors and any committees of the board and of the
other records and information required to be kept by the corporation under
Section 7-116-101 of the Colorado Business Corporation Act, or any successor
provision, and for authenticating records of the corporation ; (b) see that all
notices to the shareholders and directors are duly given in accordance with the
provisions of these bylaws or as required by law; (c) have charge of the
corporate seal and authority to affix the corporate seal to any instrument
requiring it and attest to such affixment; (d) be responsible for the
maintenance of other corporate records and files and for the preparation and
filing of reports to governmental agencies (other than tax returns), except to
the extent any of such duties is delegated to another officer or agent of the
corporation; and (e) perform all other duties incident or customary to the
office of secretary and such other duties as from time to time may be assigned
by the president or the board of directors. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary.
3.09 Treasurer. The treasurer shall: (a) be the principal financial officer
of the corporation and have the care and custody of all funds, securities,
evidences of indebtedness and other personal property of the corporation and
deposit the same in accordance with the instructions of the board of directors;
(b) subject to any limits imposed by the board of directors, receive and give
receipts and acquittances for moneys paid in on account of the corporation, and
pay out of the funds on hand all bills, payrolls, and other just debts of the
corporation of whatever nature upon maturity; (c) be the principal accounting
officer of the corporation; (d) prescribe and maintain the methods and systems
of accounting to be followed; (e) keep complete books and records of account;
(f) prepare and file all local, state and federal tax returns; (g) prepare and
furnish to the president and the board of directors statements of account
showing the financial position of the corporation and the results of its
operations; and (h) perform all other duties incident or customary to the office
of treasurer and such other duties as may be from time to time prescribed by the
president or the board of directors. Assistant treasurers, if any, shall have
the same powers and duties, subject to supervision by the treasurer.
ARTICLE IV
SHARES
4.01 Issuance of Shares. The issuance or sale by the corporation of any
shares of its authorized capital stock of any class shall be made only upon
authorization of the board of directors. No shares shall be issued until full
consideration has been received therefor. Every issuance of shares shall be
recorded on books maintained for such purpose by or on behalf of the
corporation.
4.02 Certificates. Shares of stock issued by the corporation shall be
represented by certificates. Certificates shall be consecutively numbered, shall
be signed, either manually or by facsimile, in the name of the corporation by
the president or a vice president and by the secretary or an assistant secretary
or by such other officer or officers as may be designated by the board of
directors, and shall otherwise be in such form and contain such information,
consistent with law, as shall be prescribed by the board of directors.
Certificates may, but need not be, sealed with the seal of the corporation, or
with a facsimile thereof. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he or she were such officer at the date of its issue.
4.03 Consideration for Shares. Shares shall be issued for such
consideration, expressed in dollars, as shall be fixed from time to time by the
board of directors. Such consideration may consist, in whole or in part, of any
tangible or intangible property or benefit to the corporation, including cash,
promissory notes, services performed and other securities of the corporation.
Future services shall not constitute payment or partial payment for shares. The
promissory note of a subscriber or an affiliate of a subscriber shall not
constitute payment or partial payment for shares unless the note is negotiable,
with recourse against the maker and secured by collateral, other than the
shares, having a fair market value at least equal to the principal amount of the
note.
4.04 Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as it may prescribe. Before issuing a new certificate, the
board of directors may in its discretion require a bond in such form and amount
and with such surety as it may determine.
4.05 Transfer of Shares. Upon surrender to the corporation or to a transfer
agent of the corporation of a certificate of stock duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, payment
of all transfer taxes, if any, and the satisfaction of any other requirements of
law, including without limitation evidence of compliance with all applicable
securities laws, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the books of the corporation maintained for such purpose by
or on behalf of the corporation. The corporation or the corporation's transfer
agent may require a signature guaranty or other reasonable evidence that any
signature is genuine and effective before making any transfer. Transfers of
uncertificated shares shall be made in accordance with applicable provisions of
law.
4.06 Holders of Record. Except to the extent the corporation otherwise
provides pursuant to Section 4.07, and except for the assertion of dissenters'
rights to the extent permitted in the Colorado Business Corporation Act, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner thereof for all purposes and shall not be bound to
recognize any equitable or other claim to, or interest in, the shares on the
part of any other person, whether or not the corporation shall have notice of
such claim or interest.
4.07 Recognition Procedure for Beneficial Owners. The board of directors
may establish, by resolution, a procedure by which the beneficial owner of
shares that are registered in the name of a nominee is recognized by the
corporation as the shareholder. The procedure established pursuant to this
Section may set forth the types of nominees to which it applies, the rights or
privileges that the corporation recognizes in a beneficial owner (which may
include rights or privileges other than voting), the manner in which the
procedure may be used by the nominee, the information that must be provided by
the nominee when the procedure is used, the period for which the nominee's use
of the procedure is effective, and any other aspects of the rights and duties
created thereby.
ARTICLE V
INDEMNIFICATION
5.01 Right to Indemnification. The corporation shall indemnify, to the
fullest extent permitted by law (including without limitation in circumstances
in which, in the absence of this Section 5.01, indemnification would be
discretionary under the laws of Colorado or limited or subject to particular
standards of conduct under such laws), each of its directors and officers
(hereinafter, for purposes of this Article V, individually referred to as a
"party") against all expenses, liabilities and losses (including without
limitation expenses of investigation and preparation, fees and disbursements of
counsel, accountants and other experts, judgments, fines and amounts paid in
settlement) incurred in, relating to or as a result of any action, suit or
proceeding (collectively referred to herein as a "proceeding") to which such
person may be involved or made a party by reason of serving or having served as
a director or officer of the corporation or, at the request of the corporation,
as a director, officer, manager, member, partner, trustee, employee, fiduciary,
functionary or agent of any other corporation, limited liability company,
partnership, joint venture, trust, association, employee benefit plan or other
entity or enterprise.
5.02 Advance of Expenses. In the event of any proceeding in which a party
is involved or which may give rise to a right of indemnification under Section
5.01, following written request to the corporation by the party, the corporation
shall pay to the party, to the fullest extent permitted by law (including
without limitation in circumstances in which, in the absence of this Section
5.02, advance of expenses would be discretionary under the laws of Colorado or
limited or subject to particular standards of conduct under such laws), amounts
to cover expenses incurred by the party in, relating to or as a result of such
proceeding in advance of its final disposition.
