Exhibit 10.1

 

EMPLOYMENT AGREEMENT

BETWEEN

TETON ENERGY CORPORATION

AND

KARL F. ARLETH
(Executive)

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of September 1, 2006 (the
“Effective Date”) is entered into by and between Teton Energy Corporation, a
Delaware corporation (the “Company”), and Karl F. Arleth, an individual with a
physical address at 467 Lariat Loop Drive, Silverthorne, CO 80498 and mailing
address of P.O. Box 23507, Silverthorne, CO 80498, (the “Executive”)
(collectively, the “Parties,” individually, a “Party”).

W I T N E S S E T H:

WHEREAS, the Parties have previously entered into that certain Employment
Agreement, dated as of May 1, 2003 (the “Original Agreement”) pursuant to which
the Company engaged the Executive as President and Chief Executive Officer of
the Company; and

WHEREAS, the Board of Directors of the Company (the “Board”) has requested and
the Executive has agreed to continue services to the Company as President and
Chief Executive Officer upon the expiration of the Original Agreement; and

WHEREAS, the Board has determined that it is in the best interest of the
Company, its affiliates, and its stockholders to assure that the Company will
have the continued dedication of the Executive, notwithstanding the possibility,
threat, or occurrence of a Change in Control (as defined Article Seven herein);
and

WHEREAS, the Board has determined that it is in the best interests of the
Company and its stockholders to indemnify the Executive for claims for damages
arising out of or relating to the performance of such services to the Company in
accordance with the terms and conditions set forth in this Agreement and
pursuant to Delaware law; and

WHEREAS, as an inducement to serve and in consideration for such services, the
Company has agreed to indemnify the Executive for claims for damages arising out
of or relating to the performance of such services to the Company in accordance
with the terms and conditions set forth in a separate agreement, which
indemnification agreement is attached as an exhibit hereto and is incorporated
herein by reference; and

WHEREAS, in order to accomplish these objectives and establish the rights,
duties and obligations of the Parties, which shall be generally stated herein
and which may be more fully stated in other agreements between the Parties,
including equity-based agreements, indemnity agreements, and other employment or
incentive related agreements as the Company or the Board may adopt from time to
time, the Board has caused the Company to enter into this Agreement;

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NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements set forth herein, the Parties, intending to be legally bound, hereby
agree as follows:

ARTICLE ONE

DEFINITIONS

1.                                       Definitions.  As used in this
Agreement:

1.1                                 The term “Accrued Obligations,” when used in
the case of the Executive’s death or disability shall mean the sum of (1) the
that portion Executive’s Base Salary that was not previously paid to the
Executive from the last payment date through the Date of Termination, and (2) an
amount equal 24 months salary at the level of the Executive’s Base Salary then
in effect,

1.2                                 The term “Automatic Extension” shall have
the meaning set forth in Section 2.2 herein.

1.3                                 The term “Base Salary”, shall have the
meaning set forth in Section 3.1 herein.

1.4                                 The term “Board” shall have the meaning set
forth in the recitals.

1.5                                 The term “Cause” shall have the meaning set
forth in Section 4.3 herein.

1.6                                 The term “Common Stock” shall mean the
Common Stock, par value $0.001, of the Company.

1.7                                 The term “Compensation Committee” shall mean
the Compensation Committee of the Company.

1.8                                 The term “Corporate Documents” shall mean
the Company’s Certificate of Incorporation, as amended and/or its Bylaws, as
amended.

1.9                                 The term “Effective Date” shall have the
meaning set forth in the preamble.

1.10                           The term “Good Reason” shall have the meaning set
forth in Section 4.4 herein.

1.11                           The term “Initial Term” shall have the meaning
set forth in Section 2.2 herein.

1.12                           The term “Severance Benefit” shall have the
meaning set forth in Section 4.8(a)(i) herein.

1.13                           The term “Without Cause” shall have the meaning
set forth in Section 4.3 herein.

1.14                           The term “Without Good Reason” shall have the
meaning set forth in Section 4.5 herein.

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ARTICLE TWO

POSITION & DUTIES

2.                                       Employment.

2.1                                 Title.  The Executive shall serve as the
President and Chief Executive Officer of the Company and agrees to perform
services for the Company and such other affiliates of the Company, as described
in Section 3 herein.

2.2                                 Term.  The Executive’s employment shall be
for an initial term of three (3) years (“Initial Term”), commencing on the
Effective Date. The Executive’s employment shall be automatically extended on
the day after the second year anniversary of the Effective Date (“Automatic
Extension”), and on each anniversary date thereof, for additional two (2) year
periods unless, with respect to any such Automatic Extension, Executive’s
employment is terminated by either party during the 60-day period prior to such
anniversary date as provided in Article Four.

2.3                                 Duties and Responsibilities. The Executive
shall report to the Board and in his capacity as an officer of the Company shall
perform such duties and services as may be appropriate and as are assigned to
him by the Board.  During the term of this Agreement Executive shall, subject to
the direction of the Board of the Company, oversee and direct the operations of
the Company, and shall perform such duties as are customarily performed by the
President and Chief Executive Officer of a company such as the Company or as are
otherwise delegated to him from time to time by the Board.

2.4                                 Performance of Duties. During the term of
the Agreement, except as otherwise approved by the Board or as provided below,
the Executive agrees to devote his full business time, effort, skill and
attention to the affairs of the Company and its subsidiaries, will use his best
efforts to promote the interests of the Company, and will discharge his
responsibilities in a diligent and faithful manner, consistent with sound
business practices.  The foregoing shall not, however, preclude Executive from
devoting reasonable time, attention and energy in connection with the following
activities, provided that such activities do not materially interfere with the
performance of his duties and services hereunder:

(a)                                  serving as a director or a member of a
committee of any company or organization, if serving in such capacity does not
involve any conflict with the business of the Company or any subsidiary and such
other company or organization is not in competition, in any manner whatsoever,
with the business of the Company or any of its subsidiaries;

(b)                                 fulfilling speaking engagements;

(c)                                  engaging in charitable and community
activities;

(d)                                 managing his personal business and
investments; and

(e)                                  any other activity approved of by the
Board.  For purposes of this Agreement, any activity specifically listed on
Schedule A shall be considered as having been approved by the Board.

