Exhibit 10.3
PLACEMENT AGENT AGREEMENT
May 11, 2007
Commonwealth Associates, L.P.
830 Third Avenue
8th Floor
New York, New York 10022
          Re:     Placement Agent Agreement
Gentlemen:
     This letter confirms our agreement with you pertaining to the private
placement, coordinated by Commonwealth Associates, L.P. (the “Placement Agent,”
“Commonwealth” or “you”) as exclusive placement agent on a “best efforts basis”
in connection with Teton Energy Corporation (the “Company”) raising up to (i)
$5,000,000 of Bridge Units the Units comprised of 8% Promissory Notes and
1,750,000 Common Stock Purchase Warrants each to purchase one Common Stock of
the Company at $5.00 per Share and (ii) up to $30,000,000 by the placement of
shares (the “Shares”) of Series D Convertible Preferred Stock of the Company,
each Share accompanied by warrant coverage equal to 20% (the “Share Offering”),
the Shares and the Warrants having an expected purchase price per share of $5.00
(the “Share Offering Amount); provided, however, that nothing shall prevent the
Company from raising the necessary capital through an asset sale or other means.
In the event that the Company elects not to go forward with the Share Offering
and in lieu thereof elects to sell assets, the Placement Agent shall be entitled
to a fee equal to 5% of the gross proceeds raised by the Company from such sale.
     Notwithstanding the foregoing and subject to suitability and other
requirements in the Offering, the Company has agreed to close on the (i) Bridge
Units on or about May 11, 2007 and (ii) Share Offering from any and all
investors (“Investors”) in the event that the Company receives subscriptions for
not less that an aggregate of $25,000,000 of Shares (the “Minimum Share Offering
Amount”) during the Offering Period (as defined below). The Offering will
commence immediately upon the delivery by the Company to Commonwealth of all
necessary definitive documentation with respect to the Offering in forms
reasonably satisfactory to Commonwealth, and acknowledgement of satisfactory
delivery by Commonwealth, including, but not limited to, the Memorandum (as
defined in Section 1(a) below) and subscription documents (the “Commencement
Date”), and will continue until later of: (i) July 31, 2007, (ii) the Minimum
Share Offering Amount is attained during the Offering Period; (iii) unless
otherwise earlier terminated here in.
     The Company agrees not to conduct any other securities offerings other than
this Offering during the Offering Period. In addition, the Company will not
solicit any offers to purchase securities. The following terms and conditions
shall, if accepted by you, constitute a legally binding agreement between us.

 

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     SECTION 1. Description of Securities
     (a) The Shares and Bridge Units will be offered and sold on a “best
efforts” basis and shall conform in all material respects to the description
thereof contained in the Confidential Private Placement Memorandum, or
prospectus supplement, term sheet, or investor presentation as may be reasonably
required to be prepared by the Company (as the same may be amended or
supplemented from time to time, and including all exhibits and appendices
attached thereto, the “Memorandum”), which, in addition to the description of
the Shares and Bridge Units, will contain: (i) a description of the Company and
its business, assets and management; (ii) the terms and conditions of the
Offering; and (iii) certain financial information regarding the Company. If
necessary, the Company will update or supplement the Memorandum prior to
completion of the Offering or sale of the applicable securities. You shall be
entitled to rely on the accuracy and completeness of all information provided by
the Company, including information incorporated by reference in the Memorandum.
Additionally, representatives of the Company shall be available to answer
questions of, and to provide additional information to, any potential Investors.
You will not make any use of the Memorandum other than for purposes of
implementing this Agreement, nor will you or any of your agents or employees use
the same or do any other act or thing in the course of the offering or sale
hereunder which would constitute a violation of the Securities Act of 1933, as
amended (“Securities Act”), the Securities Exchange Act of 1934, as amended
(“Exchange Act”), any state “blue sky” laws or regulations and any other
securities laws applicable to the Offering or sale of the Notes.
     (b) The Bridge Unit Offering will be conducted to raise from Investors
$5,000,000 from the sale of $5,000,000 of the Company’s 8% Notes in the form
attached as Exhibit A and the accompanying 1,750,000 Warrants. The Share
Offering will be conducted to raise from Investors at least the Minimum Share
Offering up to a maximum of $30,000,000 (the “Maximum Share Offering Amount”).
     SECTION 2. Representations and Warranties
     (a) The Company represents and warrants to the Placement Agent, as follows:
          (i) The Company has full corporate power and authority to execute,
deliver and perform its obligations under this Agreement, to consummate the
transactions contemplated hereby and to issue the Shares, the shares of Common
Stock, par value $.001 per share (“Common Stock”) for which the Shares may be
converted (the “Underlying Shares”), the Bridge Notes, the Warrants and the
Warrant Shares. The execution, delivery and performance of this Agreement, the
issuance of the Shares, and the Underlying Shares, the Warrant, Warrant Shares
and/or Bridge Notes, Warrants and Warrant Shares, and the consummation by the
Company of the transactions herein contemplated have been duly authorized by all
necessary corporate action on the part of the Company, and when duly executed
and delivered by the Company this Agreement will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
          (ii) Except as set forth in the Memorandum, neither the execution and
delivery nor the performance of this Agreement or the Subscription Agreement
delivered to prospective investors (the “Subscription Agreement”), nor the
issuance of the Shares and the Underlying