5.03 Settlements. The corporation shall not be liable under this Article
for any amounts paid in settlement of any proceeding effected without its
written consent. The corporation shall not settle any proceeding in any manner
that would impose any personal penalty or limitation on a party without the
party's written consent. Consent to a proposed settlement of any proceeding
shall not be unreasonably withheld by either the corporation or the party.
5.04 Burden of Proof. If under applicable law the entitlement of a party to
be indemnified or advanced expenses pursuant to this Article depends upon
whether a standard of conduct has been met, the burden of proof of establishing
that the party did not act in accordance with such standard shall rest with the
corporation. A party shall be presumed to have acted in accordance with such
standard and to be entitled to indemnification or advance of expenses (as the
case may be) unless, based upon a preponderance of the evidence, it shall be
determined that the party has not met such standard. Such determination and any
evaluation as to the reasonableness of amounts claimed by a party shall be made
by the board of directors or such other body or persons as may be permitted by
law.
5.05 Notification and Defense of Claim. Promptly after receipt by a party
of notice of the commencement of any proceeding, the party shall, if a claim for
indemnification in respect thereof may or will be made against the corporation
under this Article, notify the corporation in writing of the commencement
thereof; provided, however, that delay in so notifying the corporation shall not
constitute a waiver or release by the party of any rights under this Article.
With respect to any such proceeding: (a) the corporation shall be entitled to
participate therein at its own expense; (b) any counsel representing the party
to be indemnified in connection with the defense or settlement thereof shall be
counsel mutually agreeable to the party and to the corporation; and (c) if the
corporation admits that such party would be entitled to indemnification under
this Article in connection with such proceeding, the corporation shall have the
right, at its option, to assume and control the defense or settlement thereof,
with counsel satisfactory to the party. If the corporation assumes the defense
of the proceeding, the party shall have the right to employ its own counsel, but
the fees and expenses of such counsel incurred after notice from the corporation
of its assumption of the defense of such proceeding shall be at the expense of
the party unless (I) the employment of such counsel has been specifically
authorized by the corporation, (ii) the party shall have reasonably concluded
that there may be a conflict of interest between the corporation and the party
in the conduct of the defense of such proceeding, or (iii) the corporation shall
not in fact have employed counsel to assume the defense of such proceeding.
Notwithstanding the foregoing, if an insurance carrier has supplied directors
and officers liability insurance covering a proceeding and is entitled to retain
counsel for the defense of such proceeding, then the insurance carrier shall
retain counsel to conduct the defense of such proceeding unless the party and
the corporation concur in writing that the insurance carrier's doing so is
undesirable.
5.06 Payment Procedures; Enforcement. The corporation shall promptly act
upon a party's written request for indemnification or advance of expenses. The
right to indemnification and advance of expenses granted by this Article shall
be enforceable in any court of competent jurisdiction if the corporation denies
the claim, in whole or in part, or if no disposition of such claim is made
within sixty days after the written request for indemnification or advance of
expenses is made. If successful in whole or in part in such suit, the party's
expenses incurred in bringing and prosecuting such claim shall also be paid by
the corporation.
5.07 Other Payments. The corporation shall not be liable under this Article
to make any payment in connection with any proceeding against or involving a
party to the extent the party has otherwise actually received payment (under any
insurance policy, agreement or otherwise) of the amounts otherwise indemnifiable
hereunder. A party shall repay to the corporation the amount of any payment the
corporation makes to the party under this Article in connection with any
proceeding against or involving the party, to the extent the party has otherwise
actually received payment (under any insurance policy, agreement or otherwise)
of such amount. In the event of any payment under this Article, the corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of the indemnified party, who shall execute all papers and do
everything that may be necessary to assure such rights of subrogation to the
corporation.
5.08 Liability Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
fiduciary or agent of the corporation or who is or was serving at the request of
the corporation as a director, officer, manager, member, partner, trustee,
employee, fiduciary, functionary or agent of any other corporation, limited
liability company, partnership, joint venture, trust, association, employee
benefit plan or other entity or enterprise against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
5.09 Other Rights and Remedies. The rights to indemnification and advance
of expenses provided by this Article shall be in addition to, and shall not be
in limitation of, any other rights a party may have or hereafter acquire under
any law, provision of the articles of incorporation, any other or further
provision of these bylaws, vote of the shareholders or directors, agreement or
otherwise. The corporation shall have the right, but shall not be obligated, to
indemnify or advance expenses to any employee, fiduciary or agent of the
corporation not otherwise covered by this Article to the fullest extent
permitted by law. Unless otherwise provided in any separate indemnification
arrangement, any such indemnification or advance of expenses shall be made only
as authorized in the specific case by the board of directors.
5.10 Applicability; Effect. The rights to indemnification and advance of
expenses provided by this Article shall be applicable to acts or omissions that
occurred prior to the adoption of this Article, shall continue as to any party
entitled to indemnification under this Article during the period such party
serves in any one or more of the capacities covered by this Article, shall
continue thereafter so long as the party may be subject to any possible
proceeding by reason of the fact that the party served in any one or more of the
capacities covered by this Article, and shall inure to the benefit of the estate
and personal representatives of each such person. Any repeal or modification of
this Article or of any Section or provision hereof shall not adversely affect
any rights or obligations then existing. All rights to indemnification under
this Article shall be deemed to be provided by a contract between the
corporation and each party covered hereby.
5.11 Severability. If any provision of this Article shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Article shall
not in any way be affected or impaired thereby, and (b) to the fullest extent
possible, the remaining provisions of this Article shall be construed so as to
give effect to the intent of this Article that each party covered hereby is
entitled to the fullest protection permitted by law.
5.12 Expenses as a Witness. The Corporation may pay or reimburse expenses
incurred by a director, officer, employee, fiduciary, or agent in connection
with an appearance as a witness in a Proceeding at a time when he or she has not
been made a named defendant or respondent in the Proceeding.
5.13 Notice to Shareholders. If the corporation indemnifies or advances
Expenses to a director under this Article in connection with a Proceeding by or
in the right of the corporation, the corporation shall give written notice of
the indemnification for advance to the shareholders with or before the notice of
the next shareholder's meeting. If the next shareholder action is taken without
a meeting at the instigation of the board of directors, such notice shall be
given to the shareholders at or before the time the first shareholder signs a
writing consenting to such action.
