Exhibit 10.3

 

KODIAK OIL & GAS CORP.

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”), effective January 1, 2011 (“Effective
Date”), is entered into by and between Russ D. Cunningham (“Employee”) and
Kodiak Oil & Gas (USA) Inc., a Colorado corporation (“Employer”), and Kodiak
Oil & Gas Corp., a Yukon Territory corporation (“Company”).

 

RECITALS

 

WHEREAS, the Employer and Company desire to provide for the continued employment
of Employee, and Employee is willing to commit himself to continue to serve
Employer and Company, on the terms and conditions herein provided, although this
Agreement may be amended at any time by written agreement among the parties; and

 

WHEREAS, in order to effect the foregoing, Employer, Company and Employee wish
to enter into this Agreement on the terms and conditions set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties agree as follows:

 

1.             Employment.  Employer hereby employs Employee, and Employee
agrees to be employed as the Vice President of Exploration.  Employee will
report to the Chief Operating Officer.  Subject to the provisions of this
Agreement relating to termination for “Good Reason”, changes may be made from
time to time by Employer and Company, in their sole discretion, to the duties,
reporting relationships and title of Employee.  Employee will devote his full
time and attention to achieving the purposes and discharging the
responsibilities of his position.  Employee will comply with all rules, policies
and procedures of Employer and Company as modified from time to time, including
without limitation, rules and procedures set forth in Employer’s and Company’s
employee manuals and handbooks, supervisor’s manuals and operating manuals. 
Employee will perform all responsibilities in compliance with all applicable
laws and will ensure that the operations that Employee conducts or manages are
in compliance with all applicable laws.  If Employee dedicates a material amount
of his time to any business activity outside of his employment by and service to
Company, then Employee shall affirmatively disclose the activity to the Employer
and Company.  During Employee’s employment, Employee shall not engage in any
other business activity that, in the reasonable judgment of the Employer or
Company, conflicts with the duties of Employee under this Agreement, whether or
not such activity is pursued for gain, profit or other pecuniary advantage.

 

2.            Term of Employment.  The term of employment (“Term”) shall be for
twelve (12) months from the Effective Date, or December 31, 2011, unless
terminated earlier in accordance with the terms and conditions of this
Agreement.  The Term will automatically renew

 

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for successive one-year terms on each Jan 1 thereafter unless and until Employer
or Employee provides notice not less than forty five (45) days in advance of the
expiration of the current Term, i.e., on or before November 16, that Employer or
Employee will not accept a renewal of the Term for another year.

 

3.            Compensation. For the duration of Employee’s employment hereunder,
Employee will be entitled to compensation that will be computed and paid
pursuant to the following subparagraphs.

 

3.1.        Base Salary. Employer will pay to Employee a base salary (“Base
Salary”) at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000),
subject to withholdings and paid ratably in accordance with Employer’s payroll
policies, so long as Employee remains employed by Employer.  Employee’s Base
Salary will be reviewed annually during the term of Employee’s employment and
may be adjusted based on such review.  Any adjustment of the Base Salary shall
be in the sole discretion of Employer and Company, provided, however, that the
Base Salary may not be reduced by Employer or Company below the then current
base salary established by this Section 3.1, as subsequently modified, without
Employee’s consent, except that Employee’s Base Salary may be reduced by up to
fifteen percent (15%) without Employee’s consent if and to the extent that all
other senior employees are taking a corresponding percentage reduction because
of the financial or operational needs of Employer or Company.

 

3.2         Discretionary Cash Bonus.  Employee shall be eligible for a
discretionary cash bonus (“Cash Bonus”) equal to an amount as determined by the
Employer or Company, in its discretion.  The Cash Bonus shall be based on the
Employer or Company’s evaluation of the condition of Company’s business, the
results of operations, Employee’s individual performance for the relevant
period, the satisfaction by Employee or Company of goals that may be established
by the Employer or Company, or any combination thereof, as the Employer or
Company may decide in its sole discretion.  Each Cash Bonus shall be paid on
such date as determined by the Employer or Company.

 

3.3         Equity-based Compensation.  Employee shall be entitled to
participate in equity-based compensation programs offered by Company in
accordance with the terms of any equity-based plans that may be adopted by
Company.  Employee understands that as of the date of this Agreement, Company’s
only equity-based plan is the 2007 Stock Incentive Plan (the “Plan”).