2.5                                 Representations and Warranties of the
Executive with Respect to Conflicts, Past Employers and Corporate
Opportunities.  The Executive represents and warrants that:

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(a)                                  his employment by the Company will not
conflict with any obligations which he has to any other person, firm or entity;

(b)                                 he has not brought to the Company (during
the period before the signing of this Agreement) and he will not bring to the
Company any materials or documents of a former or present employer, or any
confidential information or property of any other person, firm or entity; and

(c)                                  he will not, without disclosure to and
approval of the Board, directly or indirectly, assist or have an active interest
in (whether as a principal, stockholder, lender, employee, officer, director,
partner, venturer, consultant or otherwise) in any person, firm, partnership,
association, corporation or business organization, entity or enterprise that
competes with or is engaged in a business which is substantially similar to the
business of the Company; provided, however, that ownership of not more than two
percent (2%) of the outstanding securities of any class of any publicly held
corporation shall not be deemed a violation of this Section 2.5; provided,
further, that any investment specifically listed on Schedule A shall not be
deemed a violation of this Section 2.5.

2.6                                 Activities and Interests with Companies
Doing Business with the Company.  In addition to those activities and interests
of Executive disclosed on Schedule A attached hereto, Executive shall promptly
disclose to the Board, in accordance with the Company’s policies, full
information concerning any interests, direct or indirect, he holds (whether as a
principal, stockholder, lender, executive, director, officer, partner, venturer,
consultant or otherwise) in any business which, as reasonably known to
Executive, purchases or provides services or products to, the Company or any of
its subsidiaries, provided that the Executive need not disclose any such
interest resulting from ownership of not more than two (2%) of the outstanding
securities of any class of any publicly held corporation.

2.7                                 Other Business Opportunities.  Nothing in
this Agreement shall be deemed to preclude the Executive from participating in
other business opportunities if and to the extent that: (a) such business
opportunities are not directly competitive with, similar to the business of the
Company, or would otherwise be deemed to constitute an opportunity appropriate
for the Company; (b) the Executive’s activities with respect to such
opportunities do not have a material adverse effect on the performance of the
Executive’s duties hereunder, and (c) the Executive’s activities with respect to
such opportunity have been fully disclosed in writing to the Board.

2.8                                 Reporting Location.  For purposes of this
Agreement, the Executive’s reporting location shall be Denver, Colorado, which
shall include the metropolitan area within a 40 mile radius from the Company’s
current office.

ARTICLE THREE

COMPENSATION

3.                                       Compensation.

3.1                                 Base Salary.  Executive shall receive an
initial annual base salary of Two Hundred Fifty Thousand Dollars ($250,000.00),
payable bi-monthly in arrears (the “Base Salary”) and subject to all federal,
state, and municipal withholding requirements.  The Base Salary shall be
reviewed by the Board annually for adequacy.

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3.2                                 Cash Bonus.  The Executive shall be eligible
for a cash bonus equal to an amount as determined by the Compensation Committee
of the Board or by the independent directors (as that term is defined by the
stock exchange or market on which the Company’s shares may be the traded).

The Parties agree that for the Fiscal Year ended December 2006, the Executive
shall be entitled to the following:

(a)                                  A retention bonus equal to 100% of
Executive’s annual salary;

(b)                                 A performance bonus equal to up to 100% of
Executive’s annual salary based on the attainment of certain criteria, as
articulated by the compensation committee, which criteria are set forth on
Schedule B; and

(c)                                  An additional discretionary bonus based on
the Executive’s ability to establish the Company as an operating producer during
2006.

3.3                                 Equity-Based Compensation.  The Executive
shall be entitled to participate in all equity-based compensation plans offered
by the Company and as determined by the Board of Directors.

(a)                                  The Executive understands that as of the
date of this Agreement, the only stock-based plan offered by the Company is the
2005 Long-Term Incentive Plan.

(b)                                 Upon a Change of Control, all equity-based
compensation will be treated in the same manner as if Executive’s employment was
terminated by the Company Without Cause.

3.4                                 Participation In Benefit Plans.

(a)                                  Retirement Plans.  Executive shall be
entitled to participate, without any waiting or eligibility periods, in all
qualified retirement plans provided to other executive officers and other key
employees.

(b)                                 Taxes.  The Company shall pay, on a
grossed-up basis for federal, state, and local income taxes, the amount of any
excise tax payable by Executive as a result of any payments triggered by this
Agreement, or other compensation agreements between Executive and the Company,
or any of its subsidiaries and any income tax payable by Executive as a result
of any payments in Common Stock triggered by this Agreement or other
compensation agreements between Executive and the Company, or any of its
subsidiaries, except as might otherwise be provided such benefit plan.

(c)                                  Life Insurance.  The Company will purchase
life insurance on the life of Executive in an amount not less than $3,000,000,
the benefits of which will be payable one-half to the Executive’s beneficiary
and one-half to the Company.  The Executive’s “beneficiary” is the person or
persons (who may be designated concurrently, successively or contingently)
designated by the Executive in his last effective writing filed with the Company
prior to his death, or if the Executive shall have failed to make an effective
designation, the Executive’s beneficiary is his spouse, if the Executive is
married and his spouse is living at the time of each payment, and otherwise his
surviving children.  The Executive shall assist the Company in procuring such
insurance by submitting to such examinations and by signing such applications
and other instruments as may be reasonable and as may be required by the
insurance carriers to which application is made

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for any such insurance.  The Executive represents that, to the best of his
knowledge, he is currently insurable at standard premium rates for life
insurance policies.

(d)                                 Employee Benefit Plans and Insurance.  The
Executive shall have the right to participate in employee benefit plans and
insurance programs of the Company that the Company may sponsor from time to time
and to receive customary Company benefits, if those benefits are so offered. 
Nothing herein shall obligate Executive to accept such benefits if and when they
are offered.

(e)                                  Vacation.

(i)                                     The Executive shall be entitled to take
such vacations, with pay, as are customary among other chief executive officers
of organizations of similar size and nature, which vacation level shall be
reviewed by the Compensation Committee from time to time.  No more than 1.5
times (1.5x) Executive’s authorized annual vacation allocation may be accrued,
at any given time.  In the event that Executive has reached his maximum
authorized vacation allocation, accrual will not re-commence until Executive
uses some of his paid vacation credit and thereby brings the balance below his
maximum.  Accrued paid vacation credit forfeited because of an excess balance
can not be retroactively reapplied.

(ii)                                  Pay will only be provided for any unused,
accrued paid vacation credit at the time of Executive’s separation from the
business by the Company due to a reduction in force, by Executive upon
retirement, or upon the death of an employee, provided that Executive has been a
regular full-time employee for three calendar months prior to such event. 
Termination of employment for Cause by the Company, or Executive’s resignation,
will result in the forfeiture of any unused paid vacation credit.

