FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-610
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EQUITY OIL COMPANY
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(Exact name of registrant as specified in its charter)
COLORADO 87-0129795
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 806, #10 West Third South, Salt Lake City, Utah 84101
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(Address of principal executive offices)
(Zip Code)
(801) 521-3515
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Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 12,673,138
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statement of Operations
For the Six Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
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REVENUES
Oil and gas sales ................... $13,449,777 $10,791,419
Other ............................... 272,373 1,228,520
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13,722,150 12,019,939
EXPENSES
Operating costs ..................... 3,736,407 3,284,518
Depreciation, depletion and
amortization ...................... 1,920,000 2,000,000
3-D seismic ......................... 24,824 530,793
Exploration ......................... 888,406 871,903
General and administrative .......... 1,374,924 971,557
Interest ............................ 282,722 614,567
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8,227,283 8,273,338
Income before income taxes ................... 5,494,867 3,746,601
Provision for income taxes ................... 2,115,324 1,385,069
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NET INCOME ................................... $ 3,379,543 $ 2,361,532
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Net income per share
Basic ............................... $ .27 $ .19
Diluted ............................. $ .26 $ .18
Weighted average shares outstanding
Basic ............................... 12,673,138 12,643,440
Diluted ............................. 13,000,425 12,810,911
The accompanying notes are an integral part of these statements.
2
EQUITY OIL COMPANY
Statement of Operations
For the Three Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
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REVENUES
Oil and gas sales ................... $ 6,391,517 $ 5,403,396
Other ............................... 162,675 477,612
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6,554,192 5,881,008
EXPENSES
Operating costs ..................... 1,961,371 1,641,595
Depreciation, depletion and
amortization ...................... 970,000 975,000
3-D seismic ......................... 24,824 339,115
Exploration ......................... 394,724 434,451
General and administrative .......... 601,232 456,875
Interest ............................ 116,468 275,121
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4,068,619 4,122,157
Income before income taxes ................... 2,485,573 1,758,851
Provision for income taxes ................... 1,016,888 650,069
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NET INCOME ................................... $ 1,468,685 $ 1,108,782
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Net income per share
Basic ............................... $ .12 $ .09
Diluted ............................. $ .11 $ .09
Weighted average shares outstanding
Basic ............................... 12,684,177 12,643,440
Diluted ............................. 12,981,790 12,853,717
The accompanying notes are an integral part of these statements.
3
EQUITY OIL COMPANY
Balance Sheet
as of June 30, 2001, and December 31, 2000
(Unaudited)
June 30, December 31,
ASSETS 2001 2000
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Current assets:
Cash and cash equivalents .............. $ 2,234,416 $ 2,190,548
Accounts and advances receivable ....... 4,352,783 5,471,937
Income taxes receivable ................ 356,084 107,490
Deferred income taxes .................. 79,896 79,896
Other current assets ................... 88,343 58,667
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7,111,522 7,908,538
Property and equipment ................... 108,591,160 106,031,805
Less accumulated depreciation,
depletion and amortization .............. 68,427,926 66,509,569
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40,163,234 39,522,236
Other assets ............................. 327,366 366,937
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TOTAL ASSETS ............................. $ 47,602,122 $ 47,797,711
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................... $ 1,930,980 $ 2,303,102
Accrued liabilities .................... 128,456 189,912
Income taxes payable ................... 616,492 632,435
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2,675,928 3,125,449
Revolving credit facility ................ 5,500,000 8,500,000
Deferred income taxes .................... 3,414,617 3,588,575
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8,914,617 12,088,575
Stockholders' Equity:
Common stock ........................... 12,851,661 12,819,212
Paid in capital ........................ 3,735,763 3,719,865
Less cost of treasury stock ............ (528,302) (528,302)
Retained earnings ...................... 19,952,455 16,572,912
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36,011,577 32,583,687
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 47,602,122 $ 47,797,711
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The accompanying notes are an integral part of these statements.
4
EQUITY OIL COMPANY
Statement of Cash Flows
For the Six Months Ended June 30, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 3,379,543 $ 2,361,532
Adjustments
Depreciation, depletion and
amortization .............................. 1,920,000 2,000,000
(Gain) loss on
property dispositions ................. 807 (504,082)
Change in deferred income taxes ................ (173,958) 1,235,000
Equity loss in
Symskaya Exploration .................. 52,171 82,959
Change in other assets .................. 39,571 53,001
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Net cash provided before changes in
working capital items ...................... 5,218,134 5,228,410
Increase (decrease) from changes in:
Accounts and advances receivable .......... 1,119,154 (663,289)
Other current assets ...................... (29,676) 192,560
Accounts payable and accrued
liabilities ............................. (433,578) 198,576
Income taxes receivable/payable ........... (229,293) (102,103)
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Net cash provided
by operating activities ..................... 5,644,741 4,854,154
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CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Symskaya Exploration .............. (52,171) (82,959)
Proceeds from sale of properties .............. -- 513,298
Change in other assets ........................ -- (50,000)
Capital expenditures .......................... (2,561,805) (1,367,048)
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Net cash used in investing
activities .................................. (2,613,976) (986,709)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option proceeds ......................... 13,103 --
Payment of credit facility fees ............... -- (26,136)
Payments on credit facility ................... (3,000,000) (2,000,000)
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Net cash used in
financing activities ....................... (2,986,897) (2,026,136)
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NET INCREASE IN CASH ............................. 43,868 1,841,309
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ........................ 2,190,548 1,006,602
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD .............................. $ 2,234,416 $ 2,847,911
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The accompanying notes are an integral part of these statements.
