Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of December 30, 2008 (this
“Agreement”) between Dune Energy, Inc., a Delaware corporation having its
principal place of business at Two Shell Plaza, 777 Walker Street, Suite 2300,
Houston, Texas 77002 (the “Company”), and James A. Watt, an individual residing
in the State of Texas (“Executive”).

WHEREAS, the Executive serves as the Company’s President and Chief Executive
Officer pursuant to an Employment Agreement dated as of April 17, 2007 (the
“Prior Agreement”);

WHEREAS, notwithstanding that the term of the Prior Agreement has not expired,
the parties thereto wish to amend and restate such Prior Agreement and enter
into this Agreement pursuant to which Executive shall continue to serve in the
capacity of President and Chief Executive Officer; and

WHEREAS, the Company desires to employ Executive and Executive desires to be
employed by the Company in the capacity and for the term and compensation and
subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:

1. Continuity of Employment; Title; Responsibilities; Reporting: The Prior
Agreement is hereby amended and restated and Employer hereby employs the
Executive and the Executive hereby accepts employment upon the terms and
conditions hereinafter set forth. During the term of this Agreement, Executive
shall diligently and faithfully: (a) serve the Company in the capacity of
President and Chief Executive Officer (principal executive officer for SEC
reporting purposes) (b) report directly to the Company’s Board of Directors (the
“Board”); (c) discharge and carry out all duties and responsibilities as may
from time to time be assigned, and such directions as may from time to time be
given, to Executive by the Board and (d) abide by and carry out the policies and
programs of the Company in existence or as the same may be changed from time to
time.

2. Exclusivity: All services to be provided by Executive under this Agreement
shall be performed by Executive personally. During the term of this Agreement,
Executive shall devote substantially all of Executive’s business time, attention
and energies and all of his skills, learnings and best efforts to the business
of Company. At all times during the term of this Agreement, the services
required of Executive and the location at which he performs such services shall
not require that he reside outside of the State of Texas, except for travel in
the ordinary course of business. Executive may (a) serve on corporate, civil or
charitable boards or committees, (b) manage personal investments, and
(c) deliver lectures and teach at educational institutions or events so long as
such activities do not significantly interfere with the performance of
Executive’s duties hereunder. It is expressly understood and agreed that to the
extent that any such activities have been conducted by Executive prior to the
Commencement Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Commencement
Date (as defined hereinafter) shall not thereafter be deemed to interfere with
the performance of Executive’s responsibilities to the Company.

 

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3. Term: The initial term of this Agreement shall commence on April 17, 2007 and
end on the third year anniversary of the Commencement Date (as defined in
Section 4 below), unless sooner extended by agreement of the parties or earlier
terminated in accordance with the provisions of this Agreement. The date on
which this Agreement is scheduled to expire is referred to as the “End Date”. No
more than one hundred twenty (120) nor less than and sixty (60) days prior to an
End Date (each such sixty (60) day period is referred to as a “Renegotiation
Period”), the Company and Executive may agree in writing to extend this
Agreement for an additional term. If during any Renegotiation Period the Company
and Executive fail to agree upon an extension of this Agreement, this Agreement
shall terminate as of the End Date of the then current term notwithstanding the
provision of services by Executive after the end of the then current term. The
term of this Agreement, whether as originally scheduled, extended by agreement
or shortened pursuant to an earlier termination in accordance herewith is
referred to as the “Term.”

4. Base Salary: Commencing as of the earlier to occur of April 17, 2007 and the
date Executive first commences performing services for the Company in accordance
with this Agreement (the “Commencement Date”), the Company shall pay to
Executive a base salary at the following per annum rates:

(a) $500,000, for the period commencing as of the Commencement Date and ending
the date immediately preceding the year anniversary date thereof (the “First
Anniversary Date”);

(b) $550,000, for the period commencing as of the First Anniversary Date and
ending the date immediately preceding the year anniversary date thereof (the
“Second Anniversary Date”); and

(c) $600,000, for the period commencing as of the Second Anniversary Date and
ending the date immediately preceding the year anniversary date thereof (the
“Third Anniversary Date”).

The base salary shall be paid in equal monthly installments on the first day of
each month and shall be subject to such deductions by the Company as are
required to be made pursuant to law, government regulations or order. Executive
understands and agrees that Executive is an exempt Executive as that term is
applied for purposes of Federal or state wage and hour laws, and further
understands that Executive shall not be entitled to any compensatory time off or
other compensation for overtime.

5. Performance Bonus: During the Term of this Agreement, Executive shall be
eligible to earn a performance bonus (“Bonus”). The amount of the Bonus shall be
targeted at one-hundred percent (100%) of the then applicable base salary (the
“Targeted Bonus”), based upon quantitative and qualitative performance criteria
to be determined by the Board on or before the ninetieth (90th) day anniversary
of the Commencement Date. The actual Bonus may be less than or more than the
Targeted Bonus based upon the assessment by the Board, in its sole and absolute
discretion, of Executive’s performance against such criteria. Notwithstanding
the foregoing, in no event shall the Bonus awarded in any year exceed
two-hundred percent (200%) of the then applicable base salary.

