AGREEMENT AND PLAN OF MERGER

 

by and among

 

WHITING PETROLEUM CORPORATION,

 

WPC EQUITY ACQUISITION CORP.

 

and

 

EQUITY OIL COMPANY

 

February 1, 2004

TABLE OF CONTENTS

 

Page

ARTICLE 1: DESCRIPTION OF TRANSACTION

> 1.1
> 
> MERGER OF MERGER SUB INTO THE COMPANY
> 
> 
> 
> 1.2
> 
> EFFECT OF THE MERGER
> 
> 
> 
> 1.3
> 
> CLOSING; EFFECTIVE TIME
> 
> 
> 
> 1.4
> 
> ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS
> 
> 
> 
> 1.5
> 
> CONVERSION OF SHARES
> 
> 
> 
> 1.6
> 
> EXCHANGE OF CERTIFICATES
> 
> 
> 
> 1.7
> 
> FURTHER ACTION
> 
> 
> 
> > > > ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
> 
> 2.1
> 
> ORGANIZATION AND GOOD STANDING
> 
> 
> 
> 2.2
> 
> AUTHORITY; ENFORCEABILITY; NO CONFLICT
> 
> 
> 
> 2.3
> 
> CAPITALIZATION
> 
> 
> 
> 2.4
> 
> SEC FILINGS
> 
> 
> 
> 2.5
> 
> FINANCIAL STATEMENTS; TAX MATTERS
> 
> 
> 
> 2.6
> 
> NO UNDISCLOSED LIABILITIES
> 
> 
> 
> 2.7
> 
> ABSENCE OF CERTAIN CHANGES AND EVENTS
> 
> 
> 
> 2.8
> 
> LEGAL PROCEEDINGS
> 
> 
> 
> 2.9
> 
> RECOMMENDATION OF THE COMPANY BOARD; OPINION OF FINANCIAL ADVISOR
> 
> 
> 
> 2.10
> 
> ERISA COMPLIANCE; BENEFIT PLANS
> 
> 
> 
> 2.11
> 
> ENVIRONMENTAL MATTERS
> 
> 
> 
> 2.12
> 
> AGREEMENTS, CONTRACTS AND COMMITMENTS
> 
> 
> 
> 2.13
> 
> COMPLIANCE WITH LAWS; PERMITS
> 
> 
> 
> 2.14
> 
> CERTAIN PAYMENTS
> 
> 
> 
> 2.15
> 
> LABOR MATTERS; EMPLOYEES
> 
> 
> 
> 2.16
> 
> BROKERS; FINDERS
> 
> 
> 
> 2.17
> 
> INSURANCE
> 
> 
> 
> 2.18
> 
> INTELLECTUAL PROPERTY
> 
> 
> 
> 2.19
> 
> BOOKS AND RECORDS
> 
> 
> 
> 2.20
> 
> COMPANY OIL AND GAS PROPERTIES
> 
> 
> 
> 2.21
> 
> INFORMATION IN SEC DOCUMENTS
> 
> 
> 
> 2.22
> 
> DISCLOSURE SCHEDULE
> 
> 
> 
> 2.23
> 
> DUE DILIGENCE
> 
> 
> 
> > > > ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
> 
> 3.1
> 
> ORGANIZATION AND GOOD STANDING
> 
> 
> 
> 3.2
> 
> AUTHORITY; ENFORCEABILITY; NO CONFLICT
> 
> 
> 
> 3.3
> 
> CAPITALIZATION
> 
> 
> 
> 3.4
> 
> SEC FILINGS
> 
> 
> 
> 3.5
> 
> FINANCIAL STATEMENTS; TAX MATTERS
> 
> 
> 
> 3.6
> 
> NO UNDISCLOSED LIABILITIES
> 
> 
> 
> 3.7
> 
> ABSENCE OF CERTAIN CHANGES AND EVENTS
> 
> 
> 
> 3.8
> 
> LEGAL PROCEEDINGS
> 
> 
> 
> 3.9
> 
> ENVIRONMENTAL MATTERS
> 
> 
> 
> 3.10
> 
> COMPLIANCE WITH LAWS; PERMITS
> 
> 
> 
> 3.11
> 
> BROKERS; FINDERS
> 
> 
> 
> 3.12
> 
> PARENT OIL AND GAS PROPERTIES
> 
> 
> 
> 3.13
> 
> INFORMATION IN SEC DOCUMENTS
> 
> 
> 
> 3.14
> 
> DISCLOSURE SCHEDULE
> 
> 
> 
> 3.15
> 
> DUE DILIGENCE
> 
> 
> 
> > > > ARTICLE 4: CERTAIN COVENANTS OF THE COMPANY AND PARENT
> 
> 4.1
> 
> ACCESS AND INVESTIGATION
> 
> 
> 
> 4.2
> 
> OPERATION OF COMPANY’S BUSINESS
> 
> 
> 
> 4.3
> 
> NO SOLICITATION
> 
> 
> 
> > > > ARTICLE 5: ADDITIONAL COVENANTS OF THE PARTIES
> 
> 5.1
> 
> PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT
> 
> 
> 
> 5.2
> 
> SHAREHOLDERS’ MEETING
> 
> 
> 
> 5.3
> 
> REASONABLE BEST EFFORTS TO CLOSE
> 
> 
> 
> 5.4
> 
> DISCLOSURE
> 
> 
> 
> 5.5
> 
> INDEMNIFICATION
> 
> 
> 
> 5.6
> 
> TRANSFER TAXES
> 
> 
> 
> 5.7
> 
> AFFILIATES
> 
> 
> 
> 5.8
> 
> SECTION 16 MATTERS
> 
> 
> 
> 5.9
> 
> PUBLIC ANNOUNCEMENTS
> 
> 
> 
> > > > ARTICLE 6: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
> 
> 6.1
> 
> COMPANY SHAREHOLDER APPROVAL
> 
> 
> 
> 6.2
> 
> NO RESTRAINTS
> 
> 
> 
> 6.3
> 
> REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT
> 
> 
> 
> > > > ARTICLE 7: CONDITIONS PRECEDENT TO PARENT’S AND MERGER SUB’S
> > > > OBLIGATION TO CLOSE
> 
> 7.1
> 
> ACCURACY OF REPRESENTATIONS
> 
> 
> 
> 7.2
> 
> COMPANY’S PERFORMANCE
> 
> 
> 
> 7.3
> 
> CONSENTS
> 
> 
> 
> 7.4
> 
> OFFICER’S CERTIFICATE
> 
> 
> 
> 7.5
> 
> NO PROCEEDINGS
> 
> 
> 
> > > > ARTICLE 8: CONDITIONS PRECEDENT TO COMPANY’S OBLIGATION TO CLOSE
> 
> 8.1
> 
> ACCURACY OF REPRESENTATIONS
> 
> 
> 
> 8.2
> 
> PARENT’S AND MERGER SUB’S PERFORMANCE
> 
> 
> 
> 8.3
> 
> CONSENTS
> 
> 
> 
> 8.4
> 
> OFFICER’S CERTIFICATE
> 
> 
> 
> 8.5
> 
> FEES AND EXPENSES
> 
> 
> 
> 8.6
> 
> NO PROCEEDINGS
> 
> 
> 
> 8.7
> 
> LEGAL OPINION
> 
> 
> 
> > > > ARTICLE 9: TERMINATION
> 
> 9.1
> 
> TERMINATION
> 
> 
> 
> 9.2
> 
> EFFECT OF TERMINATION
> 
> 
> 
> 9.3
> 
> EXPENSES/DAMAGE UPON TERMINATION
> 
> 
> 
> > > > ARTICLE 10: GENERAL PROVISIONS
> 
> 10.1
> 
> NOTICES
> 
> 
> 
> 10.2
> 
> FURTHER ACTIONS
> 
> 
> 
> 10.3
> 
> INCORPORATION OF SCHEDULES AND EXHIBITS
> 
> 
> 
> 10.4
> 
> ENTIRE AGREEMENT AND MODIFICATION
> 
> 
> 
> 10.5
> 
> NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
> 
> 
> 
> 10.6
> 
> TIME OF ESSENCE
> 
> 
> 
> 10.7
> 
> DRAFTING AND REPRESENTATION
> 
> 
> 
> 10.8
> 
> SEVERABILITY
> 
> 
> 
> 10.9
> 
> ASSIGNMENT; SUCCESSORS; NO THIRD-PARTY RIGHTS
> 
> 
> 
> 10.10
> 
> ENFORCEMENT OF AGREEMENT
> 
> 
> 
> 10.11
> 
> WAIVER
> 
> 
> 
> 10.12
> 
> GOVERNING LAW
> 
> 
> 
> 10.13
> 
> JURISDICTION; SERVICE OF PROCESS
> 
> 
> 
> 10.14
> 
> COUNTERPARTS
> 
> 
> 
> > > > EXHIBIT A
> > > > 
> > > > 
> > > > 
> > > > EXHIBIT B
> > > > 
> > > > 
> > > > 
> > > > EXHIBIT C
> > > > 
> > > > 
> > > > 
> > > > SCHEDULE 1

 

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger ("Agreement") is made as of February 1, 2004,
by and among Whiting Petroleum Corporation, a Delaware corporation ("Parent"),
WPC Equity Acquisition Corp., a Colorado corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and Equity Oil Company, a Colorado
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in Exhibit A.

 

PRELIMINARY STATEMENTS

A. The board of directors of each of Parent, Merger Sub and the Company has
approved, and deems it advisable and in the best interests of its respective
companies and shareholders to engage in a strategic business combination and
consummate a merger of Merger Sub with and into the Company in accordance with
this Agreement and the Colorado Business Corporation Act ("Merger"). Upon
consummation of the Merger, Merger Sub will cease to exist, and the Company will
become a wholly-owned Subsidiary of Parent.

B. The board of directors of the Company, based upon the recommendation of the
Special Committee, has determined that the Merger and the per share Merger
Consideration is fair to and in the best interests of the Shareholders of the
Company and has resolved to recommend that the Shareholders approve this
Agreement and each of the Contemplated Transactions upon the terms and subject
to the conditions set forth in this Agreement.

C. As a condition to and inducement to Parent’s and Merger Sub’s willingness to
enter into this Agreement and incur the obligations set forth herein,
simultaneously with the execution of this Agreement, certain significant
Shareholders are entering into Shareholder Agreements (the "Shareholder
Agreements") with Parent and Merger Sub.

D. For Federal income tax purposes, it is intended that the Merger will qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement constitutes a
plan of reorganization.

 

 

AGREEMENT

In consideration of the foregoing and the mutual representations, warranties,
covenants and agreements in this Agreement, the Parties hereto, intending to be
legally bound, agree as follows:

 

 

ARTICLE 1: DESCRIPTION OF TRANSACTION

1.1 MERGER OF MERGER SUB INTO THE COMPANY

Upon the terms and subject to the conditions set forth in this Agreement, at the
Effective Time, Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. Following the Effective Time, the
Company shall continue as the surviving corporation ("Surviving Corporation").
The name of Surviving Corporation shall remain "Equity Oil Company".

 

1.2 EFFECT OF THE MERGER

The Merger shall have the effects set forth in this Agreement and in the
applicable provisions of the Colorado Business Corporation Act ("CBCA").

 

1.3 CLOSING; EFFECTIVE TIME

The consummation of the Merger ("Closing") shall take place at the offices of
Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado
80203, at 9:00 a.m. (or at such other place and time as the Parties may agree)
on a date to be designated by Parent ("Closing Date"); provided, however, such
date shall be no later than the fifth Business Day after the satisfaction or
waiver of the last to be satisfied or waived of the conditions set forth in
Articles 6, 7 and 8 (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of such
conditions).

Subject to the provisions of this Agreement, articles of merger satisfying the
applicable requirements of the CBCA ("Articles of Merger") shall be duly
executed by the Company and Merger Sub and, simultaneously with or as soon as
practicable following Closing, filed with the Secretary of State of the State of
Colorado ("Secretary of State"). The Merger shall become effective upon the
later of: (a) the date and time of the filing of the Articles of Merger with the
Secretary of State, or (b) such later date and time (not to exceed five Business
Days from the Closing Date) as may be specified in the Articles of Merger
("Effective Time").

1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS

At the Effective Time:

(a) the Articles of Incorporation of Surviving Corporation shall be the Articles
of Incorporation of Merger Sub; provided, however, that Article I of the
Articles of Incorporation of Merger Sub shall be amended to provide that the
name of the Surviving Corporation shall be "Equity Oil Company";

(b) the Bylaws of Surviving Corporation shall be the Bylaws of Merger Sub;

(c) the directors of Surviving Corporation immediately after the Effective Time
shall be the respective individuals who are directors of Merger Sub immediately
prior to the Effective Time; and

(d) the officers of Surviving Corporation immediately after the Effective Time
shall be the respective individuals who are officers of the Merger Sub
immediately prior to the Effective Time.

 

1.5 CONVERSION OF SHARES

(a) Each share of Company Common Stock issued and outstanding immediately prior
to the Effective Time whether or not subject to transfer restrictions or rights
of the Company to reacquire such shares (other than (i) shares of Company Common
Stock held in the Company’s treasury, and (ii) shares of Company Common Stock
held by Parent or Merger Sub) shall, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the holder thereof, be
cancelled and extinguished and be converted into the right to receive, pursuant
to Section 1.6, 0.185 (the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of Parent Common Stock, together with cash in lieu of
fractional shares of Parent Common Stock (collectively, the "Merger
Consideration"). As of the Effective Time, all such shares of Company Common
Stock shall no longer be outstanding and will automatically be canceled and
retired and shall cease to exist, and each holder of a certificate which
immediately prior to the Effective Time represented any such shares of Company
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration and any dividend or other
distributions to which such Shareholder is entitled pursuant to Section 1.6(a),
in each case to be issued or paid as consideration for the surrender of such
certificate in accordance with Section 1.6, without interest. Notwithstanding
the foregoing, if between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock will have been changed into a
different number of shares or a different class, by reason of the occurrence or
record date of any stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares or similar transaction,
the Exchange Ratio will be appropriately adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination,
exchange of shares or similar transaction.

(b) Each share of Merger Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of Parent, Merger Sub or the Company, be converted into and
become one fully paid and nonassessable share of common stock of Surviving
Corporation.

(c) Each share of Company Common Stock held in the treasury of the Company and
each share of Company Common Stock held by Parent or Merger Sub (or their
respective Subsidiaries) immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holder thereof, be cancelled, retired and cease to exist and
no payment shall be made with respect thereto.

 

(d) Before the Closing, the Company will use its Reasonable Best Efforts to
enter into an option termination agreement, in a form reasonably acceptable to
Parent (the "Option Termination Agreement"), with each holder of outstanding
options to acquire Company Common Stock (the "Company Stock Options") granted
under any Company stock option plan ("Option Plan") providing for the cashing
out of any such Company Stock Options on or immediately prior to the Closing
Date. The Option Termination Agreement shall provide, among other things, that
each applicable Company Stock Option shall be cashed out at the difference
between the applicable strike price for the Company Stock Option and the closing
price quoted on the Nasdaq National Market for the Company Common Stock on the
Business Day immediately prior to the Closing Date. Holders of Company Stock
Options that do not enter into an Option Termination Agreement shall have the
rights granted to them under the applicable Options Plans; provided, however,
the Company agrees to make such changes to the Option Plans as Parent and the
Company may agree are appropriate to give effect to the Merger.

(e) To the extent not terminated in accordance with Section 1.5(d), at the
Effective Time, by virtue of the Merger and without the need of any further
corporate action, each Company Stock Option that was granted prior to the
Effective Time pursuant to the Option Plans and that remains outstanding
immediately prior to the Effective Time shall cease to represent a right acquire
shares of Company Common Stock and shall be converted (each, as so converted, a
"Converted Option"), at the Effective Time, into an option to acquire, on the
same terms and conditions as were applicable under the Company Stock Options,
shares of Parent Common Stock, and the per share exercise price of such
Converted Option (rounded to the nearest whole cent) shall equal the exercise
price of the corresponding Company Stock Option immediately prior to the
Effective Time divided by the Exchange Ratio. The number of shares of Parent
Common Stock subject to each such Converted Option shall equal the number of
shares of Company Common Stock to which the corresponding Company Stock Option
was subject immediately prior to the Effective Time, multiplied by the Exchange
Ratio (rounded to the nearest whole share). At the Effective Time, (i) all
references to Company in the Option Plans and in the stock option agreements
evidencing the related Company Stock Options shall be deemed to refer to Parent
and (ii) Parent shall assume all of Company’s obligations with respect to
Company Stock Options as so converted into Converted Options. On or prior to the
Effective Time, Company shall take all actions necessary such that grants of
Company Stock Options are treated in accordance with the immediately preceding
sentences.

(f) As soon as practicable after the Effective Time, Parent will deliver to the
holders of Company Stock Options, if any, appropriate notices setting forth such
holders’ rights pursuant to the respective Option Plans and the agreements
evidencing the grants of such Company Stock Options and that such Company Stock
Options and agreements have been assumed by Parent and will continue in effect
on the same terms and conditions (subject to the adjustments required by this
Section 1.5 after giving effect to the Merger).

(g) All restrictions or limitations on transfer and vesting with respect to
Company Stock Options awarded under the Option Plans or any other plan, program
or arrangement of the Company, to the extent that such restrictions or
limitations will not have already lapsed, shall fully vest and mature with
respect to all such Company Stock Options after giving effect to the Merger.

 

1.6 EXCHANGE OF CERTIFICATES

(a) On or prior to the Closing Date, Parent shall select a reputable bank or
trust company acceptable to the Company to act as exchange agent in connection
with the Merger ("Exchange Agent"). Promptly after the Effective Time, Parent
shall deposit with the Exchange Agent the certificates representing the shares
of Parent Common Stock issuable pursuant to Section 1.5 for the benefit of the
Shareholders to be exchanged through the Exchange Agent for outstanding shares
of Company Common Stock (such shares of Parent Common Stock, together with any
dividends or other distributions with respect to any shares of Parent Common
Stock with a record date after the Effective Time and any cash payments in lieu
of any fractional shares of Parent Common Stock in accordance with Section
1.6(h), being subsequently in this Agreement referred to as the "Exchange
Fund").

(b) As soon as reasonably practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail to each Shareholder (i) a letter of transmittal
in customary form approved by the Company, which shall specify that delivery
shall be effected, and risk of loss and title to Company Stock Certificates
shall pass, only upon delivery of the Company Stock Certificates to the Exchange
Agent and contain such other provisions as Parent may reasonably specify, and
(ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for the Merger Consideration therefor. Upon surrender
of a Company Stock Certificate to the Exchange Agent for exchange, together with
a duly executed letter of transmittal and such other documents as may be
reasonably required by the Exchange Agent or Parent, (x) the holder of such
Company Stock Certificate shall be entitled to receive in exchange therefor (as
promptly as practicable) the applicable Merger Consideration, without interest
thereon, less the required withholding of Taxes, and (y) each Company Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.6, each Company Stock Certificate (other than Company Stock
Certificates representing shares of Company Common Stock canceled pursuant to
Section 1.5(c)) shall be deemed, from and after the Effective Time, to represent
only the right to receive for each share of Company Common Stock represented
thereby the Merger Consideration provided for under this Agreement, without any
interest thereon. If any Company Stock Certificate shall have been lost, stolen
or destroyed, Surviving Corporation may, in its discretion and as a condition
precedent to the issuance of the Merger Consideration, require the owner of such
lost, stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit as indemnity against any claim that may be made against the Exchange
Agent, Parent or Surviving Corporation with respect to such Company Stock
Certificate.

