Exhibit 10.6

 

Teton Energy Corporation 2005 Long-Term Incentive Plan

 

2006 Performance Share Unit Award Agreement

 

You have been selected to be a Participant in the Teton Energy Corporation 2005
Long-Term Incentive Plan (the “Plan”), as specified below:

 

Participant:

 

Date of Award:

 

Target Number of Performance Share Units
Awarded:                                                  Base Units;        
Stretch Target Units

 

Performance Period:                              1 January 2006 to 31
December 2008

 

Performance Measure:                  Completion of acquisitions that increase
the Company’s asset base; Management’s efficiency and effectiveness; Measurement
of Teton’s stock performance relative to a stock performance index of peers of
the Company, which index is compiled by an independent third party-based on the
size and growth prospects, and the price of the Company’s common stock (the
“Performance Measures”). The Performance Measures are consolidated into a
composite measure based on the relative weighting of each component as a
percentage of 100%. Performance measures are based on the attainment of one,
two, and three-year objectives.

 

THIS AWARD AGREEMENT, effective as of the Date of Award set forth above,
represents the award of Performance Share Units by Teton Energy Corporation, a
Delaware corporation (the “Company”), to the Participant named above, pursuant
to the provisions of the Plan, which is attached as Exhibit A, and pursuant to
the plan administration document (the “Plan Administration”), which is attached
as Exhibit B.

 

The Plan and the Plan Administration provide a complete description of the terms
and conditions governing Performance Share Units. If there is any inconsistency
between the terms of this Award Agreement and the terms of the Plan, the Plan’s
terms shall completely supersede and replace the conflicting terms of this Award
Agreement. All capitalized terms shall have the meanings ascribed to them in the
Plan, unless specifically set forth otherwise herein. In consideration of the
mutual promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties hereto agree as
follows:

 

1. Affiliation with the Company. The Performance Share Units granted hereunder
are awarded on the condition that the Participant remains as a member of the
Board of Directors with the Company from the Date of Award through the end of
the Performance Period, as specified above. However, neither such condition nor
the award of the Performance Share Units shall impose upon the Company any
obligation to retain the Participant on its Board for any given period or upon
any specific terms. Further, Participant confirms that the Performance Share
Units are being offered to Participant only for Participant’s services as a
director of the Company.

 

2. Earning Performance Share Units. Subject to the terms of the Plan and this
Award Agreement, the Participant shall be entitled to receive payment of the
number and value of Performance Share Units earned by the Participant over the
Performance Period, where the number of Performance Share Units is determined as
a function of the extent to which the corresponding performance goals have been
achieved.

 

3. Performance Measures. The Performance Measures under this Award Agreement
shall be based on a combination of Completion of acquisitions that increase the
Company’s asset base; Management’s efficiency and effectiveness; Measurement of
Teton’s stock performance relative to a stock performance and growth prospects.
The Performance Measures are consolidated into a composite measure based on the
relative weighting of each component as a percentage of 100%. Performance
measures are based on the attainment of one, two, and three-year objectives.

 

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Achievement of the following targets in 2006, 2007 and 2008 will entitle the
Participant to payment of the Target Number of Performance Share Units awarded
as set forth above, subject to other provisions of the Plan and this Award
Agreement:

 

Base Performance Targets

 

 

 

2006

 

2007

 

2008

 

 

 

 

 

 

 

 

 

Composite Measurement

 

100.00

 

100.00

 

100.00

 

 

Achievement of the following targets in 2005, 2006, and 2007 shall entitle the
Participant to payment of 200% of the Target Number of Performance Share Units
awarded:

 

Stretch Performance Targets

 

 

 

2006

 

2007

 

2008

 

 

 

 

 

 

 

 

 

Composite Measurement

 

122.50

 

121.50

 

118.00

 

 

Achievement of the following targets in 2005, 2006, and 2007 shall entitle the
Participant to payment of 50% of the Target Number of Performance Share Units
awarded:

 

Below Base Performance Targets

 

 

 

2006

 

2007

 

2008

 

 

 

 

 

 

 

 

 

Composite Measurement

 

50.00

 

50.00

 

50.00

 

 

Achievement of less than the aforementioned targets shall result in no payment
of Performance Share Units to the Participant under this Award Agreement.