 

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6. Restricted Stock Grant: Upon the execution of this Agreement, the Company
shall grant a restricted stock award to Executive of 3,000,000 shares of the
Company’s common stock, par value $0.001 per share (the “Restricted Shares”) in
accordance with the terms, and subject to the conditions, of that certain
Restricted Stock Agreement, of even date herewith, between the Company and
Executive. Under the Restricted Stock Agreement, the Restricted Shares shall
vest with respect to 1,000,000 shares one year from the date hereof, an
additional 1,000,000 shares two years from the date hereof and the remaining
1,000,000 shares three years from the date hereof.

7. Fringe Benefits: During the Term of this Agreement, Executive shall be
entitled to major medical and full hospital insurance for Executive, his spouse
and immediate dependents, provided that Executive and his family are insurable
at “standard rates”. Executive shall also be entitled to such disability, life
insurance, and other similar benefits as may be made available to other senior
officers of the Company under such group benefit plans and/or programs as may be
maintained by the Company from time to time, subject to any eligibility,
co-payment and waiting period requirements under or applicable to any such
benefit plans and/or programs. Executive acknowledges and agrees that the
Company has the right, in its sole discretion, to amend, modify or terminate any
such benefit plan or program at any time and for any reason or for no reason.
Executive’s entitlement to such benefits shall end upon the termination of his
employment with the Company, however caused, except as provided (a) by
applicable law or (b) by the express terms of any such group benefit plan or
program maintained by the Company.

8. Vacation, Etc.: During the Term of this Agreement, Executive shall be
entitled to six (6) weeks paid vacation each twelve (12) months, to be taken at
such time or times as shall be consistent with the proper performance by
Executive of his duties. No unused vacation, holidays, sick leave or personal
days may be carried forward from year to year. In the event that Executive’s
employment terminates by virtue of “Termination Without Cause”, “Resignation for
Good Reason”, death or disability, then Executive shall be entitled to payment
for any accrued but unused vacation days during the year such termination
occurs.

9. Expense Reimbursement; Travel Policy; Relocation Expenses:

(a) The Company shall provide Executive with such reasonable business lodging
and travel expense reimbursements as are consistent with the Company’s policies
in effect from time to time as they pertain to senior officers of the Company.
All reimbursements by the Company provided for in this Agreement are conditioned
upon Executive’s submission to the Company of reasonably satisfactory
documentation and an itemized account for such expenses within a reasonable
period after they are incurred. Expense reports and requests for reimbursement
which are submitted later than two months after the expense is incurred will not
be reimbursed without the approval of the Company’s Chief Financial Officer.

(b) The Company shall pay directly or, if applicable, reimburse Executive for
his expenses to relocate from the Dallas/Fort Worth area to Houston, Texas,
which expenses shall consist of: (i) temporary living and travel expenses;
(ii) commission on sale of existing home in Dallas/Fort Worth area;
(iii) closing costs on the purchase of a new home in Houston, Texas area; and
(iv) moving expenses (collectively, the “Relocation Expenses”).

 

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10. Other Employee Benefit Plans: During the Term, Executive shall be entitled
to participate in all employee, Executive or key-employee benefit or incentive
compensation plans maintained or established by the Company for the purpose of
providing compensation and/or benefits to employees, Executives or key
employees, generally, including without limitation, all pension, retirement,
profit sharing, savings, stock option, deferred compensation and/or restricted
stock grants. Unless otherwise provided herein, the compensation and benefits
hereunder, and Executive’s participation in such plans, practices and programs
shall be on the same basis and terms as applicable to the other eligible
participants in the particular plan, practice or program. No additional
compensation provided under any such plans shall be deemed to modify or
otherwise affect the terms of this Agreement or any of Executive’s entitlements
hereunder.

11. Death of Executive: In the event of Executive’s death during the Term of
this Agreement, the Company’s obligations and agreements under this Agreement
shall automatically terminate as of the date of such death, and in full
satisfaction thereof, the Company shall pay to Executive’s estate any base
salary earned and unpaid through the date of such death and any business
expenses or other fringe benefits otherwise due to Executive. Executive’s estate
shall also be entitled to payment for (i) any bonus earned in the year preceding
such termination but not yet paid and (ii) accrued but unused vacation days
during the year such termination occurs. Such event shall not be deemed a
“Termination Without Cause” as defined in Section 17 below. Payment of amounts
owed under this Section 11 shall be made in a lump sum cash payment within
fifteen (15) days after the date of the Executive’s termination of employment.
All other obligations of the Company under this Agreement shall automatically
cease, and Executive’s estate shall not be entitled to any other salary,
payments or benefits otherwise payable to Executive under this Agreement, except
as otherwise required by law.