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Shares and/or Bridge Notes, Warrants and Warrant Shares by the Company will
conflict with at any closing of the Offering (“Closing”), the Company’s
Certificate of Incorporation, as amended, modified and/or supplemented from time
to time (the “Certificate of Incorporation”), or By-laws, nor will such actions
result in the violation of any statute, order, rule or regulation applicable to
the Company or result in a breach of any terms or provisions of, or constitute a
default under, any material contract, agreement or instrument to which the
Company is a party or by which the Company is bound.
          (iii) From the date of commencement of sales of Shares and Bridge
Units until completion of the Offering of the Shares and Bridge Units by the
Placement Agent, the Memorandum will not contain an untrue statement of a
material fact or omit 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, unless any such untrue statement or
omission was included or omitted at the written request of the Placement Agent.
          (iv) The Company has prepared the Memorandum, which Memorandum may be
supplemented or amended from time to time by the Company in its sole discretion,
and which contains information materially accurate as of the date specified
therein (or the date of any supplement or amendment thereto, as the case may
be), including, without limitation:

  (A)   the terms of the Offering, including Risk Factors associated therewith;
    (B)   a description of the Company’s securities including the Shares, Bridge
Notes, Warrants and the Common Stock;     (C)   a description of the business
conducted by the Company, including its subsidiaries;     (D)   Commissions and
compensation to be paid to the Placement Agent and any other placement agent
engaged by the Company in connection with the Offering;     (E)   disclosure of
material contracts and agreements, which affect the business conducted by the
Company, including descriptions of its relationship with each of its
subsidiaries and general descriptions of any letters of intent with respect to
the acquisition of veterinary hospitals;     (F)   information regarding the
Company, its management, material obligations, liabilities, and any pending or,
to the Company’s knowledge, threatened lawsuits or proceedings;     (G)   any
appropriate legends; and     (H)   information regarding certain relationships
and related transactions.

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          (v) The Company is, and at each Closing will be, a corporation duly
organized, validly existing and in good standing under the laws of Delaware. The
Company has, and at Closing, or any subsequent Closing will have, the power and
authority to conduct all of the activities conducted by it, to own or lease all
of the assets owned or leased by it and to conduct its business as described in
the Memorandum. The Company is, and at each Closing will be, duly licensed or
qualified to do business and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such license or
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect. Complete and correct copies of the Certificate
of Incorporation and the bylaws the Company (including all amendments thereto)
have been delivered to you, and no changes therein will be made subsequent to
the date hereof and prior to each Closing, except as contemplated by the
Memorandum and advised to you.
          (vi) The capitalization of the Company is as set forth in the
Memorandum under the caption “Capitalization.”
          (vii) Except as currently set forth in the Memorandum or if included
in a supplement to the Memorandum, subsequent to the date hereof and prior to
each Closing, the Company is not and will not be obligated to acquire any of its
equity securities and will not issue any of its securities other than pursuant
to currently outstanding stock options, warrants and convertible securities.
Except as set forth in the Memorandum, the Company does not have outstanding,
and at each Closing will not have outstanding, any stock options to purchase, or
any rights or warrants to subscribe for, or any securities convertible into or
any contracts or commitments to issue or sell, shares of the Common Stock or any
such warrants or convertible securities.
          (viii) The historical audited and unaudited financial statements
(including the schedules and notes thereto) of the Company included in the
Memorandum present fairly, in all material respects, the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein are in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved.
          (ix) Except to the extent reflected or reserved against in the
historical financial statements of the Company included in the Memorandum, or as
otherwise described in the Memorandum, the Company has no material liabilities,
debts, or obligations, whether accrued, absolute, or contingent, and whether due
or to become due.
          (x) Except as set forth in the Memorandum or if included in a
supplement to the Memorandum, subsequent to the date hereof and prior to each
Closing, the Company has not and will not have paid or declared any cash
dividends or other distribution on its capital stock.
          (xi) Except as currently set forth in the Memorandum or if included in
a supplement to the Memorandum, the Company has no subsidiaries, nor any equity
interest in any partnership, joint venture, association or other entity.

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          (xii) Except as currently set forth in the Memorandum or if included
in a supplement to the Memorandum, there are no material actions, suits or
proceedings pending, or to the knowledge of the Company threatened, against the
Company or subsidiaries before or by any federal or state court, commission,
regulatory body, administrative agency or other governmental body, wherein an
unfavorable ruling, decision or finding would materially and adversely affect
(A) the Company taken as a whole, or (B) the ability of the Company to
consummate the Offering.
          (xiii) The Company is not in violation of its Certificate of
Incorporation or bylaws.
          (xiv) The Shares, the Underlying Shares, the Bridge Notes and the
Warrants and Warrant Shares referred to in the Memorandum will, upon issuance,
assuming the payment of the applicable purchase or exercise price therefore and
the due execution and delivery by the applicable investors of the documents
required to be executed in connection therewith, be validly issued, fully paid
and non-assessable. The Shares, the Underlying Shares, and the Warrants and
Warrant Shares will not at any Closing be subject to the preemptive rights of
any security holder.
          (xv) All issued and outstanding securities of the Company have been
duly authorized and validly issued and the outstanding Common Stock is fully
paid and non-assessable; and none of such securities were issued in violation of
the pre-emptive rights of any holders of any security of the Company.
          (xvi) The Company has good and valid title to all material properties
and assets owned and leased by it free and clear of all liens, charges or
encumbrances, except such liens, charges or encumbrances as are not material to
the business of the Company or as are set forth in the Memorandum.
          (xvii) All material taxes which are due from the Company have been
paid in full (or adequate accruals for the payment thereof have been provided
for in its accounting records). The Company has filed all federal, state,
municipal and local tax returns (whether relating to income, sales, franchise,
withholding, real or personal property or other types of taxes) required to be
filed under the laws of the United States and applicable states or has duly
obtained extensions of time for the filing thereof. The provisions for income
taxes payable, if any, shown on the financial statements contained in the
Memorandum are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
financial statements.
          (xviii) Except as set forth in the Memorandum, the Company has not
issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money.
          (xix) Except for the filing of (A) Form D under the Securities Act, if
required, (B) the filing with the Secretary of State of the State of Delaware of
a Certificate of Designations setting forth the rights preferences and
privileges of the Series B Preferred Stock, and (C) such other filings as may be
required under applicable state securities or Blue Sky laws, no authorization,
approval, consent, order, registration, certification, license or permit
(collectively,