 

Achievement of results between Performance Targets identified above shall
entitle the Participant to payment of the number of Performance Share Units
interpolated according to a performance achievement function defined by the
foregoing achievement levels. Such interpolation shall be made by the Committee
in its sole discretion and shall be binding.

 

In the event that the Base Performance Targets for 2006 are achieved, 20% of the
Target Performance Share Units shall vest and be paid out to the Participant. In
the event that the Base Performance Targets for 2007 are achieved, 30% of the
Target Performance Share Units shall vest and be paid out to the Participant. In
the event that the Base Performance Targets for 2008 are achieved, the balance
or 50% of the Target Performance Shares Units shall vest and be paid out to the
Participant. Stretch targets, if achieved, will be paid out according to the
same schedule.

 

4. Form and Timing of Payment of Performance Share Units. Payment of earned
Performance Share Units shall be made as soon as practicable but in no event
after March 15 of the calendar year following the calendar year of the close of
the applicable Performance Period. Subject to the Plan, the Committee, as that
term is defined in the Plan, has authorized that the future payment of any
earned Performance Share Units shall be made 100% in Shares. The Company will
withhold from any such payout Shares having a value equivalent to the amount
needed to satisfy the minimum statutory tax withholding requirements of the
Company or its Subsidiary in the appropriate taxing jurisdiction.

 

5. Voting Rights and Dividends. During the Performance Period and until the date
of payment of Performance Share Units as provided for in Section 4, the
Participant will not have voting rights with respect to the Performance Share
Units. During the Performance Period and until and including the date of payment
of Performance Share Units as provided in Section 4, the Participant shall
receive all dividends, dividend equivalents and other distributions paid with
respect to the number of shares of Common Stock of the Company equal to the
number of Performance Share Units granted under this Award. Any such payment of
dividend, dividend equivalent or other distribution will be held in escrow and
granted to Participant upon the attainment of applicable targets and vesting of
the shares. Amounts to be credited to such escrow shall be credited within 15
calendar days following the specified record date.

 

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6. Termination of Board Membership Due to Death, Disability, or Retirement. In
the event the Participant’s tenure as a member of the Company’s Board is
terminated by reason of death, Disability, or Retirement (as such terms are
defined in the Plan) during the Performance Period, the Participant or the
Participant’s beneficiary or estate, as the case may be, shall be entitled to
receive a prorated payment of the Performance Share Units. The prorated payment
shall be determined by the Committee, in its discretion, based on the number of
full months of the Participant’s participation on the Board during the
Performance Period, in relation to the total number of months in the Performance
Period, and shall further be adjusted based on the achievement of the
pre-established performance goals set forth in Section 3.

 

Payment of Performance Share Units shall be made at the time specified by the
Committee in its discretion. Notwithstanding the foregoing, with respect to a
Participant who retires during the Performance Period, payments shall be made at
the same time as payments are made to Participants who did not terminate
employment or Board service during the applicable Performance Period as set
forth in Section 4.

 

7. Termination of Board Membership for Other Reasons. In the event the
Participant’s tenure as a member of the Company’s Board is terminated for any
reason other than those reasons set forth in Section 6, whether with or without
cause, all Performance Share Units awarded to the Participant under this Award
Agreement shall be forfeited by the Participant to the Company; provided,
however, that in the event the Participant’s Board membership is terminated
without cause, the Committee, in its discretion, may waive such automatic
forfeiture provision and pay out on a pro rata basis in accordance with
Section 6.

 

8. Change in Control. In the event of a Change in Control as defined in the
Plan, during the Performance Period, the Target Number of Performance Share
Units shall become payable in full and such payment shall be made within
twenty-five (25) calendar days following the date of the Change in Control. The
Committee, in its discretion, may make such payment of the Target Number of
Performance Share Units in the form of cash or in shares (or in a combination
thereof). The number of Shares to be issued, if any, shall be equal to the
number of earned Performance Share Units designated by the Committee to be paid
in Shares. The amount of cash to be paid if any shall be equal to the Fair
Market Value, as defined in the Plan, of a share of the Common Stock of the
Company as of the date of the Change in Control multiplied by the number of
Performance Share Units designated by the Committee to be paid in cash.