 

3.4         Performance Standards.  Employee, Company and Employer agree that a
portion of Employee’s Cash Bonus and equity-based compensation may be based on
the Employer or Company’s evaluation of Employee’s and Company’s achievement of
performance goals that may be established by the Employer or Company after
discussion with Employee.  If and to the extent that the Employer or Company
does not establish such performance goals, Employee’s Cash Bonus and equity
based compensation will be wholly within the discretion of the Employer or
Company.

 

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4.            Other Benefits.

 

4.1         Certain Benefits.  Employee will be eligible to participate in all
employee benefit programs or plans established by Employer and Company that are
applicable to management personnel on a basis commensurate with Employee’s
position and in accordance with Employer’s policies from time to time, but
nothing herein shall require the adoption or maintenance of any such program or
plan.

 

4.2         Vacations, Holidays and Expenses.  For the duration of Employee’s
employment hereunder, Employee will be provided such holidays, sick leave and
vacation as Employer makes available to its management level employees
generally.  Employer will reimburse Employee in accordance with Company policies
and procedures for reasonable expenses necessarily incurred in the performance
of duties hereunder within thirty (30) days of Employer’s receipt of all
appropriate receipts, vouchers, or other documentation, and indicating the
specific business purpose for each such expenditure.

 

4.3         Right of Set-off.  By accepting this Agreement, Employee consents to
a deduction from any amounts Employer or Company owes Employee from time to time
(including but not limited to amounts owed to Employee as Base Salary or other
compensation, fringe benefits, or vacation pay), to the extent of the amounts
Employee owes to Employer or Company as a set-off, provided, however, that no
such set-off will be made with respect to any amount that is subject to
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code’) if it
would result in an impermissible acceleration or deferral of the payment date of
such amounts for purposes of applicable rules under Section 409A of the Code
(“Section 409A”).  Whether or not Employer elects to make any set-off in whole
or in part, if Employer does not recover by means of set-off the full amount
Employee owes it or Company, calculated as set forth above, Employee agrees to
pay the unpaid balance to Employer immediately upon demand or as soon as
permitted by Section 409A.

 

4.4         Section 409A Matters.

 

(a)           This Agreement, and the benefits and compensation provided
pursuant to this Agreement, are intended to comply with or qualify for an
exemption from Section 409A and this Agreement and all incentive compensation
awards referred to herein shall be construed and administered accordingly.  It
is the intention of the parties that payments or benefits payable under this
Agreement not be subject to the additional tax or interest imposed pursuant to
Section 409A.  To the extent such potential payments or benefits are subject to
Section 409A and are or could become subject to additional tax or interest
imposed pursuant to Section 409A, the parties shall cooperate to amend this
Agreement with the goal of giving Employee the economic benefits described
herein in a manner that does not result in such tax or interest being imposed. 
Employee shall, at the request of Employer, take any reasonable action (or
refrain from taking any action) required to comply with any correction procedure
promulgated pursuant to Section 409A.

 

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(b)           If a payment that could be made under this Agreement would be
subject to additional taxes and interest under Section 409A, Employer in its
sole discretion may accelerate some or all of a payment otherwise payable under
the Agreement to the time at which such amount is includible in the income of
Employee, provided that such acceleration shall only be permitted to the extent
permitted under Treasury Regulation § 1.409A-3(j)(4)(vii) and the amount of such
acceleration does not exceed the amount permitted under Treasury Regulation
§1.409A-3(j)(vii).

 

(c)           No payment under this Agreement shall be made at a time earlier
than that provided for in this Agreement unless such payment is (i) an
acceleration of payment permitted to be made under Treasury Regulation
§1.409A-3(j)(4) or (ii) a payment that would otherwise not be subject to
additional taxes and interest under Section 409A.

 

(d)           The right to each payment described in this Agreement shall be
treated as a right to a series of separate payments and a separately
identifiable payment for purposes of Section 409A.

 

(e)           The definition of Good Reason in Section 6.1 herein is intended to
constitute “good reason” as such term is used in Treas. Reg. §1.409A-1(n)(2) and
shall be interpreted and construed accordingly, and to the maximum extent
permitted by Section 409A and guidance thereunder, a termination for Good Reason
shall be an “involuntary separation from service” as such term is used in Treas.
Reg. §1.409A-1(n).  For purposes of any payments under this Agreement that are
to be made with reference to the date of termination of Employee’s employment,
“termination” (or any similar term) shall mean “separation from service” with
Employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and
applicable administrative guidance issued thereunder, and Employee shall be
considered to have terminated employment with Employer when, and only when,
Employee incurs a “separation from service” with Employer within the meaning of
Section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance
issued thereunder.