(c) After the Effective Time, there shall be no transfers on the stock transfer
books of Surviving Corporation of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Company Stock Certificates are presented to Surviving Corporation, they
shall be cancelled and exchanged for the Merger Consideration in accordance with
the procedures set forth in this Section 1.6.

(d) From and after the Effective Time, Shareholders holding Company Stock
Certificates immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock except as otherwise
provided herein or by applicable Law. Such Shareholders shall have no rights,
after the Effective Time, with respect to such shares of Company Common Stock.

(e) Any portion of the Exchange Fund (including the proceeds of any investments
thereof) that remains undistributed to Shareholders as of the date 180 days
after the date on which the Effective Time occurs shall be delivered to Parent
upon demand, and any Shareholders who have not theretofore surrendered their
Company Stock Certificates in accordance with this Section 1.6 shall thereafter
look only to Parent for satisfaction of their claims for Merger Consideration.

(f) Each of the Exchange Agent, Parent and Surviving Corporation shall be
entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any Shareholder such amounts as may be
required to be deducted or withheld therefrom under the Code or any provision of
state, local or foreign Tax Law or under any other applicable Law. To the extent
such amounts are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.

(g) Notwithstanding anything to the contrary in this Section 1.6, none of the
Exchange Agent, Company, Parent or Surviving Corporation shall be liable to any
Shareholder for any amount properly delivered to a public official pursuant to
any applicable abandoned property, escheat or other applicable Law.

(h) No certificates or scrip representing fractional shares of Parent Common
Stock shall be issued upon the surrender for exchange of Company Stock
Certificates, no dividend or distribution of Parent shall relate to such
fractional share interests and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a shareholder of Parent. As
promptly as practicable following the Effective Time, Parent shall pay to the
Exchange Agent an amount in cash equal to the product obtained by multiplying
(i) the fractional share interest to which each former Shareholder (after taking
into account all shares of Company Common Stock held at the Effective Time by
such holder) would otherwise be entitled by (ii) the closing price for a share
of Parent Common Stock as reported on the New York Stock Exchange (as reported
in The Wall Street Journal, or, if not reported thereby, any other authoritative
source) on the Closing Date. As soon as practicable after the determination of
the amount of cash to be paid to Shareholders with respect to any fractional
share interests, the Exchange Agent will make available such amounts to such
holders subject to and in accordance with the terms of this Section 1.6.

 

1.7 FURTHER ACTION

If, at any time after the Effective Time, any further action is determined by
Parent to be necessary or desirable to carry out the purposes of this Agreement
or to vest Surviving Corporation with full right, title and possession of and to
all rights and property of Merger Sub and the Company, the officers and
directors of Surviving Corporation and Parent shall be fully authorized (in the
name of Merger Sub, in the name of the Company or otherwise) to take such
action.

 

 

ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Merger Sub that, except as set
forth in the Company Disclosure Schedule or in any of the Company’s SEC Reports:

 

2.1 ORGANIZATION AND GOOD STANDING

The Company is duly organized, validly existing and in good standing under the
laws of the state of Colorado, with full corporate power and authority to
conduct its business as now being conducted, to own or use the properties and
assets that it purports to own or use and to perform all its respective
obligations under the Company Contracts, except where the failure to have such
power or authority would not result in a Company Material Adverse Effect. The
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of the states of California, North Dakota, Montana, Utah
and Wyoming and the Province of Alberta, Canada, and each other state or
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified would not result in a
Company Material Adverse Effect.

 

2.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT

(a) The Company has all necessary corporate power and authority to execute and
deliver this Agreement and the other agreements referred to in this Agreement,
to perform its obligations hereunder and thereunder and to consummate the
Contemplated Transactions. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Contemplated Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the Contemplated Transactions (other
than, with respect to the Merger, the approval of this Agreement by the holders
of two-thirds (2/3) of the then outstanding shares of Company Common Stock
("Required Company Shareholder Vote") and the filing of appropriate merger
documents as required by the CBCA). The affirmative vote by the holders of
two-thirds (2/3) of the then outstanding shares of Company Common Stock as of
the record date for the Company Shareholders’ Meeting is the only vote of the
holders of any class or series of the Company’s securities necessary to approve
this Agreement and the Contemplated Transactions. This Agreement has been duly
and validly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy and other laws affecting
creditors’ rights generally and to general principles of equity. No filings,
permits, authorizations, consents or approvals are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), in order to consummate the Contemplated Transactions.

(b) The execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement and the consummation of the Contemplated
Transactions by the Company will not, require any Consent of, or filing with or
notification to, any Governmental Body, except (i) for (A) applicable
requirements, if any, of the Exchange Act, the Securities Act and state
securities or "blue sky" laws, (B) the filing of Articles of Merger as required
by the CBCA, and (C) such material Consents set forth on Schedule 2.2 of the
Company Disclosure Schedule (the "Company Required Material Consents"); and (ii)
where failure to obtain such Consents, or to make such filings or notifications,
would not result in a Company Material Adverse Effect.

(c) Neither the execution and delivery of this Agreement nor the consummation of
any of the Contemplated Transactions do or will, directly or indirectly, except
as set forth in Section 2.2(b), (i) Contravene, conflict with or result in a
violation of (A) any provision of the Governing Documents of the Company, or (B)
any resolution adopted by the board of directors or Shareholders of the Company;
(ii) Contravene, conflict with or result in a violation of any Law or Order;
(iii) Contravene, conflict with or result in a violation of any of the terms or
requirements of any Governmental Authorization that is held by the Company; (iv)
Contravene, conflict with or result in a violation or breach of any provision
of, or give any Person the right to declare a default or exercise any remedy
under, accelerate the maturity or performance of or cancel, terminate or modify,
any material Company Contract; (v) require a Consent from any Person; or (vi)
result in the imposition or creation of any Encumbrance upon or with respect to
any of the assets owned or used by the Company, except, in the case of clauses
(ii), (iii), (iv), (v) and (vi), for any such Contravention, conflict or
violation that would not have a Company Material Adverse Effect. The Company’s
board of directors has approved the Merger, this Agreement, the Shareholder
Agreements and the transactions contemplated hereby and thereby, and such
approval is sufficient to render inapplicable to the Merger, this Agreement, the
Shareholder Agreements and the transactions contemplated hereby and thereby any
material limitations on business combinations contained in any restrictive
provision of any "fair price," "moratorium," "control share acquisition,"
"interested shareholder" or other similar anti-takeover statute or regulation
under Colorado Law or restrictive provision of any applicable anti-takeover
provision in the Company’s Articles of Incorporation or Bylaws.

 

2.3 CAPITALIZATION

The authorized capital stock of the Company consists of 50,000,000 shares of
Company Common Stock. As of the date hereof, (a) 12,029,661 shares of Company
Common Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, (b) 1,716,125 shares of Company
Common Stock are reserved for issuance upon the exercise of outstanding Company
Stock Options, (c) 848,000 shares of Company Common Stock are held in the
treasury of the Company, and (d) 233,000 shares of Company Common Stock are
reserved for issuance pursuant to Company Stock Options not yet granted. Other
than the financing arrangements that have been specifically disclosed in or
filed as Exhibits to the Company SEC Reports, there are not any bonds,
debentures, notes or other indebtedness or securities of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which the Company’s Shareholders may vote.
Except as set forth in this Section 2.3, as of the date hereof no shares of
capital stock or other voting securities of the Company are issued, reserved for
issuance or outstanding, and no shares of capital stock or other voting
securities of the Company will be issued or become outstanding after the date
hereof other than upon exercise of Company Stock Options outstanding as of the
date hereof. Except as set forth in this Section 2.3, there are no options,
stock appreciation rights, warrants or other rights, Contracts, arrangements or
commitments of any character ("Options") relating to the issued or unissued
capital stock of the Company, or obligating the Company to issue, grant or sell
any shares of capital stock of, or other equity interests in, or securities
convertible into equity interests in, the Company. The Company does not own, or
have any Contract or other obligation to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business. The Company has no Subsidiaries.

 

2.4 SEC FILINGS

Since January 1, 2001, the Company has filed all required forms, reports,
registration statements, information statements and documents with the SEC
required to be filed by it pursuant to the federal securities laws and the SEC
rules and regulations thereunder. The Company SEC Reports (a) have been filed on
a timely basis; and (b) were prepared in all material respects in accordance
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations thereunder. None of the Company SEC
Reports required by the Exchange Act at the time filed, nor any of the Company
SEC Reports required by the Securities Act as of the date of their
effectiveness, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent that information contained in any
Company SEC Report has been revised or superseded by a later-filed Company SEC
Report filed and publicly available prior to the date hereof.

 

2.5 FINANCIAL STATEMENTS; TAX MATTERS

(a) The financial statements and notes contained or incorporated by reference in
the Company SEC Reports fairly present the financial condition and the results
of operations, changes in shareholders’ equity and cash flow of the Company as
at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP and Regulation S-X of the SEC, subject,
in the case of interim financial statements, to year-end adjustments and the
omission of notes to the extent permitted by Regulation S-X of the SEC (that, if
presented, would not differ materially from notes to the financial statements
found in the Company’s Report on Form 10-Q for the period ended September 30,
2003 included in the Company SEC Reports (the balance sheet included in such
Quarterly Report is the "Balance Sheet")); the financial statements referred to
in this Section 2.5 reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements.

(b) The Company has duly filed all material Tax Returns required to be filed by
it in respect of any Taxes, and all Taxes owed by the Company shown thereon to
be due and payable have been paid. All Tax Returns filed by the Company are
accurate in all material respects. The Company has accrued on its financial
statements or financial books and records adequate reserves for the payment of
all Taxes not yet due and payable, in accordance with past practice. Except as
set forth in the Company Disclosure Schedule, (i) no claim for material unpaid
Taxes has become an Encumbrance against the property of the Company or is being
asserted against the Company; (ii) no audit, examination, investigation or other
proceeding is pending, being conducted, or to the Knowledge of the Company,
threatened by a Tax authority in connection with any examination of Taxes paid
by or on behalf of, or Tax Returns filed by or on behalf of, the Company;
(iii) no extension or waiver of the statute of limitations on the assessment of
any Taxes has been granted by the Company and is currently in effect; (iv)  the
Company is not a party to, or bound by, or has any obligation under, or
potential liability with regards to, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement and the Company
does not have any liability for Taxes under Treasury Regulation Section 1.1502-6
(or an analogous provision of state, local or foreign law); (v) no power of
attorney has been granted by or with respect to the Company with respect to any
matter relating to Taxes; and (f) the Company has not been the subject of a Tax
ruling or determination that has continuing effect.

(c) Neither the Company nor any Affiliate of the Company has taken or agreed to
take any action or knows of any fact or circumstance that is reasonably likely
to prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.

 

2.6 NO UNDISCLOSED LIABILITIES

The Company has no Liabilities except for Liabilities reflected or reserved
against in the Balance Sheet, current liabilities incurred in the Ordinary
Course of Business, Liabilities set forth in the Company SEC Reports and
contingent or inchoate liabilities that would not have a Company Material
Adverse Effect.

 

2.7 ABSENCE OF CERTAIN CHANGES AND EVENTS

Since the date of the Balance Sheet, the Company has conducted its business only
in the Ordinary Course of Business, there has not been any Company Material
Adverse Effect and there has not been:

(a) any material loss, damage or destruction to, or any material interruption in
the use of, any of the assets of the Company that has had a Company Material
Adverse Effect;

(b) (i) any declaration, accrual, set aside or payment of any dividend or any
other distribution in respect of any shares of capital stock of the Company, or
(ii) any repurchase, redemption or other acquisition by the Company of any
shares of capital stock or other securities;

(c) any sale, issuance or grant, or authorization of the issuance of, (i) any
capital stock or other security of the Company (except for Company Common Stock
issued upon the valid exercise of outstanding Company Stock Options), (ii) any
option, warrant or right to acquire any capital stock or other security of the
Company (except for Company Stock Options) or (iii) any instrument convertible
into or exchangeable for any capital stock or other security of the Company;

(d) any amendment to any Governing Document of the Company or any merger,
consolidation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction involving the Company;

(e) any creation of any Subsidiary of the Company or acquisition by the Company
of any equity or other interest in any other Person;

(f) except as set forth in Section 2.7(f) of the Company Disclosure Schedule,
any single capital expenditure by the Company which exceeds $100,000;

(g) except as set forth in Section 2.7(g) of the Company Disclosure Schedule,
any sale of a Company Oil and Gas Property;

(h) except in the Ordinary Course of Business, any action by the Company to (i)
enter into, or suffer any of the assets owned or used by it to become bound by,
any Company Material Contract, or (ii) amend or terminate, or waive any material
right or remedy under, any Company Material Contract;

(i) any (i) acquisition, lease or license by the Company of any material right
or other material asset from any Person, (ii) sale or other disposal or lease or
license by the Company of any material right or other material asset to any
Person or (iii) waiver or relinquishment by the Company of any right, except for
rights or other assets acquired, leased, licensed or disposed of in the Ordinary
Course of Business;

(j) any write-off as uncollectible of, or establishment of any reserve in excess
of $50,000 with respect to, any account receivable or other indebtedness of the
Company outside the Ordinary Course of Business;

(k) any pledge of any assets of, or sufferance of any of the assets of, the
Company to become subject to any Encumbrance, except for pledges or sufferances
of assets made in the Ordinary Course of Business;

(l) any adoption, establishment, entry into or amendment by the Company of any
stock option plan, stock bonus plan, or incentive compensation plan;

(m) any employment or severance agreement (not terminable at will) entered into
by the Company;

(n) change in any Company Plan or other Benefit Plan;

(o) any change of the methods of accounting or accounting practices of the
Company in any material respect;

(p) any material Tax election by the Company;

(q) any commencement or settlement of any Proceeding by the Company which
exceeds $25,000; or

(r) any agreement or commitment to take any of the actions referred to in
clauses (b) through (q) above.

 

2.8 LEGAL PROCEEDINGS

Except as set forth in Section 2.8 of the Company Disclosure Statement, there is
no pending, or to the Knowledge of the Company threatened, Proceeding (a) that
has been commenced by or against the Company or that otherwise relates to or the
business of, or any of the assets owned by, the Company, except for such
Proceedings as are normally incident to the business carried on by the Company,
or (b) that challenges, or that may have the effect of preventing, delaying,
making illegal or otherwise interfering with, any of the Contemplated
Transactions.

 

2.9 RECOMMENDATION OF THE COMPANY BOARD; OPINION OF FINANCIAL ADVISOR

(a) The board of directors of the Company, at a meeting duly called and held,
(i) determined that this Agreement and the Contemplated Transactions are fair
to, and in the best interests of, the Shareholders of the Company, (ii) approved
this Agreement and the Contemplated Transactions, and (iii) resolved to
recommend the approval of this Agreement and the Merger by the Shareholders of
the Company (the "Company Board Recommendation") and directed (subject to
Section 4.3(c) hereof) that such matter be submitted for consideration by the
Shareholders of the Company at the Company Shareholders’ Meeting.

(b) Petrie Parkman & Co., Inc. ("Petrie Parkman") has rendered to the Company’s
board of directors its opinion to the effect that, as of the date of its opinion
and subject to the assumptions and limitations set forth in such opinion, the
Exchange Ratio is fair from a financial point of view to the holders of Company
Common Stock. A complete and correct written copy of Petrie Parkman’s engagement
letter has been delivered to Parent and a complete and correct written copy of
Petrie Parkman’s opinion letter will be delivered to Parent promptly after the
date of this Agreement. The Company has received the approval of Petrie Parkman
to permit the inclusion of a copy of its written opinion, when delivered, in its
entirety in the Proxy Statement/Prospectus, subject to Petrie Parkman’s review
of the Proxy Statement/Prospectus, and references thereto in the Proxy
Statement/Prospectus and Form S-4.

 

2.10 BENEFIT PLANS; ERISA COMPLIANCE

Section 2.10 of the Company Disclosure Schedule sets forth a complete list of
all Benefit Plans. The Company has no material Unfunded Liabilities relating to
any Single Employer Plans. Neither the Company nor any other member of the
Controlled Group has incurred any material withdrawal liability relating to any
Multiemployer Plans. Each Company Plan and other Benefit Plan has been
administered in a manner that would not result in a Company Material Adverse
Effect, no material Reportable Event has occurred with respect to any Plan,
neither the Company nor any other member of the Controlled Group has withdrawn
from any Plan or initiated steps to do so, and no steps have been taken to
reorganize or terminate any Plan. The Company is not an entity deemed to hold
"plan assets" within the meaning of 29 C.F.R. Section 25 10.3-101 of an employee
benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I
of ERISA or any plan (within the meaning of Section 4975 of the Code). With
respect to any Benefit Plan that is an employee welfare benefit plan (as defined
in Section 3(l) of ERISA), (i) no such Benefit Plan provides benefits, including
without limitation, death or medical benefits, beyond termination of employment
or retirement other than (A) coverage mandated by law or (B) death or retirement
benefits under a Benefit Plan qualified under Section 401(a) of the Code, and
(ii) each such Benefit Plan (including any such Plan covering retirees or other
former employees) may be amended or terminated without liability that would have
a Company Material Adverse Effect. The execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event under
any Benefit Plan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee of the Company, or (ii) result in the triggering or imposition
of any restrictions or limitations on the right of the Company or Parent to
cause any such Benefit Plan to be amended or terminated (or which would result
in any materially adverse consequence for so doing). No payment or benefit that
will or may be made by the Company, Parent, or any of their respective
subsidiaries or affiliates with respect to any employee of the Company under any
Benefit Plan in connection with the Merger will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code.

For purposes of Section 2.7 (n) and this Section 2.10, the following defined
terms shall apply:

"Benefit Plan" means any "employee benefit plans" (as defined in Section 3(3) of
ERISA), bonus, pension, profit sharing, deferred compensation, incentive
compensation, excess benefit, stock, stock option, severance, termination pay,
change in control or other material employee benefit plans, programs,
arrangements or agreements currently maintained, or contributed to, or required
to be maintained or contributed to, by the Company or any Person that, together
with the Company, is treated as a single employer under Section 414 of the Code
for the benefit of any current or former employees, officers, directors or
independent contractors of the Company and with respect to which the Company has
any liability.

"Controlled Group" means all members of a controlled group of corporations or
other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Code.

"Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining
agreement or any other arrangement to which the Company or any member of the
Controlled Group is a party to which more than one employer is obligated to make
contributions.

"Plan" means an employee pension benefit plan which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
as to which the Company or any member of the Controlled Group may have any
liability.