ARTICLE VI
MISCELLANEOUS
6.01 Corporate Seal. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation and the words
"Seal, Colorado." The seal may be used by causing it or a facsimile thereof to
be impressed, affixed, manually reproduced or rubber stamped with indelible ink.
6.02 Fiscal Year. The fiscal year of the corporation shall be on a calendar
year basis or as otherwise established by resolution of the board of directors.
6.03 Manner of Giving Notice; Effectiveness. Whenever notice is required by
law, the articles of incorporation or these bylaws to be given to any
shareholder or director, such notice shall be in writing (unless oral notice is
reasonable under the circumstances) and may be given in person or by telephone,
telegraph, teletype, electronically transmitted facsimile or other form or wire
or wireless communication, first class, certified or registered mail, private
courier or in any other manner permitted by law. If written, notice shall be
effective as to each such shareholder or director, as the case may be may, as
follows: (a) in the case of notice mailed by the corporation to the
shareholders, upon deposit in the United States mail, addressed to the
shareholder at the address as it appears in the corporation's current record of
shareholders and with first class postage prepaid; and (b) in all other cases,
the earliest of (I) the date received, (ii) five days after deposit in the
United States mail (properly addressed and with first class postage prepaid),
and (iii) the date shown on the return receipt, if mailed by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee. Oral notice is effective when communicated. If three
successive notices (whether with respect to a meeting of shareholders or
otherwise) are given by the corporation to a shareholder and are returned as
undeliverable, no further notices to such shareholder shall be necessary until
another address for the shareholder is made known to the corporation.
6.04 Receipt of Notices by the Corporation. Except as otherwise expressly
provided herein, notices, shareholder writings consenting to action and other
documents and writings shall be deemed to be received by the corporation when
they are actually received: (a) at the registered office of the corporation
addressed to the registered agent; (b) at the principal office of the
corporation (as that office is designated in the most recent document filed by
the corporation with the Colorado Secretary of State providing such information)
addressed to the corporation or to the secretary; (c) by the president or the
secretary wherever that officer may be found; or (d) by any other person
authorized from time to time by the board of directors, the president or the
secretary to receive such writings, wherever such person is found.
6.05 Amendments. The board of directors or shareholders may make, amend and
repeal the bylaws of the corporation at any time and from time to time as
provided by law.
6.06 Voting of Securities by the Corporation. Unless otherwise provided by
resolution of the board of directors, on behalf of the corporation, the
president or any vice president shall, unless otherwise directed by the board or
directors, attend in person or by substitute appointed by him or her, or shall
execute on behalf of the corporation written instruments appointing a proxy or
proxies to represent the corporation at, all meetings of the shareholders or
members of any other corporation or entity in which the corporation holds an
interest, and may, on behalf of the corporation, in person or by substitute or
by proxy, execute written waivers of notice and consents with respect to any
such meetings. At all such meetings or otherwise, the president or any vice
president, in person or by substitute or by proxy, may vote and execute written
consents and other instruments with respect to such interest and may exercise
any and all rights and powers incident to the ownership of such interest,
subject, however, to the instructions, if any, of the board of directors.
The undersigned, being the duly elected and acting secretary of Equity Oil
Company, hereby certifies that the foregoing bylaws were adopted as the bylaws
of the corporation by the board of directors on January 25, 1996.
/S/ CLAY NEWTON
CLAY NEWTON, Secretary
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement, dated as of the 20th day of November, 1997 between
Equity Oil Company, ("Equity"), and Paul M. Dougan (the "Executive").
The Compensation Committee of the Board of Directors of Equity has
recommended, and the Board of Directors has approved, that Equity enter into
agreements, providing for compensation under certain circumstances after a
change in control, with key executives of Equity and its subsidiaries who are
from time to time designated by the Compensation Committee;
Executive is a key executive of Equity and has been selected by the
Compensation Committee to enter into this Agreement;
Should Equity become subject to any proposed or threatened Change in
Control (as defined below), the Board of Directors of Equity believes it
imperative that Equity and the Board of Directors be able to rely upon Executive
to continue in his position, and that Equity be able to receive and rely upon
his advice, if requested, as to the best interests of Equity and its
stockholders without concern that he might be distracted by the personal
uncertainties and risks created by such a proposal or threat; and
Should Equity receive any such proposal, in addition to Executive's
regular duties, he may be called upon to assist in the assessment of such
proposals, advise management and the Board of Directors as to whether such
proposal would be in the best interests of Equity and its stockholders, and to
take such other actions above and beyond his regular duties as the Board might
determine to be appropriate;
NOW, THEREFORE, to assure Equity that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take over
control of Equity, and to induce Executive to remain in the employ of Equity and
for other good and valuable consideration, Equity and Executive agree as
follows:
I. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes other
steps to effect a Change in Control (as defined below), Executive agrees that he
will not voluntarily leave the employ of Equity on less than six months written
notice to the Chairman of the Board of Equity, and will render the services
expected of the shareholders of Equity, until the third person has abandoned or
terminated its efforts to effect a Change in Control or for six months
subsequent to the occurrence of a Change in Control in order to facilitate an
orderly transition.
1. Termination Following Change in Control. Except as provided in
Section 4 below, Equity will provide or cause to be provided to Executive the
rights and benefits described in Section 3 below in the event that Executive's
employment is terminated at any time within two (2) years following a Change in
Control (as such term is defined in this Section 2) under the circumstances
stated in (a) or (b) below.
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(a) for reasons other than for "cause" (as such term is defined in
Section 4 hereof) or other than as a consequence of Executive's death, permanent
disability or voluntary retirement.
(b) by Executive following the occurrence of any of the following
events:
(i) a substantial reduction in Executive's duties or responsibilities;
(ii) the reduction of Executive's annual base salary, including any
deferred portions of it;
(iii) the transfer of Executive to a location requiring a change in his
residence or a material increase in the amount of travel normally required of
Executive in connection with his employment; or
If a Change in Control shall occur prior to or during any renewal term,
as set forth in Section 6 below, Executive shall be entitled to the rights and
benefits provided for in this Section 2 notwithstanding any other provisions to
the contrary in this Agreement.