 

(f)            To the extent any payments of Severance Pay pursuant to
Section 5.2 or 6.2: (i) are paid during the period from the date of Employee’s
separation from service through March 15th of the year following such separation
from service, such payments are intended to constitute separate payments for
purposes of Section 1.409A-2(b)(2) of the Treasury Regulations and thus payable
pursuant to the “short term deferral rule” set forth in
Section 1.409A-1(b)(4) of the Treasury Regulations; (ii) are paid following said
March 15, such payments are intended to constitute separate payments (for
purposes of Section 1.409A-2(b)(2) of the Treasury Regulations) made upon an
involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of
the Treasury Regulations, to the maximum extent permitted by said provision; and
(iii) are in excess of the amounts specified in clauses (i) and (ii) of this
paragraph, shall (unless otherwise exempt under Treasury Regulations) be
considered separate payments subject to the distribution requirements of
Section 409A, including the requirement of Section 409A(2)B)(i) of the Code that
certain payments upon separation from service be delayed until 6 months
following separation from service.  If, on the date of Employee’s separation
from service, Employee is a “specified employee” within the meaning of
Section 409A(a)(2)(B)(i) of

 

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the Code and applicable administrative guidance issued thereunder, and as a
result of such separation from service Employee would receive any payment that
would be subject to delay of payment under such guidance, then any such payment
shall be made on the date that is the earliest of: six(6) months after
Employee’s separation from service, (ii) Employee’s date of death, or (iii) such
other earliest date for which such payment will not be subject to additional tax
or interest imposed by Section 409A.

 

(g)           Notwithstanding anything in this Agreement to the contrary, no
Change of Control shall be deemed to have occurred under this Agreement unless
such Change of Control constitutes a “change in control event” as such term is
used in Treas. Reg. §1.409A-3(i)(5)(i).

 

(h)           The preceding provisions shall not be construed as a guarantee by
Employer or Company of any particular tax effect with respect to amounts paid to
Employee pursuant to this Agreement.  Neither Employer nor Company, nor any of
their officers, directors, agents or affiliates, shall be obligated, directly or
indirectly, to Employee or any other person for any taxes, penalties, interest
or like amounts that may be imposed on Employee or any other person on account
of any amounts payable under this Agreement or upon failure to comply with the
Code.

 

5.           Termination Or Discharge By Employer.

 

5.1         For Cause.  Employer and Company will have the right to immediately
terminate Employee’s employment and this Agreement for “Cause.”  “Cause” shall
be determined in the sole discretion of the Employer or Company, and shall mean
Employee: (i) has materially failed or refused to satisfactorily perform his
assigned duties and job responsibilities, (ii) has willfully engaged in conduct
that he knew or should have known would be materially injurious to Employer or
Company, (iii) has committed an act of fraud, embezzlement or a willful and
material breach of a fiduciary duty to Employer or Company, (iv) has breached
Section 7, 8 or 9 of this Agreement, (v) has been convicted of (or pleaded no
contest to) any crime that (A) is a felony, (B) involves fraud or dishonesty or
(C) impugns the character or reputation of Employee, Company or Employer,
(vi) has violated or caused the Company to violate any law that is harmful to
the business reputation of Employer or Company.  A failure to terminate
Employee’s employment and this Agreement immediately upon the occurrence of any
“Cause” shall not be deemed a waiver of Employer’s or Company’s right to do so
at a later time for such “Cause.”

 

The foregoing is an exclusive list of the acts or omissions that shall be
considered “Cause” for purposes of the termination of Employee’s services by
Employer.  If and to the extent that such act or omission may be “cured” by
Employee, then Company and Employer shall provide Employee with one (1) month
advance written notice detailing the basis for the proposed termination of
services for Cause, and during the one-month period after Employee has received
such notice, Employee shall have an opportunity to cure such Cause
event(s) before the termination for Cause is finalized, during which notice
period Employee shall continue to receive

 

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the compensation and benefits provided by this Agreement.  It is acknowledged
and agreed by the parties that many of such acts or omissions, including but not
limited to those listed in clauses (iii), (iv), (v) and (vi) above, may not be
curable.  The parties further agree that it shall be within the sole discretion
of the Employer or Company to determine whether any such acts or omissions may
be cured and, if so, what actions would constitute an adequate cure of such
Cause for purposes of canceling the termination for Cause of Employee’s
employment and this Agreement.