"Reportable Event" means a reportable event as defined in Section 4043 of ERISA
and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the Pension Benefit Guaranty
Corporation has by regulation waived the requirement of Section 4043(a) of ERISA
that it be notified within 30 days of the occurrence of such event, provided,
however, that a failure to meet the minimum funding standard of Section 412 of
the Code and of Section 302 of ERISA shall be a Reportable Event regardless of
the issuance of any such waiver of the notice requirement in accordance with
either Section 4043(a) of ERISA or Section 4 12(d) of the Code.

"Single Employer Plan" means a Plan maintained by the Company or any member of
the Controlled Group for employees of the Company or any member of the
Controlled Group.

"Unfunded Liabilities" means the amount (if any) by which the present value of
all vested and unvested accrued benefits under all Single Employer Plans exceeds
the fair market value of all such Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plans using
Pension Benefit Guaranty Corporation actuarial assumptions for single employer
plan terminations.

 

2.11 ENVIRONMENTAL MATTERS

To the Knowledge of the Company, the Company is in substantial compliance with
all applicable Environmental Laws except to the extent that any events of
non-compliance, when considered in the aggregate, would not result in
Environmental Liabilities that would have a Company Material Adverse Effect. To
the Knowledge of the Company, the Company has not received any order, notice, or
other communication regarding a current, unresolved violation of any applicable
Environmental Law from (a) any Governmental Body, or (b) the current or prior
owner or operator of any Facilities. For purposes of this Section 2.11,
"Environmental Liabilities" means any cost, damages, expense, liability,
obligation, or other responsibility arising from or under Environmental Law and
consisting of or relating to:

(a) any environmental conditions or pollution (including on-site or off-site
contamination and regulation of chemical substances or products);

(b) fines, penalties, judgments, awards, settlements, legal or administrative
Proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law; or

(c) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law.

The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq., as amended.

 

2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS

(a) Section 2.12 of the Company Disclosure Schedule sets forth all material
Contracts (excluding oil and gas leases and assignments, agreements creating
other oil and gas interests, joint operating agreements and
exploration/participation agreements under which the Company does not have any
unperformed material obligations) to which the Company is a party (each, a
"Company Material Contract"), including, but not limited to, Contracts (i) that
relates to indebtedness for borrowed money in an amount exceeding $1 million,
(ii) that is a "material contract" (as such term is defined in Item 601(b)(10)
of Regulation S-K of the SEC), (iii) that obligates the Company to make any
payments or issue or pay anything of value to any director, officer, key
employee or consultant, (iv) that limits or purports to limit the ability of the
Company to compete in the United States or Canadian oil and gas exploration,
production and marketing business with any Person in any geographic area or
during any period of time, (v) that includes any material indemnification,
contribution or guarantee obligations, (vi) that relates to capital expenditures
involving total payments of more than $500,000, (vii) that requires annual or
remaining payments in excess of $100,000 after the date hereof, (viii) that is a
seismic license agreement, (ix) that is a fixed price commodity sales agreement
with a remaining term of more than 60 days or (x) that obligates the Company to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person. Each such Contract (x) is valid
and binding on the parties thereto and is in full force and effect and (y) upon
consummation of the Contemplated Transactions shall continue in full force and
effect except where such failure would not result in a Company Material Adverse
Effect.

(b) The Company is not in default in any respect under any Company Material
Contract to which it is a party or by which it or any of its properties or
assets is bound, which default would have a Company Material Adverse Effect.

 

2.13 COMPLIANCE WITH LAWS; PERMITS

The Company has complied with, is not in violation of, and has not received any
notices of violation with respect to, any applicable Law with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not have a Company Material
Adverse Effect. The Company has all permits, licenses, easements, variations,
exemptions, consents, certificates approvals, authorizations and registrations
(collectively, "Permits") with and under all federal, state and local Laws, and
from all Governmental Bodies required by it to carry on its business as
currently conducted, except where the failure to have such Permits would not
have a Company Material Adverse Effect.

 

2.14 CERTAIN PAYMENTS

To the Company’s Knowledge, the Company has not directly or indirectly, in
violation of applicable Law, made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (a) to obtain
favorable treatment in securing business, (b) to pay for favorable treatment for
business secured, or (c) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company.

 

2.15 LABOR MATTERS; EMPLOYEES

(a) To the Knowledge of the Company:

> > (i) There is no labor strike, dispute, slowdown, work stoppage or lockout
> > actually pending against or affecting the Company and, during the past 12
> > months, there has not been any such action;
> > 
> > (ii) the Company is not a party to or bound by any collective bargaining or
> > similar agreement with any labor organization, or work rules or practices
> > agreed to with any labor organization or employee association applicable to
> > employees of the Company;
> > 
> > (iii) none of the employees of the Company are represented by any labor
> > organization and the Company has no Knowledge of any current union
> > organizing activities among the employees of the Company;
> > 
> > (iv) there is no unfair labor practice charge or complaint against the
> > Company pending before the National Labor Relations Board;
> > 
> > 
> > 
> > (v) there is no grievance or arbitration proceeding arising out of any
> > collective bargaining agreement or other grievance procedure relating to the
> > Company pending before the National Labor Relations Board;
> > 
> > 
> > 
> > (vi) there are no pending citations, relating to the Company before the
> > Occupational Safety and Health Administration; and
> > 
> > (vii) there are no pending claims by any current or former employee of the
> > Company or any employment-related claims or investigations by any
> > Governmental Body, including any charges to the Equal Employment Opportunity
> > Commission or state employment practice agency, investigations regarding
> > compliance with federal, state or local wage and hour laws, audits by the
> > Office of Federal Contractor Compliance Programs, complaints of sexual
> > harassment or any other form of unlawful harassment, discrimination, or
> > retaliation.

 

(b) In the last 12 months, the Company has not effectuated (i) a "plant closing"
(as defined in the Worker Adjustment and Retraining Notification Act of 1988
("WARN Act")) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company, or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company, nor has the Company been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law.

 

2.16 BROKERS; FINDERS

No broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Contemplated Transactions based
upon arrangements made by or on behalf of the Company, except for the fees
payable by the Company to Petrie Parkman. The Company has heretofore furnished
Parent true and complete copies of all agreements between the Company and Petrie
Parkman.

 

2.17 INSURANCE

The Company has made available to Parent copies of all insurance policies
carried by the Company. All such policies are in full force and effect, and no
notice of cancellation has been given with respect to any such policy. All
premiums due on such policies have been paid in a timely manner and the Company
has complied in all material respects with the terms and provisions of such
policies.

 

2.18 INTELLECTUAL PROPERTY

The Company owns the right, title and interest, free and clear of any
Encumbrance, in and to, or a license to use, or otherwise has the right to use,
all patents and patent rights, trademarks, trademark rights, trade names, trade
name rights, service marks, service mark rights, logos, domain names, corporate
names and goodwill associated therewith, and copyrights ("Intellectual
Property") currently used in the conduct of the business of the Company, except
where the failure to so own, be licensed or otherwise have the right to use such
Intellectual Property would not have a Company Material Adverse Effect. No
Person has notified the Company that the Company’s use of the Intellectual
Property infringes on the rights of any Person.

 

2.19 BOOKS AND RECORDS

The minute books, stock record books and other records of the Company are
complete and correct in all material respects and have been maintained in
accordance with sound business practices, including an adequate system of
internal controls. The minute books of the Company contain accurate and complete
records of the meetings held of, and corporate action taken by, the Shareholders
and the Company’s board of directors.

 

2.20 COMPANY OIL AND GAS PROPERTIES

(a) The Company has furnished Parent with a copy of the Company Reserve Report.
To the Company’s Knowledge, the factual, non-interpretive data on which the
Company Reserve Report was based for purposes of estimating the oil and gas
reserves set forth in the Company Reserve Report and in any supplement thereto
or update thereof furnished to Parent was accurate at the time provided to Ryder
Scott Company in all material respects.

(b) Except for goods and other property sold, used or otherwise disposed of
since the date of the Balance Sheet in the Ordinary Course of Business and as to
title defects which, when considered in the aggregate, would not have a Company
Material Adverse Effect, the Company has Defensible Title in and to (i) the oil
and gas properties forming the basis for the proved reserves reflected in the
Company Reserve Report as owned by the Company (the "Company Oil and Gas
Properties"), and (ii) all other properties, interests in properties and assets,
real and personal, reflected in the Company’s SEC Reports as owned by the
Company, free and clear of any Encumbrances, except Permitted Encumbrances.

(c) As used herein, the term "Defensible Title" means such interest in
production from the Company Oil and Gas Properties in the Company Reserve Report
that entitles the holder thereof to receive not materially less than the
interest set forth in the Company Reserve Report with respect to such property
under the caption "Revenue Interest" or "NRI" without reduction during the life
of such property except as stated in such reserve report; and obligates the
holder thereof to pay costs and expenses relating to each such property in a
proportion not materially greater than the interest set forth under the caption
"Working Interest" or "WI" in the Company Reserve Report with respect to such
property, without increase over the life of such property except as shown on the
Company Reserve Report.

(d) As used herein, the term "Permitted Encumbrances" shall mean:

> > (i) lessors’ royalties, overriding royalties, division orders, reversionary
> > interests and net profits and similar burdens which do not operate to reduce
> > the net revenue interests in any property below those set forth in the
> > Company Reserve Report;
> > 
> > (ii) the terms and conditions of the oil, gas and mineral leases (the
> > "Company Leases") related to the Company Oil and Gas Properties and all
> > agreements, orders, instruments and declarations to which the Company Leases
> > are subject and that are customary and acceptable in the oil and gas
> > industry in the area of the particular property;
> > 
> > (iii) liens arising under operating agreements, pooling, unitization or
> > communitization agreements, and similar agreements of a type and nature
> > customary in the oil and gas industry and securing payment of amounts not
> > yet delinquent;
> > 
> > (iv) liens securing payments to mechanics and materialmen, and liens
> > securing payment of taxes or assessments, which liens are not yet delinquent
> > or, if delinquent, are being contested in good faith in the Ordinary Course
> > of Business;
> > 
> > (v) conventional rights of reassignment obligating the Company to reassign
> > its interests in a portion of the Company Oil and Gas Properties to a third
> > party in the event the Company intends to release or abandon such interest;
> > 
> > (vi) calls on or preferential rights to purchase production at not less than
> > prevailing prices;
> > 
> > (vii) covenants, conditions, and other terms to which the Company Oil and
> > Gas Properties are subject that are not such as to materially interfere with
> > the operation, value, use and enjoyment of the Company Oil and Gas
> > Properties;
> > 
> > (viii) rights reserved to or vested in any Governmental Body to control or
> > regulate any of the Company Oil and Gas Properties in any manner, and all
> > applicable laws, rules, regulations and orders of any such Governmental
> > Body; and
> > 
> > (ix) easements, rights-of-way, servitudes, permits, surface leases, and
> > other surface uses on, over or in respect of any of the Company Oil and Gas
> > Properties that would not materially interfere with the operation of the
> > Company Oil and Gas Properties.

 

(e) The Company Leases are in good standing, valid and effective and all
royalties, rentals and other payments due by the Company to any lessor of any
such leases have been properly paid, except as to Company Leases, royalties,
rentals and other payments which, when considered in the aggregate, would not
have a Company Material Adverse Effect. All major items of operating equipment
of the Company are in good operating condition and in a state of reasonable
maintenance and repair, ordinary wear and tear excepted.

(f) Section 2.20(f) of the Company Disclosure Schedule sets forth the Company’s
material future, hedge, swap, collar, put, call, floor, cap, option and other
contracts intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of hydrocarbons as of the date hereof.

(g) Except as set forth in Section 2.20(g) of the Company Disclosure Schedule
and for gas balancing agreements containing customary provisions, the Company is
not obligated under, by virtue of a prepayment arrangement, a "take or pay"
arrangement, a production payment or any other arrangement, to deliver
hydrocarbons produced from the Company Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor. To the
Company’s Knowledge, Section 2.20(g) of the Company Disclosure Schedule sets
forth a substantially accurate estimate of the net amount that the Company Oil
and Gas Properties are, in the aggregate, either "over-produced" or
"under-produced."

(h) Other than as expressly set forth in this Section 2.20, the Company makes no
representation or warranty, and hereby disclaims any representation or warranty,
that the reserve estimates, cost and cash flow estimates, oil and gas commodity
price estimates, other price estimates or production or flow rate estimates
contained in the Company Reserve Report, or in any supplement thereto or update
thereof, are complete, accurate or not misleading, such estimates being
predicted as to future events which are inherently subject to incompleteness,
inaccuracy and uncertainty.

 

2.21 INFORMATION IN SEC DOCUMENTS

The information supplied by the Company for inclusion in the Form S-4 and Proxy
Statement/Prospectus shall comply in all material respects with the provisions
of applicable federal securities laws, except that no representation is made by
the Company with respect to statements made therein based on information
furnished by Parent or Merger Sub for inclusion in the Form S-4 and Proxy
Statement/Prospectus.

 

2.22 DISCLOSURE SCHEDULE

The Parent and Merger Sub acknowledge and agree that (a) the Company Disclosure
Schedule may include certain items and information solely for informational
purposes for the convenience of the Parties hereto, (b) the disclosure of any
matter in the Company Disclosure Schedule shall not be deemed to constitute an
acknowledgment by the Company that the matter is material or is required to be
disclosed pursuant to the provisions of this Agreement, (c) any fact or item
disclosed in the Company Disclosure Schedule and referenced by a particular
section in this Agreement shall, should the existence of the fact or item or its
contents be relevant to any section in this Agreement, be deemed to be disclosed
with respect to such section whether or not a specific cross-reference appears
(provided that the relevance of such fact or item shall be reasonably evident
from such disclosure), (d) the disclosure of any fact or item in the Company
Disclosure Schedule shall not represent an admission by the Company that such
fact or item actually constitutes noncompliance with, or a violation of, any
law, regulation or statute to which such disclosure is applicable as such
disclosure has been made for purposes of creating exceptions to the
representations and warranties made by the Company to Parent and Merger Sub, and
(e) each attachment referenced in the Company Disclosure Schedule shall be
deemed incorporated into and a part of such Company Disclosure Schedule.

 

2.23 DUE DILIGENCE

Company is experienced and knowledgeable in the oil and gas business and is
aware of its risks. To the Company’s Knowledge, it and its Representatives have
been permitted full and complete access to the books and records, facilities,
equipment, Tax Returns, Contracts, insurance policies and other properties and
assets of the Parent that it and its Representatives have desired or requested
to see or review, and that it and its Representatives have had an opportunity to
meet with the officers and employees of the Parent to discuss the business of
the Parent. Company acknowledges that none of the Parent or any other Person has
made any representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding the Parent furnished or made available
to Company and its Representatives, except as expressly set forth in this
Agreement or the Parent Disclosure Schedule, and none of the Parent or any other
Person shall have or be subject to any liability to Company or any other Person
resulting from the distribution to Company, or Company’s use of, any such
information, including and any information, documents or material made available
to Company in any "data rooms", management presentations or in any other form in
expectation of the transactions contemplated hereby.

 

 

ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF PARENT

AND MERGER SUB

Parent and Merger Sub represent and warrant to Company that, except as set forth
in the Parent Disclosure Schedule or in any of the Parent’s SEC Reports:

 

3.1 ORGANIZATION AND GOOD STANDING

The Parent and WOGC are each duly organized, validly existing and in good
standing under the laws of the state of Delaware, with full corporate power and
authority to conduct their business as now being conducted, to own or use the
properties and assets that they purport to own or use and to perform all their
respective obligations under their Contracts, except where the failure to have
such power or authority would not result in a Parent Material Adverse Effect.
The Parent and WOGC are each duly qualified to do business as a foreign
corporation and are each in good standing under the laws of the states or
jurisdictions in which either the ownership or use of the properties owned or
used by either of them, or the nature of the activities conducted by either of
them, requires such qualification, except where the failure to be so qualified
would not result in a Parent Material Adverse Effect.

The Merger Sub is duly organized, validly existing and in good standing under
the laws of the state of Colorado. Except for obligations incurred in connection
with its incorporation or the negotiation and consummation of this Agreement and
the Contemplated Transactions, Merger Sub has not incurred any obligation or
Liability nor engaged in any business or activity of any type or kind
whatsoever, or entered into any agreement or arrangement with any Person.

 

3.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT

(a) Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement and the other agreements
referred to in this Agreement, to perform its obligations hereunder and
thereunder and to consummate the Contemplated Transactions. The execution and
delivery of this Agreement by the Parent and Merger Sub and the consummation by
the Parent and Merger Sub of the Contemplated Transactions have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or to consummate the Contemplated Transactions (other than, with
respect to the Merger, the filing of appropriate merger documents as required by
the CBCA). This Agreement has been duly and validly executed and delivered by
the Parent and constitutes the legal, valid and binding obligation of the
Parent, enforceable against the Parent in accordance with its terms, subject to
bankruptcy and other laws affecting creditors’ rights generally and to general
principles of equity.

(b) The execution and delivery of this Agreement by the Parent and Merger Sub
does not, and the performance of this Agreement and the consummation of the
Contemplated Transactions by the Parent and Merger Sub will not, require any
Consent of, or filing with or notification to, any Governmental Body, except (i)
for (A) applicable requirements, if any, of the Exchange Act, the Securities Act
and state securities or "blue sky" laws, (B) the filing of Articles of Merger as
required by the CBCA, and (C) such material Consents set forth on Schedule 3.2
of the Parent Disclosure Schedule (the "Parent Required Material Consents"); and
(ii) where failure to obtain such Consents, or to make such filings or
notifications, would not result in a Parent Material Adverse Effect.

(c) Neither the execution and delivery of this Agreement nor the consummation of
any of the Contemplated Transactions do or will, directly or indirectly, except
as set forth in Section 3.2(b), (i) Contravene, conflict with or result in a
violation of (A) any provision of the Governing Documents of the Parent or
Merger Sub, or (B) any resolution adopted by the board of directors or
stockholders of the Parent or Merger Sub; (ii) Contravene, conflict with or
result in a violation of any Law or Order; (iii) Contravene, conflict with or
result in a violation of any of the terms or requirements of any Governmental
Authorization that is held by the Parent; (iv) Contravene, conflict with or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, accelerate the maturity
or performance of or cancel, terminate or modify, any material Parent Contract
or (v) require a Consent from any Person, except, in the case of clauses (ii),
(iii), (iv) and (v), for any such Contravention, conflict or violation that
would not have a Parent Material Adverse Effect. The boards of directors of the
Parent and Merger Sub, at meetings duly called and held, have approved this
Agreement and the Contemplated Transactions. The vote of the Parent’s
stockholders is not required in connection with the Contemplated Transactions.