12. Disability of Executive: If Executive shall, during the term of this
Agreement, suffer a “Disability,” (as defined, from time to time, in a
disability plan that the Company may maintain for the benefit of its senior
officers (a “Disability Plan”) or, whenever no such Disability Plan exists, as
defined in accordance with the meanings on Exhibit A-1 hereto), then the Company
shall have the right to terminate this Agreement and the Executive’s employment
by written notice of such Disability to Executive, whereupon the Company’s
obligations and agreements under this Agreement shall automatically terminate as
of the date of such notice, and in full satisfaction thereof, the Company shall
pay to Executive any base salary earned and unpaid through the date of such
notice (less any payments received by Executive under a Disability Plan) and any
business expenses or other fringe benefits otherwise due to Executive. Executive
shall also be entitled to payment for (i) any bonus earned in the year preceding
such termination but not yet paid and (ii) accrued but unused vacation days
during the year such termination occurs. No such termination shall be deemed a
“Termination Without Cause”. Payment of amounts owed under this Section 12 shall
be made in a lump sum cash payment within fifteen (15) days after the date of
the Executive’s termination of employment. All other obligations of the Company
under this Agreement shall automatically cease, and Executive shall not be
entitled to any other salary, payments or benefits otherwise payable under this
Agreement, except as otherwise required by law.

 

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13. Resignation Notice; Termination: Executive agrees to give sixty (60) days’
prior written notice to the Company of any decision by Executive to resign
during the Term of this Agreement (such notice hereinafter referred to as a
“Resignation Notice”), provided, however, that in the case of Executive’s
resignation for “Good Reason” as defined in Section 16 below, only fourteen
(14) days’ prior written notice shall be required. Executive acknowledges and
understands that these notice periods are for the exclusive benefit of the
Company, and do not confer any employment obligation on the Company. If the
Company receives any such Resignation Notice, the Company may elect, in its sole
discretion and for any reason or for no reason, to terminate Executive’s
employment, either immediately or at any point during the period indicated in
such notice.

14. Post-Resignation Actions: If Executive decides to resign from Executive’s
employment with the Company, Executive agrees to make no public announcement and
no statement to persons or entities doing business with the Company concerning
Executive’s departure prior to Executive’s termination date without the written
consent of the Company, and to continue faithfully performing and discharging
Executive’s duties and responsibilities for the Company from the date of such
Resignation Notice until such termination date.

15. Post-Resignation Obligations: Except as provided below with respect to
resignations for “Good Reason,” no resignation under Section 13 hereof (or
termination by the Company following a Resignation Notice) shall be deemed to be
or treated as if it was a “Termination Without Cause” as defined below.
Executive agrees and understands that, in the event of any such resignation (or
termination by the Company following a Resignation Notice), Executive shall be
entitled to receive Executive’s then applicable base salary through the date of
termination of Executive’s employment and any business expenses otherwise due to
Executive. Executive shall also be entitled to payment for any bonus earned in
the year preceding such resignation but not yet paid and, in the event of a
“Resignation for Good Reason”, accrued but unused vacation days during the year
such resignation occurs. Payment of amounts owed under this Section 15 shall be
made in a lump sum cash payment within fifteen (15) days after the date of the
Executive’s termination of employment. All other obligations of the Company
under this Agreement shall automatically cease, and Executive shall not be
entitled to any other salary, payments or benefits otherwise payable under this
Agreement, except as otherwise required by law. The parties further agree and
understand that, in the event of any such resignation (or termination by the
Company following a Resignation Notice), Executive’s obligations and agreements
under Sections 22 through 26 hereof shall continue in full force and effect in
the manner and on the terms set forth herein.

16. Resignation for Good Reason: If Executive resigns for “Good Reason” (as
defined below), then such a resignation (a “Resignation for Good Reason”) shall
be treated hereunder as if it were a “Termination Without Cause” as defined in
Section 17 below. “Good Reason” means any of the following failures or
conditions which shall remain uncured twenty (20) days after written notice of
such failure or condition is received by the Company from Executive: (i) the
failure of the Company to continue Executive in the position of the President
and Chief Executive Officer of the Company (or such other senior Executive
position as may be offered by the Company and which Executive in his sole
discretion may accept); (ii) material diminution by the Company of Executive’s
responsibilities, duties, or authority in comparison with the responsibilities,
duties and authority held during the six month period immediately preceding such
diminution, or assignment to Executive of any duties inconsistent with
Executive’s position as the senior Executive officer of the Company (or

 

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such other senior Executive position as may be offered by the Company and which
Executive in his sole discretion may accept); (iii) failure by the Company to
pay and provide to Executive the compensation and benefits provided for in this
Agreement to which Executive is entitled; or (iv) the requirement that Executive
relocate his residence outside of the State of Texas.