 

Upon termination of Employee’s employment hereunder for Cause, Employee will
have no rights to any unvested benefits or any other unearned compensation or
payments after the termination date.

 

5.2         Without Cause, Death, or Disability.  Employer may terminate
Employee’s employment under this Agreement without Cause and without advance
notice; provided, however, that if the termination by Employer without Cause
(including for this purpose a termination of employment resulting from
Employer’s timely notice of non-renewal of the Term for any year so long as
Employee was both willing to renew the Term and able to continue providing
services) that does not occur within twelve (12) months after a Change of
Control (as defined in Section 6.2 below), Employer will pay severance
compensation (“Severance Pay”) to Employee equal to Employee’s Base Salary at
the rate in effect on the termination date for a period of six (6) months.  If
Employee’s employment is terminated by Employer as a result of Employee’s
disability, or if termination occurs as a result of Employee’s death,
irrespective of whether there has been a Change of Control (as defined below)
prior to such termination, then Employee’s Severance Pay shall also be equal to
Employee’s Base Salary then in effect for a period of six (6) months.  No
Severance Pay will be paid, however, until Employee has executed, with all
applicable revocation periods having expired, a separation and release agreement
in favor of Employer, Company and their respective affiliates that is reasonably
satisfactory to Employer and Company (“Release”).  The parties agree that a
Release shall be executed not more than forty-five (45) days after the
termination of Employee’s employment.

 

(a)           Upon termination of Employee’s employment on account of death,
Severance Pay will be payable in a lump sum sixty (60) days after the
termination of Employee’s employment, subject to all appropriate deductions and
withholdings and, notwithstanding any other requirements of this Agreement, a
Release signed by Employee is not required prior to such lump sum payment.

 

(b)          Upon any other termination of Employee’s employment by Employer
without Cause not following a Change of Control (as defined below) or a
termination by Employer for disability not following a Change of Control,
Severance Pay will be payable, subject to Section 4.4(f) of this Agreement, in
equal installments on Employer’s regular payroll dates over the twelve (12)
month period following Employee’s execution of a Release, subject to all
appropriate deductions and withholdings.  However, the first payment shall be
made on the date sixty (60) days after termination of employment (or the
earliest date under Section 4.4(f) of this Agreement) and shall include all
amounts that would otherwise be payable before such date.

 

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(c)           Upon termination of Employee’s employment without Cause not
following a Change of Control (as defined below), and not on account of death or
disability, all unvested incentive compensation previously granted to Employee
(whether equity awards, cash payments or employee benefits, including but not
limited to any prospective or implied Cash Bonus for a partial year) will
immediately terminate and be of no further force or effect, subject only to the
provisions of any Award Agreement (as defined in the Plan) relating to
post-termination exercise of stock options awarded under the Plan; provided,
however, that, notwithstanding the foregoing, any such compensation that
constitutes an incentive stock option intended to be qualified under Section 422
of the Code shall, upon termination of Employee’s employment without Cause not
following a Change of Control, and not on account of death or disability, be
treated exclusively in accordance with the provisions of the applicable award
agreement.

 

(d)          Upon any termination of Employee’s employment on account of death
or disability, all unvested stock options and restricted stock, if any, that
were previously granted to Employee under the Plan will immediately become fully
vested and no longer subject to any restrictions on ownership or exercise.  With
respect to other forms of incentive compensation awarded under the Plan,
including, but not limited to, restricted stock units and performance awards,
the terms of the applicable award agreement will govern vesting and payment
dates upon termination of Employee’s employment on account of death or as a
result of disability.  With respect to unvested incentive compensation not
granted under the Plan, whether cash payments, employee benefits or a Cash Bonus
for a partial year, the Employer or Company shall determine, in its sole
discretion, whether to vest or provide any payment or compensation on account
thereof, provided however, that if any such incentive compensation is subject to
Section 409A, no acceleration of vesting or payment will occur if it would
result in additional taxes and interest under Section 409A.