For purposes of this agreement, a "change in control of the company"
means a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934; provided that, without limitation, such a
change in control shall be deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) other than the company or any person who on
the date hereof is a director or officer of the company is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934) directly or indirectly, of securities of the company representing 20
percent of the combined voting power of the company's then outstanding
securities; or (B) there is a merger or consolidation of the Company in which
the Company does not survive as an independent public company; or (C) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets of the Company, or otherwise.
2. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set forth
in Section 2 hereof ("Termination"), Equity agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of two and one-half (2 1/2)
times Executive's average Annual Earnings (as such term is defined in this
Section 3(a)), which for purposes of this Agreement shall be deemed to be the
"base amount" as that term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended during the most recent five-year fiscal periods (or the
period during which the Executive has been employed by Equity or any of its
subsidiaries if less than five years). However, if such amount exceeds limits
provided in the then existing provisions of the Internal Revenue Code for the
imposition of tax penalties on such payments, the amount shall be reduced to the
highest amount allowed to avoid such penalties.
2
<PAGE>
For purposes of this Agreement, "Annual Earnings" shall mean the
amounts earned by Executive for personal service rendered to Equity and its
subsidiaries, as reportable on Treasury Department Form W-2, including bonuses,
if any, paid or accrued to Executive for the most recently ended calendar year
prior to the date of Termination. Earnings shall not include any income
attributable to grants of and dividends on shares awarded (whether as options,
stock appreciation rights, restricted stock or any other form) under the Equity
1993 Stock Option Plan or Incentive Stock Option Plan or any successor thereto.
(b) Plan Benefits under Equity's Profit Sharing Plan. Except to the
extent expressly Prohibited by any applicable law or regulation, any and all
restrictions, vesting schedules or Schedule of exercise provided in the Equity
Profit Sharing Retirement Plan (or any successor to it) shall immediately lapse
and Executive shall be entitled immediately to receive all benefits previously
granted him under that plan.
(c) Insurance and Other Special Benefits. For a period of two (2)
years, Executive shall continue to be covered by the life insurance, medical
insurance, and accident and disability insurance plans of Equity and its
subsidiaries or any successor plan or program in effect at or after Termination
for employees in the same class or category as was Executive prior to his
Termination, subject to the terms of such plans and to Executive's making any
payments therefor required of employees in the same class or category as was
Executive prior to his Termination. In the event Executive is ineligible to
continue to be so covered under the terms of any such benefit plan or program,
or, in the event Executive is eligible but the benefits applicable to Executive
under any such plan or program after Termination are not substantially
equivalent to the benefits applicable to Executive immediately prior to
Termination, then, for a period of two (2) years, Equity shall provide such
substantially equivalent benefits, or such additional benefits as may be
necessary to make the benefits applicable to Executive substantially equivalent
to those in effect before Termination, through other sources; provided, however,
that if during such period Executive should enter into the employ of another
company or firm, Executive's participation in the comparable benefit provided by
Equity either directly or through such other sources shall cease. Nothing
contained in this paragraph shall be deemed to require or permit termination or
restriction of any of Executive's coverage under any plan or program of Equity,
or any of its subsidiaries or any successor plan or program thereto to which
Executive is entitled under the terms of such plan.
(d) Other Benefit Plans. The specific arrangements referred to in this
Section 3 are not intended to exclude Executive's Participation in other benefit
plans in which Executive currently participates or which are or may become
available to executive personnel generally in the class or category of Executive
or to preclude other compensation or benefits as may be authorized by the Board
of Directors from time to time.
3
<PAGE>
(e) No Duty to Mitigate. Executive's entitlement to benefits under this
plan shall not be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
(f) Payment Obligations Absolute. Unless Section 4 is applicable,
Equity's obligation to pay or cause to be paid to Executive the benefits and to
make the arrangements provided in this Section 3 shall be absolute and
unconditional and shall not be affected by any circumstances, including without
limitation, any set off, counterclaim, recoupment, defense or other right, which
Equity may have against him or anyone else. All amounts payable by or on behalf
of Equity under this agreement shall, unless specifically stated to the contrary
in this agreement, be paid without notice or demand. Each and every payment made
hereunder by or on behalf of Equity shall be final and Equity and its
subsidiaries shall not, for any reason whatsoever, seek to recover all or any
part of such payment from Executive or from whomever shall be entitled thereto.
3. Conditions to the Obligations of Equity. Equity shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events shall
occur:
(a) Termination for Cause. If Executive engages in serious or wilful
misconduct which is detrimental to the Company or its shareholders or is
convicted of a felony.
(b) Resignation as Director or Officer. If executive shall fail,
promptly after Termination and upon receiving a written request to do so, to
resign as a director and/or officer of Equity and each subsidiary and affiliate
of Equity of which he is then serving as a director and/or officer.
4. Cooperation. Executive agrees that, at all times following
Termination, he will furnish such information and render such assistance and
cooperation as may reasonably be requested in connection with any litigation or
legal proceedings concerning Equity or any of its subsidiaries (other than any
legal proceedings concerning Executive's employment). In connection with such
cooperation, Equity will pay or reimburse Executive for all reasonable expenses
incurred in cooperating with such requests.
5. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on December 31, 1999; provided, however, that this Agreement shall
automatically renew for successive one-year terms unless Equity notifies
Executive in writing at least 60 days prior to the expiration date that it does
not desire to renew the Agreement for an additional term; and provided further,
however, that such notice shall not be given and if given shall have no effect
(i) within two (2) years after a Change in Control or (ii) during any period of
time when Equity has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other steps or
formulated plans to effect a Change in Control, such period of time to end when,
in the opinion of the Compensation Committee, the third person has abandoned or
terminated his efforts or plans to effect a Change in Control.
4
<PAGE>
6. Expenses. Equity shall pay or reimburse Executive for all costs and
expenses, including, without limitation, court costs and attorneys' fees,
incurred by Executive as a result of any claim, action or proceeding by
Executive against Equity arising out of, or challenging the validity or
enforceability of, this Agreement or any provision of this agreement.