 

3.3 CAPITALIZATION

The authorized capital stock of the Parent consists of 75,000,000 shares of
Parent Common Stock and 5,000,000 shares of preferred stock. As of the date
hereof, (a) 18,750,000 shares of Parent Common Stock are issued and outstanding,
all of which are duly authorized, validly issued, fully paid and nonassessable,
(b) 2,000,000 shares of Parent Common Stock are reserved for issuance under the
Parent’s stock option plans, and (c) no shares of Parent Common Stock are held
in the treasury of the Parent. Other than the financing arrangements that have
been specifically disclosed in or filed as Exhibits to the Parent SEC Reports,
there are not any bonds, debentures, notes or other indebtedness or securities
of the Parent having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which the Parent’s
stockholders may vote. Except as set forth in this Section 3.3, as of the date
hereof no shares of capital stock or other voting securities of the Parent are
issued, reserved for issuance or outstanding, and no shares of capital stock or
other voting securities of the Parent will be issued or become outstanding after
the date hereof other than upon exercise of Parent Options outstanding as of the
date hereof. Except as set forth in this Section 3.3, there are no Options
relating to the issued or unissued capital stock of the Parent, or obligating
the Parent to issue, grant or sell any shares of capital stock of, or other
equity interests in, or securities convertible into equity interests in, the
Parent. WOGC is the Parent’s only Subsidiary which would constitute a
"significant subsidiary" within Rule 1-02(w) or Regulation S-X of the Securities
Act.

The authorized capital stock of Merger Sub consists of 100 shares of Merger Sub
Common Stock. As of the date hereof, 100 shares of Merger Sub Common Stock are
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and nonassessable and held by Parent.

 

3.4 SEC FILINGS

The Parent has filed all required forms, reports, registration statements,
information statements and documents with the SEC required to be filed by it
pursuant to the federal securities laws and the SEC rules and regulations
thereunder. The Parent SEC Reports (a) have been filed on a timely basis; and
(b) were prepared in all material respects in accordance with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations thereunder. None of the Parent SEC Reports required by the
Exchange Act at the time filed, nor any of the Parent SEC Reports required by
the Securities Act as of the date of their effectiveness, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except to the
extent that information contained in any Parent SEC Report has been revised or
superseded by a later-filed Parent SEC Report filed and publicly available prior
to the date hereof.

 

3.5 FINANCIAL STATEMENTS; TAX MATTERS

(a) The financial statements and notes contained or incorporated by reference in
the Parent SEC Reports fairly present the financial condition and the results of
operations, changes in stockholders’ equity and cash flow of the Parent and WOGC
as at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP and Regulation S-X of the SEC, subject,
in the case of interim financial statements, to year-end adjustments and the
omission of notes to the extent permitted by Regulation S-X of the SEC (that, if
presented, would not differ materially from notes to the financial statements
for the period ended September 30, 2003 included in the Parent SEC Reports (the
"Parent Balance Sheet")); the financial statements referred to in this Section
3.5 reflect the consistent application of such accounting principles throughout
the periods involved, except as disclosed in the notes to such financial
statements.

(b) Neither the Parent nor any Affiliate of the Parent has taken or agreed to
take any action or knows of any fact or circumstance that is reasonably likely
to prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.

 

3.6 NO UNDISCLOSED LIABILITIES

Neither the Parent nor WOGC has any Liabilities except for Liabilities reflected
or reserved against in the Parent Balance Sheet, current liabilities incurred in
the Ordinary Course of Business, Liabilities set forth in the Parent SEC Reports
and contingent or inchoate liabilities that would not have a Parent Material
Adverse Effect.

 

3.7 ABSENCE OF CERTAIN CHANGES AND EVENTS

Except as disclosed in the Parent SEC Reports, since September 30, 2003, the
Parent and WOGC have each conducted their business only in the Ordinary Course
of Business and there has not been any Parent Material Adverse Effect.

 

3.8 LEGAL PROCEEDINGS

Except to the extent that would not have a Parent Material Adverse Effect, there
is no pending, or to the Knowledge of the Parent or WOGC threatened, Proceeding
(a) that has been commenced by or against the Parent or WOGC or that otherwise
relates to or the business of, or any of the assets owned by, the Parent or
WOGC, except for such Proceedings as are normally incident to the business
carried on by the Parent or WOGC, or (b) that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Contemplated Transactions.

 

3.9 ENVIRONMENTAL MATTERS

To the Knowledge of the Parent, the Parent and WOGC are in substantial
compliance with all applicable Environmental Laws except to the extent that any
events of non-compliance, when considered in the aggregate, would not result in
Environmental Liabilities that would have a Parent Material Adverse Effect. To
the Knowledge of the Parent, neither the Parent nor WOGC has received any order,
notice, or other communication regarding a current, unresolved violation of any
applicable Environmental Law from (a) any Governmental Body, or (b) the current
or prior owner or operator of any Facilities. For purposes of this Section 3.9,
"Environmental Liabilities" means any cost, damages, expense, liability,
obligation, or other responsibility arising from or under Environmental Law and
consisting of or relating to:

(a) any environmental conditions or pollution (including on-site or off-site
contamination and regulation of chemical substances or products);

(b) fines, penalties, judgments, awards, settlements, legal or administrative
Proceedings, damages, losses, claims, demands and response, investigative,
remedial, or inspection costs and expenses arising under Environmental Law; or

(c) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law.

The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq., as amended.

 

3.10 COMPLIANCE WITH LAWS; PERMITS

The Parent and WOGC have each complied with, are not in violation of, and have
not received any notices of violation with respect to, any applicable Law with
respect to the conduct of their business, or the ownership or operation of their
business, except for failures to comply or violations which would not have a
Parent Material Adverse Effect. The Parent and WOGC each have all Permits with
and under all federal, state and local Laws, and from all Governmental Bodies
required by them to carry on their business as currently conducted, except where
the failure to have such Permits would not have a Parent Material Adverse
Effect.

 

3.11 BROKERS; FINDERS

No broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Contemplated Transactions based
upon arrangements made by or on behalf of the Parent or Merger Sub.

 

3.12 PARENT OIL AND GAS PROPERTIES

(a) The Parent has furnished Company with a copy of the Parent Reserve Report.
To the Parent’s Knowledge, the factual, non-interpretive data on which the
Parent Reserve Report was based for purposes of estimating the oil and gas
reserves set forth in the Parent Reserve Report and in any supplement thereto or
update thereof furnished to Company was accurate at the time provided to Ryder
Scott Company, Cawley, Gillespie & Associates, Inc. and R.A. Lenser &
Associates, Inc., in all material respects.

(b) Except for goods and other property sold, used or otherwise disposed of
since the date of the Parent Balance Sheet in the Ordinary Course of Business
and as to title defects which, when considered in the aggregate, would not have
a Parent Material Adverse Effect, the Parent and WOGC, as applicable, has
Defensible Title in and to (i) the oil and gas properties forming the basis for
the proved reserves reflected in the Parent Reserve Report as owned by the
Parent or WOGC (the "Parent Oil and Gas Properties"), and (ii) all other
properties, interests in properties and assets, real and personal, reflected in
the Parent’s SEC Reports as owned by the Parent or WOGC, free and clear of any
Encumbrances, except Permitted Encumbrances.

(c) As used herein, the term "Defensible Title" means such interest in
production from the Parent Oil and Gas Properties in the Parent Reserve Report
that entitles the holder thereof to receive not materially less than the
interest set forth in the Parent Reserve Report with respect to such property
under the caption "Revenue Interest" or "NRI" without reduction during the life
of such property except as stated in such reserve report; and obligates the
holder thereof to pay costs and expenses relating to each such property in a
proportion not materially greater than the interest set forth under the caption
"Working Interest" or "WI" in the Parent Reserve Report with respect to such
property, without increase over the life of such property except as shown on the
Parent Reserve Report.

(d) As used herein, the term "Permitted Encumbrances" shall mean:

> > (i) lessors’ royalties, overriding royalties, division orders, reversionary
> > interests and net profits and similar burdens which do not operate to reduce
> > the net revenue interests in any property below those set forth in the
> > Parent Reserve Report;
> > 
> > (ii) the terms and conditions of the oil, gas and mineral leases (the
> > "Parent Leases") related to the Parent Oil and Gas Properties and all
> > agreements, orders, instruments and declarations to which the Parent Leases
> > are subject and that are customary and acceptable in the oil and gas
> > industry in the area of the particular property;
> > 
> > (iii) liens arising under operating agreements, pooling, unitization or
> > communitization agreements, and similar agreements of a type and nature
> > customary in the oil and gas industry and securing payment of amounts not
> > yet delinquent;
> > 
> > (iv) liens securing payments to mechanics and materialmen, and liens
> > securing payment of taxes or assessments, which liens are not yet delinquent
> > or, if delinquent, are being contested in good faith in the Ordinary Course
> > of Business;
> > 
> > (v) conventional rights of reassignment obligating the Parent or WOGC to
> > reassign its interests in a portion of the Parent Oil and Gas Properties to
> > a third party in the event the Parent or WOGC, as applicable, intends to
> > release or abandon such interest;
> > 
> > (vi) calls on or preferential rights to purchase production at not less than
> > prevailing prices;
> > 
> > (vii) covenants, conditions, and other terms to which the Parent Oil and Gas
> > Properties are subject that are not such as to materially interfere with the
> > operation, value, use and enjoyment of the Parent Oil and Gas Properties;
> > 
> > (viii) rights reserved to or vested in any Governmental Body to control or
> > regulate any of the Parent Oil and Gas Properties in any manner, and all
> > applicable laws, rules, regulations and orders of any such Governmental
> > Body; and
> > 
> > (ix) easements, rights-of-way, servitudes, permits, surface leases, and
> > other surface uses on, over or in respect of any of the Parent Oil and Gas
> > Properties that would not materially interfere with the operation of the
> > Parent Oil and Gas Properties.

 

(e) The Parent Leases are in good standing, valid and effective and all
royalties, rentals and other payments due by the Parent and WOGC, as applicable,
to any lessor of any such leases have been properly paid, except as to Parent
Leases, royalties, rentals and other payments which, when considered in the
aggregate, would not have a Parent Material Adverse Effect. All major items of
operating equipment of the Parent and WOGC are in good operating condition and
in a state of reasonable maintenance and repair, ordinary wear and tear
excepted.

(f) Other than as expressly set forth in this Section 3.12, the Parent makes no
representation or warranty, and hereby disclaims any representation or warranty,
that the reserve estimates, cost and cash flow estimates, oil and gas commodity
price estimates, other price estimates or production or flow rate estimates
contained in the Parent Reserve Report, or in any supplement thereto or update
thereof, are complete, accurate or not misleading, such estimates being
predicted as to future events which are inherently subject to incompleteness,
inaccuracy and uncertainty.

 

3.13 INFORMATION IN SEC DOCUMENTS

The information supplied by Parent or Merger Sub for inclusion in the Form S-4
and Proxy Statement/Prospectus shall comply in all material respects with the
provisions of applicable federal securities laws, except that no representation
is made by Parent or Merger Sub with respect to statements made therein based on
information furnished by the Company for inclusion in the Form S-4 and Proxy
Statement/Prospectus.

 

3.14 DISCLOSURE SCHEDULE

The Company acknowledges and agrees that (a) the Parent Disclosure Schedule may
include certain items and information solely for informational purposes for the
convenience of the Parties hereto, (b) the disclosure of any matter in the
Parent Disclosure Schedule shall not be deemed to constitute an acknowledgment
by the Parent that the matter is material or is required to be disclosed
pursuant to the provisions of this Agreement, (c) any fact or item disclosed in
the Parent Disclosure Schedule and referenced by a particular section in this
Agreement shall, should the existence of the fact or item or its contents be
relevant to any section in this Agreement, be deemed to be disclosed with
respect to such section whether or not a specific cross-reference appears
(provided that the relevance of such fact or item shall be reasonably evident
from such disclosure), (d) the disclosure of any fact or item in the Parent
Disclosure Schedule shall not represent an admission by the Parent that such
fact or item actually constitutes noncompliance with, or a violation of, any
law, regulation or statute to which such disclosure is applicable as such
disclosure has been made for purposes of creating exceptions to the
representations and warranties made by the Parent and Merger Sub to Company, and
(e) each attachment referenced in the Parent Disclosure Schedule shall be deemed
incorporated into and a part of such Parent Disclosure Schedule.

 

3.15 DUE DILIGENCE

Parent is experienced and knowledgeable in the oil and gas business and is aware
of its risks. To the Parent’s Knowledge, it and its Representatives have been
permitted full and complete access to the books and records, facilities,
equipment, Tax Returns, Contracts, insurance policies and other properties and
assets of the Company that it and its Representatives have desired or requested
to see or review, and that it and its Representatives have had an opportunity to
meet with the officers and employees of the Company to discuss the business of
the Company. Parent acknowledges that none of the Company or any other Person
has made any representation or warranty, expressed or implied, as to the
accuracy or completeness of any information regarding the Company furnished or
made available to Parent and its Representatives, except as expressly set forth
in this Agreement or the Company Disclosure Schedule, and none of the Company or
any other Person shall have or be subject to any liability to Parent or any
other Person resulting from the distribution to Parent, or Parent’s use of, any
such information, including and any information, documents or material made
available to Parent in any "data rooms", management presentations or in any
other form in expectation of the transactions contemplated hereby. Parent
acknowledges that, should the Closing occur, Parent shall acquire the capital
stock of the Company without any representation or warranty as to
merchantability or fitness of the assets of the Company for any particular
purpose, and such assets shall be in an "as is" condition and on a "where is"
basis.

 

 

 

ARTICLE 4: CERTAIN COVENANTS OF THE COMPANY AND PARENT

4.1 ACCESS AND INVESTIGATION

During the period from the date of this Agreement through the Effective Time
(the "Pre-Closing Period"), each Party shall, and shall cause the
Representatives of such Party to: (a) provide the other Party’s Representatives
with reasonable access to such Party’s Oil and Gas Properties, such Party’s
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to such Party;
and (b) provide the other Party’s Representatives with such copies of such
Party’s Material Contracts and the existing books, records, Tax Returns, work
papers and other documents and information relating to such Party, and with such
additional financial, operating and other data and information regarding such
Party, as the other Party may reasonably request.

 

4.2 OPERATION OF COMPANY’S BUSINESS

During the Pre-Closing Period, except as provided in this Agreement: (i) the
Company shall conduct its business and operations (A) in the Ordinary Course of
Business and (B) in compliance with all applicable Laws and the requirements of
all of the Company’s Material Contracts, except where failure to so comply would
not have a Company Material Adverse Effect; (ii) the Company shall use its
Reasonable Best Efforts to preserve intact its current business organization,
keep available the services of its current directors, officers and employees and
maintain its relations and goodwill with all suppliers, customers, landlords,
creditors, licensors, licensees, employees and other Persons having business
relationships with the Company; (iii) the Company shall not take, without the
prior Consent of the Parent, any affirmative action within its control as a
result of which any of the changes or events in Section 2.7 would occur; and
(iv) the Company shall promptly notify the Parent of (A) any notice or other
communication from any Person alleging that the Consent of such Person is or may
be required in connection with the Contemplated Transactions, and (B) any
Proceeding commenced against, relating to or involving or otherwise affecting
the Company that relates to the consummation of the Contemplated Transactions.

 

4.3 NO SOLICITATION

(a) The Company and its Representatives shall immediately cease any discussions
or negotiations, if any, with any other Persons that may be ongoing as of the
date hereof with respect to any Acquisition Proposal. The Company shall
immediately request each Person who has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Company or any
portion thereof to return all confidential information heretofore furnished to
such Person by or on behalf of the Company. Following the date hereof, the
Company shall not directly or indirectly, and shall not authorize or permit any
Representative of the Company directly or indirectly to, except pursuant to
Section 4.3(c), (i) solicit, initiate or knowingly encourage any inquires that
would reasonably be expected to lead to the submission of any Acquisition
Proposal, (ii) furnish any information regarding the Company to any Person in
connection with or in response to an Acquisition Proposal or an inquiry or
indication of interest that could reasonably be expected to lead to an
Acquisition Proposal, (iii) engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent or Merger Sub the Company Board
Recommendation or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that prior to the approval of this Agreement by the Required
Company Shareholder Vote, this Section 4.3(a) shall not prohibit the Company
from furnishing nonpublic information regarding the Company to, or entering into
discussions with, any Person in response to an unsolicited (i.e., solicited
after the date hereof) Significant Proposal that is submitted to the Company by
such Person (and not withdrawn) after the date of this Agreement if (w) neither
the Company nor its Representatives have violated the provisions of this Section
4.3, (x) the board of directors of the Company shall have determined in good
faith, after consultation with its outside legal advisors, that any such actions
are required in order for the board of directors of the Company to comply with
its fiduciary obligations to the Company’s Shareholders under applicable Law,
(y) the Company promptly gives Parent written notice of the identity of such
Person and of the Company’s intention to furnish nonpublic information to, or
enter into discussions with, such Person, and the Company receives from such
Person an executed confidentiality agreement in substantially the form attached
as Exhibit B (it being understood and agreed that, notwithstanding anything in
this Agreement to the contrary, including the last sentence of Section 4.3(b),
the Company shall be entitled to waive paragraph 8 of such confidentiality
agreement and any such waiver shall not constitute a breach of this Section 4.3)
and (z) the Company promptly furnishes such nonpublic information to Parent (to
the extent such nonpublic information has not been previously furnished by the
Company to Parent).

(b) The Company shall promptly (and in no event later than 48 hours after
receipt of any Acquisition Proposal) advise Parent orally and in writing of any
Acquisition Proposal, any inquiry or indication of interest that could lead to
an Acquisition Proposal or any request for nonpublic information relating to the
Company (including the identity of the Person making or submitting such
Acquisition Proposal, inquiry, indication of interest or request, and the terms
thereof) that is made or submitted by any Person during the Pre-Closing Period.
The Company shall keep Parent fully informed with respect to the status of any
such Acquisition Proposal, inquiry, indication of interest or request and any
modification or proposed modification thereto. Subject to the provisions of this
Section 4.3, the Company agrees not to release any third party from, or waive
any provisions of, any confidentiality or standstill agreement to which the
Company is a party and will use its best efforts to enforce any such agreements
at the request of and on behalf of the Parent.