 

(e)           For purposes of this Agreement, “disability” means the incapacity
or inability of Employee, whether due to accident, sickness or otherwise, as
determined by a medical doctor acceptable to the Board of Directors of Employer
and Company and confirmed in writing by such doctor, to perform the essential
functions of Employee’s position under this Agreement, with or without
reasonable accommodation (provided that no accommodation that imposes undue
hardship on Employer or Company will be required) for an aggregate of ninety
(90) days during any period of one hundred eighty (180) consecutive days, or
such longer period as may be required under applicable law.

 

(f)           Notwithstanding the foregoing, in the event of a termination of
Employee’s employment by Employer without Cause during the twelve (12) month
period following a “Change of Control,” as defined in Section 6.2 below, then
the Severance Pay to Employee provided by Section 6.2 shall govern.

 

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6.            Termination By Employee.

 

6.1.        Termination by Employee for Good Reason.  Employee shall have the
right to terminate his employment for “Good Reason.”  “Good Reason” shall mean
any one of the conditions set forth below, so long as: Employee has provided
written notice to Employer of the existence of such condition within ninety (90)
days of its inception, or Employee’s actual knowledge of its inception; Employer
has not remedied the condition caused by the occurrence within thirty (30) days
of such notice; and Employee terminates his employment within sixty (60) days
after the end of such thirty (30) day period.  The following conditions will
constitute “Good Reason”:

 

(i) Employer’s or Company’s material breach of this Agreement or any other
material written agreement between Employee and Employer or Employee and
Company;

 

(ii) the assignment to Employee (without Employee’s consent) of any duties that
are substantially inconsistent with or materially diminish Employee’s position,
as such position was defined on either the Effective Date of this Agreement or
immediately prior to a Change of Control (as defined below); or

 

(iii) a requirement that Employee (without Employee’s consent) be based at any
office or location more than 50 miles from Employee’s primary work location
immediately prior to a Change of Control (as defined below), not including
reasonable travel by Employee consistent with the travel obligations of similar
employees holding similar positions with similar responsibilities; or

 

(iv) Employer’s refusal to renew this Agreement at the time it would otherwise
expire, provided that at such time Employee was willing to renew the Agreement
and was able to continue providing services.

 

If Employee terminates his employment for Good Reason, then compensation shall
be provided to Employee in such amounts and on such terms as set forth in
Section 5.2 of this Agreement for a termination without Cause that does not
occur within twelve (12) months after a Change of Control (as defined below),
subject to Employee’s obligation to provide a Release, provided, however, that
if Employee terminates his employment for Good Reason during the twelve (12)
month period following a Change of Control, then the Severance Pay to Employee
provided under Section 6.2 shall govern.

 

6.2         Termination Following a Change of Control. For purposes of this
Agreement, a “Change of Control” shall mean any of the following:

 

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Company representing more than 50% of the total
voting power represented by Company’s then outstanding voting securities;

 

(ii) A merger or consolidation of Company whether or not approved by the Board
of Directors of Company, other than a merger or consolidation that would result
in the

 

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voting securities of Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted or into voting
securities of the surviving entity) at least 50% of the total voting power
represented by the voting securities of Company or such surviving entity (or the
parent of any such surviving entity) outstanding immediately after such merger
or consolidation, or a change in the ownership of all or substantially all of
Company’s assets to a person not related (within the meaning of income tax
Regulations Section 1.409A-3(i)(5)(vii)(b)) to the Company; or

 

(iii) The replacement during any 12-month period of a majority of the members of
the Board of Directors of Company with directors whose appointment or election
was not endorsed by a majority of the members before the date of the appointment
or election.

 

If Employee’s employment is terminated by Employer or Company without Cause or
if Employee terminates his employment for Good Reason during the 12-month period
following a Change of Control, Employer shall pay Employee, on the date that is
sixty (60) days following the date of such termination, but subject to
Section 4.4(f) of this Agreement, a lump sum payment equal to Employee’s Base
Salary at the rate in effect on the termination date for a period of six
(6) months plus (b) an amount equal to the most recent annual Cash Bonus paid to
Employee pursuant to Section 3.2 of this Agreement or the average Cash Bonus
paid to Employee under this Agreement and prior employment agreements, whichever
is greater, subject only to withholdings and deductions required by law and
Employee’s execution of a Release not more than 45 days following the
termination of Employee’s employment.  If Employee’s employment is terminated by
Company as a result of Employee’s disability during the 12 month period
following a Change of Control, Employer shall pay Employee in a lump sum payment
on the date that is sixty (60) days following the date of such termination, the
amount of Severance Pay calculated under Section 5.2 hereof, subject only to
withholdings and deductions required by law and Employee’s execution of a
Release not more than 45 days following the termination of Employee’s
employment.