(f)                                    Paid Holidays.  The Executive shall be
entitled to such paid holidays as are generally available to all employees.  As
of the date of this Agreement, the Company’s employees are permitted to observe
ten (10) paid holidays.

3.5                                 Relocation and Business-related Expenses. 
In the event that Executive is required to move from his primary residence and
consents to such move, then Executive shall be provided with relocation
assistance as provided below:

(a)                                  Housing and Temporary Lodging.  The Company
will pay the costs, for the Executive and his family, of house-hunting trips and
the cost of transporting the Executive, his spouse, furniture, household
effects, and vehicles, to the area in which the Company will be headquartered. 
In addition, the Company will pay the cost of the Executive’s travel, temporary
living expenses, including housing, whether hotel or apartment, and meals,
during the period prior to the Executive’s move to the city in which the Company
will be headquartered.

(b)                                 Maintenance of Primary Residence.  The
Company acknowledges that, as of the date of this Agreement, Executive’s primary
residence is in Silverthorne, Colorado.  In order to induce Executive to remain
in the Company’s employ, the Company agrees to pay the expenses associated with
the lease on Executive’s Denver apartment, which expenses shall be coterminous
with Executive’s Base Salary.

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(c)                                  Reimbursement.  Executive shall be entitled
to reimbursement within a reasonable time for all properly documented and
approved expenses for travel.  The Company shall reimburse business expenses of
Executive directly related to Company business, including, but not limited to,
airfare, lodging, meals, travel expenses, medical expenses while traveling not
covered by insurance, business entertainment, expenses associated with
entertaining business persons, local expenses to governments or governmental
officials, tariffs, applicable taxes outside of the United States, special
expenses associated with travel to certain countries, supplemental life
insurance or supplemental insurance of any kind or special insurance rates or
charges for travel outside the United States (unless such insurance is being
provided by the Company), rental cars and insurance for rental cars, and any
other expenses of travel that are reasonable in nature or that have been
otherwise pre-approved.  Executive shall be governed by the travel and
entertainment policy in effect at the Company.

3.6                                 Severance Benefit.  In the event that
Executive’s employment is terminated, other than for Cause, Executive shall
receive compensation pursuant to Section 4.8 herein.

3.7                                 Payroll Procedures and Policies.  All
payments required to be made by the Company to the Executive pursuant to this
Article Three shall be paid on a regular basis in accordance with the Company’s
normal payroll procedures and policies.

ARTICLE FOUR

TERMINATION OF EMPLOYMENT

4.1                                 Death. The Executive’s employment shall
terminate automatically upon the Executive’s death during the Employment Term.

4.2                                 Disability. If the Company determines in
good faith that the Disability (as defined below) of the Executive has occurred
during the Employment Term, the Company may give the Executive notice of its
intention to terminate the Executive’s employment. In such event, the
Executive’s employment hereunder shall terminate effective on the 30th day after
receipt of such notice by the Executive (the “Disability Effective Date”);
provided, that, within the 30-day period after such receipt, the Executive shall
not have returned to full-time performance of the Executive’s duties. For
purposes of this Agreement, “Disability” shall mean the absence of the Executive
from the Executive’s duties hereunder on a full-time basis for an aggregate of
180 days within any given period of 270 consecutive days (in addition to any
statutorily required leave of absence and any leave of absence approved by the
Company) as a result of incapacity of the Executive, despite any reasonable
accommodation required by law, due to bodily injury or disease or any other
mental or physical illness, which will, in the opinion of a physician selected
by the Company or its insurers and acceptable to the Executive or the
Executive’s legal representative, be permanent and continuous during the
remainder of the Executive’s life.

4.3                                 Termination by Company.

(a)                                  Termination for Cause.

The Company may terminate the Executive’s employment hereunder for Cause (as
defined below). For purposes of this Agreement, “Cause” shall mean:

(I)                                     THE WILLFUL AND CONTINUED FAILURE OF THE
EXECUTIVE TO PERFORM SUBSTANTIALLY THE EXECUTIVE’S DUTIES HEREUNDER (OTHER THAN
ANY SUCH FAILURE RESULTING FROM

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BODILY INJURY OR DISEASE OR ANY OTHER INCAPACITY DUE TO MENTAL OR PHYSICAL
ILLNESS) AFTER A WRITTEN DEMAND FOR SUBSTANTIAL PERFORMANCE IS DELIVERED TO THE
EXECUTIVE BY THE BOARD OR THE CHAIRMAN OF THE COMPANY, WHICH SPECIFICALLY
IDENTIFIES THE MANNER IN WHICH THE BOARD OR THE CHAIRMAN OF THE COMPANY BELIEVES
THE EXECUTIVE HAS NOT SUBSTANTIALLY PERFORMED THE EXECUTIVE’S DUTIES; OR

(ii)                                  the willful engaging by the Executive in
illegal conduct or gross misconduct that is materially and demonstrably
detrimental to the Company and/or its affiliated companies, monetarily or
otherwise.

For purposes of this provision, no act, or failure to act, on the part of the
Executive shall be considered “willful” unless done, or omitted to be done, by
the Executive in bad faith or without reasonable belief that the Executive’s
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board, upon the instructions of the Chairman or another Board Member of Company,
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company and its affiliated companies. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Board then in office at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.

(iii)                               the Executive’s conviction of, or plea of
nolo contendere to, any felony of theft, fraud, embezzlement or violent crime.

(b)                                 Termination without Cause.

All terminations by the Company that are not for Cause, or on the occasion of
the Executive death or disability, or that are not terminated during the 60-day
period prior to any anniversary date as provided in Section 2.2 or Section 4.5,
shall be considered Without Cause.

