Exhibit 10.5
EXECUTIVE SEVERANCE AND
MUTUAL RELEASE AGREEMENT
This Executive Severance and Mutual Release Agreement (“Agreement”) is entered
between Karl F. Arleth (“Executive”) and Teton Energy Corporation (“Employer” or
the “Company”) and is in consideration of the mutual undertakings set forth
below.
Executive has decided to resign, and Executive and Employer mutually desire to
end Executive’s employment. In order to assist Executive in his transition, and
acknowledge past contributions, Employer has decided to offer Executive the
benefits described below. To clearly set forth the terms and conditions of
Executive’s departure from the Company, the parties agree as follows:
1. The purpose of this Agreement is to set forth the mutual understanding of the
parties. This Agreement shall supersede Executive’s September 1, 2006 Amended
and Restated Employment Agreement (the “Prior Agreement”) with the Company,
which shall be null and void as of May 29, 2009. This Agreement shall not be
construed as an admission by Employer that it acted wrongfully with respect to
Executive, nor shall it be construed as an admission by Executive of any
misconduct or impropriety.
2. Executive’s employment with Employer shall end for all purposes on May 5,
2009 (“Separation Date”). Executive shall be entitled to a severance payment
equal to one year of his base salary ($225,000 as of the Separation Date), which
shall be payable over 24 months in equal payments. Executive and the Company
agree that this will amount to a severance benefit of approximately $9,375 per
month or approximately $4,327 per pay period (assuming 50 additional pay
periods), subject to normal withholdings and benefit deductions such as medical
and dental.
3. Executive is entitled to $19,470 in accrued vacation pay (“Accrued
Vacation”). Executive will be paid a ratable amount, subject to the reduction in
Paragraph 4 below, in equal installments over three pay periods: on May 29,
2009, on June 12, 2009, and on June 26, 2009. An explanation of the $19,470 is
attached as Schedule A to this Agreement.
4. Executive will be entitled to keep his Term Life Insurance benefit, policy #
T201492402, issued by Lincoln Financial Group (the “Life Insurance Policy”).
Executive and Employer agree that Employer will have no further claim as a
beneficiary on the Life Insurance Policy effect as of the Separation Date. As
the entire premium for the Life Insurance Policy was paid on February 6, 2009,
the balance of unused premium on the Life Insurance Policy that was not
previously included in Executive’s compensation and recognized by Executive as
income, or $3,000, shall be deducted from the Accrued Vacation amount above,
leaving a payment of $6,007 [$5,490.00 on 5/29. Will be made up over next 2 pay
periods. /s/ KFA] per pay period due in respect of Accrued Vacation (when also
considered with the item in Paragraph 5 below).
5. Executive will be responsible for the lease and rent due on his apartment
located in Denver Colorado, effective June 1, 2009. The parties acknowledge that
Executive personally paid $1,450 [$1,550.00 /s/ KFA] in respect of May’s rent
and will net this amount against any deduction in respect of amounts in
Paragraph 4 above.
6. The parties agree that the following securities have vested and will remain
subject to the terms of the original agreements under which they were issued and
are not affected by this Agreement: 83,334 shares underlying warrants, with an
exercise price of $3.24 per share, expiring December 15, 2012; 410,338 shares
underlying options, currently exercisable at $3.48 per share, expiring April 9,
2013; and 300,000 shares underlying options, currently exercisable at $3.60 per
share, expiring March 31, 2014.

 

 

--------------------------------------------------------------------------------

 