17. Termination Without Cause: Executive’s employment under this Agreement may
be terminated at any time by the Company, without cause, upon fourteen
(14) days’ written notice to Executive (such termination referred to throughout
this Agreement as a “Termination Without Cause”). In the event of any such
Termination Without Cause, (a) Executive shall be entitled to receive
Executive’s then applicable base salary through the date of termination of
Executive’s employment and any business expenses or fringe benefits otherwise
due to Executive and (b) in addition, the Company agrees to pay to Executive, as
severance pay and in lieu of any further compensation for any subsequent period,
an amount equal to two and ninety-nine one-hundredths times (2.99X) the sum of
the (1) Executive’s then applicable base salary and (2) the Targeted Bonus (the
“Severance Payment”), which Severance Payment shall be payable in six (6) equal
monthly installments commencing on the first day of each month following the
date of termination. Executive shall also be entitled to payment for (i) any
bonus earned in the year preceding such termination but not yet paid and
(ii) accrued but unused vacation days during the year such termination occurs.
Payment of amounts owed under this Section 17 shall be made in a lump sum cash
payment within fifteen (15) days after the date of the Executive’s termination
of employment. At the termination date, all of the Restricted Shares granted to
Executive will be immediately vested in accordance with the Restricted Stock
Agreement and any stock options or other grants made to Executive pursuant to
any incentive or benefit plans then in effect shall vest in accordance with the
terms of any such plans. All other obligations of the Company under this
Agreement shall automatically cease, and Executive shall not be entitled to any
other salary, payments or benefits otherwise payable under this Agreement,
except as otherwise required by law.

18. Termination following Change of Control: If Executive’s employment is
terminated by the Company within twelve (12) months after a Change of Control
(as defined herein in Exhibit B-1) for reasons other than For Cause pursuant to
Section 19 below or by reason of Disability or Executive’s death, (a) Executive
shall be entitled to receive Executive’s then applicable base salary through the
date of termination of Executive’s employment and any business expenses or
fringe benefits otherwise due to Executive and (b) in addition, the Company
agrees to pay to Executive, the Severance Payment, which Severance Payment shall
be payable in six (6) equal monthly installments commencing on the first day of
each month following the date of termination. Executive shall also be entitled
to payment for (i) any bonus earned in the year preceding such termination but
not yet paid and (ii) accrued but unused vacation days during the year such
termination occurs. Payment of amounts owed under this Section 18 shall be made
in a lump sum cash payment within fifteen (15) days after the date of the
Executive’s termination of employment. At the termination date, all of the
Restricted Shares granted to Executive will be immediately vested in accordance
with the Restricted Stock Agreement and any stock options or other grants made
to Executive pursuant to any incentive or benefit plans then in effect shall
vest in accordance with the terms of any such plans. All other obligations of
the Company under this Agreement shall automatically cease, and Executive shall
not be entitled to any other salary, payments or benefits otherwise payable
under this Agreement, except as otherwise required by law.

 

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19. Termination For Cause: The Company, upon a vote of the Company’s Board of
Directors (excluding Executive) shall be entitled to immediately terminate
Executive’s services in any of the following circumstances, each of which shall
constitute “cause” for such termination:

(a) the breach by Executive, in any material respect, of this Agreement
(including, without limitation, the refusal or other failure by Executive to
perform any of Executive’s duties hereunder other than a failure to perform
resulting from death or physical or mental disability) and failure by Executive
to cure such breach within ten (10) days of written notice thereof from the
Company;

(b) the commission by Executive of any act of dishonesty, fraud, intentional
material misrepresentation or moral turpitude in connection with his employment,
including, but not limited to, misappropriation or embezzlement of any funds of
the Company or any of its affiliates;

(c) the commission by Executive of any (1) willful misconduct or gross
negligence, or (2) intentional act having the effect of injuring the reputation,
business or business relationships of the Company or any of its affiliates, and
which intentional act would not reasonably be deemed to be in the best interests
of the Company;

(d) the entering by Executive of a plea of guilty or nolo contendere to, or the
conviction of Executive for, a crime (other than a routine traffic offense)
which carries a potential penalty of imprisonment for more than ninety (90) days
and/or a fine in excess of Ten Thousand Dollars ($10,000);

(e) Executive’s abuse of alcohol, prescription drugs or controlled substances to
a degree which interferes with his performance on behalf of the Company;

(f) Executive’s deliberate disregard of any lawful material rule or policy of
the Company or order of the Company’s Board of Directors and failure to cure the
same within ten (10) days of written notice thereof from the Company; or

(g) excessive absenteeism of Executive other than for reasons of illness, after
written notice from the Company with respect thereto.

If Executive is terminated for any of the causes referred to in the above
sub-paragraphs (a) through (g), all obligations of the Company under this
Agreement (except for obligations specifically referred to as continuing) shall
automatically cease, and Executive shall only be entitled to receive Executive’s
then applicable base salary through the date of termination and any business
expenses or fringe benefits otherwise due to Executive and any Bonus earned in
the year preceding such termination but not yet paid. Payment of amounts owed
under this Section 19 shall be made in a lump sum cash payment within fifteen
(15) days after the date of the Executive’s termination of employment. All other
obligations of the Company under this Agreement shall automatically cease, and
Executive shall not be entitled to any other salary, payments or benefits
otherwise payable under this Agreement, except as otherwise required by law. The
parties further agree and understand that, in the event of any such termination,
Executive’s obligations and agreements under Sections 22 through 26 hereof shall
continue in full force and effect in the manner and on the terms set forth
herein.