7. Miscellaneous. (a) Assignment. No right, benefit or interest under
this agreement shall be subject to assignment, anticipation, alienation, sale,
encumbrance, charge, pledge, hypothecation or set-off in respect of any claim,
debt or obligation, or to execution, attachment, levy or similar process;
provided, however, that Executive may assign any right, benefit or interest
under this agreement if such assignment is permitted under the terms of any plan
or policy of insurance or annuity contract governing such right, benefit or
interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Equity other than as
specifically stated here. This Agreement is not, and nothing here shall be
deemed to create an employment contract between Executive and Equity or any of
its subsidiaries. Executive acknowledges that the rights of Equity employing him
to change or reduce at any time and from time to time his compensation, title,
responsibilities, location and all other aspects of the employment relationship
or to discharge him prior to a Change in Control shall remain wholly unaffected
by the provisions of this Agreement. No waiver by either party to this Agreement
at any time of any breach by the other party to this agreement, or noncompliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of that or of any provision or condition. This
Agreement sets forth the entire agreement of the parties here on the subjects
addressed here and no agreements or representations express or implied on such
subjects have been made by either party which are not set forth expressly in
this Agreement.
(c) Amendment. This Agreement may not be amended, modified or canceled
except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except by a
writing signed by the party to be bound thereby.
(e) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
(f) Successors. This Agreement shall be binding upon and inure to the
benefit of Executive and his personal representative and heirs, and Equity and
any successor organization or organizations which shall succeed to substantially
all of the business and property of Equity whether by means of merger,
consolidation, acquisition of substantially all of the assets of Equity or
otherwise, including by operation of law. References here to duties and
obligations of Equity following a Change in Control are binding upon and shall
be the joint and several liability of Equity or any successor of it and all
subsidiaries of Equity and any successors of any of them.
5
<PAGE>
(g) Taxes. Any payment or delivery required under this Agreement shall
be subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like, and Equity shall use its best efforts to
satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed by the law of the
State of Colorado.
IN WITNESS, the parties have executed this Agreement as of the day and
year first above written.
Date: November 20, 1997 /s/ PAUL M. DOUGAN
President
Date: November 20, 1997 /s/ JOSEPH C. BENNETT
Chairman, Compensation Committee of the
Board of Directors of Equity Oil Company
6
<PAGE>
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement, dated as of the 20th day of November, 1997 between
Equity Oil Company, ("Equity"), and Clay Newton (the "Executive").
The Compensation Committee of the Board of Directors of Equity has
recommended, and the Board of Directors has approved, that Equity enter into
agreements, providing for compensation under certain circumstances after a
change in control, with key executives of Equity and its subsidiaries who are
from time to time designated by the Compensation Committee;
Executive is a key executive of Equity and has been selected by the
Compensation Committee to enter into this Agreement;
Should Equity become subject to any proposed or threatened Change in
Control (as defined below), the Board of Directors of Equity believes it
imperative that Equity and the Board of Directors be able to rely upon Executive
to continue in his position, and that Equity be able to receive and rely upon
his advice, if requested, as to the best interests of Equity and its
stockholders without concern that he might be distracted by the personal
uncertainties and risks created by such a proposal or threat; and
Should Equity receive any such proposal, in addition to Executive's
regular duties, he may be called upon to assist in the assessment of such
proposals, advise management and the Board of Directors as to whether such
proposal would be in the best interests of Equity and its stockholders, and to
take such other actions above and beyond his regular duties as the Board might
determine to be appropriate;
NOW, THEREFORE, to assure Equity that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take over
control of Equity, and to induce Executive to remain in the employ of Equity and
for other good and valuable consideration, Equity and Executive agree as
follows:
I. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes other
steps to effect a Change in Control (as defined below), Executive agrees that he
will not voluntarily leave the employ of Equity on less than six months written
notice to the Chairman of the Board of Equity, and will render the services
expected of the shareholders of Equity, until the third person has abandoned or
terminated its efforts to effect a Change in Control or for six months
subsequent to the occurrence of a Change in Control in order to facilitate an
orderly transition.
1. Termination Following Change in Control. Except as provided in
Section 4 below, Equity will provide or cause to be provided to Executive the
rights and benefits described in Section 3 below in the event that Executive's
employment is terminated at any time within two (2) years following a Change in
Control (as such term is defined in this Section 2) under the circumstances
stated in (a) or (b) below.
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<PAGE>
(a) for reasons other than for "cause" (as such term is defined in
Section 4 hereof) or other than as a consequence of Executive's death, permanent
disability or voluntary retirement.
(b) by Executive following the occurrence of any of the following
events:
(i) a substantial reduction in Executive's duties or responsibilities;
(ii) the reduction of Executive's annual base salary, including any
deferred portions of it;
(iii) the transfer of Executive to a location requiring a change in his
residence or a material increase in the amount of travel normally required of
Executive in connection with his employment; or
If a Change in Control shall occur prior to or during any renewal term,
as set forth in Section 6 below, Executive shall be entitled to the rights and
benefits provided for in this Section 2 notwithstanding any other provisions to
the contrary in this Agreement.
For purposes of this agreement, a "change in control of the company"
means a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934; provided that, without limitation, such a
change in control shall be deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) other than the company or any person who on
the date hereof is a director or officer of the company is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934) directly or indirectly, of securities of the company representing 20
percent of the combined voting power of the company's then outstanding
securities; or (B) there is a merger or consolidation of the Company in which
the Company does not survive as an independent public company; or (C) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets of the Company, or otherwise.
2. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set forth
in Section 2 hereof ("Termination"), Equity agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of two (2) times Executive's
average Annual Earnings (as such term is defined in this Section 3(a)), which
for purposes of this Agreement shall be deemed to be the "base amount" as that
term is defined in Section 280G of the Internal Revenue Code of 1986, as amended
during the most recent five-year fiscal periods (or the period during which the
Executive has been employed by Equity or any of its subsidiaries if less than
five years). However, if such amount exceeds limits provided in the then
existing provisions of the Internal Revenue Code for the imposition of tax
penalties on such payments, the amount shall be reduced to the highest amount
allowed to avoid such penalties.