 

Immediately upon the occurrence of a Change of Control, all of Employee’s
equity-based incentive compensation shall immediately vest irrespective of
whether Employee’s employment continues or is terminated thereafter, except to
the extent that such compensation is subject to Section 409A and such
acceleration would violate Section 409A or subject Employee to additional taxes
or interest under Section 409A.

 

7.            Confidentiality.  Employee acknowledges that, during the course of
Employee’s employment with Employer, Employee may have developed Confidential
Information (as defined below) for Employer or Company, and Employee may have
learned of Confidential Information developed or owned by Employer, Company or
its affiliates or entrusted to Employer, Company or its affiliates by others. 
Employee agrees that Employee will not, directly or indirectly, use any
Confidential Information or disclose it to any other person or entity, except as
otherwise required by law.  Employee further agrees not to retain copies of any
Confidential Information.

 

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“Confidential Information” means any and all information relating to Company or
Employer that is not generally known by the public or others with whom Company
or Employer does (or plans to) compete or do business, as well as comparable
information relating to any of Company’s affiliates.  Confidential Information
includes, but is not limited to, information relating to the terms of this
Agreement, as well as Company’s and Employer’s business, technology, practices,
products, marketing, sales, services, finances, strategic opportunities,
internal strategies, legal affairs (including pending litigation), the terms of
business relationships not yet publicly known, intellectual property and the
filing or pendency of patent applications. Confidential Information also
includes, but is not limited to, comparable information that Employer or Company
may receive or has received belonging to customers, suppliers, consultants and
others who do business with Employer or Company, or any of Employer’s or
Company’s affiliates.

 

“Confidential Information” does not include any information that is: (i) shown
to have been developed independently by Employee prior to Employee’s employment
with Employer; or (ii) required by a judicial tribunal or similar governmental
body to be disclosed under law (provided that Employee have first promptly
notified Employer of such disclosure requirement and have cooperated fully with
Employer and Company (at Employer’s expense) in exhausting all appeals

 

8.            Property of Employer.  Upon any termination of Employee’s
employment, Employee agrees to return to Employer and Company any and all
records, files, notes, memoranda, reports, work product and similar items, and
any manuals, drawings, sketches, plans, tape recordings, computer programs,
disks, cassettes and other physical representations of any information, relating
to Employer or Company, or any of their respective affiliates, whether or not
constituting Confidential Information.  Employee also agrees to return to
Employer and Company any other property belonging to Employer or Company,
including but not limited to any laptop computer, no later than the date of
Employee’s termination from employment for any reason.  Employee acknowledges
and agrees that retaining any copies of Confidential Information will be deemed
to be the misappropriation of the property of Company or Employer, as the case
may be.

 

9.            Section 280G Safe Harbor Cap.  If it shall be determined that any
payment or distribution or any part thereof of any type to or for the benefit of
Employee whether pursuant to this Agreement or any other agreement between
Employee and Employer or Company, or any person or entity that acquires
ownership or effective control of Employer or Company, or ownership of a
substantial portion of Employer’s assets (within the meaning of Section 280G of
the Code whether paid or payable or distributed or distributable pursuant to the
terms of the Agreement or any other agreement, (the “Total Payments”), is or
will be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then the Total Payments shall be reduced to the maximum amount
that could be paid to Employee without giving rise to the Excise Tax (the “Safe
Harbor Cap”), if the net after-tax payment to Employee after reducing Employee’s
Total Payments to the Safe Harbor Cap is greater than the net after-tax
(including the Excise Tax) payment to Employee without such reduction.

 

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The reduction of the amounts payable hereunder, if applicable, shall be made by
reducing payments that trigger the excise tax, and such reductions will be first
the payment made pursuant to the Agreement and then to payments pursuant to any
other agreements that are not subject to Section 409A of the Code, and finally
to payments pursuant to any other agreements that are subject to Section 409A of
the Code, provided that Employee shall have no ability to designate the order of
such reductions.  All mathematical determinations, and all determinations as to
whether any of the Total Payments are “parachute payments” (within the meaning
of Section 280G of the Code), that are required to be made under this
Section 11, including determinations as to whether the Total Payments to
Employee shall be reduced to the Safe Harbor Cap and the assumptions to be
utilized in arriving at such determinations, shall be made by a nationally
recognized accounting firm selected by Employer or Company (the “Accounting
Firm”).