5
NOTES TO FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Equity Oil Company ("Equity" or
"the Company") have not been audited by independent accountants. In the opinion
of the Company's management, the financial statements reflect the adjustments,
all of which are of a normal and recurring nature, necessary to present fairly
the financial position of the Company as of June 30, 2001, and the results of
its operations for the three and six month periods ended June 30, 2001 and 2000,
and its cash flows for the six month periods ended June 30, 2001 and 2000.
The financial statements and the accompanying notes to financial statements
have been prepared according to rules and regulations of the Securities and
Exchange Commission. Accordingly, certain notes and other information have been
condensed or omitted from the interim financial statements presented in this
Quarterly Report on Form 10-Q. These financial statements should be read in
conjunction with the Company's 2000 Annual Report on Form 10-K, and the
Company's Form 10-Q for the first quarter of 2001.
The results for the three and six month periods ended June 30, 2001 are not
necessarily indicative of future results.
Note 2. Net Income Per Share
Basic net income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common and, if dilutive, potential
common equivalent shares outstanding during the period. Potential common
equivalent shares consist of the incremental common shares issuable upon the
exercise of stock options (using the treasury stock method).
Options to purchase approximately 1,793,000 shares of common stock at
prices of $1.06 to $5.50 per share were outstanding at June 30, 2001, of which,
297,613 and 327,286 of these options were included in the computation of diluted
earnings per share for the second quarter and first half of 2001, respectively.
Options to purchase approximately 1,604,000 shares of common stock at prices of
$1.06 to $5.50 per share were outstanding at June 30, 2000, of which, 210,000
and 167,000 were included in the computation of diluted net income per share for
the second quarter and first half of 2000, respectively.
6
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operation
RESULTS OF OPERATIONS
Financial Results
Continued strong oil and gas prices enabled the Company to report higher
net income in both the first six months and second quarter of 2001 compared to
the same periods of 2000. During the first six months of 2001, the Company
recorded net income of $3,379,543, or $.27 per basic share, compared to net
income of $2,361,532 during the corresponding period of 2000, or $.19 per basic
share. Total revenues of $13,722,150 were 14% higher than total revenues of
$12,019,939 recorded in the first half of 2000.
The Company recorded net income in the second quarter of 2001 of
$1,468,685, or $.12 per basic share, compared to second quarter 2000 net income
of $1,108,782, or $.09 per share. Second quarter revenues in 2001 of $6,554,192
were 11% higher than the $5,881,008 reported in the second quarter of 2000.
Operating Results
Higher commodity prices in the industry have allowed the Company to achieve
record levels of revenue, earnings and cash flow. The downside of high prices is
the increased competition for projects, drilling equipment and oil field
services. In addition, the increased level of drilling activity has led to
longer than usual time frames for obtaining the necessary regulatory permits to
develop projects.
The Company is actively pursuing the issuance of the necessary regulatory
permits and oil field services to drill two exploratory wells on the Company's
proprietary 3-D seismic project which was shot last year over the Beaver Creek
area in North Dakota. In addition, during the first half of the year a new 3-D
seismic survey was completed over the Company's Torchlight field in the Big Horn
Basin of Wyoming. The data is currently being evaluated to identify possible
drill sites. Also, two 3-D surveys will begin shortly in the Williston Basin of
North Dakota, and two additional 3-D surveys on Company owned prospects in
Wyoming are planned for later in the year.
Gas prices in California remained substantially above the gas price for the
rest of the country in the first half of the year. Workovers and recompletions
on existing wells have somewhat moderated the decline in production from the
Company's Sacramento Basin properties. Two dry holes were drilled on Sacramento
Basin 3-D seismic surveys during the first half of the year and a third dry hole
was drilled during July at the Company's operated Merlin survey. Currently there
is one more well planned for this year in the Sacramento basin.
7
Development drilling has been more successful. During the first half of the
year one gas well was completed in the Siberia Ridge field in southwest Wyoming.