2
<PAGE>
For purposes of this Agreement, "Annual Earnings" shall mean the
amounts earned by Executive for personal service rendered to Equity and its
subsidiaries, as reportable on Treasury Department Form W-2, including bonuses,
if any, paid or accrued to Executive for the most recently ended calendar year
prior to the date of Termination. Earnings shall not include any income
attributable to grants of and dividends on shares awarded (whether as options,
stock appreciation rights, restricted stock or any other form) under the Equity
1993 Stock Option Plan or Incentive Stock Option Plan or any successor thereto.
(b) Plan Benefits under Equity's Profit Sharing Plan. Except to the
extent expressly Prohibited by any applicable law or regulation, any and all
restrictions, vesting schedules or Schedule of exercise provided in the Equity
Profit Sharing Retirement Plan (or any successor to it) shall immediately lapse
and Executive shall be entitled immediately to receive all benefits previously
granted him under that plan.
(c) Insurance and Other Special Benefits. For a period of two (2)
years, Executive shall continue to be covered by the life insurance, medical
insurance, and accident and disability insurance plans of Equity and its
subsidiaries or any successor plan or program in effect at or after Termination
for employees in the same class or category as was Executive prior to his
Termination, subject to the terms of such plans and to Executive's making any
payments therefor required of employees in the same class or category as was
Executive prior to his Termination. In the event Executive is ineligible to
continue to be so covered under the terms of any such benefit plan or program,
or, in the event Executive is eligible but the benefits applicable to Executive
under any such plan or program after Termination are not substantially
equivalent to the benefits applicable to Executive immediately prior to
Termination, then, for a period of two (2) years, Equity shall provide such
substantially equivalent benefits, or such additional benefits as may be
necessary to make the benefits applicable to Executive substantially equivalent
to those in effect before Termination, through other sources; provided, however,
that if during such period Executive should enter into the employ of another
company or firm, Executive's participation in the comparable benefit provided by
Equity either directly or through such other sources shall cease. Nothing
contained in this paragraph shall be deemed to require or permit termination or
restriction of any of Executive's coverage under any plan or program of Equity,
or any of its subsidiaries or any successor plan or program thereto to which
Executive is entitled under the terms of such plan.
(d) Other Benefit Plans. The specific arrangements referred to in this
Section 3 are not intended to exclude Executive's Participation in other benefit
plans in which Executive currently participates or which are or may become
available to executive personnel generally in the class or category of Executive
or to preclude other compensation or benefits as may be authorized by the Board
of Directors from time to time.
3
<PAGE>
(e) No Duty to Mitigate. Executive's entitlement to benefits under this
plan shall not be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
(f) Payment Obligations Absolute. Unless Section 4 is applicable,
Equity's obligation to pay or cause to be paid to Executive the benefits and to
make the arrangements provided in this Section 3 shall be absolute and
unconditional and shall not be affected by any circumstances, including without
limitation, any set off, counterclaim, recoupment, defense or other right, which
Equity may have against him or anyone else. All amounts payable by or on behalf
of Equity under this agreement shall, unless specifically stated to the contrary
in this agreement, be paid without notice or demand. Each and every payment made
hereunder by or on behalf of Equity shall be final and Equity and its
subsidiaries shall not, for any reason whatsoever, seek to recover all or any
part of such payment from Executive or from whomever shall be entitled thereto.
3. Conditions to the Obligations of Equity. Equity shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events shall
occur:
(a) Termination for Cause. If Executive engages in serious or wilful
misconduct which is detrimental to the Company or its shareholders or is
convicted of a felony.
(b) Resignation as Director or Officer. If executive shall fail,
promptly after Termination and upon receiving a written request to do so, to
resign as a director and/or officer of Equity and each subsidiary and affiliate
of Equity of which he is then serving as a director and/or officer.
4. Cooperation. Executive agrees that, at all times following
Termination, he will furnish such information and render such assistance and
cooperation as may reasonably be requested in connection with any litigation or
legal proceedings concerning Equity or any of its subsidiaries (other than any
legal proceedings concerning Executive's employment). In connection with such
cooperation, Equity will pay or reimburse Executive for all reasonable expenses
incurred in cooperating with such requests.
5. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on December 31, 1999; provided, however, that this Agreement shall
automatically renew for successive one-year terms unless Equity notifies
Executive in writing at least 60 days prior to the expiration date that it does
not desire to renew the Agreement for an additional term; and provided further,
however, that such notice shall not be given and if given shall have no effect
(i) within two (2) years after a Change in Control or (ii) during any period of
time when Equity has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other steps or
formulated plans to effect a Change in Control, such period of time to end when,
in the opinion of the Compensation Committee, the third person has abandoned or
terminated his efforts or plans to effect a Change in Control.
4
<PAGE>
6. Expenses. Equity shall pay or reimburse Executive for all costs and
expenses, including, without limitation, court costs and attorneys' fees,
incurred by Executive as a result of any claim, action or proceeding by
Executive against Equity arising out of, or challenging the validity or
enforceability of, this Agreement or any provision of this agreement.
7. Miscellaneous. (a) Assignment. No right, benefit or interest under
this agreement shall be subject to assignment, anticipation, alienation, sale,
encumbrance, charge, pledge, hypothecation or set-off in respect of any claim,
debt or obligation, or to execution, attachment, levy or similar process;
provided, however, that Executive may assign any right, benefit or interest
under this agreement if such assignment is permitted under the terms of any plan
or policy of insurance or annuity contract governing such right, benefit or
interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Equity other than as
specifically stated here. This Agreement is not, and nothing here shall be
deemed to create an employment contract between Executive and Equity or any of
its subsidiaries. Executive acknowledges that the rights of Equity employing him
to change or reduce at any time and from time to time his compensation, title,
responsibilities, location and all other aspects of the employment relationship
or to discharge him prior to a Change in Control shall remain wholly unaffected
by the provisions of this Agreement. No waiver by either party to this Agreement
at any time of any breach by the other party to this agreement, or noncompliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of that or of any provision or condition. This
Agreement sets forth the entire agreement of the parties here on the subjects
addressed here and no agreements or representations express or implied on such
subjects have been made by either party which are not set forth expressly in
this Agreement.
(c) Amendment. This Agreement may not be amended, modified or canceled
except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except by a
writing signed by the party to be bound thereby.