4.4                                 TERMINATION BY EXECUTIVE. THE EXECUTIVE MAY
TERMINATE THE EXECUTIVE’S EMPLOYMENT HEREUNDER (X) AT ANY TIME DURING THE
EMPLOYMENT TERM FOR GOOD REASON (AS DEFINED BELOW) OR (Y) DURING THE WINDOW
PERIOD (AS DEFINED BELOW) WITHOUT GOOD REASON.  FOR PURPOSES OF THIS AGREEMENT,
THE “WINDOW PERIOD” SHALL MEAN THE 30-DAY PERIOD IMMEDIATELY FOLLOWING THE FIRST
ANNIVERSARY OF THE EFFECTIVE DATE, AND “GOOD REASON” SHALL MEAN ANY OF THE
FOLLOWING (WITHOUT THE EXECUTIVE’S EXPRESS WRITTEN CONSENT):

(A)                                  THE ASSIGNMENT TO THE EXECUTIVE OF ANY
DUTIES INCONSISTENT IN ANY RESPECT WITH THE EXECUTIVE’S POSITION (INCLUDING
STATUS, OFFICES, TITLES AND REPORTING REQUIREMENTS), DUTIES, FUNCTIONS,
RESPONSIBILITIES OR AUTHORITY AS CONTEMPLATED BY SECTION 2.3 OF THIS AGREEMENT,
OR ANY OTHER ACTION BY THE COMPANY THAT RESULTS IN A DIMINUTION IN SUCH
POSITION, DUTIES, FUNCTIONS, RESPONSIBILITIES OR AUTHORITY, EXCLUDING FOR THIS
PURPOSE AN ISOLATED, INSUBSTANTIAL AND INADVERTENT ACTION NOT TAKEN IN BAD FAITH
AND WHICH IS REMEDIED BY THE COMPANY PROMPTLY AFTER RECEIPT OF NOTICE THEREOF
GIVEN BY THE EXECUTIVE;

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(B)                                 ANY FAILURE BY THE COMPANY TO COMPLY WITH
ANY OF THE PROVISIONS OF SECTION 2.3 OF THIS AGREEMENT, OTHER THAN AN ISOLATED,
INSUBSTANTIAL AND INADVERTENT ACTION NOT TAKEN IN BAD FAITH AND WHICH IS
REMEDIED BY THE COMPANY PROMPTLY AFTER RECEIPT OF NOTICE THEREOF GIVEN BY THE
EXECUTIVE;

(c)                                  The Company’s requiring the Executive to be
based at any office or location other than as provided in Section 2.8 of this
Agreement or the Company’s requiring the Executive to travel on the Company’s or
its affiliated companies’ business to a substantially greater extent than during
the three-year period immediately preceding the Effective Date;

(D)                                 ANY FAILURE BY THE COMPANY TO COMPLY WITH
AND SATISFY SECTION 8.1 OF THIS AGREEMENT; OR

(E)                                  ANY PURPORTED TERMINATION BY THE COMPANY OF
THE EXECUTIVE’S EMPLOYMENT HEREUNDER OTHERWISE THAN AS EXPRESSLY PERMITTED BY
THIS AGREEMENT, AND FOR PURPOSES OF THIS AGREEMENT, NO SUCH PURPORTED
TERMINATION SHALL BE EFFECTIVE.

For purposes of this Section 4.4, any good faith determination of “Good Reason”
made by the Executive shall be conclusive.

4.5                                 Termination without Prejudice.  The Company
or the Executive may terminate this Agreement at any time during the 60-day
period prior to the Automatic Extension.

4.6                                 NOTICE OF TERMINATION. ANY TERMINATION OF
THE EXECUTIVE’S EMPLOYMENT HEREUNDER BY THE COMPANY OR BY THE EXECUTIVE (OTHER
THAN A TERMINATION PURSUANT TO SECTION 4.1) SHALL BE COMMUNICATED BY A NOTICE OF
TERMINATION (AS DEFINED BELOW) TO THE OTHER PARTY HERETO. FOR PURPOSES OF THIS
AGREEMENT, A “NOTICE OF TERMINATION” SHALL MEAN A NOTICE WHICH (A) INDICATES THE
SPECIFIC TERMINATION PROVISION IN THIS AGREEMENT RELIED UPON, (B) IN THE CASE OF
A TERMINATION FOR DISABILITY, CAUSE OR GOOD REASON, SETS FORTH IN REASONABLE
DETAIL THE FACTS AND CIRCUMSTANCES CLAIMED TO PROVIDE A BASIS FOR TERMINATION OF
THE EXECUTIVE’S EMPLOYMENT UNDER THE PROVISION SO INDICATED, AND (C) SPECIFIES
THE DATE OF TERMINATION (AS DEFINED IN SECTION 4.7 BELOW); PROVIDED, HOWEVER ,
THAT NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT TO THE CONTRARY, A NOTICE
OF TERMINATION GIVEN IN CONNECTION WITH A TERMINATION FOR GOOD REASON SHALL BE
GIVEN BY THE EXECUTIVE WITHIN A REASONABLE PERIOD OF TIME, NOT TO EXCEED
120 DAYS, FOLLOWING THE OCCURRENCE OF THE EVENT GIVING RISE TO SUCH RIGHT OF
TERMINATION. THE FAILURE BY THE COMPANY OR THE EXECUTIVE TO SET FORTH IN THE
NOTICE OF TERMINATION ANY FACT OR CIRCUMSTANCE WHICH CONTRIBUTES TO A SHOWING OF
DISABILITY, CAUSE OR GOOD REASON SHALL NOT WAIVE ANY RIGHT OF THE COMPANY OR THE
EXECUTIVE HEREUNDER OR PRECLUDE THE COMPANY OR THE EXECUTIVE FROM ASSERTING SUCH
FACT OR CIRCUMSTANCE IN ENFORCING THE COMPANY’S OR THE EXECUTIVE’S RIGHTS
HEREUNDER.

4.7                                 DATE OF TERMINATION. FOR PURPOSES OF THIS
AGREEMENT, THE “DATE OF TERMINATION” SHALL MEAN THE EFFECTIVE DATE OF
TERMINATION OF THE EXECUTIVE’S EMPLOYMENT HEREUNDER, WHICH DATE SHALL BE (A) IF
THE EXECUTIVE’S EMPLOYMENT IS TERMINATED BY THE EXECUTIVE’S DEATH, THE DATE OF
THE EXECUTIVE’S DEATH, (B) IF THE EXECUTIVE’S EMPLOYMENT IS TERMINATED BECAUSE
OF THE EXECUTIVE’S DISABILITY, THE DISABILITY EFFECTIVE DATE, (C) IF THE
EXECUTIVE’S EMPLOYMENT IS TERMINATED BY THE COMPANY (OR APPLICABLE AFFILIATED
COMPANY) FOR CAUSE OR BY THE EXECUTIVE FOR GOOD REASON, THE DATE ON WHICH THE
NOTICE OF TERMINATION IS GIVEN, (D) IF THE EXECUTIVE’S EMPLOYMENT IS TERMINATED
PURSUANT TO SECTION 2.2, THE DATE ON WHICH THE EMPLOYMENT TERM ENDS PURSUANT TO
SECTION 2.2 DUE TO A PARTY’S DELIVERY OF A NOTICE OF TERMINATION THEREUNDER, AND
(E) IF THE EXECUTIVE’S EMPLOYMENT IS TERMINATED FOR ANY OTHER REASON, THE DATE
SPECIFIED IN THE NOTICE OF TERMINATION, WHICH DATE SHALL IN NO EVENT BE EARLIER
THAN THE DATE SUCH NOTICE IS GIVEN; PROVIDED, HOWEVER, THAT IF WITHIN 30 DAYS
AFTER ANY NOTICE OF TERMINATION IS GIVEN, THE