 

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20. Payment Upon Expiration of Term: In the event that this Agreement expires by
the arrival of an End Date without a prior termination or resignation, the
Company agrees to pay to Executive his base salary and pro rata Bonus earned and
unpaid through the date of such expiration and any business expenses or fringe
benefits otherwise due to Executive. Executive shall also be entitled to payment
for any Bonus earned in the year preceding the expiration of the Agreement but
not yet paid and accrued but unused vacation days during the year such
expiration occurs. Payment of amounts owed under this Section 20 shall be made
in a lump sum cash payment within fifteen (15) days after the date of the
Executive’s termination of employment. All other payments, benefits or
arrangements provided by the Company shall cease immediately, except as
otherwise required by law or the terms of any plan maintained by the Company.
Notwithstanding the foregoing, the parties further agree and understand that, in
the event of any such expiration, Executive’s obligations and agreements under
Sections 22 through 26 hereof shall continue in full force and effect in the
manner and on the terms set forth herein.

21. Gross-Up Payment:

(a) To the extent that (i) the grant of the Restricted Shares under Section 6
hereof, (ii) the payment of any Severance Payment (or other payment or benefit
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the “Code”)) under Sections 16, 17 and 18 hereof or (iii) the
reimbursement of any Relocation Expenses under Section 9 hereof (collectively,
the “Payments”) would be subject to taxes imposed against Executive under the
Code (including any excise tax imposed by Section 4999 of the Code) and any
state or local tax code or regulations, if applicable, (collectively, the
“Taxes”), then the Company shall pay, and Executive will be entitled to receive,
an additional payment (the “Gross-Up Payment”) in an amount such that after
payment by the Executive of all applicable Taxes including any Taxes imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Taxes imposed by reason of the Payments. For the avoidance
of doubt, it is further provided that the Company shall pay all Taxes as a
result of any final determination by the Internal Revenue Service that the right
of first refusal granted to the Company in the Restricted Stock Agreement does
not decrease the value of the Restricted Shares as of the date of the grant to
the amount agreed upon by the Company and the Executive. To the extent Executive
incurs any interest or penalties with respect to such Taxes (other than interest
and penalties due to Executive’s failure to timely make any applicable election,
file a tax return or pay taxes shown on his return) (the “Expenses”), then the
Company shall reimburse Executive for such Expenses within five (5) days after
Executive incurs such Expenses. This reimbursement obligation shall remain in
effect during the applicable statute of limitations applicable to any such
Expenses, and the amount of Expenses eligible for reimbursement during any
taxable year of Executive will not affect the amount of Expenses eligible for
reimbursement in any other taxable year of Executive. This right to
reimbursement is not subject to liquidation or exchange for another benefit. To
the extent the reimbursement by the Company of any Expenses is taxable to
Executive, such taxable amount shall be subject to a Gross-Up Payment by the
Company as provided herein.

(b) The Company shall bear any expense necessary in determining whether a
Gross-Up Payment is required pursuant to this Agreement. The Gross-Up Payment,
if any, shall be paid by the Company to Executive within five (5) days after
remittance by the Executive of the applicable Taxes to the Internal Revenue
Service and the submission to the Company of appropriate documentation of such
remittance as may be required by the Company.

 

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22. Noncompetition:

(a) Executive expressly acknowledges that, in order to protect the Company, and
persons and entities that do business with the Company, it is an essential
condition of his employment that Executive agrees that during the Term of this
Agreement and (unless this Agreement is terminated as a result of a Termination
Without Cause or a Resignation For Good Reason):

(i) for a period of one (1) year thereafter, Executive will not directly or
indirectly, for his own account or on behalf of any other person or as an
employee, consultant, manager, agent, broker, stockholder, director or officer
of a corporation, investor, owner, lender, partner, joint venturer, or otherwise
engage in any business which is then directly engaged in the exploration,
drilling or production of natural gas or oil, within any one (1) mile radius
from any property in which the Company has an ownership, leasehold or
participation interest at the date of such termination;

(ii) for a period of one (1) year thereafter (i) solicit, entice or induce any
Customer (as defined below) of the Company to cease or limit its business with
the Company (except if and to the extent directed to do so by the Chairman, Vice
Chairman or Board of Directors of the Company), or to become a customer,
supplier, vendor or client of any other person (including, without limitation,
Executive, individually) or entity engaged in any activity or business
competitive with the Company if as a consequence thereof such party shall reduce
the business it does with the Company or (ii) interfere with the relationship
between the Company and any Customer, and Executive shall not cause, assist or
facilitate any person or entity in taking any such prohibited actions;

(iii) for a period of one (1) year thereafter, solicit, attempt to solicit or
entice away from the Company’s employment, any employee of the Company, or
disrupt or interfere with, or attempt to disrupt or interfere with, the
Company’s relationship with any such person, and Executive shall not cause,
assist or facilitate any person or entity in taking any such prohibited action;

(iv) disparage the Company or any of its shareholders, directors, officers,
employees or agents or take any actions that are harmful to the Company’s
goodwill with its customers, employees or the public; and

(v) engage in any act or practice the purpose of which is to evade the
provisions of this covenant not to compete or to commit any act which adversely
affects the business of the Company.