(e) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
(f) Successors. This Agreement shall be binding upon and inure to the
benefit of Executive and his personal representative and heirs, and Equity and
any successor organization or organizations which shall succeed to substantially
all of the business and property of Equity whether by means of merger,
consolidation, acquisition of substantially all of the assets of Equity or
otherwise, including by operation of law. References here to duties and
obligations of Equity following a Change in Control are binding upon and shall
be the joint and several liability of Equity or any successor of it and all
subsidiaries of Equity and any successors of any of them.
5
<PAGE>
(g) Taxes. Any payment or delivery required under this Agreement shall
be subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like, and Equity shall use its best efforts to
satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed by the law of the
State of Colorado.
IN WITNESS, the parties have executed this Agreement as of the day and
year first above written.
Date: November 20, 1997 /s/ CLAY NEWTON
Chief Financial Officer
Date: November 20, 1997 /s/ JOSEPH C. BENNETT
Chairman, Compensation Committee of the
Board of Directors of Equity Oil Company
6
<PAGE>
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement, dated as of the 20th day of November, 1997 between
Equity Oil Company, ("Equity"), and James B. Larson (the "Executive").
The Compensation Committee of the Board of Directors of Equity has
recommended, and the Board of Directors has approved, that Equity enter into
agreements, providing for compensation under certain circumstances after a
change in control, with key executives of Equity and its subsidiaries who are
from time to time designated by the Compensation Committee;
Executive is a key executive of Equity and has been selected by the
Compensation Committee to enter into this Agreement;
Should Equity become subject to any proposed or threatened Change in
Control (as defined below), the Board of Directors of Equity believes it
imperative that Equity and the Board of Directors be able to rely upon Executive
to continue in his position, and that Equity be able to receive and rely upon
his advice, if requested, as to the best interests of Equity and its
stockholders without concern that he might be distracted by the personal
uncertainties and risks created by such a proposal or threat; and
Should Equity receive any such proposal, in addition to Executive's
regular duties, he may be called upon to assist in the assessment of such
proposals, advise management and the Board of Directors as to whether such
proposal would be in the best interests of Equity and its stockholders, and to
take such other actions above and beyond his regular duties as the Board might
determine to be appropriate;
NOW, THEREFORE, to assure Equity that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take over
control of Equity, and to induce Executive to remain in the employ of Equity and
for other good and valuable consideration, Equity and Executive agree as
follows:
I. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes other
steps to effect a Change in Control (as defined below), Executive agrees that he
will not voluntarily leave the employ of Equity on less than six months written
notice to the Chairman of the Board of Equity, and will render the services
expected of the shareholders of Equity, until the third person has abandoned or
terminated its efforts to effect a Change in Control or for six months
subsequent to the occurrence of a Change in Control in order to facilitate an
orderly transition.
1. Termination Following Change in Control. Except as provided in
Section 4 below, Equity will provide or cause to be provided to Executive the
rights and benefits described in Section 3 below in the event that Executive's
employment is terminated at any time within two (2) years following a Change in
Control (as such term is defined in this Section 2) under the circumstances
stated in (a) or (b) below.
1
<PAGE>
(a) for reasons other than for "cause" (as such term is defined in
Section 4 hereof) or other than as a consequence of Executive's death, permanent
disability or voluntary retirement.
(b) by Executive following the occurrence of any of the following
events:
(i) a substantial reduction in Executive's duties or responsibilities;
(ii) the reduction of Executive's annual base salary, including any
deferred portions of it;
(iii) the transfer of Executive to a location requiring a change in his
residence or a material increase in the amount of travel normally required of
Executive in connection with his employment; or
If a Change in Control shall occur prior to or during any renewal term,
as set forth in Section 6 below, Executive shall be entitled to the rights and
benefits provided for in this Section 2 notwithstanding any other provisions to
the contrary in this Agreement.
For purposes of this agreement, a "change in control of the company"
means a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934; provided that, without limitation, such a
change in control shall be deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) other than the company or any person who on
the date hereof is a director or officer of the company is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934) directly or indirectly, of securities of the company representing 20
percent of the combined voting power of the company's then outstanding
securities; or (B) there is a merger or consolidation of the Company in which
the Company does not survive as an independent public company; or (C) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets of the Company, or otherwise.
2. Rights and Benefits Upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set forth
in Section 2 hereof ("Termination"), Equity agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Salary and Other Payments at Termination. Executive shall be
entitled to receive payment in cash in the amount of two (2) times Executive's
average Annual Earnings (as such term is defined in this Section 3(a)), which
for purposes of this Agreement shall be deemed to be the "base amount" as that
term is defined in Section 280G of the Internal Revenue Code of 1986, as amended
during the most recent five-year fiscal periods (or the period during which the
Executive has been employed by Equity or any of its subsidiaries if less than
five years). However, if such amount exceeds limits provided in the then
existing provisions of the Internal Revenue Code for the imposition of tax
penalties on such payments, the amount shall be reduced to the highest amount
allowed to avoid such penalties.
2
<PAGE>
For purposes of this Agreement, "Annual Earnings" shall mean the
amounts earned by Executive for personal service rendered to Equity and its
subsidiaries, as reportable on Treasury Department Form W-2, including bonuses,
if any, paid or accrued to Executive for the most recently ended calendar year
prior to the date of Termination. Earnings shall not include any income
attributable to grants of and dividends on shares awarded (whether as options,
stock appreciation rights, restricted stock or any other form) under the Equity
1993 Stock Option Plan or Incentive Stock Option Plan or any successor thereto.
(b) Plan Benefits under Equity's Profit Sharing Plan. Except to the
extent expressly Prohibited by any applicable law or regulation, any and all
restrictions, vesting schedules or Schedule of exercise provided in the Equity
Profit Sharing Retirement Plan (or any successor to it) shall immediately lapse
and Executive shall be entitled immediately to receive all benefits previously
granted him under that plan.