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“Permits”) of any court or governmental agency or body, is required for the
valid authorization, issuance, sale and delivery of the Shares, the Underlying
Shares, the Notes or the Warrants.
          (xx) Each material contract or instrument to which the Company is a
party or by which its properties or business is bound and to which reference is
made in the Memorandum has been duly and validly executed by the Company and to
the Company’s knowledge is in full force and effect in all material respects and
is enforceable against the Company in accordance with its terms, and none of
such contracts or instruments has been assigned by the Company and except as
described in the Memorandum, neither the Company nor, to the Company’s
knowledge, any other party is in default thereunder. None of the material
provisions of such contracts or instruments violates any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company or its assets or business.
          (xxi) If required, assuming the representations and warranties of the
Placement Agent contained herein and of the purchasers contained in the
Subscription Documents are true and correct and assuming compliance with all
applicable Blue Sky requirements, the offer and sale of the Shares and the Notes
by the Company has satisfied and at each Closing will have satisfied all of the
requirements of Regulation D under the Securities Act. The Memorandum and
related documents conform in all material respects with the requirements of
Section 4(2) of the Securities Act and Regulation D promulgated thereunder and
with the requirements of all other published rules and regulations of the
Securities and Exchange Commission (“SEC”) and state blue sky securities laws
currently in effect relating to “private offerings.”
          (xxii) To the best of its knowledge, the Company owns or possesses or
can acquire on reasonable terms adequate and enforceable rights to use all
trademarks, service marks, copyrights, patent rights, trade secrets or other
confidential information currently used in the conduct of its business as
described in the Memorandum (the “Intangibles”). Except as disclosed in the
Memorandum, to the Company’s knowledge, the Company is not infringing upon the
rights of others with respect to the Intangibles and has not received any notice
of conflict with the asserted rights of others with respect to the Intangibles
and the Company does not know of any basis therefore. To the Company’s
knowledge, no other party has infringed upon the Intangibles.
          (xxiii) The Company’s subsidiaries have, following the applicable
acquisitions thereof, maintained such insurance of their properties against loss
or damage by fire or other casualty as was maintained by the persons or entities
from which such subsidiaries were acquired.
     (b) The Placement Agent represents and warrants to the Company as follows:
          (i) The Placement Agent is, and at each Closing, will be, a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of New York. The Placement Agent is, and at each Closing will be,
duly licensed and qualified in good standing as a broker-dealer authorized to
conduct private placements under all applicable laws, rules and regulations,
including without limitation the rules and regulations of the SEC, the

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National Association of Securities Dealers, Inc., and those states in which it
is required to be so registered in order to carry out the Offering contemplated
by the Memorandum.
          (ii) This Agreement has been duly authorized, executed and delivered
by the Placement Agent and is a valid and binding agreement on its part. Neither
the execution and delivery of this Agreement, nor the consummation of any of the
transactions contemplated herein, nor the compliance by the Placement Agent with
the terms and provisions hereof has conflicted with or will conflict with or has
resulted in or will result in a breach of, any of the terms and provisions of,
or has constituted or will constitute a default under, or has resulted in or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Placement Agent pursuant to the terms of any
indenture, mortgage, deed of trust, note, loan or credit agreement or any other
agreement or instrument to which the Placement Agent is a party or by which the
Placement Agent may be bound or to which any of its properties or assets is
subject; nor will such action result in any violation of the provisions of the
certificate of limited partnership or the bylaws of the Placement Agent or any
statute, order, rule or regulation applicable to the Placement Agent or of any
federal, state or other judicial, administrative or regulatory authority or
other government body having jurisdiction over the Placement Agent.
          (iii) The Placement Agent shall at all times conduct the Offering in
compliance with all federal and state statutes, laws, rules and regulations
applicable to an offering to all accredited investors conducted under Rule 506
of Regulation D and Section 4(2) of the Securities Act.
     SECTION 3. Purchase, Sale and Delivery of the Shares and Notes; Closing;
Escrow; Acceptance of Subscriptions
     (a) On the basis of the representations and warranties contained in this
Agreement and subject to the terms and conditions herein set forth, the Company
hereby appoints the Placement Agent as its exclusive agent during the Offering
Period to offer and sell Units to “accredited investors,” as such term is
defined in Rule 501 of Regulation D, as promulgated under the Securities Act,
(i) the Shares for a purchase price of $5.00 per Share in the Share Offering and
$1,000,000 per Unit in the Bridge Offering or such other price as the Placement
Agent and the Company may agree in writing. No sale of Shares and/or Bridge
Units will be consummated unless the gross proceeds from the sale of the Shares
and/or Bridge Units by the Placement Agreement shall be not less than the
Minimum Share Offering Amount and/or the Minimum Bridge Unit Amount,
respectively (subject to the right of the Company to accept greater amounts).
The Placement Agent hereby agrees, subject to the terms of this Agreement, to
use its commercially reasonable best efforts to sell the Shares and Notes as
exclusive placement agent for the Company pursuant to the terms set forth herein
and in the Memorandum.
     (b) The parties hereto shall enter into an escrow agreement mutually
acceptable to the parties hereto at or prior to the initial Closing of the Share
Offering and the Bridge Unit Offering with American Stock Transfer & Trust
Company, as escrow agent (the “Escrow Agent”), or such other escrow agent as may
be mutually agreed upon by the parties hereto. The escrow agreement will provide
for the direct disbursement of all fees and funds held by the Escrow Agent.
There shall be a separate escrow agreement and separate escrow account for the
funds of the Share