7. In exchange for the benefits contained in this Agreement, Executive releases
and discharges Employer with respect to all rights under the Prior Agreement.
Executive shall be entitled to participate in any award outstanding pursuant the
Company’s 2005 Long-term Incentive Plan (the “LTIP”) as if he had been
terminated without Cause as that term is defined in the Prior agreement, in the
LTIP, and the award agreements thereunder.1 This release includes but is not
limited to any claims under any federal, state, or local laws prohibiting
discrimination in employment, including Title VII, the Age Discrimination in
Employment Act, and the Americans with Disabilities Act; based upon any
employment agreement, severance plan, compensation plan, or change in control
agreement; based upon any alleged legal restriction on Employer’s right to
terminate its employees; or based upon ERISA. This Agreement shall not affect
Executive’s entitlement to receive any 401(k), stock option, or pension plan
benefits that shall have vested as of the Separation Date.
8. In exchange for the benefits contained in this Agreement, Employer releases
and discharges Executive from any and all claims, actions, causes of action,
rights, benefits, compensation, or damages, including costs and attorneys’ fees,
of whatever nature, whether known or unknown, suspected or unsuspected, matured
or unmatured, now existing or arising in the future from any act, omission,
event, occurrence, or non-occurrence prior to the date Employer signs this
Agreement arising out of or in any way related to Executive’s employment with
Employer.
9. Employer agrees to indemnify Employee to the fullest extent permitted by
Employer’s Bylaws and that certain indemnification agreement dated as of
April 10, 2009, which includes independent representation where appropriate.
Nothing in this Agreement shall modify, or be interpreted to modify, the
application or applicability of any law, document, or authority relating to
indemnification.
10. Executive agrees that he will not make any disparaging or untruthful remarks
about or concerning Employer, its officers, directors, employees or agents,
whether acting in their individual or representative capacity. Employer shall
not make any disparaging or untruthful remarks concerning Executive and shall
use reasonable efforts to cause its officers, directors, employees and agents,
to not make any disparaging or untruthful remarks concerning Executive.
Executive agrees that he will respond to any inquiries from any third party that
he “left to pursue other business interests, enjoyed the opportunity to
contribute to the Company and wishes the Company the best of luck in its future
endeavors.” The Company agrees that it will respond to any inquiries from third
parties regarding Executive’s departure from the Company with a statement that
“Executive has left the Company to pursue other business interests. The Company
is grateful for his contributions to the Company and wishes him the best of luck
in his future endeavors.” Nothing in this Paragraph shall in any way limit the
ability of Executive or Employer or its officers, directors, employees or agents
to respond to or cooperate with any government inquiry or investigation or to
give truthful testimony as required by law.
11. Executive agrees that, as a result of his employment by Employer, he has
been exposed to confidential information that is not generally known to the
public, all of which information is owned by Employer. This includes information
developed by Executive, alone or with others, or entrusted to Employer by
customers or others. Employer’s confidential information includes, without
limitation, information relating to its finances, business and strategic plans,
unannounced acquisition and/or investment prospects, trade secrets, know-how,
procedures, purchasing, accounting, marketing, sales, customers and employees.
Executive agrees that he will hold such information in strict confidence and not
disclose or use it except as specifically authorized by Employer and for
Employer’s benefit. Executive and Employer agree that there will be no
restrictions on Executive’s ability to seek employ with or otherwise affiliate
or associate with another company and that in particular the restriction placed
by Section 6.2 of the Prior Agreement will be of no further force and effect.
 

      1  
Executive understands and acknowledges that his participation in any award that
vests will be a pro-rata portion of such award that will be determined in
accordance with the terms of the LTIP and the award agreements and
administration documents thereunder.

2 | Page

 

 

--------------------------------------------------------------------------------

 