 

9. Nontransferability. Performance Share Units may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further, except as otherwise determined
by the Committee and provided in this Award Agreement, a Participant’s rights
under the Plan shall be exercisable during the Participant’s lifetime only by
the Participant or the Participant’s legal representative.

 

10. Adjustments in Authorized Shares. The Committee shall have the sole
discretion to adjust the number of Performance Share Units awarded pursuant to
this Award Agreement, in accordance with the Plan.

 

11. Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require the Participant or beneficiary to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Award Agreement. The Company’s power
and right to withhold includes the right to withhold Shares with a value
equivalent to the amount needed to satisfy the minimum statutory tax withholding
requirements of the Company, its Subsidiary, or affiliate in the appropriate
taxing jurisdiction.

 

12. Share Withholding. With respect to withholding required upon any other
taxable event arising as a result of Awards granted hereunder, the Participant
may elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Performance
Share Units having a Fair Market Value on the date the tax is to be determined
equal to the minimum statutory total tax which could be withheld on the
transaction. All such elections shall be irrevocable, made

 

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in writing, signed by the Participant, and shall be subject to any restrictions
or limitations that the Committee, in its sole discretion, deems appropriate.

 

13. Covenant Not to Compete. Without the consent of the Company, the Participant
shall not, directly or indirectly, at any time during the Participant’s service
on the Company’s Board or the Board of any of its Subsidiaries, and for a period
of eighteen (18) months following the termination of Participant’s relationship
with the Company and its Subsidiaries for any reason, be associated or in any
way connected as an owner, investor, partner, director, officer, employee,
agent, or consultant with any business entity directly engaged in the production
and/or sale of products competitive with any material product, offering or
business of the Company or any of its Subsidiaries; provided, however, that the
Participant shall not be deemed to have breached this undertaking if his sole
relation with such entity consists of his holding, directly or indirectly, an
equity interest in such entity not greater than two percent (2%) of such
entity’s outstanding equity interest, and the class of equity in which the
Participant holds an interest is listed and traded on a broadly recognized
national or regional securities exchange; provided, further, that in the event
that Participant’s service on the Company’s Board or the board of any of its
Subsidiaries terminates for reasons related to a change in control, this
restriction shall not apply. A Participant’s investment in another business
entity shall not be deemed to be directly competitive with the Company’s
operations or otherwise prohibited if: (a) it was known to the independent
directors at the time the Participant joined the Company’s Board; (b) reviewed
and approved by disinterested independent directors; or (c) of a passive,
minority investment nature and the disinterested independent directors have
determined that the activities undertaken by such other business entity are not
directly in competition with the Company as there are no corporate opportunities
that are being taken from the Company by virtue of the Participant’s investment.

 

The Participant acknowledges that: (a) the services to be performed by him for
the Company as a member of the Company’s Board are of a special, unique,
unusual, extraordinary, and intellectual character; (b) the business of the
Company and its subsidiaries is worldwide in scope and its business
opportunities are located throughout the world; (c) the Company and its
Subsidiaries and affiliates compete with other businesses that are or could be
located in any part of the world; and (d) the provisions of this Section 13 are
reasonable and necessary to protect the Company’s business.

 

If any covenant in this Section 13 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction
may determine to be reasonable, not arbitrary, and not against public policy,
will be effective, binding, and enforceable against the Participant.

 

The period of time applicable to any covenant in this Section 13 will be
extended by the duration of any violation by the Participant of such covenant.

 

For so long as while the covenants under this Section 13 are in effect, the
Participant will give notice to the Company of the identity of the Participant’s
new employer or any new company whose board Participant may join or otherwise
affiliate with, within two business days after accepting any such affiliation.
The Company may notify such company that the Participant is bound by this Award
Agreement and, at the Company’s election, furnish such company with a copy of
this Award Agreement or relevant portions thereof.