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Offering and the funds of the Bridge Unit Offering. Notwithstanding anything to
the contrary herein, upon the achievement of the Minimum Share Offering Amount
or the Minimum Bridge Offering Amount, as the case may be, the Placement Agent
hereby agrees to take any and all actions to as promptly as practicable deliver
written notice to the Escrow Agent as required by the escrow agreements with
Escrow Agent directing release of any funds held in escrow to the Company, but
in any event no later than the date of delivery of the corresponding securities
by the Company at each respective Closing.
     (c) Each of the Company and the Placement Agent, in its sole and absolute
discretion, may choose to accept or reject any subscription for Shares or Bridge
Unites, and neither may require a Closing to occur with respect to any
subscription that is rejected by the Placement Agent or the Company, as the case
may be.
     SECTION 4. Placement Agent Compensation; Expenses; Transaction Advisor
Compensation
     (a) Placement Fee
     Upon the Placement Agent is having obtained subscriptions for Shares and/or
Bridge Units which have terms substantially similar to those set forth in the
Offering, then as cash compensation for the services to be rendered by the
Placement Agent, in connection with the sale of Shares in the Share Offering,
the Company, upon each Closing, shall pay to the Placement Agent a placement fee
equal to seven percent (7%) of the gross proceeds derived from the sale of the
Shares subscribed for in such Closing, in cash, by Investors. As cash
compensation for the services rendered by the Placement Agent, in connection
with the sale of the Bridge Notes, the Company, upon each Closing, shall pay to
the Placement Agent a fee equal to five percent (5%) of the gross proceeds
derived from the sale of the Bridge Units subscribed for in each Closing, in
cash, by Investors. The placement fees are to be deducted by the Escrow Agent
from the funds received in the Escrow Account at such Closing. In addition, the
Company shall reimburse Commonwealth for its non-accountable expenses in
connection with the Share Offering in the amount of one percent (1%) of the
Gross Proceeds received from the sale of the Shares.
     (b) Transactions:
     For two (2) years from the Closing of the Bridge Unit Offering, the
Placement Agent will be the Company’s exclusive Transaction advisor, as defined
below. In the event that the Company enters into a merger, acquisition, or sale
of assets or securities (a “Transaction”); provided, in the case of the sale of
securities in which Commonwealth acts as Placement Agent Commonwealth for acting
as advisor will receive its standard placement agent fee for such transaction,
the Placement Agent shall be entitled to receive a fee determined by the Formula
in the same form of Consideration on the same terms over the same period (i.e.
if the Transaction is a cash transaction, then Placement Agent will be
compensated in cash; if other than a cash transaction, then Placement Agent will
be compensated in the Consideration, as defined below) based on the total value
of the Transaction. For the purposes hereof, (i) the term “Formula” shall mean
5% of the $1 million of Consideration, 4% of the next $1 million, 3% of the next
$1 million, and 2% of all Consideration thereafter; (ii) the term
“Consideration” shall mean the aggregate value, whether in cash, securities,
assumption (or purchase subject to) of debt or

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liabilities (including without limitation, indebtedness for borrowed money,
pension liabilities and guarantees), license fees, royalty fees, joint venture
interests or other property, obligations or services, paid or payable by or to
the Company directly or indirectly (in escrow or otherwise) or otherwise assumed
in connection with a Transaction. The value of such non-cash Consideration shall
be determined as follows:

  1.   The value of securities, liabilities, obligations, property and services
shall be the fair market value as reasonably determined by an independent third
party to be mutually agreed upon by Placement Agent and the Company.     2.  
The value of indebtedness assumed, shall be the face amount.