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PARTY RECEIVING SUCH NOTICE OF TERMINATION NOTIFIES THE OTHER PARTY THAT A
DISPUTE EXISTS CONCERNING THE TERMINATION, THE DATE OF TERMINATION SHALL BE THE
DATE ON WHICH THE DISPUTE IS FINALLY DETERMINED, EITHER BY MUTUAL WRITTEN
AGREEMENT OF THE PARTIES OR BY A FINAL JUDGMENT, ORDER OR DECREE OF A COURT OF
COMPETENT JURISDICTION (THE TIME FOR APPEAL THEREFROM HAVING EXPIRED AND NO
APPEAL HAVING BEEN PERFECTED).

4.8                                 OBLIGATIONS OF THE COMPANY UPON TERMINATION.

(A)                                  GOOD REASON OR DURING THE WINDOW PERIOD;
OTHER THAN FOR CAUSE, DEATH OR DISABILITY. IF, DURING THE EMPLOYMENT TERM, THE
COMPANY (OR APPLICABLE AFFILIATED COMPANY) SHALL TERMINATE THE EXECUTIVE’S
EMPLOYMENT HEREUNDER OTHER THAN FOR CAUSE OR DISABILITY OR THE EXECUTIVE SHALL
TERMINATE THE EXECUTIVE’S EMPLOYMENT EITHER FOR GOOD REASON OR WITHOUT GOOD
REASON DURING THE WINDOW PERIOD:

(I)                                     THE COMPANY SHALL PAY TO THE EXECUTIVE
(EITHER IN A LUMP SUM OR ON IN EQUAL MONTHLY INSTALLMENTS OVER A 12-MONTH PERIOD
AFTER THE DATE OF TERMINATION, AT THE COMPANY’S OPTION) THE SUM OF (1) THAT
PORTION OF EXECUTIVE’S BASE SALARY THAT WAS NOT PREVIOUSLY PAID TO THE EXECUTIVE
FROM THE LAST PAYMENT DATE THROUGH THE DATE OF TERMINATION, AND (2) AN AMOUNT
EQUAL 24 MONTHS SALARY AT THE LEVEL OF THE EXECUTIVE’S BASE SALARY THEN IN
EFFECT, (SUCH 24 MONTHS AMOUNT IS HEREINAFTER REFERRED TO AS THE “SEVERANCE
AMOUNT”);

(ii)                                  all stock options, stock appreciation
rights, and restricted stock shall immediately vest;

(iii)                               all stock options and stock appreciation
rights shall be payable in Common Stock;

(iv)                              all performance share units that would vest in
the course of any fiscal year shall vest on a pro rata basis; and

(v)                                 the Company shall pay, on a grossed-up basis
(as determined in the same manner as under Section 3.4(b) herein the amount of
any excise and income taxes payable by Executive as a result of any payments in
Common Stock triggered by this Agreement, or other agreements between Executive
and the Company, or any of its subsidiaries.

TO THE EXTENT NOT THERETOFORE PAID OR PROVIDED, THE COMPANY SHALL TIMELY PAY OR
PROVIDE TO THE EXECUTIVE ANY OTHER AMOUNTS OR BENEFITS REQUIRED TO BE PAID OR
PROVIDED OR WHICH THE EXECUTIVE IS ELIGIBLE TO RECEIVE UNDER ANY PLAN, PROGRAM,
POLICY, PRACTICE OR ARRANGEMENT OR CONTRACT OR AGREEMENT OF THE COMPANY AND ITS
AFFILIATED COMPANIES (SUCH OTHER AMOUNTS AND BENEFITS HEREINAFTER REFERRED TO AS
THE “OTHER BENEFITS”).

(B)                                 DEATH. IF THE EXECUTIVE’S EMPLOYMENT IS
TERMINATED BY REASON OF THE EXECUTIVE’S DEATH DURING THE EMPLOYMENT TERM, THIS
AGREEMENT SHALL TERMINATE WITHOUT FURTHER COMPENSATION OBLIGATIONS TO THE
EXECUTIVE’S LEGAL REPRESENTATIVES UNDER THIS AGREEMENT, OTHER THAN FOR
(I) PAYMENT OF ACCRUED OBLIGATIONS (WHICH SHALL BE PAID TO THE EXECUTIVE’S
ESTATE OR BENEFICIARY, AS APPLICABLE, IN A LUMP SUM IN CASH WITHIN 90 DAYS OF
THE DATE OF TERMINATION) AND THE TIMELY PAYMENT OR SETTLEMENT OF ANY OTHER
AMOUNT

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PURSUANT THE OTHER BENEFITS AND (II) TREATMENT OF ALL OTHER COMPENSATION UNDER
EXISTING PLANS AS PROVIDED BY THE TERMS AND RULES OF THOSE PLANS.

(C)                                  DISABILITY. IF THE EXECUTIVE’S EMPLOYMENT
IS TERMINATED BY REASON OF THE EXECUTIVE’S DISABILITY DURING THE EMPLOYMENT
TERM, THIS AGREEMENT SHALL TERMINATE WITHOUT FURTHER COMPENSATION OBLIGATIONS TO
THE EXECUTIVE, OTHER THAN FOR (I) PAYMENT OF ACCRUED OBLIGATIONS (WHICH SHALL BE
PAID TO THE EXECUTIVE IN A LUMP SUM IN CASH WITHIN 90 DAYS OF THE DATE OF
TERMINATION) AND THE TIMELY PAYMENT OR SETTLEMENT OF ANY OTHER AMOUNT PURSUANT
TO THE OTHER BENEFITS AND (II) TREATMENT OF ALL OTHER COMPENSATION UNDER
EXISTING PLANS AS PROVIDED BY THE TERMS AND RULES OF THOSE PLANS.