 

If the Accounting Firm determines that the Total Payments to Employee shall be
reduced to the Safe Harbor Cap (the “Cutback Payment”) and it is established
pursuant to a final determination of a court or an Internal Revenue Service (the
“IRS”) proceeding which has been finally and conclusively resolved, that the
Cutback Payment is in excess of the limitations provided in this Section 11
(such excess amount hereinafter referred to as an “Excess Payment”), such Excess
Payment shall be deemed for all purposes to be an overpayment to Employee made
on the date such Employee received the Excess Payment.  Employer or Employee, as
applicable, shall notify the other within 30 days of its receipt of such final
determination of the amount of the Excess Payment, along with a copy of the
final determination, and Employee shall repay the Excess Payment amount to
Employer within 30 days of such notification; provided, however, if Employee
shall be required to pay an Excise Tax by reason of receiving such Excess
Payment (regardless of the obligation to repay Employer), Employee shall provide
Employer with written evidence of such requirement to pay an Excise Tax amount,
and shall then be required to repay the Excess Payment reduced by such Excise
Tax amount (or if already paid by Employee, Employer shall reimburse Employee
within 10 days of proof of payment).

 

10.          Repayment Provisions.  If Company is required to prepare an
accounting restatement due to noncompliance with any financial reporting
requirement under United States securities laws, then Company will have the
right to require Employee to reimburse Employer for (a) any bonus or other
incentive-based or equity-based compensation received by Employee from Employer
during the 12-month period following the first public issuance or filing with
the Securities and Exchange Commission (whichever first occurs) of the financial
documents embodying such financial reporting requirement, (b) any profits
realized from the sale of securities of Company during such 12-month period and
(c) such other incentive-based compensation as may be specified by applicable
law, regulation or listing standard.

 

11.         Remedies.  Notwithstanding other provisions of this Agreement
regarding dispute resolution, Employee agrees that Employee’s violation of any
of Sections 7, 8, 9 or 10 of this Agreement would cause Employer and Company
irreparable harm that would not be adequately compensated by monetary damages
and that an injunction may be granted by any court or courts having
jurisdiction, restraining Employee from violation of the terms of this
Agreement, upon any breach or threatened breach of Employee of the obligations
set forth in any

 

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of the Sections 7, 8, 9 or 10.  The preceding sentence shall not be construed to
limit Employer or Company from any other relief or damages to which it may be
entitled as a result of Employee’s breach of any provision of this Agreement,
including Sections 7, 8, 9 or 10.  Employee also agrees that a violation of any
of Sections 7, 8, 9 or 10 would entitle Employer and Company, in addition to all
other remedies available at law or equity, to recover from Employee any and all
funds, including, without limitation, wages, salary and profits, which will be
held by Employee in constructive trust for Employer or Company, received by
Employee in connection with such violation.

 

12.         Arbitration.  If any dispute shall arise between Employee and
Employer or Employee and Company in connection with this Agreement and such
dispute cannot be resolved amicably by the parties, the same shall be
conclusively and finally resolved by binding arbitration.  Any party hereto may
commence an arbitration proceeding by providing written notice to the other
party requesting the arbitration of an unresolved dispute.  Each such dispute,
if any, shall be submitted to an arbitrator acceptable to both parties (for this
purpose Employer and Company shall be deemed to one party).  If Employee on the
one hand, or Company and Employer on the other, refuses or neglects to agree on
the appointment of an arbitrator within 30 days after receipt of written notice
from the other party requesting the other party to do so, then the Judicial
Arbiter Group, Inc., Denver, Colorado (www.jaginc.com) may appoint such
arbitrator. The arbitrator shall be experienced in the subject matter of the
dispute.  Except as otherwise specifically set forth herein, the arbitrators
shall conduct the arbitration in accordance with the rules of the Judicial
Arbiter Group, Inc.  The decision in writing of the arbitrator, when filed with
the parties hereto, shall be final and binding on both parties.  Judgment may be
entered upon the final decision of the arbitrator in any court having
jurisdiction.  Such arbitration shall take place in Denver, Colorado.