     If Consideration payable in a Transaction includes contingent payments to
be calculated by references to uncertain future occurrences, such as future
financial or business performance, then any fees of Placement Agent’s relating
to such consideration shall be payable at the earlier of (i) the receipt of such
Consideration or (ii) the time that the amount of such Consideration can be
determined.
     (c) Warrants.
     In addition, to the cash fee set forth above, the Placement Agent Shall be
entitled to receive upon the closing of the Bridge Investment Warrants equal to
10% of the Warrants comprising the Bridge Units, which Warrants shall be
identical to the Warrants comprising the Bridge Units and upon the closing of
the sale of the Shares the Placement Agent shall be entitled to Warrants to
purchase 10% of the Shares and Warrants comprising the Shares offering at a
price equal 100% of the purchase price of the Shares in the Offering.
     (d) Right of First Refusal, First Time Financings.
     With respect to Transactions not introduced by the Placement Agent, the
Company agrees that during such two (2) year period, if it elects to use the
services of an advisor or investment bank, it will appoint the Placement Agent
at customary industry rates.
     For two (2) years from the first Closing of the Share Offering, the
Placement Agent shall have a right of first refusal with respect to all debt or
equity issuances by the Company. The Company agrees to notify the Placement
Agent promptly with respect to any contemplated debt or equity to be raised by
the Company, the Placement Agent shall have ten (10) days from the date of the
delivery of such notice to indicate its willingness to complete such financing
on substantially the same terms as any third parties. In the event that
Commonwealth does not accept such Financing on such third party terms, and if
the Company and any such third party materially modify such terms, Commonwealth
shall have an additional Right of First Refusal.
     (e) Break up Fee.
     In the event that (i) the Company elects not to proceed with the Offering
or terminates the Offering for any reason (other than in the event of a material
breach of this Agreement by Commonwealth), or (ii) Commonwealth terminates this
Agreement in the event of a material

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breach of this Agreement by the Company, including, but not limited to, a
failure by the Company to satisfy any of the conditions set forth in Section 8
hereto, then in addition to any reimbursement of expenses provided for in this
Agreement, the Company shall promptly pay to Commonwealth a financial advisory
and structuring fee of $200,000 which shall, at the Company’s option, be payable
in cash or shares of the Company’s Common Stock valued at $4.30 per share.
     (f) Out-of-Pocket Expenses
     The parties hereto agree that if the Company elects not to proceed with the
Offering for any reason or terminates the Offering for any reason (other than in
the case of a material breach of this Agreement by Commonwealth) or if the
Placement Agent terminates this Agreement in the event of a material breach of
this Agreement by the Company, including, but not limited to, a failure by the
Company to satisfy any of the conditions set forth in Section 8 hereto, then, in
addition to the payment of the $200,000 financial advisory and structuring fee
referred to in Section 4(a), all reasonable documented out-of-pocket expenses of
the Placement Agent with respect to the Offering, including but not limited to
the reasonable fees and expenses of counsel to the Placement Agent, shall be
paid by the Company to the Placement Agent promptly, and in any event not later
than five (5) days following the later of (i) the date of any such election not
to proceed or any such termination and (ii) the receipt by the Company of
sufficient documentation of such expenses. Any payments previously made shall be
netted against amounts due. The parties hereto agree that if the Placement Agent
elects not to proceed with the Offering for any reason or terminates the
Offering for any reason (other than in the case of a material breach of this
Agreement by the Company, including, but not limited to, a failure by the
Company to satisfy any of the conditions set forth in Section 8 hereto), then
all reasonable documented out-of-pocket expenses of the Placement Agent with
respect to the Offering, including but not limited to the reasonable fees and
expenses of counsel to the Placement Agent, shall be paid by the Company
promptly, and in any event not later than five (5) days following (i) the date
of any such election not to proceed or any such termination and (ii) the receipt
by the Company of sufficient documentation of such expenses. Under such
circumstances or in the event the Company terminates this Agreement because the
Placement Agent fails to consummate a transaction, the Placement Agent shall not
be entitled to the financial structuring and advising fee of section 4(e) above.
For purposes of this Agreement, the Placement Agent shall be deemed to have
consummated a transaction if it raises at least $8 million by June 15, 2007.
     (g) The Company acknowledges that any money invested in the Company either
through the purchase of the Shares in the Share Offering, or in the form of
Notes in the Bridge Unit Offering, shall entitle the Placement Agent to
compensation as set forth in this Section 4.
     SECTION 5. Offering Documents
     The Company will deliver to The Placement Agent, without charge, as many
copies as it reasonably requests of the Memorandum, including any exhibits
attached thereto (the “Offering Documents”). All mailing and other expenses
associated with distribution of the Offering Documents to any person, including,
without limitation, potential investors, shall be paid by the Company. If during
the Offering Period the Company becomes aware of any event, as a result of which
the Memorandum, as then amended or supplemented, would include an untrue
statement