(D)                                 CAUSE; OTHER THAN FOR GOOD REASON OR DURING
THE WINDOW PERIOD. IF THE EXECUTIVE’S EMPLOYMENT IS TERMINATED FOR CAUSE DURING
THE EMPLOYMENT TERM, THIS AGREEMENT SHALL TERMINATE WITHOUT FURTHER COMPENSATION
OBLIGATIONS TO THE EXECUTIVE OTHER THAN THE OBLIGATION TO PAY TO THE EXECUTIVE
BASE SALARY THROUGH THE DATE OF TERMINATION PLUS THE AMOUNT OF ANY COMPENSATION
PREVIOUSLY DEFERRED BY THE EXECUTIVE, IN EACH CASE TO THE EXTENT THERETOFORE
UNPAID. IF THE EXECUTIVE VOLUNTARILY TERMINATES THE EXECUTIVE’S EMPLOYMENT
DURING THE EMPLOYMENT TERM, EXCLUDING A TERMINATION EITHER FOR (I) GOOD REASON
OR (II) WITHOUT GOOD REASON DURING THE WINDOW PERIOD, THIS AGREEMENT SHALL
TERMINATE WITHOUT FURTHER COMPENSATION OBLIGATIONS TO THE EXECUTIVE, OTHER THAN
FOR THE THAT PORTION EXECUTIVE’S BASE SALARY THAT WAS NOT PREVIOUSLY PAID TO THE
EXECUTIVE FROM THE LAST PAYMENT DATE THROUGH THE EFFECTIVE DATE OF THE
EXECUTIVE’S VOLUNTARY TERMINATION AND THE TIMELY PAYMENT OR PROVISION OF THE
OTHER BENEFITS, AS PROVIDED IN ANY APPLICABLE PLAN, AND THE EXECUTIVE SHALL HAVE
NO FURTHER OBLIGATIONS NOR LIABILITY TO THE COMPANY. IN SUCH CASE, ANY AMOUNTS
OWED TO THE EXECUTIVE SHALL BE PAID TO THE EXECUTIVE IN A LUMP SUM IN CASH
WITHIN 90 DAYS OF THE DATE OF TERMINATION SUBJECT TO APPLICABLE LAWS AND
REGULATIONS.

4.9                                 Continuation of Payments During Disputes. 
The Parties agree that in the case of:

(a)                                  termination which the Company contends is
for Cause, but Executive claims is not for Cause; or

(b)                                 termination by Executive under Section 4.4
herein,

the Company shall continue to pay all compensation due to Executive hereunder
until the resolution of such dispute, but the Company shall be entitled to
repayment of all sums so paid, if it ultimately shall be determined by a court
of competent jurisdiction, in a final non-appealable decision, that the
termination was for Cause or such termination by Executive was not authorized
under Section 4.4 herein, and all sums so repaid shall bear interest at the
prime rate as published in The Wall Street Journal on the date on which such
court makes such determination.  Any such reimbursement of payments by Executive
shall not include any legal fees or other loss, costs, or expenses incurred by
the Company, notwithstanding any provision of the Indemnification Agreement,
which is attached as Exhibit A and is considered a part of this Agreement.

ARTICLE FIVE

INDEMNIFICATION

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5.                                       Indemnification.  The Executive shall
be indemnified and held harmless pursuant to the terms and conditions set forth
in the Indemnification Agreement substantially in the form attached as Exhibit A
hereto.

ARTICLE SIX

CONFIDENTIALITY

6.                                       Confidentially; Non-Competition; and
Non-Solicitation.  

6.1                                 Confidentiality.  In consideration of
employment by the Company and Executive’s receipt of the salary and other
benefits associated with Executive’s employment, and in acknowledgment that (a)
the Company is engaged in the oil and gas business, (b) maintains secret and
confidential information, (c) during the course of Executive’s employment by the
Company such secret or confidential information may become known to Executive,
and (d) full protection of the Company’s business makes it essential that no
employee appropriate for his or her own use, or disclose such secret or
confidential information, Executive agrees that during the time of Executive’s
employment and for a period of two (2) years following the termination of
Executive’s employment with the Company, Executive agrees to hold in strict
confidence and shall not, directly or indirectly, disclose or reveal to any
person, or use for his own personal benefit or for the benefit of anyone else,
any trade secrets, confidential dealings, or other confidential or proprietary
information of any kind, nature, or description (whether or not acquired,
learned, obtained, or developed by Executive alone or in conjunction with
others) belonging to or concerning the Company or any of its subsidiaries,
except (i) with the prior written consent of the Company duly authorized by its
Board, (ii) in the course of the proper performance of Executive’s duties
hereunder, (iii) for information (x) that becomes generally available to the
public other than as a result of unauthorized disclosure by Executive or his
affiliates or (y) that becomes available to Executive on a nonconfidential basis
from a source other than the Company or its subsidiaries who is not bound by a
duty of confidentiality, or other contractual, legal, or fiduciary obligation,
to the Company, or (iv) as required by applicable law or legal process.

6.2                                 Non-Competition.  During Executive’s
employment with the Company and for so long as Executive receives any Severance
Benefit or is receiving any Severance Amount provided under this agreement in
respect of the termination of his employment, Executive shall not be engaged as
an officer or executive of, or in any way be associated in a management or
ownership capacity with any corporation, company, partnership or other
enterprise or venture which conducts a business which is in direct competition
with the business of the Company; provided, however, that Executive may own not
more than two percent (2%) of the outstanding securities, or equivalent equity
interests, of any class of any corporation, company, partnership, or either
enterprise that is in direct competition with the business of the Company, which
securities are listed on a national securities exchange or traded in the
over-the-counter market.  For purposes of this Agreement, a lump sum payment
equivalent made to Executive shall be judged in relation to his most recent
annual base salary to determine whether Executive is continuing to receive a
Severance Benefit or Severance Amount and shall be measured from the date such
payment is received.  It is expressly agreed that the remedy at law for breach
of this covenant is inadequate and that injunctive relief shall be available to
prevent the breach thereof.

6.3                                 Non-Solicitation.  Executive also agrees
that he will not, directly or indirectly, during the term of his employment or
within one (1) year after termination of his employment for any reason, in any
manner, encourage, persuade, or induce any other employee of the Company to
terminate his employment, or any person or entity engaged by the Company to
represent it to terminate that relationship without the express written approval
of the Company.  It is expressly agreed that the remedy

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at law for breach of this covenant is inadequate and that injunctive relief
shall be available to prevent the breach thereof.