 

14. Disclosure of Confidential Information. Without the consent of the Company,
the Participant shall not disclose to any other person Confidential Information,
as defined below, concerning the Company or any of its Subsidiaries or
affiliates, or the Company’s or any of its Subsidiaries’ trade secrets of which
the Participant has gained knowledge during his participation as a director of
the Company. Any trade secrets of the Company or any of its subsidiaries or
related or affiliated companies or joint ventures will be entitled to all of the
protections and benefits under the Uniform Trade Secrets Act (Article 74 of the
Colorado Statutes), Section 18-4-408 of the Colorado Statutes, and any other
applicable law. If any information that the Company deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret for
purposes of this Award Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Award Agreement. The
Participant hereby waives any

 

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requirement that the Company submits proof of the economic value of any trade
secret or posts a bond or other security. None of the foregoing obligations and
restrictions apply to any part of the Confidential Information that the
Participant demonstrates was or became generally available to the public other
than as a result of a disclosure by the Participant.

 

For purposes of this Award Agreement, Confidential Information shall include any
and all information concerning the business and affairs of the Company or any of
its Subsidiaries or affiliates which is not generally available to others, would
be considered to be information proprietary to the Company or any of its
Subsidiaries, or that is a trade secret within the meaning of the Uniform Trade
Secrets Act (Article 74 of the Colorado Statutes), Section 18-4-408 of the
Colorado Statutes, and any other applicable law.

 

15. Nonsolicitation. Without the written consent of the Company, the Participant
shall not, at any time during his tenure as a director and for a period of
eighteen (18) months following the termination of Participant’s relationship
with the Company and its Subsidiaries or affiliates for any reason (a) employ or
retain or arrange to have any other person, firm, or other entity employ or
retain or otherwise participate in the employment or retention of any person who
is an employee or consultant of the Company or its Subsidiaries; or (b) solicit
or arrange to have any other person, firm, or other entity solicit or otherwise
participate in the solicitation of business from any entity that was a customer
of the Company or any of its Subsidiaries or affiliates during the time of the
Participant’s affiliation with the Company, whether or not the Participant had
personal contact with such person; provided, further, that in the event that
Participant’s affiliation with the Company or any of its Subsidiaries terminates
for reasons related to a change in control, this restriction shall not apply.

 

16. Injunctive Relief and Additional Remedy; Essential and Independent
Covenants.

 

The Participant acknowledges that the injury that would be suffered by the
Company as a result of a breach of the provisions of this Award Agreement
(including any provision of Sections 13, 14, and 15) would be irreparable and
that an award of monetary damages to the Company for such a breach would be an
inadequate remedy. Consequently, the Company will have the right, in addition to
any other rights it may have, to obtain injunctive relief to restrain any breach
or threatened breach or otherwise to specifically enforce any provision of this
Award Agreement, and the Company will not be obligated to post bond or other
security in seeking such relief. Without limiting the Company’s rights under
this Section 16 or any other remedies of the Company, if the Participant
breaches any of the provisions of Sections 13, 14, or 15, the Company will have
the right to cease making any payments otherwise due to the Participant under
this Award Agreement.

 

The covenants by the Participant in Sections 13, 14, and 15 are essential
elements of this Award Agreement, and without the Participant’s agreement to
comply with such covenants, the Company would not have entered into this Award
Agreement with the Participant. The Company and the Participant have been
afforded the opportunity to consult their respective counsel and have been
advised or had the opportunity to obtain advice, in all respects concerning the
reasonableness and propriety of such covenants (including, without limitation,
the time period of restriction and the geographical area of restriction set
forth in Section 13), with specific regard to the nature of the business
conducted by the Company and its Subsidiaries and related or affiliated
companies or joint ventures. The Participant’s covenants in Sections 13, 14, and
15 are independent covenants and the existence of any claim by the Participant
against the Company under this Award Agreement or otherwise, will not excuse the
Participant’s breach of any covenant in Sections 13, 14, or 15.

 

If this Award Agreement or the Participant’s services as a member of the Board
of the Company and its Subsidiaries or affiliates expires or is terminated, this
Award Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Participant in
Sections 13, 14, 15, and 16.