The well, in which Equity has a 50% working interest, went on production in June
at an initial rate of 1.1 MMcf per day. Three additional development wells in
the Siberia Ridge field are planned for 2001 with Equity having a 50% working
interest in two of them and a 100% working interest in the third. Drilling of
these wells is dependent on the timely issuance of drilling permits by the
Bureau of Land Management. A development oil well has been drilled as a twin to
the Beaver Creek #24-15 well in North Dakota to produce the Duperow reserves
that were tested in the #24-15 well at a rate of 400 barrels per day. The well,
in which Equity has a 32.5% working interest, has been drilled and cased and is
currently waiting on a completion rig. Work continues on the Big Horn and
Sacramento basin workover programs in an effort to enhance production from
existing properties.
Although the Company remains optimistic it will be able to complete the
majority of its projects in the 2001 budget, the increased industry wide
activity and competition may force some activities to be delayed until necessary
permits can be obtained and equipment secured. This may result in some projects
being delayed until 2002.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $2,234,416 as of June 30, 2001. Working
capital at June 30, 2001 remained strong at $4,435,594, compared to $4,783,089
at December 31, 2000. The Company's ratio of current assets to current
liabilities improved to 2.66 to 1 at June 30, 2001, compared to 2.53 to 1 at
December 31, 2000. Cash provided by operating activities before working capital
changes remained constant, at $5,228,410 in the first six months of 2000 to
$5,218,134 during the same period of 2001.
Investment in property and equipment for the first six months of 2001
totaled $2,561,805, an 87% increase from the amount recorded during the
corresponding six months of 2000. The bulk of the Company's current year
drilling is planned to take place during the second half of the year.
8
Higher cash flows enabled the Company to make $3,000,000 in principal
payments on its credit facility during the first half of 2001, reflecting the
Company's plan of using these higher cash flows to aggressively manage its
balance sheet. The Company's commitment under its credit facility is subject to
a redetermination as of May 1 and November 1 of each year, with estimated future
oil and gas prices used in the evaluation determined by the Company's lender.
The Company's current commitment under its credit facility is $17 million.
Accordingly, as of June 30, 2001, the Company had $11.5 million of remaining
availability on the facility. The Company is in compliance with all of its
facility covenants.
The Company believes that existing cash balances, cash flow from operating
activities, and funds available under the Company's credit facility will provide
adequate resources to meet its capital and exploration spending objectives for
2001.
COMPARISON OF SECOND QUARTER 2001 WITH SECOND QUARTER 2000
Continued strong commodity pricing, particularly gas prices, resulted in a
18% increase in oil and gas revenues for the second quarter of 2001. Total
revenues for the period were $6,554,192, compared to $5,881,008 during the same
period of 2000.
Average oil prices received in the second quarter were $24.42 per barrel,
compared to $25.03 per barrel in the second quarter of 2000. Gas prices were up
sharply, averaging $6.51 per Mcf in the second quarter of 2001 compared to $3.08
per Mcf in 2000. Oil production decreased to 159,000 barrels in 2001 compared to
170,000 barrels during the same period of 2000. Gas production in the 2001
second quarter decreased to 374,000 Mcf compared to 380,000 Mcf in the
comparable period last year. Production declines are due primarily to normal
production declines as properties mature.
Total expenses in 2001 decreased slightly over 2000 second quarter levels.
Operating costs rose 19% from 2000 levels, as the Company continues to workover
older properties and plug old abandoned wells. In addition, higher gas prices
resulted in higher value- based production taxes.
The Company also incurred $339,115 in 3-D seismic costs in the second
quarter of 2000 while incurring minimal such costs during the same period of
2001. The Company's 3-D seismic activity in the first half of 2001 was limited
to producing fields and thus capitalized rather than expensed.
General and administrative expenses increased 32% from 2000 second quarter
levels. Two thirds of this increase is due to consulting fees paid to an
employment search firm related to the hiring of a new vice president of
corporate development. The remaining increase is attributable to higher
compensation and other administrative costs. Lower interest costs in 2001
reflect the lower amount of debt outstanding under the Company's credit facility
and lower interest rates.
9
COMPARISON OF FIRST HALF 2001 WITH FIRST HALF OF 2000
Continued strong oil prices and higher gas prices have led to a 25%
increase in oil and gas sales for the first half of 2001. Total revenues for the
period were $13,722,150, compared to $12,019,939 during the first six months of
2000.
Average oil prices received by the Company in the first six months of 2001,
were $24.99 per barrel, compared to $25.22 per barrel during the same period of
2000. Average gas prices received during the first six months of 2001 were $6.92
per Mcf, which compared to $2.69 per Mcf during the same period of 2000. Through
the first six months of 2001, oil production of 321,000 barrels was down from
2000 production of 340,000 barrels. Natural gas production decreased from
830,000 Mcf in 2000 to 786,000 Mcf in 2001. The reduction was due primarily to
the natural production decline as the properties mature.