ARTICLE SEVEN

CHANGE OF CONTROL

7.                                       Certain Definitions.

7.1                                 CHANGE OF CONTROL EFFECTIVE DATE. THE
“CHANGE OF CONTROL EFFECTIVE DATE” SHALL MEAN THE FIRST DATE DURING THE CHANGE
OF CONTROL PERIOD (AS DEFINED IN SECTION 7.2) ON WHICH A CHANGE OF CONTROL
OCCURS. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IF A CHANGE
OF CONTROL OCCURS AND IF THE EXECUTIVE’S EMPLOYMENT WITH THE COMPANY (OR
APPLICABLE AFFILIATED COMPANY) IS TERMINATED PRIOR TO THE DATE ON WHICH THE
CHANGE OF CONTROL OCCURS, AND IF IT IS REASONABLY DEMONSTRATED BY THE EXECUTIVE
THAT SUCH TERMINATION OF EMPLOYMENT (I) WAS AT THE REQUEST OF A THIRD PARTY WHO
HAS TAKEN STEPS REASONABLY CALCULATED TO EFFECT A CHANGE OF CONTROL OR
(II) OTHERWISE AROSE IN CONNECTION WITH OR ANTICIPATION OF A CHANGE OF CONTROL,
THEN FOR ALL PURPOSES OF THIS AGREEMENT THE “CHANGE OF CONTROL EFFECTIVE DATE”
SHALL MEAN THE DATE IMMEDIATELY PRIOR TO THE DATE OF SUCH TERMINATION OF
EMPLOYMENT.

7.2                                 CHANGE OF CONTROL PERIOD. THE “CHANGE OF
CONTROL PERIOD” SHALL MEAN THE PERIOD COMMENCING ON THE DATE OF THIS AGREEMENT
AND ENDING ON THE THIRD ANNIVERSARY OF SUCH DATE; PROVIDED, HOWEVER, THAT
COMMENCING ON THE DATE ONE YEAR AFTER THE DATE HEREOF, AND ON EACH ANNUAL
ANNIVERSARY OF SUCH DATE (SUCH DATE AND EACH ANNUAL ANNIVERSARY THEREOF HEREIN
REFERRED TO AS THE “RENEWAL DATE”), THE CHANGE OF CONTROL PERIOD SHALL BE
AUTOMATICALLY EXTENDED SO AS TO TERMINATE THREE YEARS AFTER SUCH RENEWAL DATE,
UNLESS AT LEAST 60 DAYS PRIOR TO THE RENEWAL DATE THE COMPANY SHALL GIVE NOTICE
TO THE EXECUTIVE THAT THE CHANGE OF CONTROL PERIOD SHALL NOT BE SO EXTENDED.

7.3                                 CHANGE OF CONTROL. FOR PURPOSES OF THIS
AGREEMENT, A “CHANGE OF CONTROL” SHALL MEAN:

(A)                                  THE ACQUISITION BY ANY INDIVIDUAL, ENTITY
OR GROUP (WITHIN THE MEANING OF SECTION 13(D)(3) OR 14(D)(2) OF THE EXCHANGE
ACT) (A “PERSON”) OF BENEFICIAL OWNERSHIP (WITHIN THE MEANING OF RULE 13D-3
PROMULGATED UNDER THE EXCHANGE ACT) OF 15% OR MORE OF EITHER (A) THE THEN
OUTSTANDING COMMON SHARES THE COMPANY (THE “OUTSTANDING SHARES”) OR (B) THE
COMBINED VOTING POWER OF THE THEN OUTSTANDING VOTING SECURITIES OF THE COMPANY
ENTITLED TO VOTE GENERALLY IN THE ELECTION OF DIRECTORS (THE “OUTSTANDING VOTING
SECURITIES”); PROVIDED, HOWEVER, THAT FOR PURPOSES OF THIS SUBSECTION 7.3(A) THE
FOLLOWING ACQUISITIONS SHALL NOT CONSTITUTE A CHANGE OF CONTROL:
(W) COMPANY-SPONSORED RECAPITALIZATION THAT IS APPROVED BY THE INCUMBENT BOARD,
AS DEFINED BELOW; (X) A CAPITAL RAISE INITIATED BY THE COMPANY WHERE THE
INCUMBENT BOARD REMAINS FOR AT LEAST AT LEAST 548 DAYS AFTER THE CLOSING DATE OF
THE RAISE, OR (Y) AN ACQUISITION OF ANOTHER COMPANY OR ASSET(S) INITIATED BY THE
COMPANY AND WHERE THE COMPANY’S SHAREHOLDERS IMMEDIATELY AFTER THE TRANSACTION
OWN AT LEAST 51% OF THE EQUITY OF THE COMBINED CONCERN; OR

 (B)                              INDIVIDUALS WHO, AS OF THE DATE OF THIS
AGREEMENT, CONSTITUTE THE COMPANY’S BOARD (THE “INCUMBENT BOARD”) CEASE FOR ANY
REASON TO CONSTITUTE A MAJORITY OF SUCH BOARD OF DIRECTORS; PROVIDED, HOWEVER ,
THAT ANY INDIVIDUAL BECOMING A DIRECTOR OF THE COMPANY SHAREHOLDERS SUBSEQUENT
TO THE DATE HEREOF WHOSE ELECTION, OR NOMINATION FOR ELECTION BY THE COMPANY’S
SHAREHOLDERS WAS APPROVED BY A VOTE OF A MAJORITY OF THE DIRECTORS OF THE
COMPANY THEN COMPRISING THE INCUMBENT BOARD SHALL BE

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CONSIDERED AS THOUGH SUCH INDIVIDUAL WERE A MEMBER OF THE INCUMBENT BOARD, BUT
EXCLUDING, FOR THIS PURPOSE, ANY SUCH INDIVIDUAL WHOSE INITIAL ASSUMPTION OF
OFFICE OCCURS AS A RESULT OF EITHER AN ACTUAL OR THREATENED ELECTION CONTEST OR
OTHER ACTUAL OR THREATENED SOLICITATION OF PROXIES OR CONSENTS BY OR ON BEHALF
OF A PERSON OTHER THAN THE COMPANY BOARD; OR