(c) Insurance and Other Special Benefits. For a period of two (2)
years, Executive shall continue to be covered by the life insurance, medical
insurance, and accident and disability insurance plans of Equity and its
subsidiaries or any successor plan or program in effect at or after Termination
for employees in the same class or category as was Executive prior to his
Termination, subject to the terms of such plans and to Executive's making any
payments therefor required of employees in the same class or category as was
Executive prior to his Termination. In the event Executive is ineligible to
continue to be so covered under the terms of any such benefit plan or program,
or, in the event Executive is eligible but the benefits applicable to Executive
under any such plan or program after Termination are not substantially
equivalent to the benefits applicable to Executive immediately prior to
Termination, then, for a period of two (2) years, Equity shall provide such
substantially equivalent benefits, or such additional benefits as may be
necessary to make the benefits applicable to Executive substantially equivalent
to those in effect before Termination, through other sources; provided, however,
that if during such period Executive should enter into the employ of another
company or firm, Executive's participation in the comparable benefit provided by
Equity either directly or through such other sources shall cease. Nothing
contained in this paragraph shall be deemed to require or permit termination or
restriction of any of Executive's coverage under any plan or program of Equity,
or any of its subsidiaries or any successor plan or program thereto to which
Executive is entitled under the terms of such plan.
(d) Other Benefit Plans. The specific arrangements referred to in this
Section 3 are not intended to exclude Executive's Participation in other benefit
plans in which Executive currently participates or which are or may become
available to executive personnel generally in the class or category of Executive
or to preclude other compensation or benefits as may be authorized by the Board
of Directors from time to time.
3
<PAGE>
(e) No Duty to Mitigate. Executive's entitlement to benefits under this
plan shall not be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
(f) Payment Obligations Absolute. Unless Section 4 is applicable,
Equity's obligation to pay or cause to be paid to Executive the benefits and to
make the arrangements provided in this Section 3 shall be absolute and
unconditional and shall not be affected by any circumstances, including without
limitation, any set off, counterclaim, recoupment, defense or other right, which
Equity may have against him or anyone else. All amounts payable by or on behalf
of Equity under this agreement shall, unless specifically stated to the contrary
in this agreement, be paid without notice or demand. Each and every payment made
hereunder by or on behalf of Equity shall be final and Equity and its
subsidiaries shall not, for any reason whatsoever, seek to recover all or any
part of such payment from Executive or from whomever shall be entitled thereto.
3. Conditions to the Obligations of Equity. Equity shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events shall
occur:
(a) Termination for Cause. If Executive engages in serious or wilful
misconduct which is detrimental to the Company or its shareholders or is
convicted of a felony.
(b) Resignation as Director or Officer. If executive shall fail,
promptly after Termination and upon receiving a written request to do so, to
resign as a director and/or officer of Equity and each subsidiary and affiliate
of Equity of which he is then serving as a director and/or officer.
4. Cooperation. Executive agrees that, at all times following
Termination, he will furnish such information and render such assistance and
cooperation as may reasonably be requested in connection with any litigation or
legal proceedings concerning Equity or any of its subsidiaries (other than any
legal proceedings concerning Executive's employment). In connection with such
cooperation, Equity will pay or reimburse Executive for all reasonable expenses
incurred in cooperating with such requests.
5. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on December 31, 1999; provided, however, that this Agreement shall
automatically renew for successive one-year terms unless Equity notifies
Executive in writing at least 60 days prior to the expiration date that it does
not desire to renew the Agreement for an additional term; and provided further,
however, that such notice shall not be given and if given shall have no effect
(i) within two (2) years after a Change in Control or (ii) during any period of
time when Equity has reason to believe that any third person has begun a tender
or exchange offer, circulated a proxy to stockholders, or taken other steps or
formulated plans to effect a Change in Control, such period of time to end when,
in the opinion of the Compensation Committee, the third person has abandoned or
terminated his efforts or plans to effect a Change in Control.
4
<PAGE>
6. Expenses. Equity shall pay or reimburse Executive for all costs and
expenses, including, without limitation, court costs and attorneys' fees,
incurred by Executive as a result of any claim, action or proceeding by
Executive against Equity arising out of, or challenging the validity or
enforceability of, this Agreement or any provision of this agreement.
7. Miscellaneous. (a) Assignment. No right, benefit or interest under
this agreement shall be subject to assignment, anticipation, alienation, sale,
encumbrance, charge, pledge, hypothecation or set-off in respect of any claim,
debt or obligation, or to execution, attachment, levy or similar process;
provided, however, that Executive may assign any right, benefit or interest
under this agreement if such assignment is permitted under the terms of any plan
or policy of insurance or annuity contract governing such right, benefit or
interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Equity other than as
specifically stated here. This Agreement is not, and nothing here shall be
deemed to create an employment contract between Executive and Equity or any of
its subsidiaries. Executive acknowledges that the rights of Equity employing him
to change or reduce at any time and from time to time his compensation, title,
responsibilities, location and all other aspects of the employment relationship
or to discharge him prior to a Change in Control shall remain wholly unaffected
by the provisions of this Agreement. No waiver by either party to this Agreement
at any time of any breach by the other party to this agreement, or noncompliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of that or of any provision or condition. This
Agreement sets forth the entire agreement of the parties here on the subjects
addressed here and no agreements or representations express or implied on such
subjects have been made by either party which are not set forth expressly in
this Agreement.
(c) Amendment. This Agreement may not be amended, modified or canceled
except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except by a
writing signed by the party to be bound thereby.
(e) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
(f) Successors. This Agreement shall be binding upon and inure to the
benefit of Executive and his personal representative and heirs, and Equity and
any successor organization or organizations which shall succeed to substantially
all of the business and property of Equity whether by means of merger,
consolidation, acquisition of substantially all of the assets of Equity or
otherwise, including by operation of law. References here to duties and
obligations of Equity following a Change in Control are binding upon and shall
be the joint and several liability of Equity or any successor of it and all
subsidiaries of Equity and any successors of any of them.
5
<PAGE>
(g) Taxes. Any payment or delivery required under this Agreement shall
be subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like, and Equity shall use its best efforts to
satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed by the law of the
State of Colorado.
IN WITNESS, the parties have executed this Agreement as of the day and
year first above written.
Date: November 20, 1997 /s/ JAMES B. LARSON
Vice-President
Date: November 20, 1997 /s/ JOSEPH C. BENNETT
Chairman, Compensation Committee of the
Board of Directors of Equity Oil Company
6
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statment
of Equity Oil Company on Form S-8 of our report dated January 16, 1998, on our
audits of the financial statements of Equity Oil Company as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
- -----------------------------
Signature
Salt Lake City, Utah
March 17, 1998
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