(c) Notwithstanding anything to the contrary contained in this Agreement, prior
to the approval of this Agreement by the Required Company Shareholder Vote, the
Company Board Recommendation may be withdrawn or modified in a manner adverse to
Parent if: (i) neither the Company nor its Representatives have violated the
provisions of this Section 4.3; (ii) a bona fide written proposal to acquire (by
merger or otherwise) all of the outstanding shares of Company Common Stock
(other than Company Common Stock owned by the Person making the proposal) is
made by a third party to the Company after the date of this Agreement and is not
withdrawn; (iii) the Company provides Parent with at least five Business Days
prior notice of any meeting of the Company’s board of directors at which the
board of directors will consider and determine whether such offer is a Superior
Proposal, during which five-Business Day period the Company shall cause its
financial and legal advisors to negotiate in good faith with Parent in an effort
to make such adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with the transactions contemplated herein on such
adjusted terms; (iv) notwithstanding such negotiations and adjustments pursuant
to clause (iii) above, the Company’s board of directors determines in good faith
that such offer constitutes a Superior Proposal; (v) the Company’s Special
Committee and board of directors determines in good faith, after having taken
into account the written advice of the Company’s outside legal counsel, that, in
light of such Superior Proposal, the withdrawal or modification of the Company
Board Recommendation is required in order for the Company’s board of directors
to comply with its fiduciary obligations to the Company’s Shareholders under
applicable Law; and (vi) prior to the earlier of the withdrawal or modification
of the Company Board Recommendation or the approval or recommendation of, or
execution of a definitive agreement with respect to, any such Superior Proposal,
the Company makes the payments required to be made pursuant to Section 9.3. In
making any determination to withdraw or modify the Company Board Recommendation,
the Company may consider any revised offer by Parent made prior to any
determination to make such withdrawal or modification. The Company may
communicate information about any Acquisition Proposal to its stockholders if,
in the judgment of the Company’s board of directors, based upon the advice of
outside counsel, the failure to communicate information would violate federal or
state securities laws or constitute a breach of the directors’ fiduciary duties.
Nothing contained in this Agreement shall prohibit the Company or the Company’s
board of directors from taking and disclosing to the Company’s stockholders a
position with respect to an Acquisition Proposal pursuant to Rule 14d-9 and
14e-2(a) promulgated under the Exchange Act.

 

 

ARTICLE 5: ADDITIONAL COVENANTS OF THE PARTIES

5.1 PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT

As soon as reasonably practicable following the date of this Agreement, the
Company and Parent will prepare and Parent will file with the SEC a registration
statement on Form S-4 with respect to the issuance of Parent Common Stock in the
Merger (the "Form S-4"), in which the proxy statement relating to the approval
by the Shareholders of the Company of the Agreement (as amended or supplemented
from time to time, the "Proxy Statement/Prospectus") will be included as a
prospectus. Each of the Company and Parent will use its Reasonable Best Efforts
to have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its Reasonable Best Efforts
to cause the Proxy Statement/Prospectus to be mailed to the Shareholders of the
Company as promptly as reasonably practicable after the Form S-4 is declared
effective under the Securities Act. Parent will also take any action required to
be taken under any applicable state securities laws in connection with the
issuance of shares of Parent Common Stock in the Merger, and the Company will
furnish all information concerning the Company and the holders of shares of
Company Common Stock as may be reasonably requested by Parent in connection with
any such action and the preparation, filing and distribution of the Proxy
Statement/Prospectus. No filing of, or amendment or supplement to, the Form S-4
will be made by Parent, and no filing of, or amendment or supplement to the
Proxy Statement/Prospectus will made by the Company, in each case without
providing the other Party a reasonable opportunity to review and comment
thereon. If at any time prior to the Effective Time any information relating to
the Company or Parent, or any of their respective Affiliates, directors or
officers, should be discovered by the Company or Parent which should be set
forth in an amendment or supplement to either the Form S-4 or the Proxy
Statement/Prospectus, so that either such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the Party which discovers such information will promptly
notify the other Parties hereto and an appropriate amendment or supplement
describing such information will be promptly filed with the SEC and, to the
extent required by law, disseminated to the Shareholders of the Company. The
Parties will notify each other promptly of the receipt of any comments from the
SEC or the staff of the SEC and of any request by the SEC or the staff of the
SEC for amendments or supplements to the Proxy Statement/Prospectus or the Form
S-4 or for additional information and will supply each other with copies of (i)
all correspondence between it or any of its Representatives, on the one hand,
and the SEC or the staff of the SEC, on the other hand, with respect to the
Proxy Statement/Prospectus, the Form S-4 or the Merger and (ii) all orders of
the SEC relating to the Form S-4.

 

5.2 SHAREHOLDERS’ MEETING

The Company shall, as soon as reasonably practicable, subject to the Company’s
right to terminate this Agreement pursuant to Section 9.1, take all action
necessary under all applicable Laws to call, give notice of and hold a meeting
of the Company’s Shareholders to vote on a proposal to approve the Merger and
this Agreement (the "Company Shareholders’ Meeting") and, subject to Section
4.3(c), shall use its Reasonable Best Efforts to solicit the approval of the
Merger and this Agreement by the Required Company Shareholder Vote. The Company
Shareholders’ Meeting shall be held on a date selected by the Company in
consultation with Parent as promptly as practicable after the Form S-4 is
declared effective by the SEC. Subject to Section 4.3(c), the Proxy
Statement/Prospectus shall include the Company Board Recommendation.

 

5.3 REASONABLE BEST EFFORTS TO CLOSE

(a) The Parties shall use their Reasonable Best Efforts to take, or cause to be
taken, all actions necessary to consummate and make effective the Contemplated
Transactions. Without limiting the generality of the foregoing, but subject to
the Company’s right to terminate this Agreement pursuant to Section 9.1, Parent
and the Company (i) shall make all filings (if any) and give all notices (if
any) required to be made and given by such Party in connection with the
Contemplated Transactions and to submit promptly any additional information
requested in connection with such filings and notices, (ii) shall use their
Reasonable Best Efforts to obtain each Consent (if any) required to be obtained
(pursuant to any applicable Laws or Contract, or otherwise) by such Party in
connection with any of the Contemplated Transactions and (iii) shall use its
Reasonable Best Efforts to lift any restraint, injunction or other legal bar to
any of the Contemplated Transactions. The Company shall promptly deliver to
Parent a copy of each such filing made, each such notice given and each such
Consent obtained by the Company during the Pre-Closing Period. If any state
takeover statute or other similar statute or regulation becomes or is deemed to
become applicable to the Merger, this Agreement, the Shareholder Agreements or
any of the transactions contemplated hereby or thereby, the Parties shall (at
Parent’s expense) promptly grant such approvals and take such actions as are
reasonably necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the transactions contemplated hereby.

(b) Parent will cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the New York Stock Exchange, subject to
official notice of issuance, prior to the Closing Date.

(c) Each of Parent and the Company will use its Reasonable Best Efforts to cause
the Merger to qualify as a reorganization within the meaning of Section 368(a)
of the Code and to obtain the opinion of counsel referred to in Section 8.7,
including by executing customary representation letters referred to therein and
delivering such letters prior to (i) the filing of the Form S-4 with the SEC and
(ii) the Closing.

 

5.4 DISCLOSURE

Parent and the Company shall consult with each other before issuing any press
release or otherwise making any public statement with respect to the Merger or
any of the other Contemplated Transactions. Without limiting the generality of
the foregoing, the Company, Parent and Merger Sub shall not, and shall not
permit any of their Representatives to, make any disclosure regarding the Merger
or any of the other Contemplated Transactions unless (a) Parent and Company
shall have approved such disclosure or (b) the Company or Parent shall have been
advised by its outside legal counsel that such disclosure is required by
applicable Law or the rules of the New York Stock Exchange or the Nasdaq
National Market, as applicable.

 

5.5 INDEMNIFICATION

 

(a) For a period until six (6) years after the Effective Time, Parent will cause
the Surviving Corporation to fulfill and honor in all respects the obligations
of the Company pursuant to any indemnification agreements, dated prior to the
date hereof, between the Company and its directors and officers as of the date
hereof to immediately prior to the Effective Time (the "Indemnified Parties")
and any indemnification provisions under the Company’s Governing Documents as in
effect on the date hereof. The Governing Documents of the Surviving Corporation
will contain provisions with respect to exculpation, indemnification and
advancement of expenses protecting and indemnifying the Indemnified Parties to
the fullest extent of applicable Law, which provisions will not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective
Time in any manner that would adversely affect the rights thereunder of the
Indemnified Parties, unless such modification is required by applicable law.

(b) For a period of six (6) years after the Effective Time, Parent will cause
the Surviving Corporation to use its commercially reasonable efforts to maintain
in effect, if available, directors’ and officers’ liability insurance covering
the Indemnified Parties on terms no less favorable than those applicable to the
current directors and officers of the Company, with an amount of coverage of not
less than 100% of the amount of coverage maintained by the Company as of the
date of this Agreement, with respect to matters occurring at or prior to the
Effective Time (including, without limitation, the Contemplated Transactions);
provided, however, that in satisfying its obligation under this Section 5.5(b)
the Surviving Corporation shall not be obligated to pay annual premiums in
excess of the amount per annum the Company is currently paying for such
coverage; provided further, that if the annual premiums of such insurance
coverage exceeds such amount, the Surviving Corporation shall be obligated to
obtain policies with as much coverage as is available for a cost not exceeding
such amount.

(c) This Section 5.5 shall survive the consummation of the Contemplated
Transactions, is intended to benefit the Company, the Surviving Corporation and
each Indemnified Party, shall be binding on all successors and assigns of the
Surviving Corporation and Parent, and shall be enforceable by the Indemnified
Parties.

(d) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each case, to the extent necessary, proper provision
shall be made so that the successors and assigns of the Surviving Corporation
shall assume the obligations set forth in this Section 5.5.

 

5.6 TRANSFER TAXES

Parent shall pay any sales, use, transfer, stamp, documentary or other similar
Taxes and any recording and filing fees incurred in connection with the
Contemplated Transactions.

 

5.7 AFFILIATES

The Company will deliver to Parent a letter identifying all persons who, to the
Company’s reasonable knowledge, are at the time this Agreement is submitted for
adoption by the Shareholders, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company will use its Reasonable Best Efforts
to cause each such person to deliver to Parent prior to the mailing of the Proxy
Statement/Prospectus a written letter substantially in the form attached as
Exhibit C hereto.

 

5.8 SECTION 16 MATTERS

Prior to the Effective Time, each of the Parent and the Company shall use their
Reasonable Best Efforts to cause any dispositions of Company Common Stock or
acquisitions of Parent Common Stock resulting from the transactions contemplated
by this Agreement by each individual who is subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to the Company,
to be exempt under Rule 16b-3 promulgated under the Exchange Act.

 

5.9 PUBLIC ANNOUNCEMENTS

The Parent and the Company will consult with and provide each other the
reasonable opportunity to review and comment upon any press release prior to the
issuance of any press release relating to this Agreement or the Contemplated
Transactions and shall not issue any such press release prior to such
consultation except as may be required by law or by obligations pursuant to any
listing agreement with any national securities exchange.

 

 

ARTICLE 6: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES

The obligation of each Party to effect the Merger is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions:

 

6.1 COMPANY SHAREHOLDER APPROVAL

This Agreement and the Merger shall have been duly approved by the Required
Company Shareholder Vote.

 

6.2 NO RESTRAINTS

No temporary restraining Order, preliminary or permanent injunction or other
Order preventing the consummation of the Merger shall have been issued by any
court of competent jurisdiction or any other Governmental Body and shall remain
in effect, and there shall not be any Law enacted, adopted or deemed applicable
to the Merger that prohibits, retrains, enjoins, restricts or makes consummation
of the Merger illegal.

 

6.3 REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT

The SEC shall have declared the Form S-4 effective and the Parent Common Stock
issuable to the Shareholders and to holders of Company Stock Options shall be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance. No stop order suspending the effectiveness of the Form S-4 or any
part thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC and not concluded or withdrawn.

 

 

ARTICLE 7: CONDITIONS PRECEDENT TO PARENT’S AND MERGER SUB’S

OBLIGATION TO CLOSE

The obligation of Parent and Merger Sub to effect the Merger and to take the
other actions required to be taken by Parent and Merger Sub at Closing is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions (any of which may be waived by Parent and Merger Sub, in
whole or in part):

 

7.1 ACCURACY OF REPRESENTATIONS

The representations and warranties of the Company contained in this Agreement
(a) that are qualified as to materiality or a Company Material Adverse Effect
shall be true and correct in all respects as of the date of this Agreement and
as of the Closing Date as if made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such earlier date), and (b) that are not so qualified shall be true
and correct in all respects as of the date of this Agreement and as of the
Closing Date as if made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such earlier date), except for such breaches of representations and
inaccuracies in warranties in this clause (b) that have not had a Company
Material Adverse Effect.

 

7.2 COMPANY’S PERFORMANCE

The Company shall have performed, in all material respects, its covenants and
agreements contained in this Agreement required to be performed on or prior to
the Closing Date.

 

7.3 CONSENTS

Each of the Governmental Authorizations, the Company Required Material Consents
and the other Consents identified in Section 2.2 must have been obtained and
must be in full force and effect, the absence of which would result in a Company
Material Adverse Effect. Each of the Governmental Authorizations, the Parent
Required Material Consents and the other Consents identified in Section 3.2 must
have been obtained and must be in full force and effect, the absence of which
would result in a Parent Material Adverse Effect. If a filing pursuant to the
HSR Act is required, the applicable waiting period under the HSR Act shall have
expired or been terminated.

 

 

7.4 OFFICER’S CERTIFICATE

The Company shall have delivered to Parent and Merger Sub a certificate,
executed on behalf of the Company by an authorized executive officer of the
Company, and dated as of the Closing Date that the conditions set forth in
Sections 7.1, 7.2, 7.3 and 7.5 have been duly satisfied.

 

7.5 NO PROCEEDINGS

There shall not be pending any Proceeding: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger; (b) relating to the Merger
and seeking to obtain from the Company or any of its officers or directors or
from Parent or any of its Subsidiaries any damages that would result in a Parent
Material Adverse Effect; (c) seeking to prohibit or limit in any material
respect Parent’s ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the Company; (d) which would
materially and adversely affect the right of Surviving Corporation to own the
assets or operate the business of the Company; or (e) seeking to compel the
Company, Parent or any Subsidiary of Parent to dispose of or hold separate any
material assets, as a result of the Merger, which, in each instance, if
adversely determined, would have a Company Material Adverse Effect.

 

 

ARTICLE 8: CONDITIONS PRECEDENT TO COMPANY’S OBLIGATION TO CLOSE

The Company’s obligation to effect the Merger and to take the other actions
required to be taken by the Company at the Closing is subject to the
satisfaction, on or before the Closing Date, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):

 

8.1 ACCURACY OF REPRESENTATIONS

The representations and warranties of Parent and Merger Sub contained in this
Agreement (a) that are qualified as to materiality or a Parent Material Adverse
Effect shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as if made on the Closing Date, except to
the extent such representations and warranties expressly relate to an earlier
date (in which case as of such earlier date), and (b) that are not so qualified
shall be true and correct in all respects as of the date of this Agreement and
as of the Closing Date as if made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such earlier date), except for such breaches of representations and
inaccuracies in warranties in this clause (b) that have not had a Parent
Material Adverse Effect.

 

8.2 PARENT’S AND MERGER SUB’S PERFORMANCE

Parent and Merger Sub shall have performed, in all material respects, their
respective covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date.

 

8.3 CONSENTS

Each of the Governmental Authorizations, the Parent Required Material Consents
and the other Consents identified in Section 2.2 must have been obtained and
must be in full force and effect without limitation or condition that has, or
would be reasonably expected to have a Parent Material Adverse Effect. If a
filing pursuant to the HSR Act is required, the applicable waiting period under
the HSR Act shall have expired or been terminated.

 

8.4 OFFICER’S CERTIFICATE

Parent shall have delivered to the Company a certificate, executed on behalf of
Parent and Merger Sub by an authorized executive officer of Parent, and dated as
of the Closing Date that the conditions set forth in Sections 8.1, 8.2, 8.3 and
8.6 have been duly satisfied.

 

8.5 FEES AND EXPENSES

At Closing, all reasonable fees and expenses of the Special Committee and its
advisors, including all reasonable attorneys’ and other professional fees shall
be paid in full.

 

8.6 NO PROCEEDINGS

There shall not be pending any Proceeding: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger; (b) relating to the Merger
and seeking to obtain material damages from the Company; or (c) which would
materially and adversely affect the right of Surviving Corporation to own the
assets or operate the business of the Company.

 

8.7 LEGAL OPINION

The Company shall have received the written opinion of Holme Roberts & Owen LLP,
in form and substance reasonably satisfactory to it, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as customary representation
letters of Parent, Merger Sub and Company.

 

 

ARTICLE 9: TERMINATION

9.1 TERMINATION

This Agreement may be terminated prior to the Effective Time (whether before or
after the approval of this Agreement by the Company’s Shareholders):

(a) by mutual written consent of Parent and the Company.

(b) by either Parent or the Company if:

> > (i) if the Merger shall not have been consummated by July 31, 2004 (unless
> > the failure to consummate the Merger is attributable to a failure on the
> > part of the Party seeking to terminate this Agreement to perform any
> > material obligation required to be performed by such Party at or prior to
> > the Effective Time);
> > 
> > (ii) any Governmental Body shall have issued an order, decree or ruling or
> > taken any other action (which order, decree, ruling or other action the
> > parties hereto shall use their reasonable efforts to lift), which
> > permanently restrains, enjoins or otherwise prohibits the Merger and such
> > order, decree, ruling or other action shall have become final and
> > non-appealable; or
> > 
> > (iii) (A) the Company Shareholders’ Meeting (including any adjournments and
> > postponements thereof) shall have been held and completed and the Company’s
> > Shareholders shall have voted on a proposal to approve this Agreement, and
> > (B) this Agreement shall not have been approved at such meeting (and shall
> > not have been approved at any adjournment or postponement thereof) by the
> > Required Company Shareholder Vote; provided, however, that a Party shall not
> > be permitted to terminate this Agreement pursuant to this Section
> > 9.1(b)(iii) if the failure to obtain such Shareholder approval is
> > attributable to a failure on the part of such Party to perform any material
> > obligation required to be performed by such Party at or prior to the
> > Effective Time.

(c) by the Company if:

> > (i) [Intentionally omitted.]
> > 
> > (ii) prior to the approval of this Agreement by the Required Company
> > Shareholder Vote, (A) any of Parent’s or Merger Sub’s representations and
> > warranties shall have been inaccurate as of the date of this Agreement, such
> > that the condition set forth in Section 8.1 would not be satisfied, or (B)
> > (1) any of Parent’s or Merger Sub’s representations and warranties shall
> > have become inaccurate as of a date subsequent to the date of this Agreement
> > (as if made on such subsequent date), such that the condition set forth in
> > Section 8.1 would not be satisfied and (2) such inaccuracy has not been
> > cured by Parent or Merger Sub, as applicable, within five Business Days
> > after its receipt of written notice thereof and remains uncured at the time
> > notice of termination is given, or (C) any of Parent’s or Merger Sub’s
> > covenants contained in this Agreement shall have been breached, such that
> > the condition set forth in Section 8.2 could not be satisfied; provided,
> > that the Company may not terminate this Agreement pursuant to this Section
> > 9.1(c)(ii) if the Company is at such time in material breach of its
> > obligations under this Agreement; or
> > 
> > (iii) prior to the approval of this Agreement by the Required Company
> > Shareholder Vote, (i) a bona fide written proposal to acquire (by merger or
> > otherwise) all of the outstanding shares of Company Common Stock (other than
> > Company Common Stock owned by the Person making the proposal) is made by a
> > third party to the Company after the date of this Agreement and is not
> > withdrawn; (ii) the Company provides Parent with at least five Business Days
> > prior notice of any meeting of the Company’s board of directors at which the
> > board of directors will consider and determine whether such offer is a
> > Superior Proposal, during which five-Business Day period the Company shall
> > cause its financial and legal advisors to negotiate in good faith with
> > Parent in an effort to make such adjustments in the terms and conditions of
> > this Agreement as would enable the Company to proceed with the transactions
> > contemplated herein on such adjusted terms; (iii) notwithstanding such
> > negotiations and adjustments pursuant to clause (ii) above, the Company’s
> > board of directors determines in good faith that such offer constitutes a
> > Superior Proposal, (iv) in light of such Superior Proposal, the Special
> > Committee and board of directors of the Company shall have determined in
> > good faith, after having taken into account the written advice of the
> > Company’s outside legal advisors, that termination of this Agreement is
> > required in order for the board of directors of the Company to comply with
> > its fiduciary obligations to the Company’s Shareholders under applicable
> > Law, (v) the Company and its Representatives have complied in all material
> > respects with Section 4.3, (vi) the Company pays the Damage Payment and
> > expenses provided for under Section 9.3(a) prior to termination, and (vii)
> > the board of directors of the Company concurrently approves, and the Company
> > concurrently enters into, a binding definitive written agreement providing
> > for the implementation of such Superior Proposal.