 

17. Beneficiary Designation. The Participant may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under this Award Agreement is to be paid in case of his or her
death before he or she receives any or all of such benefit. Each such
designation shall revoke all prior designations by the Participant, shall be in
a form prescribed by the

 

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Company, and will be effective only when filed by the Participant in writing
with the Secretary of the Company during the Participant’s lifetime. In the
absence of any such designation, benefits remaining unpaid at the Participant’s
death shall be paid to the Participant’s estate.

 

Beneficiary Designation (name, address, and relationship):

 

Name:

 

 

Address:

 

 

Relationship:

 

 

 

18. Administration. This Award Agreement and the rights of the Participant
hereunder are subject to all the terms and conditions of the Plan, as the same
may be amended from time to time, as well as to such rules and regulations as
the Committee may adopt for administration of the Plan. It is expressly
understood that the Committee is authorized to administer, construe, and make
all determinations necessary or appropriate to the administration of the Plan
and this Award Agreement, all of which shall be binding upon the Participant.
Any inconsistency between the Award Agreement and the Plan shall be resolved in
favor of the Plan. Any inconsistency between the Award Agreement and the
administrative rules shall be resolved in favor of the administrative rules. Any
inconsistency between the administrative rules and the Plan shall be resolved in
favor of the Plan.

 

19. Continuation of Service. This Award Agreement is not an employment agreement
nor shall it be construed as an agreement to assure continued service as a
director of the Company, it shall not confer upon the Participant any right to
continuation as a director of the Company, nor shall this Award Agreement
interfere in any way with the Company’s right or the right of the Company’s
shareholders, as applicable, to terminate his or her tenure as a director at any
time.

 

20. No Vested Right In Future Awards. Participant acknowledges and agrees (by
executing this Award Agreement) that the granting of Awards under this Award
Agreement are made on a fully discretionary basis by the Committee and that this
Award Agreement does not lead to a vested right to further Awards in the future.
Further, the Awards set forth in this Award Agreement constitute a non-recurrent
benefit and the terms of Award Agreement are only applicable to the Awards
distributed pursuant to this Award Agreement.

 

21. Severability. In the event that any provision of this Award Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Award Agreement, and this Award Agreement
shall be construed and enforced as if the illegal or invalid provision had not
been included.

 

22. Miscellaneous. With the approval of the Board, the Committee may terminate,
amend, or modify the Plan; provided, however, that no such termination,
amendment, or modification of the Plan may in any way materially impairs the
Participant’s rights under this Award Agreement, without the Participant’s
written approval.

 

This Award Agreement shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.

 

All obligations of the Company under the Plan and this Award Agreement, with
respect to the Performance Share Units granted hereunder, shall be binding
(i) on the Company and on any successor to the Company, whether the existence of
such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or
assets of the Company; and (ii) on the Participant and his or her heirs and
legal representatives.

 

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Each of the terms of this Award Agreement is deemed severable in whole or in
part, and if any term or provision, or the application thereof, in any
circumstance should be illegal, invalid or unenforceable, the remaining terms
and provisions will not be affected thereby and will remain in full force and
effect.

 

To the extent not preempted by federal law, this Award Agreement is deemed to
have been made and entered into in the State of Colorado and in all respects the
rights and obligations of the parties will be governed by, and construed and
enforced in accordance with, the laws of the State of Colorado without regard to
the principles of conflict of laws. Any and all lawsuits, legal actions or
proceedings against either party arising out of this Award Agreement will be
brought in Denver County, Colorado or federal court of competent jurisdiction
sitting nearest to Denver, Colorado, and each party hereby submits to and
accepts the exclusive jurisdiction of such court for the purpose of such suit,
legal action or proceeding. Each party irrevocably waives any objection it
may now have or hereinafter have to this choice of venue of any suit, legal
action or proceeding in any such court and further waives any claim that any
suit, legal action or proceeding brought in any such court has been brought in
an inappropriate forum.

 

IN WITNESS WHEREOF, the parties have caused this Award Agreement to be executed
effective as of       , 2006.

 

 

Teton Energy Corporation

 

 

 

 

By:

 

 

 

 Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

Participant

 

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