Included in first half 2000 revenues was $505,000 in non-recurring property
sales recognized in the first quarter of the year. No such amounts were
recognized in 2001. The Company also recognized gains on the sale of securities
and property promotions in 2000. There were no securities gains and minimal
property promotion income in 2001.
Higher revenues were partially offset by higher operating costs, and
administrative costs. Operating costs rose 14% from 2000 levels, as the Company
continues to spend money on property workovers and scheduled necessary
maintenance. In addition, higher gas prices resulted in higher value-based
production taxes.
The first half of 2000 expenses include costs associated with two Company
operated 3-D seismic surveys, one in the Sacramento Basin of California and one
in North Dakota. The Company's 3-D seismic activity in the first half of 2001
was limited to producing fields and thus capitalized rather than expensed.
General and administrative expenses increased from 2000 first half levels.
The increase was due to higher compensation costs, fees paid to an employment
search firm associated with hiring a new vice president of corporate development
and other administrative expenses.
10
Lower interest costs in 2001 reflect lower interest rates applied to a
reduced amount of debt outstanding under the Company's credit facility.
OTHER ITEMS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. The Company
adopted SFAS No. 133 on January 1, 2001, and the adoption of this pronouncement
did not have a material impact on the Company's financial position and results
of operations.
The Company has reviewed all other 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 a significant
effect on current or future earnings or operations.
FORWARD LOOKING STATEMENTS
The preceding discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing in
the Company's annual report on Form 10-K. Except for the historical information
contained herein, the matters discussed in this report contain forward-looking
statements within the meaning of Section 27a of the Securities Act of 1933, as
amended, and Section 2le of the Securities Exchange Act of 1934, as amended,
that are based on management's beliefs and assumptions, current expectations,
estimates, and projections. Statements that are not historical facts, including
without limitation statements which are preceded by, followed by or include the
words "believes", "anticipates", "plans", "expects", "may", "should" or similar
expressions are forward-looking statements. Many of the factors that will
determine the Company's future results are beyond the ability of the Company to
control or predict. These statements are subject to risks and uncertainties and,
therefore, actual results may differ materially. All subsequent written and oral
forward- looking statements attributable to the Company, or persons acting on
its behalf, are expressly qualified in their entirety by these cautionary
statements. The Company disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
11
Important factors that may effect future results include, but are not
limited to: drilling success, the availability of equipment and contract
services, environmental risks and impediments, geologic hazards, the risk of a
significant natural disaster, the inability of the Company to insure against
certain risks, fluctuations in commodity prices, the inherent limitations in the
ability to estimate oil and gas reserves, changing government regulations, as
well as general market conditions, competition and pricing, and other risks
detailed from time to time in the Company's SEC reports, copies of which are
available upon request from the Company's investor relations department.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The answers to items listed under Item 3 are inapplicable or negative.
PART II
OTHER INFORMATION
The answers to items listed under Part II are inapplicable or negative,
except as shown below.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting, held on May 9, 2001, shareholders were
asked to elect Mr. Paul M. Dougan, and Mr. Douglas W. Brandrup to the staggered
board to serve three year terms expiring in 2004. Based on the votes received,
each director nominee was elected to the board. The following votes were
recorded for each director.
Each director nominee received at least 99% of the shares voted at the
meeting.
Dougan Brandrup
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Affirmative votes 10,706,851 10,703,661
Withhold authority 45,887 49,077
Item 6. Exhibits, and Reports on Form 8-K.
Exhibits.
(a) The exhibits listed in the accompanying Exhibit Index are filed
or incorporated by reference as part of this Report.
(b) No reports on Form 8-K were filed during the quarter.
12
SIGNATURES
Pursuant to the requirements 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
(Registrant)
DATE: August 13, 2001 By /s/ Paul M. Dougan
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Paul M. Dougan, President
DATE: August 13, 2001 By /s/ Russell V. Florence
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Russell V. Florence, Treasurer,
Principal Accounting Officer
13
EXHIBIT INDEX
Exhibit Number Exhibit Title
10.1 Change in Control Compensation Agreement for David P. Donegan.
CHANGE IN CONTROL COMPENSATION AGREEMENT
This Agreement, dated as of the 1st day of June, 2001 between Equity Oil
Company, ("Equity"), and David P. Donegan (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:
1. 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.
2. 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.
(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 notwith-
standing 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.
3. 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.
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 and 2000 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.
(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.
4. 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.
5. 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.
6. Term of Agreement. Subject to Section 2 hereof, this Agreement shall
terminate on December 31, 2001; 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.
7. 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.
8. 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.
(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: June 1, 2001 David P. Donegan
Executive
EQUITY OIL COMPANY
Date: June 1, 2001 W. Durand Eppler
Chairman, Compensation Committee of the
Board of Directors of Equity Oil Company