(d) by Parent if:

> > (i) [Intentionally omitted.]
> > 
> > (ii) any of the following have occurred: (a) the Company’s board of
> > directors recommends to the Company’s Shareholders any Acquisition Proposal,
> > Significant Proposal or Superior Proposal; (b) the Company enters into any
> > agreement, letter of intent or similar document (other than a
> > confidentiality or other similar agreement executed in accordance with
> > Section 4.3(c)) contemplating or otherwise relating to any Acquisition
> > Proposal, Significant Proposal or Superior Proposal; (c) the Company’s board
> > of directors or any committee thereof shall have withdrawn, modified or
> > changed, or publicly proposed to withdraw, modify or change, in a manner
> > adverse to Parent or Merger Sub the Company Board Recommendation; or (d) the
> > Company’s board of directors shall have resolved to do any of the foregoing;
> > or
> > 
> > (iii) prior to the approval of this Agreement by the Required Company
> > Shareholder Vote, (A) any of the Company’s representations and warranties
> > shall have been inaccurate as of the date of this Agreement, such that the
> > condition set forth in Section 7.1 would not be satisfied, or (B) (1) any of
> > the Company’s representations and warranties shall have become inaccurate as
> > of a date subsequent to the date of this Agreement (as if made on such
> > subsequent date), such that the condition set forth in Section 7.1 would not
> > be satisfied, and (2) such inaccuracy has not been cured by the Company
> > within five Business Days after its receipt of written notice thereof and
> > remains uncured at the time notice of termination is given, or (C) any of
> > the Company’s covenants contained in this Agreement shall have been
> > breached, such that the condition set forth in Section 7.2 could not be
> > satisfied; provided, that Parent may not terminate this Agreement pursuant
> > to this Section 9.1(d)(iii) if either the Parent or Merger Sub is at such
> > time in material breach of its obligations under this Agreement.

 

9.2 EFFECT OF TERMINATION

If this Agreement is terminated as provided in Section 9.1, this Agreement shall
be of no further force or effect; provided, however, that this Section 9.2 and
Section 9.3 and Article 10 shall survive the termination of this Agreement and
shall remain in full force and effect. Any confidentiality, non-disclosure
agreement or other similar agreements by or among the Parties shall also survive
the termination of this Agreement.

 

9.3 EXPENSES/DAMAGE UPON TERMINATION

(a) Except as set forth in this Section 9.3, all fees and expenses incurred in
connection with this Agreement and the Contemplated Transactions shall be paid
by the Party incurring such expenses, whether or not the Contemplated
Transactions are consummated; provided, however, that if this Agreement is
terminated (i) by Parent pursuant to Section 9.1(d), (ii) by the Company
pursuant to Section 9.1(c)(iii), or (iii) by Parent or the Company pursuant to
Sections 9.1(b)(i) or 9.1(b)(iii) and, in the case of such a termination
pursuant to Sections 9.1(b)(i) or 9.1(b)(iii), (A) at any time after the date of
this Agreement and prior to such termination an Acquisition Proposal shall have
been received by the Company and/or publicly announced or otherwise publicly
communicated to the Company’s Shareholders generally and (B) prior to the twelve
month anniversary of such termination, the Company shall enter into a definitive
agreement with respect to such Acquisition Proposal or such Acquisition Proposal
is consummated, then the Company shall, in the case of clause (i), not later
than one Business Day following such termination, in the case of clause (ii), as
provided in Section 9.1(c)(iii), or in the case of clause (iii), not later than
one Business Day following the Company entering into a definitive agreement with
respect to, or the consummation of, the Acquisition Proposal prior to the twelve
month anniversary of such termination, make a nonrefundable cash payment to
Parent in an amount equal to $2,500,000 (the "Damage Payment"), together with
the aggregate amount of all reasonable fees and expenses (including all
reasonable attorneys’ fees, accountants’ fees, financial advisory fees and
filing fees) that have been paid or that may become payable by or on behalf of
Parent in connection with the preparation and negotiation of this Agreement and
otherwise in connection with any of the Contemplated Transaction. The Company
acknowledges that the agreements contained in this Section 9.3(a) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to pay the amount due pursuant to
this Section 9.3(a), and, in order to obtain such payment, Parent or Merger Sub
commences a suit which results in a judgment against the Company for the fee set
forth in this Section 9.3(a), the Company shall pay to Parent or Merger Sub, as
the case may be, its costs and expenses (including attorneys’ fees and expenses)
in connection with such suit, together with interest on the amount of the fee at
the prime rate of Bank One, NA in effect on the date such payment was required
to be made.

(b) Notwithstanding the preceding, in the event that this Agreement is
terminated by the Company pursuant to Section 9.1(c)(ii), then Parent shall make
a nonrefundable cash payment to the Company equal to the Damage Payment,
together with the aggregate amount of all reasonable fees and expenses
(including all reasonable attorneys’ fees, accountants’ fees, financial advisory
fees and filing fees) that have been paid or that may become payable by or on
behalf of the Company in connection with the preparation and negotiation of this
Agreement and otherwise in connection with any other Contemplated Transaction.

 

(C) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THE DAMAGE PAYMENT (TOGETHER
WITH THE PAYMENT OF APPLICABLE COSTS AND EXPENSES) SHALL BE DEEMED TO BE SOLE
AND EXCLUSIVE LIQUIDATED DAMAGES FOR THE TERMINATION OF THIS AGREEMENT FOR THE
CAUSES DESCRIBED IN SECTION 9.3(a) AND SECTION 9.3(b), AS APPLICABLE.

 

 

ARTICLE 10: GENERAL PROVISIONS

10.1 NOTICES

All notices, consents, waivers and other communications under this Agreement
must be in writing and will be deemed given to a Party when (a) delivered to the
appropriate address by hand or by nationally recognized overnight courier
service (costs prepaid), (b) sent by facsimile or e-mail with confirmation of
transmission by the transmitting equipment or (c) received or rejected by the
addressee, if sent by certified mail, return receipt requested; in each case to
the following addresses, facsimile numbers or e-mail addresses and marked to the
attention of the individual (by name or title) designated below (or to such
other address, facsimile number, e-mail address or individual as a Party may
designate by notice to the other Parties):

If to the Company:

Equity Oil Company

10 West Broadway, Suite 806

Salt Lake City, Utah 84101

Attn: Paul M. Dougan

Facsimile No.: (801) 521-3534

E-mail Address: pdougan@xmission.com

 

With a copy (which will not constitute notice) to:

Holme Roberts & Owen LLP

299 South Main Street, Suite 1800

Salt Lake City, Utah 84111

Attn: Stuart A. Fredman

Facsimile No.: (801) 521-9639

E-mail Address: stuart.fredman@hro.com

 

If to Parent or Merger Sub:

Whiting Petroleum Corporation

1700 Broadway, Suite 2300

Denver, Colorado 80290

Attn: James J. Volker, President and CEO

Facsimile No.: (303) 861-4023

E-mail Address: JimV@whiting.com

With a copy (which will not constitute notice) to:

Welborn Sullivan Meck & Tooley, P.C.

821 – 17th Street, Suite 500

Denver, Colorado 80202

Attn: Kendor P. Jones

Facsimile No.: (303) 832-2366

E-mail Address: kjones@wsmtlaw.com

and

Foley & Lardner

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

Attn: Benjamin F. Garmer, III

Facsimile No.: (414) 297-4900

E-mail Address: bgarmer@foley.com

10.2 FURTHER ACTIONS

Upon the request of any Party to this Agreement, the other Parties will (a)
furnish to the requesting Party any additional information, (b) execute and
deliver any other documents and (c) take any other actions as the requesting
Party may reasonably require to more effectively carry out the intent of this
Agreement and the Contemplated Transactions.

 

10.3 INCORPORATION OF SCHEDULES AND EXHIBITS

The Schedules and Exhibits identified in this Agreement, including the Company
Disclosure Schedule and any supplements thereto, are incorporated herein by
reference and made a part of this Agreement.

 

10.4 ENTIRE AGREEMENT AND MODIFICATION

This Agreement supersedes all prior agreements among the Parties with respect to
its subject matter and constitutes (along with the documents delivered pursuant
to this Agreement) a complete and exclusive statement of the terms of the
agreement between the Parties with respect to its subject matter. This Agreement
may be amended with the approval of the respective boards of directors of the
Company and Parent at any time (whether before or after the approval of this
Agreement by the Company’s Shareholders); provided, however, that after any such
approval of this Agreement by the Company’s Shareholders, no amendment shall be
made which by Law requires further approval of the Company’s Shareholders
without the further approval of such Shareholders. This Agreement may not be
amended, supplemented or otherwise modified except in a written document
executed by all of the Parties to this Agreement.

 

10.5 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES

The representations and warranties of the Company, Parent and Merger Sub
contained in this Agreement and all rights to any causes of action relating
thereto shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.

 

10.6 TIME OF ESSENCE

With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.

 

10.7 DRAFTING AND REPRESENTATION

The Parties have participated jointly in the negotiation and drafting of this
Agreement. No provision of this Agreement will be interpreted for or against any
Party because that Party or its legal representative drafted the provision.

 

10.8 SEVERABILITY

If a court of competent jurisdiction holds any provision of this Agreement
invalid or unenforceable, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.

 

10.9 ASSIGNMENT; SUCCESSORS; NO THIRD-PARTY RIGHTS

No Party may assign any of its rights or delegate any of its obligations under
this Agreement without the prior written consent of the other Parties; provided,
however, Parent can assign all of its rights and obligations under this
Agreement to any Affiliate of Parent so long as Parent unconditionally
guarantees the obligations of such Affiliate. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon and inure to the
benefit of each Party’s successors and permitted assigns. Nothing expressed or
referred to in this Agreement will be construed to give any Person, other than
the Parties to this Agreement, any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement
except such rights as may inure to a successor or permitted assignee under this
Section and for the provisions of Article 1 (collectively, "Third-Party
Provisions"). The Third-Party Provisions may be enforced by the beneficiaries
thereof.

 

10.10 ENFORCEMENT OF AGREEMENT

Each Party acknowledges and agrees that the other Party could be damaged
irreparably if any of the provisions of this Agreement are not performed in
accordance with the specific terms and that any breach of this Agreement by the
Company could not be adequately compensated in all cases by monetary damages
alone. Accordingly, each Party agrees that, in addition to any other right or
remedy to which the other Party may be entitled, at Law or in equity, but
subject to the provisions of Section 9.3, the other Party will be entitled to
enforce any provision of this Agreement by a decree of specific performance and
to temporary, preliminary and permanent injunctive relief to prevent breaches or
threatened breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.

 

10.11 WAIVER

The rights and remedies of the Parties to this Agreement are cumulative and not
alternative. Neither any failure nor any delay by any Party in exercising any
right, power or privilege under this Agreement or any of the documents referred
to in this Agreement will operate as a waiver of such right, power or privilege,
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. To the maximum extent permitted
by applicable Law, (a) no claim or right arising out of this Agreement or any of
the documents referred to in this Agreement can be discharged by one Party, in
whole or in part, by a waiver or renunciation of the claim or right unless in a
written document signed by the other Party, (b) no waiver that may be given by a
Party will be applicable except in the specific instance for which it is given
and (c) no notice to or demand on one Party will be deemed to be a waiver of any
obligation of that Party or of the right of the Party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.

 

10.12 GOVERNING LAW

This Agreement shall be construed in accordance with, and governed in all
respects by, the laws of the State of Colorado (without giving effect to
principles of conflict of law).

 

10.13 JURISDICTION; SERVICE OF PROCESS

Any action, hearing, suit or Proceeding arising out of or relating to this
Agreement or any Contemplated Transaction must be brought in the courts of the
State of Colorado, City and County of Denver, or, if it has or can acquire
jurisdiction, in the federal courts located in the State of Colorado, City and
County of Denver. Each of the Parties irrevocably submits to the exclusive
jurisdiction of each such court in any such Proceeding and waives any objection
it may now or hereafter have to venue or to convenience of forum. The Parties
agree that any or all of them may file a copy of this Section with any court as
written evidence of the knowing, voluntary and bargained agreement between the
Parties irrevocably to waive any objections to venue or to convenience of forum.
Process in any Proceeding referred to in this Section may be served on any Party
anywhere in the world.

 

10.14 COUNTERPARTS

This Agreement may be executed in any number of counterparts and by different
Parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any Party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.

 

[The remainder of this page intentionally left blank]

 

The Parties have executed and delivered this Agreement as of the date indicated
in the first sentence of this Agreement.

 

 

WHITING PETROLEUM CORPORATION

 

By: /s/ James J. Volker

James J. Volker, President and CEO

 

 

WPC EQUITY ACQUISITION CORP.

 

By: /s/ James J. Volker

James J. Volker, President

 

 

 

EQUITY OIL COMPANY

 

By: /s/ Paul M. Dougan

 

Paul M. Dougan, President and CEO

 

 

EXHIBIT A

 

CONSTRUCTION AND DEFINITIONS

 

 

1. CONSTRUCTION

Any reference in the Agreement (as defined below) to an "Article," "Section,"
"Exhibit" or "Schedule" refers to the corresponding Article, Section, Exhibit or
Schedule of or to the Agreement, unless the context indicates otherwise. The
headings of Articles and Sections are provided for convenience only and should
not affect the construction or interpretation of the Agreement. In this
Agreement, unless a clear contrary intention appears:

 

(a) the singular number includes the plural number and vice versa;

(b) reference to any Person includes such Person’s successors and assigns but,
if applicable, only if such successors and assigns are not prohibited by this
Agreement, and reference to a Person in a particular capacity excludes such
Person in any other capacity or individually;

(c) reference to any gender includes each other gender;

(d) reference to any agreement, document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to time in
accordance with the terms thereof;

(e) reference to any Law means such Law as amended, modified, codified, replaced
or reenacted, in whole or in part, and in effect from time to time, including
rules and regulations promulgated thereunder, and reference to any section or
other provision of any Law means that provision of such Law from time to time in
effect and constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other provision;

(f) "hereunder," "hereof," "hereto," and words of similar import shall be deemed
references to this Agreement as a whole and not to any particular Article,
Section or other provision hereof;

(g) "including" (and with correlative meaning "include") means including without
limiting the generality of any description preceding such term;

(h) "or" is used in the inclusive sense of "and/or";

(i) with respect to the determination of any period of time, "from" means "from
and including" and "to" means "to but excluding"; and

(j) references to documents, instruments or agreements shall be deemed to refer
as well to all addenda, exhibits, schedules or amendments thereto.

 

2. DEFINITIONS

For the purposes of the Agreement, the following terms and variations on them
have the meanings specified in this Section:

"Acquisition Proposal" means any offer, proposal, inquiry or indication of
interest (other than an offer, proposal, inquiry or indication of interest by
Parent) contemplating or otherwise relating to any Acquisition Transaction.

"Acquisition Transaction" means any transaction or series of transactions
involving:

(a) any merger, consolidation, share exchange, business combination, issuance of
securities, acquisition of securities, tender offer, exchange offer or other
similar transaction (i) in which the Company is a constituent corporation, (ii)
in which a Person or "group" (as defined in the Exchange Act and the rules
promulgated thereunder) of Persons (other than Parent, Merger Sub or any of
their affiliates) directly or indirectly acquires beneficial or record ownership
of securities representing more than 9.9% of the outstanding securities of any
class of voting securities of the Company, or (iii) in which the Company issues
or sells securities representing more than 9.9% of the outstanding securities of
any class of voting securities of the Company; or

(b) any sale (other than sales of Inventory in the Ordinary Course of Business),
lease (other than in the Ordinary Course of Business), exchange, transfer (other
than sales of Inventory in the Ordinary Course of Business), license (other than
nonexclusive licenses in the Ordinary Course of Business), acquisition or
disposition of any business or businesses or assets that constitute or account
for a material portion of the consolidated net revenues, net income or assets of
the Company.

"Affiliate" of a specified Person means a Person who, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with, such specified Person.

"Agreement" is defined in the first paragraph of the Agreement.

"Articles of Merger" is defined in Section 1.3.

"Balance Sheet" is defined in Section 2.5.

"Business Day" means any day other than a Saturday, a Sunday or a day when
commercial banks in Salt Lake City, Utah or Denver, Colorado are authorized by
law, rule or regulation to be closed. In computing time periods, the first
Business Day following the occurrence of the applicable event shall be counted
as the first day of the time period.

"CBCA" is defined in Section 1.2.

"Closing" is defined in Section 1.3.

"Closing Date" is defined in Section 1.3.

"Code" is defined in the Preliminary Statements to this Agreement.

"Company" is defined in the first paragraph of the Agreement.

"Company Board Recommendation" is defined in Section 2.9(a).

"Company Common Stock" means the common stock, $1.00 par value per share, of the
Company.

"Company Contract" means any legally binding Contract (a) under which the
Company has or may acquire rights, (b) under which the Company is or may become
subject to Liability or (c) by which the Company or any of its assets is or may
become bound.

"Company Disclosure Schedule" means the Disclosure Schedule delivered pursuant
to Article 2 by the Company to Parent concurrently with the execution and
delivery of the Agreement, together with any updates to it permitted by the
Agreement.

"Company Leases" is defined in Section 2.20(d).

"Company Material Adverse Effect" means an event, violation, inaccuracy,
circumstance or other matter that would have a material adverse effect on the
long-term business, condition, capitalization, assets, liabilities, operations
or financial performance of the Company taken as a whole; provided, however,
that solely for purposes of the representations and warranties set forth in
Sections 2.6, 2.11 and 2.20(b), "Company Material Adverse Effect" means events,
violations, inaccuracies, circumstances or other matters that would have an
adverse impact on the results of its operations or financial or other condition
of an amount in excess of $6,000,000; provided, further, that in any event, the
following shall not be deemed to constitute, create or cause a Company Material
Adverse Effect: any changes, circumstances or effects (i) that affect generally
the oil and gas industry such as fluctuations in the price of oil and gas, and
that result from international, national, regional, state or local economic
conditions, from general developments or conditions in the industry in which the
Company conducts business or from other general economic conditions, facts or
circumstances that are not subject to the control or such Party, (ii) that
result from any of the Contemplated Transactions and public announcement
thereof, (iii) that result from any change in the trading prices or volumes of
the capital stock of the Company, (iv) that result from the effects of
conditions or events resulting from an outbreak or escalation of hostilities
(whether nationally or internationally), or the occurrence of any other calamity
or crisis (whether nationally or internationally), including, without
limitation, the occurrence of one or more terrorist attacks or (v) that result
from any change resulting from the actions of Parent. The method of determining
the amount of a Company Material Adverse Effect resulting from a violation,
inaccuracy or breach of the Company’s representations and warranties set forth
in Section 2.11 and Section 2.20(b) shall be determined in accordance with
Schedule 1.