For purposes of this Agreement, a “Customer” of the Company shall mean any
person or entity, who or which is, or was at any time within the prior one year
period, a purchaser of goods or services from the Company, a landlord,
sublandlord, licensor, licensee or supplier of (or prospective purchaser,
landlord, sublandlord, licensor, licensee or supplier, provided the Company was
in active discussions with such party prior to the termination of this
Agreement), to or from the Company, as the case may be.

 

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(b) It is understood by Executive that the covenants contained in this
Section 22 are essential elements of this Agreement and that, but for the
agreement of Executive to comply with such covenants, the Company would not have
agreed to enter into this Agreement and would not pay Executive the agreed
compensation for his services. Executive acknowledges that the provisions of
this Section 22 are reasonable and necessary for the protection of the Company
and that enforcement of the provisions of this Section 22 shall not result in an
unreasonable deprivation of the right of Executive to earn a living. The
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. The covenants of
Executive in this Section 22 shall be construed as agreements independent of any
provision in this Agreement. In the event a court of competent jurisdiction
determines that the provisions of this Section 22 are excessively broad as to
duration, geographical scope or activity, it is expressly agreed that Section 22
shall be construed so that the remaining provisions shall not be affected, but
shall remain in full force and effect, and any such overbroad provisions shall
be deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.

23. Non-Disclosure of Confidential Information:

(a) Executive acknowledges and agrees that Executive’s services for the Company
shall bring Executive into contact with sensitive or secret information relating
to the Company, its successors, subsidiaries, assigns, officers, Executives,
associated entities and/or agents including, but not limited to (i) information
concerning the objectives, plans, commitments, contracts, leases, operations,
Executives, methods, market investigations, surveys, research, records, and
costs and prices of the Company and/or the Company’s subsidiaries or associated
entities, (ii) information concerning the identities, objectives, plans,
preferences, needs, requests, specifications, commitments, contracts,
operations, methods and records of the Company’s and/or its subsidiaries’ or
associated entities’ lenders, prospective lenders, investors, owners and/or
prospective owners, and (iii) any and all information, trade secrets or ideas
that give the Company or its subsidiaries or associated entities the opportunity
to obtain an advantage over such competitors of the Company or of such
subsidiaries or associated entities that do not know or use such information,
trade secrets or ideas (the “Confidential Information”).

(b) Executive further understands and acknowledges that Confidential Information
includes not only recorded or written information, but information that
Executive can recall or reconstruct from Executive’s memory.

(c) Executive agrees that he will, at all times, faithfully hold all such
Confidential Information in the strictest of confidence and will, at all times,
use his best efforts and highest diligence to keep such Confidential Information
secret, to guard against its disclosure, and never, directly or indirectly, to
disclose or divulge any such Confidential Information to any person, company,
firm or other entity, or to use the same, except that (i) Executive may use
Confidential Information as necessary to perform his duties of employment with
the Company, (ii) Executive may disclose Confidential Information to those
within the Company who have a need to know it in the performance of their duties
for the Company, (iii) Executive may disclose Confidential Information to

 

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parties outside the Company when, as and if he is expressly directed to do so by
Executive’s supervisors within the Company, and (iv) Executive may disclose
Confidential Information as expressly directed by judicial process, provided
that Executive has promptly, and prior to making such disclosure, provided a
copy of such judicial process to the Company and the Company does not intervene
to oppose such disclosure. Executive shall use his best efforts to afford the
Company sufficient time to intervene to oppose any such disclosure, including,
if necessary, seeking reasonable extensions of Executive’s time to make such
disclosure.

(d) Executive shall continue to abide by all of his obligations under this
Agreement respecting Confidential Information not only during his employment
with the Company, but also for all time after any termination, resignation or
expiration of his employment with the Company, however caused.

(e) Notwithstanding the foregoing, after any termination or resignation of
Executive from his employment with the Company, Confidential Information shall
not include, and Executive shall not be restricted from divulging or using, any
information which Executive can demonstrate (i) is or becomes generally
available to the public other than as a result of a disclosure by Executive,
(ii) was available to Executive on a non-confidential basis prior to its
disclosure to Executive by the Company or any of its subsidiaries or associated
entities, or (iii) becomes available to Executive on a non-confidential basis
from a source other than the Company or any of its subsidiaries or associated
entities, provided, however, that such source was not bound by a confidentiality
agreement with the Company or any of its subsidiaries or associated entities, or
was not otherwise prohibited from transmitting such information to Executive.