 

13.         Fees.  Unless otherwise agreed, the prevailing party will be
entitled to its costs and attorneys’ fees incurred in any arbitration or
litigation relating to the interpretation or enforcement of this Agreement.

 

14.         Disclosure.  Employee agrees to fully and completely reveal the
terms of this Agreement to any future employer or potential employer of Employee
and authorizes Employer and Company, at their election, to make such disclosure.

 

15.         Representation of Employee.  Employee represents and warrants to
Employer and Company that Employee is free to enter into this Agreement and has
no contract, commitment, arrangement or understanding to or with any party that
restrains or is in conflict with Employee’s performance of the covenants,
services and duties provided for in this Agreement.  Employee agrees to
indemnify Employer and Company and to hold them harmless against any and all
liabilities or claims arising out of any unauthorized act or acts by Employee
that, the foregoing representation and warranty to the contrary notwithstanding,
are in violation, or constitute a breach, of any such contract, commitment,
arrangement or understanding.  Employee further represents and warrants to
Employer and Company that Employee has consulted with his legal, tax,
accounting, and investment advisors with respect to the advisability

 

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of entering into this agreement to the extent that Employee has determined such
consultation to be necessary or appropriate.

 

16.         Assignability. During Employee’s employment, this Agreement may not
be assigned by either party without the written consent of the other; provided,
however, that Employer and Company may assign their rights and obligations under
this Agreement without Employee’s consent to a successor by sale, merger or
liquidation, if such successor carries on Company’s business substantially in
the form in which it is being conducted at the time of the sale, merger or
liquidation.  This Agreement is binding upon Employee, Employee’s heirs,
personal representatives and permitted assigns, on Company, its successors and
assigns, and on Employer, its successors and assigns.

 

17.         Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

 

 

IF TO EMPLOYER TO:

KODIAK OIL & GAS (USA) INC.

 

 

1625 Broadway, Suite 250

 

 

Denver, Colorado 80202

 

 

Attention: Chief Financial Officer

 

 

 

 

IF TO COMPANY TO:

KODIAK OIL & GAS CORP.

 

 

1625 Broadway, Suite 250

 

 

Denver, Colorado 80202

 

 

Attention: Chief Operating Officer

 

 

 

 

IF TO EMPLOYEE TO:

Russ D. Cunningham

 

 

1625 Broadway, Suite 250

 

 

Denver, Colorado 80202

 

18.         Severability.  If any provision of this Agreement or compliance by
any of the parties with any provision of this Agreement constitutes a violation
of any law, or is or becomes unenforceable or void, then such provision, to the
extent only that it is in violation of law, unenforceable or void, shall be
deemed modified to the extent necessary so that it is no longer in violation of
law, unenforceable or void, and such provision will be enforced to the fullest
extent permitted by law.  If such modification is not possible, said provision,
to the extent that it is in violation of law, unenforceable or void, shall be
deemed severable from the remaining provisions of this Agreement, which
provisions will remain binding on the parties.

 

19.         Waivers.  No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder will operate as a waiver
thereof; nor will any single or partial waiver of a breach of any provision of
this Agreement operate or be construed as a waiver of any subsequent breach; nor
will any single or partial exercise of any right or remedy

 

13

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hereunder preclude any other or further exercise thereof or the exercise of any
other right or remedy granted hereby or by law.

 

20.         Governing Law.  The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Colorado without regard
to the conflicts of law provisions of such laws.

 

21.         Entire Agreement.  This instrument contains the entire agreement of
the parties with respect to the relationship among Employee, Company and
Employer and supersedes all prior agreements and understandings, and there are
no other representations or agreements other than as stated in this Agreement
related to the terms and conditions of Employee’s employment.  This Agreement
may be changed only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have duly signed and delivered this Agreement as
of the day and year first above written.

 

 

 

EMPLOYER:

 

 

 

 

 

KODIAK OIL & GAS (USA) INC.

 

 

 

 

 

 

 

By:

 

 

 

Lynn A. Peterson

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

 

COMPANY:

 

 

 

 

 

KODIAK OIL & GAS CORP.

 

 

 

 

 

 

 

By:

 

 

 

Lynn A. Peterson

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

 

EMPLOYEE:

 

 

 

 

 

 

 

 

 

 

 

Name: Russ D. Cunningham

 

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