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of a material fact, or omit to state a material fact necessary in order to make
the statements made in light of the circumstances in which they were made not
misleading, or if it shall be necessary to amend or supplement the Memorandum to
comply with applicable law, the Company shall forthwith notify the Placement
Agent thereof, and furnish to the Placement Agent in such quantities as may be
reasonably requested, an amendment or amended and supplemented Memorandum which
corrects such statements or omissions or causes the Memorandum to comply with
applicable law. Prior to the final Closing or earlier termination of the
Offering, no copies of the Memorandum or any exhibit thereto, or any material
prepared by the Company in connection with the Offering will be given without
the prior written permission of the Placement Agent, by the Company or its
counsel or by any principal or agent of the Company to any person not a party to
this Agreement, unless (i) such person is a director or principal shareholder
of, counsel to, accountant for, or directly employed by, the Company, (ii) such
delivery is made to a state or federal regulatory agency in connection with a
specific legal requirement of the Offering, or (iii) such delivery is required
pursuant to the order of a court, a state or federal regulatory agency or
applicable law.
     SECTION 6. Covenants
     (a) The Company covenants and agrees with the Placement Agent as follows:
          (i) In the event the shares are not covered by a shelf registration
statement, the Company shall grant to the Investors in the Share Offering
registration rights as described in the Memorandum (“Memorandum Registration
Rights”). Notwithstanding the foregoing and in addition thereto, in the event
that the Company engages in any liquidity event, including but not limited to a
merger, reverse merger or similar takeover transaction, in which the Company’s
Common Stock is converted into and represents the right to receive shares of
capital stock (“Liquidity Consideration”) in another unaffiliated entity
(“Entity”) and the Entity agrees to register the shares of capital stock
representing the Liquidity Consideration on a registration statement on Form S-4
(“S-4 Registration Statement”) or such other similar form as may be available to
the Entity at the time of such registration, then any and all Shares or the
Common Stock underlying the Shares if the Shares were converted prior to such
event, and the Warrant Shares as if the Warrants were exercised prior to such
event, shall be converted into and become part of the Liquidation Consideration
for all purposes including the S-4 Registration Statement.
          (ii) As soon as the Company is either informed or becomes aware
thereof, to advise Commonwealth of any adverse change in the Company’s financial
condition or business or of any development materially affecting the Company
occurring at any time prior to the Closing.
          (iii) The Company will apply the net proceeds from the Offering in the
manner set forth under the heading “USE OF PROCEEDS” in the Memorandum.
     (b) The Placement Agent covenants and agrees with the Company as follows:
          (i) Pursuant to its appointment hereunder, insofar as is under its
control, if required the Placement Agent will conduct the Offering in the manner
prescribed by Rule 506 of Regulation D and Section 4(2) of the Securities Act
and in this regard will:

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  (A)   Refrain from making any oral or written representations beyond those
contained in the Memorandum;     (B)   Refrain from offering, offering for sale
or selling any of the Shares or Notes by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D, including:

  (x)   Any advertisement, article, notice or other communication mentioning the
Shares or the Notes published in any newspaper, magazine or similar medium or
broadcast over television or radio; or     (y)   Any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising;

  (C)   Prior to the sale of any of the Shares or the Notes, have reasonable
grounds to believe based solely on each subscriber’s Offering Documents that
each subscriber is an “accredited investor” within the meaning of Rule 501(a) of
Regulation D;     (D)   Based solely on the representation of the subscriber in
its Offering Documents, have no reason to believe that the subscriber is
acquiring the Shares or the Notes for other than his or its own account;     (E)
  Provide each offeree with a copy of the Memorandum (including all exhibits
thereto) and the subscription documents provided by the Company during the
course of the Offering;     (F)   During the course of the Offering, if it has
been provided with a supplement or amendment to the Memorandum, promptly
distribute such supplement or amendment to persons who previously received a
copy of the Memorandum from it and whom it believes continue to be interested in
the Offering, and include such supplement or amendment in all deliveries of the
Memorandum made after receipt of any such supplement or amendment;     (G)  
Obtain a completed investor questionnaire from each accepted subscriber in a
form provided by the Company and reasonably acceptable to Commonwealth; and    
(H)   Comply in all material respects with the Trading with the Enemy Act and
applicable foreign assets control regulations of the United States Treasury
Department and the Patriot Act of 2001.

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          (ii) Upon receipt of each Subscription Agreement and any funds paid by
subscribers for Shares or the Notes, the Placement Agent will promptly deliver
the original copy of the Subscription Agreement and any accompanying check, bank
draft or money order to the Escrow Agent for deposit with the bank used by the
Escrow Agent for this Offering, and will promptly deliver a copy of such
documents to the Company; except that it may promptly return all such Offering
Documents and funds to any subscriber who it determines is not an “accredited
investor” within the meaning of Rule 501(a) of Regulation D or whose check, bank
draft or money order representing subscription funds is improperly drawn.
          (iii) The Placement Agent shall maintain appropriate records of the
Offering Documents of each subscriber for a period of at least four (4) years
after the Termination Date.
          (iv) The Placement Agent shall not engage in any uncovered short sales
of the stock of the Company.
     SECTION 7. Expenses
     (a) The Company will pay and bear all costs, fees, taxes and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the expenses and taxes incident to:
          (i) the issuance of the Shares or Notes pursuant to the Bridge Unit
Offering Documents and the preparation and delivery of certificates evidencing
the Shares or the original Bridge Notes;
          (ii) the registration or qualification for resale of the Shares and/or
Notes issued in the Bridge Unit Offering under the securities laws of the
various jurisdictions including the fees and disbursements of your counsel in
connection therewith; and
          (iii) all transfer taxes with respect to the sale and delivery of the
Shares and/or Notes, as applicable, sold pursuant to the Offering Documents.
     (b) Subject to Section 4(a), the Company will pay and bear all reasonable
fees and expenses of counsel for the Company and of the Company’s accountants,
transfer agents and any special agents appointed for the transfer of securities
and the Escrow Agent.
     SECTION 8. Conditions of Placement Agent Obligations
     Your obligations as Placement Agent are subject (as of the date hereof and
as of each Closing), to the accuracy of the representations and warranties of
the Company contained herein in all material respects (except to the extent such
representation or warranty is already qualified by materiality in which case it
shall be true and correct in all respects) and to the performance by the Company
of its covenants and agreements hereunder in all material respects, and to the
following additional conditions:
     (a) Since the respective dates as of which information is given in the
Memorandum (including any supplement thereto), and except as set forth in or
contemplated by the Memorandum:

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          (i) there shall not have been any change in the capital stock of the
Company or any material change in the long-term debt of the Company; and
          (ii) there shall not have been any material adverse change in the
general affairs, management, or result of operations of the Company, taken as a
whole.
     (b) Since the date as of which information is given herein, there shall
have been no litigation instituted against the Company and since such date there
shall be no proceeding instituted or, to the knowledge of the Company,
threatened against the Company or any of its respective officers or directors,
before or by any federal, state or county court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the Company taken as a whole.
     (c) Completion of due diligence, including financial, legal, tax, business,
environmental and accounting due diligence, to the satisfaction of the Placement
Agent in its reasonable discretion, with regard to the Company.
     (d) The terms and conditions of the Subscription Agreement, Registration
Rights Agreement and any other agreement required to complete the purchase of
the Shares and Notes in the Bridge Unit Offering shall be acceptable to the
Placement Agent in its reasonable discretion; provided, however, that the
Placement Agent acknowledges that it has reviewed those specific terms and
conditions of such agreements which are described in the Memorandum prior to the
date hereof.
     (e) The terms and conditions of the Company’s other debt instruments and
equity securities (to be included on the Company’s balance sheet immediately
following the final Closing) shall be acceptable to the Placement Agent in its
reasonable discretion.
     SECTION 9. Indemnification and Contribution
     (a) The Company agrees to indemnify and hold harmless the Placement Agent,
and its directors, officers, partners and employees and Placement Agent’s legal
counsel, each person, if any, who controls the Placement Agent within the
meaning of the Securities Act or the Exchange Act, and each and all of them
(collectively, the “Commonwealth Parties”), from and against any and all losses,
claims, damages, liabilities or actions, joint or several (including any
investigation, negotiation, reasonable legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under the Securities Act, or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or actions arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Memorandum, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
any losses, claims, damages, liabilities or actions arise out of any such
statement or omission relating to any information furnished in writing by or on
behalf of the Placement Agent to the Company specifically for use in connection
with the preparation of the Memorandum, the

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omission of any statement or information as a result of the failure of the
Placement Agent to provide any such information or the bad faith, gross
negligence or willful misconduct of any of the Commonwealth Parties.
     (b) The Placement Agent agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, and each and all
of them, from and against any and all losses, claims, damages, liabilities or
actions, (including any investigation, negotiation, reasonable legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they or any of them
may become subject under the Securities Act, or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any statement in
the Memorandum, in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of the Placement Agent specifically for
use in connection with the preparation of the Memorandum. In no event shall the
indemnification and contribution obligations of Placement Agreement exceed the
fees that the Placement Agent has actually received pursuant to this Agreement.
     (c) Any party which proposes to assert the right to be indemnified under
this Section 9 will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party under this Section 9, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 9. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent that it shall wish, jointly with any
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, other than reasonable costs of
investigation subsequently incurred by such indemnified party in connection with
the defense thereof. The indemnified party shall have the right to employ its
own counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless:
          (i) the employment of counsel by such indemnified party has been
authorized by the indemnifying parties;
          (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party); or
          (iii) the indemnifying parties shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the reasonable fees
and expenses of

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counsel shall be at the expense of the indemnifying parties. An indemnifying
party shall not be liable for any settlement of any action or claims effected
without its written consent.
     (d) If the indemnification provided for in this Section 9 is unavailable to
any indemnified party in respect to any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, will contribute to the amount paid or
payable by such indemnified party, as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand, and the Placement
Agent on the other hand, from the Offering, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, and of the
Placement Agent on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand, and the Placement Agent on the
other hand, shall be deemed to be in the same proportion as the total proceeds
from the Offering (net of sales commissions, but before deducting expenses)
received by the Company bear to the commissions received by the Placement Agent.
The relative fault of the Company on the one hand, and the Placement Agent on
the other hand, will be determined with reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, and their relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount payable
by a party as a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
     (e) The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in Paragraph 9(d) above.
Notwithstanding the provisions of this Section 9, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
     (f) The rights to indemnification and contribution hereunder shall
terminate on the second year anniversary of the final Closing.
     SECTION 10. Confidential Information.
     The Placement Agent acknowledges and agrees that it will have access to, or
become acquainted with, Confidential Information of the Company in the
performance of its duties and obligations hereunder. For purposes of this
Agreement, “Confidential Information” shall mean all confidential, proprietary,
or trade secret information, property, or material of the Company and any
derivatives, portions, or copies thereof, including, without limitation,
information resulting from or in any way related to (i) the Offering; (ii) the
business practices, plans, intellectual property, proprietary information,
formulae, methods, practices, designs, know how,