(f) Executive agrees that upon any termination, resignation or expiration of his
employment with the Company, however caused, Executive shall deliver to the
Company all writings, documents, recordings, computer discs or other media of
recordation or storage in his possession, custody or control containing any
Confidential Information (including, without limitation, all duplicates and
copies), shall relinquish access to any computer maintained by or for the
benefit of the Company or any of its subsidiaries or associated entities, and
shall purge all such Confidential Information (in whatever form, including
electronic data) from any electronic media or storage devices, including
computers, in Executive’s possession, custody or control. To insure compliance
with this Agreement, at the time of such termination, resignation or expiration,
Executive shall provide the Company with a sworn statement, duly notarized, that
Executive has performed each and every agreement and obligation contained or
referred to in this Section.

24. Company Property: All inventions, improvements, systems, designs, ideas,
business plans, sales techniques, approaches, surveys, prospect books,
publications, memoranda, customer lists, files, notes, records, videotapes or
any other business documentation or products (including, without limitation,
Confidential Information) that Executive makes or conceives (either individually
or jointly with others) or that are made available to Executive during his
employment with the Company and until any termination, resignation or expiration
of such employment for any reason, relating to and connected with his
employment, or that Executive utilizes in carrying out his duties or
responsibilities to the Company (the “Property”), shall be the Company’s
exclusive property, and Executive assigns to the Company all of his rights, if
any, in and to all such Property.

 

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25. Trade Names, Trademarks and Copyright: During his employment with the
Company, and continuing for all time after any termination, resignation or
expiration of such employment for any reason, Executive agrees that he shall
never have or claim any right, title or interest in any trade name, trademark or
copyright (statutory or common law) belonging to or used by the Company, its
subsidiaries, successors, assigns or associated entities, and shall never have
or claim any right, title or interest in any material or matter of any sort,
prepared for or used in connection with advertising, solicitation, circulation,
editorial content or promotion of the business of the Company, its subsidiaries,
successors, assigns or associated entities, whether produced, prepared or
published in whole or in part by Executive. Executive recognizes that the
Company and/or its subsidiaries or associated entities now have and shall
hereafter have and retain sole and exclusive rights in and to any and all such
trade names, trademarks, copyrights, material and matter.

26. Injunctive Relief: Executive expressly acknowledges and agrees that the
Property and the Confidential Information are of a special, unique, unusual,
extraordinary and intellectual character which gives them a peculiar value, and
that a breach by Executive of any of the restrictive covenants contained in
paragraphs 22 through 25 herein will cause the Company irreparable injury and
damage for which there is no adequate remedy available at law. Executive further
expressly acknowledges and agrees that the Company shall be entitled, in
addition to any remedies available at law, to injunctive or other equitable
relief to require specific performance, or to prevent a breach, of any provision
of this Agreement by Executive without any requirement or showing that the
Company has suffered any damages from such breach.

27. Further Instruments: Each of the Company and Executive shall execute,
acknowledge, deliver and procure the execution, acknowledgment and delivery to
the other of any and all further instruments which the other may reasonably deem
necessary or expedient to carry out or effectuate the purposes or intent of this
Agreement.

28. Representations. Executive represents and warrants to the Company that
Executive has the capacity and right to negotiate and enter into this Agreement,
and Executive’s execution, delivery and performance of this Agreement does not
breach, interfere with or conflict with any other contractual agreement,
covenant not to compete, option, right of first refusal or other existing
business relationship or any judgment or order, in each case, to which Executive
is a party or otherwise subject.

29. Successors and Assigns: This Agreement shall not be assignable by the
Company without the prior consent of Executive, which shall not be unreasonably
withheld. For purposes of this Agreement a transfer of this Agreement in
connection with a merger, sale of a majority of the outstanding shares or
consolidation of the Company or a sale of substantially all of the Company
assets shall not constitute an assignment. This Agreement shall be binding upon
the successors, heirs, executors and personal representatives of Executive. This
Agreement contemplates the rendition of personal services by Executive and is
not assignable by Executive.

 

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30. Savings Clause: If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law. The Company’s rights and remedies provided for
in this Agreement or by law shall, to the extent permitted by law, be
cumulative.

31. Governing Law and Construction: Any and all differences and disputes of
whatever nature arising out of or relating to this Agreement (including, without
limitation, the negotiation, execution, performance or termination of this
Agreement) shall be governed by the laws of the State of Delaware applicable to
contracts made, negotiated and to be performed entirely in such State without
giving effect to its principles of conflicts of laws. With respect to all such
differences and disputes, the parties agree and consent to be subject to the
exclusive jurisdiction of the state and federal courts located in the State of
Texas and consent to the exclusive venue of Texas.

32. Notices: All notices to be given under this Agreement shall be in writing
and shall be given by hand, by overnight courier services which obtain
acknowledgment of receipt or by certified or registered mail, return receipt
requested, addressed to the party receiving such notice (each of the foregoing
being referred to as “Written Notice”), or by facsimile transmission, such
transmission being effective as of the date thereof if followed within ten
(10) business days by Written Notice, as follows:

(a) if to the Company, to the Company’s address set forth above, with a copy to
Thompson & Knight LLP, 919 Third Avenue, 39th Floor, New York, NY 10022, Attn:
Matthew S. Cohen, Esq.;

(b) if to Executive, to Executive’s address on file with the Company; or

(c) to either party at such other addresses as shall have been specified in a
notice similarly given.