12. Employer and Executive each agree that the consideration provided to
Executive under this Agreement is confidential and that neither shall disclose
said consideration to persons outside Employer, except that Executive may show
the Agreement to his spouse, attorneys and tax consultants, who have agreed to
be bound by these provisions; provided, however, that nothing herein shall
prohibit or restrict Employer or Executive (or their respective attorneys) from
making disclosures related to this Agreement as required by law, from responding
to any inquiry, or providing testimony, about the fact or terms of this
Agreement the consideration provided to the Executive, or the facts and
circumstances underlying this Agreement before the United States Securities and
Exchange Commission or any other federal or state regulatory or law enforcement
agency or as required by law, or prohibit or restrict Employer or Executive from
disclosing the terms of this Agreement in any litigation brought to enforce any
obligations created by this Agreement.
13. Executive agrees that he has or will return to Employer all of Employer’s
property, including all physical property (personal digital assistants, computer
disks, access cards, etc.) as well as any and all documents, data, plans, or
other information, whether on paper or in electronic form.
14. Executive and Employer shall cooperate to coordinate appropriate internal
and external communications concerning Executive’s separation and to designate
individuals to whom any questions shall be directed. Employer shall have final
approval on all such communications.
15. The provisions of this Agreement, if breached, could cause the parties to
this Agreement to suffer irreparable harm for which damages would be an
inadequate remedy. Therefore, upon any such breach or threat thereof, either
party to this Agreement shall be entitled to injunctions and other appropriate
equitable relief in addition to whatever remedies such party may have at law.
16. Executive understands and acknowledges that the Company’s financial
condition is uncertain and that there are no guarantees that the Company will
not have to file for protection from its creditors under the United States
Bankruptcy Laws. The Company agrees that in the event of an improvement in the
Company’s financial condition, which improves the Company’s cash position, the
Company and the Executive will agree to an acceleration of such payments
provided for under this Agreement. In the event of a sale or merger of the
Company or a sale of all or substantially all of the assets of the Company, any
and all balances will become priority payments, subject to the rights of any
other similar agreements entered into with other former employees or executives
who previously had employment agreements with the Company. The Parties agree
that in the event of a breach of this Agreement, that this Agreement, except
paragraphs 7 through 15 herein, shall be of no further force and effect and that
the Prior Agreement shall become effective and all amounts due under the Prior
Agreement shall be accelerated to the maximum extent provided by law.
17. Executive understands and acknowledges the significance and consequences of
this Agreement and agrees that it is voluntary, and that he is not signing as a
result of any coercion. Executive has been encouraged to seek the advice of an
attorney and, to the extent desired, has availed himself of that opportunity.
Executive acknowledges that he has been given at least twenty-one (21) days
after receipt of this Agreement during which to consider it.
3 | Page

 

 

--------------------------------------------------------------------------------

 

18. Executive understands and acknowledges that he has seven (7) days after
signing this Agreement in which to revoke it. This Agreement will become
effective after that period has expired.
19. This Agreement is binding on and shall inure to the benefit of the parties
and to those individuals and entities released herein, as well as to all of
their heirs, successors, and assigns.
20. This Agreement shall be governed by the laws of the State of Colorado.
21. If any of the provisions of the Agreement is held to be invalid or
unenforceable, the remaining provisions will nevertheless continue to be valid
and enforceable to the fullest extent permitted by law.
22. In the event of any dispute concerning the validity, interpretation,
enforcement or breach of this Agreement or in any way related to Executive’s
employment by Employer or the termination of such employment, the dispute shall
be resolved by arbitration within Denver County, Colorado, and the parties waive
their right to trial by jury. Executive and Employer will submit the dispute to
a mutually acceptable arbitration service or arbitrator, or, if they cannot
agree to an arbitration service or arbitrator, the dispute will be submitted to
the American Arbitration Association. The procedural rules of the selected
arbitration service shall apply, provided that during the time the arbitration
proceedings are ongoing, Employer will advance any required administrative
and/or arbitration fees. The party who substantially prevails shall be entitled
to recover reasonable attorneys’ fees, costs, and disbursements from the other
party. Judgment upon any arbitration award may be entered and enforced by any
state or federal court having jurisdiction.
23. This Agreement represents and contains the entire understanding between the
parties in connection with its subject matter, and supersedes any prior written
or oral agreements or understandings. No modification or waiver of any provision
of this Agreement shall be valid unless in writing and signed by Executive and
an authorized representative of Employer. Executive acknowledges that in signing
this Agreement he has not relied upon any representation or statement not set
forth in this Agreement made by Employer or any of its representatives.
IN WITNESS WHEREOF, the Parties have executed this Separation and Settlement
Agreement on the respective dates set forth below.

     
TETON ENERGY CORPORATION
  KARL F. ARLETH, An Individual
 
   
 
   
By: /s/ James J. Woodcock
  /s/ Karl F. Arleth
 
   
Its: Chairman
   
 
   
Date: 5/28/09
  Date: 5/29/09

 
4 | Page

 

 

--------------------------------------------------------------------------------

 

SCHEDULE A
2009 Vacation Accrual

                                              Karl             $ Value   Month  
Accrued     Used     Left     @ $225K/Yr Salary  
Jan
    100       0       100          
Feb
    20       0       120          
Mar
    20       0       140          
 
                               
Apr
    20       0       160          
May
    20       0       180     $ 19,471  

January accrued equals (carry over + one month accrual)