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processes and procedures, software, test results, financial information, sales,
customers, employees, suppliers, contracts, agreements or relationships of the
Company; and (iii) any other information or material that the Company designates
as Confidential Information. The Placement Agent shall keep all Confidential
Information in strict confidence and shall not, at any time prior to eighteen
months after the Closing or earlier termination of this Agreement, without the
Company’s prior written consent, disclose, publish, disseminate or otherwise
make available, directly or indirectly, any item of Confidential Information to
anyone. The Placement Agent shall use the Confidential Information only in
connection with the performance of the Offering and for no other purpose.
Notwithstanding the obligations set forth above, the Placement Agent may
disclose Confidential Information to any of its employees, consultants or
subcontractors who need to receive the Confidential Information in connection
with the Offering, provided that the Placement Agent shall ensure that, prior to
disclosing the Confidential Information, each subcontractor, consultant or
employee to whom the Confidential Information is to be disclosed is made aware
of the obligations contained in this Agreement and agrees to undertake, in a
manner legally enforceable by the Company, to adhere to such terms of this
Agreement as if it were a party to it. The Placement Agent recognizes that its
threatened breach or breach of this Section 10 will cause irreparable harm to
the Company that is inadequately compensable in damages and that, in addition to
other remedies that may be available at law or equity, the Company is entitled
to injunctive relief for such a threatened or actual breach of this Section 10.
Notwithstanding the above, the Placement Agent shall not have any obligations of
confidentiality with respect to any portion of Confidential Information which
(i) was previously known to the Placement Agent prior to receipt from the
disclosing party, other than as a result of a violation by the disclosing party
of any confidentiality obligations to the Company, (ii) is now public knowledge,
or becomes public knowledge in the future, other than through acts or omissions
of the Placement Agent in violation of this Section 10, or (iii) is lawfully
obtained by the Placement Agent from sources independent of the disclosing party
who have a lawful right to disclose such Confidential Information. The Placement
Agent may disclose Confidential Information to the extent such disclosure is
reasonably necessary in complying with applicable governmental laws, rules or
regulations or court orders.
     SECTION 11. Termination
     (a) The Offering will terminate at the end of the Offering Period (any such
date upon which the Offering terminates the “Termination Date”).
     (b) Either Party may terminate this Agreement at any time in the event of a
material breach hereof by the other party. In addition, either Party may
terminate this agreement, other than because of a material breach by the other
party, at any time upon five days’ prior written notice, without liability or
continuing obligation, except as set forth in the following paragraph.
     (c) The termination of this Agreement (other than in the event of a
material breach of this Agreement by the Placement Agent) shall not affect the
compensation payable to or reimbursement of expenses incurred by the Placement
Agent pursuant to this Agreement. Upon termination of this Agreement, all
subscription documents and payments for the Shares or Notes to be sold in the
Share Offering or Bridge Unit Offering not previously delivered to the
purchasers thereof shall be returned to respective subscribers without interest
thereon or deduction therefrom and neither party to this Agreement shall have
any continuing obligation to

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the other except for the Company’s obligations under Section 4 hereof; provided,
however, that the Placement Agent will continue to be subject to the
confidentiality provisions of Section 10 above.
     SECTION 12. Miscellaneous.
     (a) No change, amendment or supplement to, or waiver of, this Agreement or
any term, provision or condition contained herein, shall be valid or of any
effect unless in writing and signed by the party against whom such is asserted.
     (b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflict of laws
rules of such state. Any action, proceeding or claim against any of the parties
hereto arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or the federal court
for the Southern District of New York, and the parties hereto irrevocably submit
to such jurisdiction, which jurisdiction shall be exclusive. The parties hereto
hereby waive any objection to such exclusive jurisdiction and that such courts
represent an inconvenient forum. The parties agree that the prevailing
party(ies) in any such action shall be entitled to recover from the other
party(ies) all of its reasonable attorneys’ fees and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
     (c) This Agreement constitutes the entire understanding between the parties
with respect to the transactions contemplated hereby, and all prior or
contemporaneous oral agreements, understandings, discussions, representations
and statements are superseded by this Agreement. The waiver of any particular
condition precedent, provision or remedy provided by this Agreement shall not
constitute the waiver of any other.
     (d) This Agreement may be executed in any number of counterparts, each of
which shall be taken as one and the same instrument, to the same effect as if
all the parties hereto had signed the same signature page. Any signature page of
this Agreement may be detached from any counterpart of this Agreement identical
in form hereto but having attached it to one or more additional signature pages.
     (e) The provisions of this Agreement shall be binding upon and accrue to
the benefit of the parties hereto and their respective heirs, legal
representatives, permitted successors and permitted assigns. Neither party shall
have the right to assign its rights or obligations under this Agreement without
the written consent of the other party.
     (f) If any provision of this Agreement for any reason shall be held to be
illegal, invalid or unenforceable, such illegality shall not affect any other
provision of this Agreement and this Agreement shall be amended so as to enforce
the illegal, invalid or unenforceable provision to the maximum extent permitted
by applicable law, and the parties shall cooperate in good faith to further
modify this Agreement so as to preserve to the maximum extent possible the
intended benefits to be received by the parties.
     (g) All representations, warranties and agreements of the parties hereto
contained herein will survive the delivery and execution hereof and for a period
of three (3) years from the date hereof, and shall remain operative and in full
force and effect regardless of any investigation

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made by or on behalf of any party hereto or any person who controls any such
party within the meaning of the Securities Act, and will survive delivery of the
Shares, Notes and Warrants and any termination of this Agreement.

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     If the foregoing conforms to your understanding of the arrangements between
us, please sign the copy of this letter provided in the space indicated,
whereupon this letter shall constitute a binding and legal agreement between the
Company and the Placement Agent as of the date first written above.

          Very truly yours,    
 
        TETON ENERGY CORPORATION    
 
       
By:
       
 
       
 
  Name: Karl F. Arleth
Title: President and Chief Executive Officer    
 
        Accepted as of the date first above written:    
 
        COMMONWEALTH ASSOCIATES, L.P.    
 
       
By:
       
 
       
 
  Name: Robert A. O’Sullivan
Title: Chief Executive Officer and President    

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