"Company Material Contracts" is defined in Section 2.12.

"Company Oil and Gas Properties" is defined in Section 2.20(b).

"Company Required Material Consents" is defined in Section 2.2(b).

"Company Reserve Report" means the report of Ryder Scott Company containing
estimates of the Company’s oil and gas reserves as of October 1, 2003.

"Company SEC Reports" means (a) the Company’s Annual Reports on Form 10-K for
each fiscal year of the Company beginning since January 1, 2001, (b) its
Quarterly Reports on Form 10-Q for each of the first three fiscal quarters in
each of the fiscal years of the Company referred to in clause (a) above, (c) all
proxy statements relating to the Company’s meetings of Shareholders (whether
annual or special) held, and all information statements relating to Shareholder
consents, since the beginning of the first fiscal year referred to in clause (a)
above, (d) its Current Reports on Form 8-K filed since the beginning of the
first fiscal year referred to in clause (a) above, and (e) all other forms,
reports, registration statements and other documents filed by the Company with
the SEC since the beginning of the first fiscal year referred to in clause (a)
above.

"Company Shareholders’ Meeting" is defined in Section 5.2.

"Company Stock Certificate" means any validly issued certificate representing
shares of Company Common Stock.

"Company Stock Options" is defined in Section 1.5(d).

"Consent" means any approval, consent, ratification, waiver or other
authorization.

"Contemplated Transactions" means all of the transactions to be carried out in
accordance with the Agreement, including the merger of Merger Sub with and into
the Company, the performance by the Parties of their other obligations under the
Agreement.

"Contract" means any contract, agreement, commitment, understanding, lease,
license, franchise, warranty, guaranty, mortgage, note, bond or other instrument
or consensual obligation (whether written or oral and whether express or
implied) that is legally binding.

"Contravene" or "Contravention" -- an act or omission would "Contravene"
something if, as the context requires:

(a) the act or omission would conflict with it, violate it, result in a breach
or violation of or failure to comply with it, or constitute a default under it;

(b) the act or omission would give any Governmental Body or other Person the
right to revoke, withdraw, suspend, cancel, terminate or modify it, to exercise
any remedy or obtain any relief under it or to declare a default or accelerate
the maturity of any obligation under it; or

(c) the act or omission would result in the creation of an Encumbrance on the
stock or any of the assets of the Company.

"Converted Option" is defined in Section 1.5(e).

"Damage Payment" is defined in Section 9.3(a).

"Defensible Title" is defined in Section 2.20(c).

"Effective Time" is defined in Section 1.3.

"Encumbrance" means any mortgage, pledge, claim, lien, security interest,
encumbrance or restriction of any kind; provided, however, that the term
"Encumbrance" does not include (a) mechanic’s, materialman’s or similar liens
with respect to amounts arising or incurred in the Ordinary Course of Business,
(b) statutory liens for current Taxes not yet delinquent or the amount or
validity of which is being contested in good faith by appropriate Proceedings,
(c) liens securing rental payments under capital lease arrangements, (d)
defects, exceptions, restrictions, easements, rights of way and encumbrances
disclosed in policies of title insurance or zoning, entitlement and other land
use and environmental regulations by any Governmental Body, (e) Permitted
Encumbrances, (f) any Encumbrance on or affecting the applicable Party’s
properties and assets which is discharged at or prior to the Effective Time or
disclosed on the such Party’s Disclosure Schedule; and (g) such other
imperfections in title, charges, easements, restrictions and Encumbrances which
do not result in a Company or Parent Material Adverse Effect, as applicable.

"Entity" means any corporation, general partnership, limited liability company,
limited partnership, limited liability partnership, joint venture, estate,
trust, company, firm, society or other enterprise, association or organization.

"Environment" means the soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.

"Environmental Law" means any applicable binding and enforceable federal or
state Law relating to the Environment or Hazardous Materials, as currently
enforced, including the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq., as amended, Resource
Conservation and Recovery Act; the Federal Water Pollution Control Act, 33
U.S.C. 1251 et seq; the Toxic Substances Control Act, 15 U.S.C. 2601 et seq; the
Clean Air Act, 42 U.S.C. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
3803 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. 1801 et seq.;
and the Occupational Safety and Health Act, 29 U.S.C. 651 et seq. (to the extent
it regulates occupational exposure to Hazardous Materials).

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Agent" is defined in Section 1.6(a).

"Exchange Fund" is defined in Section 1.6(a).

"Exchange Ratio" is defined in Section 1.5(a).

"Facilities" means any real property, leaseholds, or other interests currently
or formerly owned or operated by such Person and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by such Person.

"Form S-4" is defined in Section 5.1.

"GAAP" means generally accepted accounting principles for financial reporting in
the United States.

"Governing Document" means any charter, articles, bylaws, certificate,
statement, statutes or similar document adopted, filed or registered in
connection with the creation, formation or organization of an Entity, and any
Contract among all equity holders, partners or members of an Entity.

"Governmental Authorization" means any Consent, license, permit or registration
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Law.

 

"Governmental Body" means any (a) nation, region, state, county, city, town,
village, district or other jurisdiction, (b) federal, state, local, municipal,
foreign or other government, (c) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch, department or other
Entity and any court or other tribunal), (d) multinational organization, (e)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, policy, regulatory or taxing authority or power of any
nature or (f) official of any of the foregoing.

"Hazardous Materials" means any substances in reportable quantities that are
classified as of the date of this Agreement pursuant to Environmental Laws as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," "pollutants," "toxic pollutants," "hazardous air pollutants."

"HSR Act" is defined in Section 2.2.

"Indemnified Parties" is defined in Section 5.5(a).

"Intellectual Property" is defined in Section 2.18.

"Knowledge" means, with respect to any Party, the actual knowledge of such
Party’s directors or officers.

"Law" means any constitution, law, statute, treaty, rule, regulation, ordinance,
code, binding case law, principle of common law or notice of any Governmental
Body.

"Liabilities" includes liabilities or obligations of any nature, whether known
or unknown, whether absolute, accrued, contingent, choate, inchoate or
otherwise, whether due or to become due, and whether or not required to be
reflected on a balance sheet prepared in accordance with GAAP.

"Merger" is defined in the Preliminary Statements.

"Merger Consideration" is defined in Section 1.5(a).

"Option Plans" is defined in Section 1.5(d).

"Merger Sub" is defined in the first paragraph of the Agreement.

"Merger Sub Common Stock" means the common stock of Merger Sub.

"Options" is defined in Section 2.3.

"Order" means any order, injunction, judgment, decree, ruling, assessment or
arbitration award of any Governmental Body or arbitrator, and any Contract with
any Governmental Body pertaining to compliance with Law.

"Ordinary Course of Business" refers to actions taken in such Person’s normal
operation, consistent with its past practice and having no Company or Parent
Material Adverse Effect, as applicable.

"Parent" is defined in the first paragraph of the Agreement.

"Parent Balance Sheet" is defined in Section 3.5.

"Parent Common Stock" means the Common Stock, $0.001 par value per share, of
Parent.

"Parent Disclosure Schedule" means the Disclosure Schedule delivered pursuant to
Article 3 by Parent and Merger Sub to the Company concurrently with the
execution and delivery of the Agreement, together with any updates to it
permitted by the Agreement.

"Parent Leases" is defined in Section 3.12.

"Parent Material Adverse Effect" means an event, violation, inaccuracy,
circumstance or other matter that would have a material adverse effect on the
long-term business, condition, capitalization, assets, Liabilities, operations
or financial performance of Parent and its Subsidiaries taken as a whole;
provided, however, that the following shall not be deemed to constitute, create
or cause a Parent Material Adverse Effect: any changes, circumstances or effects
(i) that affect generally the oil and industry such as fluctuations in the price
of oil and gas, and that result from international, national, regional, state or
local economic conditions, from general developments or conditions in the
industry in which Parent conducts business or from other general economic
conditions, facts or circumstances that are not subject to the control or such
Party, (ii) that result from any of the Contemplated Transactions and public
announcement thereof, (iii) that result from any change in the trading prices or
volumes of the capital stock of Parent; (iv) that result from the effects of
conditions or events resulting from an outbreak or escalation of hostilities
(whether nationally or internationally), or the occurrence of any other calamity
or crisis (whether nationally or internationally), including, without
limitation, the occurrence of one or more terrorist attacks; or (v) that result
from any change resulting from the actions of the Company.

 

"Parent Oil and Gas Properties" is defined in Section 3.12.

"Parent Required Material Consents" is defined in Section 3.2(b).

"Parent Reserve Report" means the report of Ryder Scott Company, Cawley,
Gillespie & Associates, Inc. and R.A. Lenser & Associates, Inc., containing
estimates of the Parent’s and WOGC’s oil and gas reserves as of October 7, 2003.

"Parent SEC Reports" means all forms, reports, registration statements and other
documents filed by Parent with the SEC.

"Party" means the Company, Parent or Merger Sub.

"Permits" is defined in Section 2.13.

"Permitted Encumbrances" is defined in Section 2.20(d).

"Person" refers to an individual or an Entity.

"Petrie Parkman" is defined in Section 2.9(c).

"Pre-Closing Period" is defined in Section 4.1.

"Proceeding" means any action, audit, examination, investigation, hearing,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, and whether public or private)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Body.

"Proxy Statement/Prospectus" is defined in Section 5.1.

"Reasonable Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve that result as
expeditiously as possible; provided, however, that a Person required to use
Reasonable Best Efforts under the Agreement will not be required to make any
material change to its business, dispose of any material asset, expend material
funds, incur any material burden or take actions that would result in a material
adverse change in the benefits to such Person of the Agreement and the
Contemplated Transactions.

"Representative" means, with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, legal counsel, accountant or
other representative of that Person.

"Required Company Shareholder Vote" means the affirmative vote in favor of the
Agreement and the Merger by the holders of two-thirds (2/3) of the issued and
outstanding shares of Company Common Stock entitled to vote on the matter.

"SEC" means the United States Securities and Exchange Commission and any
successor agency performing similar functions.

"Secretary of State" is defined in Section 1.3.

"Securities Act" means the Securities Act of 1933, as amended.

"Shareholder" means record and beneficial holders of the Shares of Company
Common Stock.

"Shares" means shares of Company Common Stock.

"Significant Proposal" means any bona fide written proposal made by a third
party (other than by Parent, Merger Sub or any of their affiliates) to acquire
directly or indirectly (i) all the equity securities or (ii) the assets of the
Company substantially as an entirety, which the Company board of directors
determines in good faith, (a) could be more favorable from a financial point of
view to the Company’s Shareholders than the Contemplated Transactions, and (b)
is reasonably capable of being consummated.

"Special Committee" means that committee of independent directors established by
the Company’s board of directors to evaluate the fairness of the Agreement and
the Contemplated Transactions to the Company’s Shareholders.

"Subsidiary" of any Entity means any Entity of which such Entity directly or
indirectly owns or has a right to acquire, beneficially or of record, (a) an
amount of voting securities of other interests in such Entity that is sufficient
to enable the Entity owning the securities to elect at least a majority of the
members of such Entity’s board of directors or other governing body, and (b) at
least 50% of the outstanding equity or financial interests of such Entity.

"Superior Proposal" means any bona fide written proposal made by a third party
(other than by Parent, Merger Sub or any of their affiliates) to acquire
directly or indirectly (i) all the equity securities or (ii) the assets of the
Company substantially as an entirety, which the Company board of directors
determines in good faith (after consultation with its independent financial
advisors and outside counsel), taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making such
proposal, (x) would, if consummated, be more favorable from a financial point of
view, to the Shareholders than the Contemplated Transactions, (y) is made by a
third party that has the good faith intent to proceed with negotiations and has
the financial and other capability to consummate and (z) is reasonably likely to
be consummated without undue delay. In the event that the Superior Proposal is a
cash offer, such offer must be fully financed (which for the purposes of this
Agreement shall mean the receipt of a commitment letter, from a reputable Person
capable of financing the transaction, subject only to normal and customary
conditions).

"Surviving Corporation" is defined in Section 1.1.

 

"Tax" or "Taxes" means all federal, state, local, foreign and other taxes,
charges, fees, duties (including customs duties), levies or assessments,
including income, gross receipts, net proceeds, alternative or add-on minimum,
ad valorem, turnover, real and personal property (tangible and intangible),
sales, use, franchise, excise, value added, stamp, leasing, lease, user,
transfer, fuel, excess profits, occupational, interest equalization, windfall
profits, severance, license, payroll, environmental, capital stock, disability,
employee’s income withholding, other withholding, unemployment and social
security taxes, that are imposed by any Governmental Body, and including any
interest, penalties or additions to tax attributable thereto.

"Tax Return" means any report, return or other information required to be
supplied to a Governmental Body in connection with any Taxes.

"Third-Party Provisions" is defined in Section 10.9.

"WOGC" means (i) Whiting Oil and Gas Corporation, a Delaware corporation and
wholly-owned Subsidiary of Parent and (ii) any other "significant subsidiary"
within Rule 1-02(w) or Regulation S-X of the Securities Act.

 

EXHIBIT B

 

CONFIDENTIALITY AGREEMENT

 

__________ __, _______

 

[Other Person’s Name and Address]

 

Attention: [Name of Contact at other Person]

To Whom It May Concern:

Equity Oil Company ("Equity") and [Other Person ("X")] (each referred to as a
"Company" and collectively referred to as the "Companies") have a preliminary
interest in exploring a possible negotiated transaction that might involve a
merger or other form of business combination of the Companies. In connection
with [X’s] analysis of such a transaction, [X] has requested or may request in
the future certain oral and written information concerning Equity, which
information may be furnished by officers, directors, employees and/or agents or
representatives of Equity (collectively, the "Information"). As a condition to
being furnished with the Information, [X] agrees (and agrees to cause its
affiliates and direct its advisors) to treat all Information in accordance with,
and otherwise to comply with, the following terms and conditions of this letter
agreement (this "Agreement"):

1. All Information furnished will be used by [X] solely for the purpose of
evaluating a possible negotiated transaction between the Companies, approved by
the board of directors of the Companies, and will not be used in any way
directly or indirectly detrimental to Equity, and unless and until the Companies
have completed a negotiated transaction pursuant to a definitive agreement (the
"Transaction Agreement") such Information will be kept confidential by [X] and
its affiliates and advisors; provided, however, that [X] may disclose the
furnished Information or portions thereof to those of its directors, officers
and employees and representatives of its advisors (the persons to whom such
disclosure is permissible being collectively called "Representatives") who need
to know such Information for the purpose of evaluating the possible transaction
(it being understood that those Representatives will be informed of the
confidential nature of the Information, will agree to be bound by this Agreement
and will be directed by [X] not to disclose to any other person any Information
relating to Equity).

 

[X] agrees to be responsible for any breach of this Agreement by its affiliates,
advisors or Representatives.

If [X] is requested or required (by oral questions, interrogatories, requests
for information or documents, subpoenas, civil investigative demands or similar
processes) to disclose any Information furnished in the course of its dealings
with Equity or its affiliates or advisors, [X] will (i) provide Equity with
prompt notice thereof and copies of the documents requested or required to be
disclosed so that Equity may seek an appropriate protective order or other
appropriate remedy, or waive compliance with the provisions of this Agreement
and (ii) consult with Equity as to the advisability of [X’s] taking of legally
available steps to resist or narrow such request. It is further agreed that, if
in the absence of a protective order or the receipt of a waiver hereunder, [X]
is nonetheless, in the written opinion of its legal counsel, compelled to
disclose Information concerning Equity to any tribunal or to any party to a
proceeding before any tribunal or else stand liable for contempt or suffer other
censure or penalty, [X] may disclose such Information to such tribunal or party
without liability hereunder; provided, however, that [X] shall give Equity
written notice of the Information to be so disclosed as far in advance of its
disclosure as is practicable and shall use its reasonable efforts to obtain, to
the greatest extent practicable, an order or other reliable assurance that
confidential treatment will be accorded to such Information so required to be
disclosed.

2. For the purposes of this Agreement, the term "Information" does not include
any information that: (i) is or becomes generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by [X] or its affiliates, advisors or Representatives); (ii) is
already in the possession of [X] at the time of such disclosure or thereafter
becomes available to [X] on a nonconfidential basis from a source other than
Equity or its affiliates, advisors or Representatives, provided that such source
is not and was not bound by a confidentiality agreement with or other obligation
of secrecy to Equity of which [X] has knowledge after reasonable inquiry; or
(iii) has already been or is hereafter independently acquired or developed by
[X] without violating any confidentiality agreement with or other obligation of
secrecy to [X].

3. If the Companies do not proceed with a transaction, or if Equity so requests
at any time, [X] will return promptly to Equity all copies, extracts or other
reproductions in whole or in part of the Information in the possession of [X] or
its affiliates, advisors or Representatives, and [X] will destroy or cause to be
destroyed all copies of any memoranda, notes, analyses, compilations, studies or
other documents prepared by [X] or for its use based on, containing or otherwise
reflecting any Information relating to Equity. Such destruction shall, if
requested, be certified in writing to Equity by an authorized officer
supervising such destruction.

4. Except with the prior written consent of the other Company or as required by
applicable law, each Company will not, and will direct its affiliates, advisors
and Representatives not to, disclose to any person either the fact that any
investigations, discussions or negotiations are taking place concerning a
possible transaction between the Companies or that any Information has been
requested or received, or any of the terms, conditions or other facts with
respect to any such possible transaction, including the status thereof, except
to the extent that any such disclosure is, in the written opinion of counsel,
required by applicable law. In the event either Company determines that it is
required by applicable law to make any such disclosure, such Company shall so
advise the other Company immediately and shall consult and cooperate to the
greatest extent feasible with respect to the timing, manner and contents of such
disclosure. The term "person" as used throughout this Agreement will be
interpreted broadly to include, without limitation, any corporation, company,
partnership or other entity or individual.

5. Until the earliest to occur of (a) the execution by the Companies of a
Transaction Agreement, or (b) two years from the date of this agreement, [X]
agrees not to initiate or maintain contact (except for those contacts made in
the ordinary course of business) with any officer, director or employee or agent
of Equity or its subsidiaries regarding its business, operations, prospects or
finances, except with the express permission of Equity.