33. Freedom to Execute Agreement: The Company and Executive each represent,
warrant and agree that they are free to enter into this Agreement, and that they
are not subject to any obligations or disability which would prevent them from
or interfere with their fully keeping and performing all of the covenants and
conditions to be kept or performed under such agreements. The Company and
Executive further represent, warrant and agree that they have not made and will
not make any grant or assignment which conflicts with or impairs the complete
enjoyment of the rights and privileges granted to the Company and Executive
under this Agreement. Executive has had the opportunity to consult with his
personal attorney and to negotiate this Agreement at “arms-length”.

34. Entire Agreement: This Agreement and the agreements annexed as appendices
hereto are intended together to constitute the entire agreement between the
Company and Executive relating to the subject matters of such agreements, and
all prior negotiations and understandings of the parties have been merged in
such agreements. No modification of any such agreements shall be valid unless in
writing and executed by the parties hereto.

 

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35. Waiver of Breach: The waiver of a breach or default of or under any
provision of this Agreement shall not be deemed a waiver of any other such
breach or default of any kind or nature.

36. Approvals: This Agreement has been approved by the necessary vote of the
Company’s Board of Directors of the Company.

37. Section 409A Limits on Payments to Specified Employees: Notwithstanding any
other provision of the Agreement to the contrary, if Executive is a “specified
employee,” as defined in Section 409A of the Code, except to the extent
permitted under Section 409A of the Code, no benefit or payment that is subject
to Section 409A of the Code (after taking into account all applicable exceptions
to Section 409A of the Code, including but not limited to the exceptions for
short-term deferrals and for “separation pay only upon an involuntary separation
from service”) shall be made under this Agreement on account of Executive’s
“separation from service,” as defined in Section 409A of the Code, until the
later of the date prescribed for payment in this Agreement and the 1st day of
the 7th calendar month that begins after the date of Executive’s separation from
service (or, if earlier, the date of death of Executive). Any such benefit or
payment payable pursuant to this Agreement within the period described in the
immediately preceding sentence will accrue and will be payable in a lump sum
cash payment, with interest at the prime rate as published in the Wall Street
Journal, on the payment date set forth in the immediately preceding sentence.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first
above written.

 

Company:

 

DUNE ENERGY, INC.

  By:  

/s/ Alan Gaines

  Name:   Alan Gaines   Title:   Chairman

Executive:

  JAMES A. WATT  

/s/ James A. Watt

 

James A. Watt

 

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Exhibit A-1

For the purposes of this Employment Agreement, whenever the term “Disability” is
not defined in a Disability Plan that the Company may maintain for the benefit
of its senior officers, that term shall mean that, for a period of “120
continuous days”, Executive is “limited” form performing the “material and
substantial duties” of his “regular occupation” due to his “sickness” or
“injury.”

For purposes of this definition:

“120 continuous days” shall mean 120 days of sickness or injury which meets all
of the other criteria for a Disability as defined herein, with no lapse of
greater than 30 days (consecutively or in the aggregate);

“limited” from performing a duty or function means that Executive is unable to
perform such duty or function;

“material and substantial duties” means duties that are normally required for
the performance of Executive’s “regular occupation” and cannot be reasonably
omitted or modified;

“regular occupation” means all of the functions that Executive was routinely
performing prior to the onset of the condition or conditions that resulted in
the Company’s decision to terminate Executive’s employment for reasons related
to Disability;

“sickness” means any illness or disease that renders Executive incapable of
performing material and substantial duties of his employment under the
Employment Agreement; and

“injury” means a bodily injury that is the direct result of an accident and not
related to any other cause.

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Exhibit B-1

For purposes of this Employment Agreement, the term “Change in Control” shall
mean any of the following events:

(1) a merger of consolidation to which the Company is a party if the individuals
and entities who were stockholders of the Company immediately prior to the
effective date of such merger or consolidation have beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of less than 50% of the total
combined voting power for election of directors of the surviving corporation
following the effective date of such merger or consolidation;

(2) the acquisition or holding of direct or indirect beneficial ownership (as
defined under Rule 13d-3 of the Exchange Act) of securities of the Company
representing in the aggregate 30% or more of the total combined voting power of
the Company’s then issued and outstanding voting securities by any person,
entity or group of associated persons or entities acting in concert, other than
any employee benefit plan of the Company or of any subsidiary of the Company, or
any entity holding such securities for or pursuant to the terms of any such
plan;

(3) the sale of all or substantially all of the assets of the Company to any
person or entity that is not a wholly-owned subsidiary of the Company; or

(4) the approval by the stockholders of the Company of any plan or proposal for
the liquidation of the Company or its material subsidiaries, other than into the
Company.