6. It is understood that the Companies will arrange for appropriate contacts for
due diligence purposes. Unless otherwise agreed to by the Companies, all
(i) communications regarding a possible transaction, (ii) requests for
additional Information, (iii) requests for property or facility tours or
management meetings, and (iv) discussions or questions regarding procedures,
will be submitted or directed to Petrie Parkman & Co., Inc. and [Name of Contact
at other Person] at [X] or any other person they may designate in writing. [X]
further agrees that for a period of one year from the date hereof, [X] will not
offer employment to any of the employees of Equity (or any subsidiary thereof)
with whom it has had contact during the period of its due diligence
investigations, provided that this prohibition shall not apply to offers of
employment made by [X] to the public or the industry generally, and that [X]
shall not be prohibited from employing any such person who contacts [X] on his
or her own initiative.

7. [X] understands and acknowledges that Equity is not and will not be (other
than in the Transaction Agreement, if any) making any representation or
warranty, express or implied, as to the accuracy or completeness of any
furnished Information; and neither Equity nor any of its directors, officers,
employees, stockholders, owners, affiliates, representatives or agents has or
will have any liability to [X] or any other person (other than as provided in
the Transaction Agreement, if any) resulting from any reliance upon or use of,
or otherwise with respect to, any furnished Information.

8. [X] agrees that until the expiration of two years from the date of this
Agreement, it shall not (a) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any securities or property of
Equity or any of its subsidiaries, (b) except at the specific written request of
Equity, propose to enter into, directly or indirectly, any merger or business
combination involving Equity or any of its subsidiaries or to purchase, directly
or indirectly, a material portion of the assets of Equity or any of its
subsidiaries, (c) make, or in any way participate, directly or indirectly, in
any "solicitation" of "proxies" (as such terms are used in the proxy rules of
the Securities and Exchange Commission) to vote, or seek to advise or influence
any person with respect to the voting of, any voting securities of Equity or any
of its subsidiaries, (d) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934)
with respect to any voting securities of Equity or any of its subsidiaries, (e)
otherwise act, alone or in concert with others, to seek to control or influence
the management, board of directors or policies of Equity, (f) disclose any
intention, plan or arrangement inconsistent with the foregoing or (g) advise,
assist or encourage any other persons in connection with any of the foregoing.
[X] also agrees during such period not to (i) request Equity (or its directors,
officers, employees or agents), directly or indirectly, to amend or waive any
provisions of this paragraph (including this sentence), or (ii) take any action
which might require Equity to make a public announcement regarding the
possibility of a business combination or merger.

9. Each of the Companies hereby acknowledges that it is aware, and that it has
advised or will advise its directors, officers, employees, agents and advisors
who are informed as to the matters that are the subject of this Agreement, that
the United States securities laws prohibit any person who has material,
nonpublic information concerning the matters that are the subject of this
Agreement from purchasing or selling securities of a company that may be a party
to a transaction of the type contemplated by this Agreement or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.

10. Each of the Companies also understands and agrees that, unless and until a
Transaction Agreement has been executed and delivered, no contract or agreement
providing for a transaction between the Companies shall be deemed to exist, and
neither Company is or will be under any legal obligation of any kind whatsoever
with respect to such transaction by virtue of this Agreement or any other
written or oral expression, except, in the case of this Agreement, for the
matters specifically agreed to herein. Unless agreed otherwise, each of the
Companies shall be responsible for its own expenses incurred in connection with
the matters described in this Agreement. The agreement set forth in this
paragraph may be modified or waived only by a separate writing by each of the
Companies expressly so modifying or waiving such agreement. For purposes of this
paragraph, the term "Transaction Agreement" does not include any executed letter
of intent or any other preliminary written agreement which by its terms
contemplates a further definitive agreement, nor does it include any written or
verbal acceptance of any offer or bid that may be made in the future.

11. Each of the Companies agrees that the other Company shall be entitled to
equitable relief, including injunction and specific performance, in the event of
any breach of the provisions of this Agreement, in addition to all other
remedies available to the other Company at law or in equity, and that it shall
not oppose the granting of such relief on the basis that the other party has
adequate remedy at law. Each Company also hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of
Utah and of the United States of America located in Utah for any actions, suits
or proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any action, suit or proceeding
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. registered mail shall be effective
service of process for any action, suit or proceedings brought against it in any
such court. Each Company hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the courts of the
State of Utah or the United States of America located in Utah, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. No failure or delay by a
Company in exercising any right, privilege or power under this Agreement will
operate as a waiver thereof, and no variation shall be effective unless in
writing and signed by an officer of the Company on its behalf.

12. [X] agrees that Equity reserves the right by written notice, in its sole and
absolute discretion, to reject any or all proposals, to decline to furnish
further Information and to terminate discussions and negotiations at any time.
The exercise by Equity of the rights referred to in this paragraph shall not
affect the enforceability of any provision of this Agreement.

13. This Agreement is for the sole benefit of the Companies and will be governed
and construed in accordance with the laws of the State of Utah, without giving
effect to the choice of law rules thereof.

14. If any term, provision, covenant or restriction of this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.

15. This Agreement is not assignable by either Company to any person or entity,
including by operation of law, without the prior written consent of the other
Company, and any assignment without the written consent shall be null and void.
Subject to the foregoing, this Agreement shall be binding on the respective
successors and assigns of the Companies.

16. This Agreement contains the entire agreement and understanding between the
Companies as to the subject matter hereof and supersedes any prior agreements,
commitments, representations, writings and discussions, whether oral or written,
relating to that subject matter.

17. All obligations under this Agreement will expire two years from the date of
this Agreement, except as otherwise set forth herein.

To confirm your agreement with the foregoing, please sign this Agreement and
return one executed copy, whereupon this Agreement will constitute our agreement
with respect to the subject matter hereof.

Very truly yours,

EQUITY OIL COMPANY

 

By:

Paul M. Dougan

President and

Chief Executive Officer

Confirmed and Agreed as of

the date set forth below:

[Other Person]

 

By:

Date:

EXHIBIT C

 

RULE 145 AFFILIATES LETTER

 

 

Whiting Petroleum Corporation

1700 Broadway, Suite 2300

Denver, Colorado 80290

Attn: James J. Volker, President and CEO

To Whom It May Concern:

I have been advised that I have been identified as a possible "affiliate" of
Equity Oil Company, a Colorado corporation (the "Company"), as that term is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the General Rules
and Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Securities
Act"), although nothing contained herein shall be construed as an admission of
such status or as a waiver of any rights the undersigned may have to object to
any claim that the undersigned is such an affiliate on or after the date of this
letter agreement.

Pursuant to the terms of an Agreement and Plan of Merger dated as of February 1,
2004 (the "Merger Agreement") among Whiting Petroleum Corporation, a Delaware
corporation ("Parent"), WPC Equity Acquisition Corp., a Colorado corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and the Company, Merger Sub
will be merged with and into the Company (the "Merger"). As a result of the
Merger, I will receive Merger Consideration (as defined in the Merger
Agreement), including shares of common stock, par value $0.001 per share of the
Parent ("Parent Common Stock"), in exchange for shares of common stock, par
value $1.00 per share of the Company ("Common Stock"), owned by me at the
effective time of the Merger as determined pursuant to the Merger Agreement.

1. The undersigned hereby represents, warrants and covenants to Parent that in
the event the undersigned receives any Parent Common Stock pursuant to the terms
of the Merger Agreement and is deemed to be an "affiliate" of the Company for
purposes of paragraphs (c) and (d) of Rule 145:

a. The undersigned shall not make any offer, sale, pledge, transfer or other
disposition of shares of Parent Common Stock in violation of the Securities Act
or the Rules and Regulations.

b. The undersigned has carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable limitations
upon the undersigned’s ability to sell, transfer or otherwise dispose of Parent
Common Stock, to the extent the undersigned felt necessary, with the
undersigned’s counsel or counsel for the Company.

c. The undersigned has been advised that the issuance of Parent Common Stock to
the undersigned pursuant to the terms of the Merger Agreement has been
registered with the Commission under the Securities Act on a Registration
Statement on Form S-4. However, the undersigned has also been advised that,
because at the time the Merger Agreement and the transactions contemplated
thereby are submitted for a vote of the shareholders of the Company, (i) the
undersigned may be deemed to be an affiliate of the Company and (ii) the
distribution by the undersigned of Parent Common Stock has not been registered
under the Securities Act, the undersigned may not sell, transfer or otherwise
dispose of the shares of Parent Common Stock issued to the undersigned pursuant
to the terms of the Merger Agreement unless (A) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of Rule
145 promulgated by the Commission under the Securities Act, (B) such sale,
transfer or other disposition has been registered under the Securities Act or
(C) in the opinion of counsel reasonably acceptable to Parent, or pursuant to a
"no action" letter obtained by the undersigned from the staff of the Commission,
such sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act.

d. The undersigned understands that Parent is under no obligation to register
the sale, transfer or other disposition of Parent Common Stock by the
undersigned or on the undersigned’s behalf under the Securities Act.
Furthermore, except as provided in paragraph 2(a) below, Parent is under no
obligation to take any other action necessary in order to make compliance with
an exemption from such registration available.

e. The undersigned also understands that stop transfer instructions will be
given to Parent’s transfer agent with respect to Parent Common Stock issued to
the undersigned pursuant to the terms of the Merger Agreement, and there will be
placed on the respective certificates for such Parent Common Stock a legend
stating in substance:

> > > > "The shares represented by this certificate were issued in a transaction
> > > > to which Rule 145 promulgated under the Securities Act of 1933, as
> > > > amended, applies. The shares have not been acquired by the holder with a
> > > > view to, or for resale in connection with, any distribution thereof
> > > > within the meaning of the Securities Act of 1933, as amended. The shares
> > > > may not be sold, pledged or otherwise disposed of except in compliance
> > > > with the requirements of Rule 145 or pursuant to a registration
> > > > statement under, or in accordance with an exemption from the
> > > > registration requirements of, the Securities Act of 1933, as amended."

f. Execution of this letter shall not be considered an admission on the
undersigned’s part that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter, nor as a waiver of any rights
the undersigned may have to object to any claim that the undersigned is such an
affiliate.

2. By Parent’s acceptance of this letter Parent hereby agrees with the
undersigned as follows:

a. For so long as and to the extent necessary to permit the undersigned to sell
the shares of Parent Common Stock pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Securities Act, Parent shall take all such
actions as are reasonably available to file, on a timely basis, all reports and
data required to be filed with the Commission by it pursuant to Section 13 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), furnish to
the undersigned upon request a written statement as to whether Parent has
complied with such reporting requirements during the 12 months preceding any
proposed sale under Rule 145 and otherwise take all such actions as reasonably
available to permit such sales or other dispositions pursuant to Rule 145 and
Rule 144. Parent has filed, on a timely basis, all reports and data required to
be filed with the Commission under Section 13 of the Exchange Act during the
preceding 12 months.

b. It is understood and agreed that certificates with the legend set forth in
paragraph 1(e) above will, after surrender of such certificates, be substituted
by delivery of certificates without such legends if (i) one year shall have
elapsed from the date the undersigned acquired the Parent Common Stock, received
pursuant to the terms of the Merger Agreement and the provisions of Rule
145(d)(2) are then available to the undersigned, (ii) two years shall have
elapsed from the date the undersigned acquired the Parent Common Stock, received
pursuant to the terms of the Merger Agreement and the provisions of Rule
145(d)(3) are then applicable to the undersigned, or (iii) Parent has received
either an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Parent, or a "no-action" letter obtained by the undersigned from
the staff of the Commission, to the effect that the restrictions imposed by Rule
144 and Rule 145 under the Securities Act no longer apply to the undersigned.

3. This letter shall be governed by, and construed in accordance with, the laws
of the State of Colorado without giving effect to its principles or rules of
conflicts of laws to the extent such principles or rules would require the
application of the law of another jurisdiction.

> > > > > > > > > > Very truly yours,
> > > > > > > > > > 
> > > > > > > > > > By:
> > > > > > > > > > Name:
> > > > > > > > > > Title (if applicable):

Acknowledged and Accepted:

 

WHITING PETROLEUM CORPORATION

 

By:

James J. Volker, President and CEO

 

Schedule 1

 

Calculation of Title Defects and Environmental Defects

 

Capitalized terms used but not defined in this Schedule 1 shall have the
meanings assigned to such terms in the Agreement to which it is annexed, except
that the term "Agreement" shall be deemed to refer to the Agreement to which
this Schedule 1 is appended.

(a) Notice of Title Defects. In connection with the Parent’s due diligence
review conducted prior to the Effective Time, the Parent may give the Company
notice (a "Defect Notice") of any Title Defect (as defined below). Such Defect
Notice shall comply with the following:

 

(i) Such Defect Notice must be received by the Company on or before the
Effective Time (the "Notice Deadline").

(ii) Such Defect Notice shall be in writing and shall include the following:

(A) a description of each Company Oil and Gas Property that is affected by the
Title Defect (a "Defective Interest");

(B) the basis for treating such property as a Defective Interest and copies of
supporting documents reasonably necessary for the Company to verify the
existence of such asserted Title Defect;

(C) the Allocated Value (as defined below) of the affected property; and

(D) the Parent’s good faith estimate of the amount by which the Allocated Value
of a Defective Interest has been reduced by the Title Defect (the "Defect
Value") (calculated pursuant to Section (a)(iii)).

(iii) In determining which portion of a property is a Defective Interest, it is
the intent of the Parties to include only that portion of the property
materially and adversely affected by the Title Defect. The Defect Value may not
exceed the Allocated Value of the property and shall be determined by the
parties in good faith taking into account all relevant factors, including
without limitation, the following:

(A) the Allocated Value of the affected property;

(B) as to the well, lease and unit interests, the potential for or actual
reduction in the NRI of the Defective Interest, or the potential for or actual
increase in the WI to the extent such increase is not accompanied by a
corresponding increase in NRI;

(C) the legal effect of the Title Defect;

(D) if the Title Defect is a lien or encumbrance on the property, the cost of
removing such lien or encumbrance;

(E) if the Title Defect represents only a possibility of title failure, the
probability that such failure will occur; and

(F) whether the Company has received proceeds of production from the Defective
Interest, consistent with the NRI set forth in the Company Reserve Report, for
the last three years without interruption or challenge based on the Title
Defect.

(b) Notice of Environmental Defects. In connection with the Parent’s due
diligence review conducted prior to the Effective Time, the Parent may give the
Company notice (an "Environmental Defect Notice") of any violation of
Environmental Laws, the presence of Hazardous Materials or any other
Environmental Liabilities (an "Environmental Defect") related to the Company Oil
and Gas Properties existing as of the date of this Agreement. Notwithstanding
the foregoing, Environmental Liabilities relating to (A) restoration or
reclamation that does not involve a violation of Environmental Laws or the
release or disposal of Hazardous Materials; (B) plugging and abandonment
liabilities that do not involve a violation of Environmental Laws; or
(C) employee health and safety, shall not be considered an Environmental Defect.
Such Environmental Defect Notice shall be in writing, must be delivered by the
Notice Deadline and shall include:

 

(i) a description of each Company Oil and Gas Property that is affected by the
Environmental Defect (an "Environmental Defective Interest");

(ii) sufficient detail to put the Company on reasonable notice of the nature of
the Environmental Defect identified;

(iii) a description in reasonable detail of the investigation, removal,
remediation or other action required to remedy the Environmental Defect (the
"Cleanup") and a calculation of the amount necessary to carry out the Cleanup,
itemized in reasonable detail in accordance with the requirements of this
Section (b); and

(iv) if applicable, a statement of the amount of Environmental Liabilities
likely to be incurred by the Parent (or the Company) on account of the
Environmental Defect, such amount to include the likely expense of defense in
connection with any existing or probable third party action. The aggregate of
claimed amounts in Section (b)(iii) and (iv) is herein called the "Environmental
Defect Value." The Environmental Defect Value shall be determined in accordance
with the Lowest Cost Response (as defined below) applicable to such
Environmental Defect and shall not include any internal costs of any Party
associated with the Cleanup.

 

Related Definitions to be Added to Schedule 1

 

"Allocated Value" means the value allocated to the proved reserves for a
particular Company Oil and Gas Property which shall be calculated by multiplying
the discounted present value of the proved reserves for such Company Oil & Gas
Property set forth in the Company Reserve Report at fifteen percent (15 %)
discount rate by a fraction, (x) the numerator of which is the total Merger
Consideration paid for all Shares and (y) the denominator of which is total
discounted present value of the proved reserves for all Company Oil & Gas
Properties set forth in the Company Reserve Report at fifteen percent (15 %)
discount rate.

 

"Lowest Cost Response" means the response required or allowed under
Environmental Laws that addresses the condition present at (x) the lowest cost
(considered as a whole taking into consideration any negative impact such
response may have on the conduct of the Company’s oil and gas exploration and
production business and any potential additional costs or liabilities that may
arise as a result of such response) as compared to any other response that is
consistent with Environmental Laws and (y) consistent with the policies of the
Parent to address similar conditions present, if any, at the Parent’s
properties. Taking no action shall constitute the Lowest Cost Response if, after
investigation, taking no action is determined to be consistent with
Environmental Laws, any requirements of contracts, leases or other agreements
binding on the property and any requirements of any Governmental Body with
jurisdiction (collectively, the "Environmental Requirements"). If taking no
action is not consistent with the Environmental Requirements, the least costly
non-permanent remedy (such as mechanisms to contain or stabilize Hazardous
Materials, including caps, dikes, encapsulation, leachate collection systems,
etc.) shall be the Lowest Cost Response, provided that such non-permanent remedy
is consistent with the Environmental Requirements and least costly permanent
remedy.

"Title Defect" means any lien, encumbrance, adverse claim, encroachment,
irregularity, defect in or objection to real property title, excluding Permitted
Encumbrances, that alone or in combination with other defects renders the title
of the Company to be less than Defensible Title. Notwithstanding the foregoing,
the following shall not be considered Title Defects:

(i) defects based solely on lack of information in the Company’s files provided
that the public records contain such information;

(ii) defects in the early chain of title consisting of the mere failure to
recite marital status in a document or omissions of successors of heirship or
estate proceedings, unless the Parent provides affirmative evidence that such
failure or omission has resulted in another party’s actual and superior claim of
title to the relevant property;

(iii) defects arising out of lack of survey, unless a survey is required by
applicable laws or regulations;

(iv) defects that are defensible by possession under applicable statutes of
limitation for adverse possession or for prescription;

(v) defects arising out of lack of corporate or other entity authorization
unless the Parent provides affirmative evidence that the action was not
authorized and results in another party’s actual and superior claim of title to
the relevant property;

(vi) defects based on a gap in Company’s chain of title in the BLM records as to
federal leases, or in the BIA or BLM records as to Native American leases, in
the state’s records as to state leases or in the county records as to fee
leases, unless such gap is affirmatively shown to exist in such records by an
abstract of title, title opinion or landman’s title chain, which documents shall
be included in a Defect Notice; and

(vii) defects asserting a change in WI or NRI based on a change in drilling and
spacing units, tract allocation or other changes in pool or unit participation
occurring after the date of the Company Reserve Report, to the extent reasonably
anticipated by Parent prior to the execution of this Agreement.