(C)                                  CONSUMMATION OF A REORGANIZATION, MERGER,
AMALGAMATION OR CONSOLIDATION OF THE COMPANY, WITH OR WITHOUT APPROVAL BY THE
SHAREHOLDERS OF THE COMPANY, IN EACH CASE, UNLESS, FOLLOWING SUCH
REORGANIZATION, MERGER, AMALGAMATION OR CONSOLIDATION, (I) MORE THAN 50% OF,
RESPECTIVELY, THE THEN OUTSTANDING SHARES OF COMMON STOCK (OR EQUIVALENT
SECURITY) OF THE COMPANY RESULTING FROM SUCH REORGANIZATION, MERGER,
AMALGAMATION OR CONSOLIDATION AND THE COMBINED VOTING POWER OF THE THEN
OUTSTANDING VOTING SECURITIES OF SUCH COMPANY ENTITLED TO VOTE GENERALLY IN THE
ELECTION OF DIRECTORS IS THEN BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY, BY ALL
OR SUBSTANTIALLY ALL OF THE INDIVIDUALS AND ENTITIES WHO WERE THE BENEFICIAL
OWNERS, RESPECTIVELY, OF THE OUTSTANDING SHARES AND OUTSTANDING VOTING
SECURITIES IMMEDIATELY PRIOR TO SUCH REORGANIZATION, MERGER, AMALGAMATION OR
CONSOLIDATION IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR OWNERSHIP,
IMMEDIATELY PRIOR TO SUCH REORGANIZATION, MERGER, AMALGAMATION OR CONSOLIDATION,
OF THE OUTSTANDING SHARES AND OUTSTANDING VOTING SECURITIES, AS THE CASE MAY BE,
(II) NO PERSON (EXCLUDING A PARENT OF THE COMPANY THAT MAY COME INTO BEING AFTER
THE DATE OF THIS AGREEMENT THROUGH ANY TRANSACTION DELIBERATELY UNDERTAKEN BY
THE COMPANY AFTER AN AFFIRMATIVE VOTE OF ITS INCUMBENT DIRECTORS AND THE COMPANY
SHAREHOLDERS), ANY EMPLOYEE BENEFIT PLAN (OR RELATED TRUST) OF THE COMPANY OR
SUCH COMPANY RESULTING FROM SUCH REORGANIZATION, MERGER, AMALGAMATION OR
CONSOLIDATION, AND ANY PERSON BENEFICIALLY OWNING, IMMEDIATELY PRIOR TO SUCH
REORGANIZATION, MERGER, AMALGAMATION OR CONSOLIDATION, DIRECTLY OR INDIRECTLY,
15% OR MORE OF THE OUTSTANDING SHARES OR OUTSTANDING VOTING SECURITIES, AS THE
CASE MAY BE) BENEFICIALLY OWNS, DIRECTLY OR INDIRECTLY, 15% OR MORE OF,
RESPECTIVELY, THE THEN OUTSTANDING SHARES OF COMMON STOCK (OR EQUIVALENT
SECURITY) OF THE COMPANY RESULTING FROM SUCH REORGANIZATION, MERGER,
AMALGAMATION OR CONSOLIDATION OR THE COMBINED VOTING POWER OF THE THEN
OUTSTANDING VOTING SECURITIES OF SUCH COMPANY ENTITLED TO VOTE GENERALLY IN THE
ELECTION OF DIRECTORS, AND (II) A MAJORITY OF THE MEMBERS OF THE BOARD OF
DIRECTORS OF THE COMPANY RESULTING FROM SUCH REORGANIZATION, MERGER,
AMALGAMATION OR CONSOLIDATION WERE MEMBERS OF THE INCUMBENT BOARD AT THE TIME OF
THE EXECUTION OF THE INITIAL AGREEMENT PROVIDING FOR SUCH REORGANIZATION,
MERGER, AMALGAMATION OR CONSOLIDATION; OR

(D)                                 CONSUMMATION OF A SALE OR OTHER DISPOSITION
OF ALL OR SUBSTANTIALLY ALL THE ASSETS OF THE COMPANY, WITH OR WITHOUT APPROVAL
BY THE SHAREHOLDERS OF THE COMPANY, OTHER THAN TO A CORPORATION, WITH RESPECT TO
WHICH FOLLOWING SUCH SALE OR OTHER DISPOSITION, (I) MORE THAN 50% OF,
RESPECTIVELY, THE THEN OUTSTANDING SHARES OF COMMON STOCK (OR EQUIVALENT
SECURITY) OF SUCH CORPORATION AND THE COMBINED VOTING POWER OF THE THEN
OUTSTANDING VOTING SECURITIES OF SUCH CORPORATION ENTITLED TO VOTE GENERALLY IN
THE ELECTION OF DIRECTORS IS THEN BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY, BY
ALL OR SUBSTANTIALLY ALL THE INDIVIDUALS AND ENTITIES WHO WERE THE BENEFICIAL
OWNERS, RESPECTIVELY, OF THE OUTSTANDING SHARES AND OUTSTANDING VOTING
SECURITIES IMMEDIATELY PRIOR TO SUCH SALE OR OTHER DISPOSITION IN SUBSTANTIALLY
THE SAME PROPORTION AS THEIR OWNERSHIP, IMMEDIATELY PRIOR TO SUCH SALE OR OTHER
DISPOSITION, OF THE OUTSTANDING SHARES AND OUTSTANDING VOTING SECURITIES, AS THE
CASE MAY BE, (II) NO PERSON (EXCLUDING THE COMPANY, ANY EMPLOYEE BENEFIT PLAN
(OR RELATED TRUST) OF THE COMPANY OR SUCH CORPORATION, AND ANY PERSON
BENEFICIALLY OWNING, IMMEDIATELY PRIOR TO SUCH SALE OR OTHER DISPOSITION,
DIRECTLY OR INDIRECTLY, 15% OR MORE OF THE OUTSTANDING SHARES OR OUTSTANDING
VOTING SECURITIES, AS

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THE CASE MAY BE) BENEFICIALLY OWNS, DIRECTLY OR INDIRECTLY, 15% OR MORE OF,
RESPECTIVELY, THE THEN OUTSTANDING SHARES OF COMMON STOCK (OR EQUIVALENT
SECURITY) OF SUCH CORPORATION OR THE COMBINED VOTING POWER OF THE THEN
OUTSTANDING VOTING SECURITIES OF SUCH CORPORATION ENTITLED TO VOTE GENERALLY IN
THE ELECTION OF DIRECTORS, AND (C) A MAJORITY OF THE MEMBERS OF THE BOARD OF
DIRECTORS OF SUCH CORPORATION WERE MEMBERS OF THE INCUMBENT BOARD AT THE TIME OF
THE EXECUTION OF THE INITIAL AGREEMENT OR ACTION OF THE INCUMBENT BOARD
PROVIDING FOR SUCH SALE OR OTHER DISPOSITION OF ASSETS OF THE COMPANY; OR

(e)                                  approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.

 

 

ARTICLE EIGHT

MISCELLANEOUS

8.                                       Miscellaneous.

8.1                                 Benefit.  This Agreement shall inure to the
benefit of and be binding upon each of the Parties, and their respective
successors.  This Agreement shall not be assignable by any Party without the
prior written consent of the other Party.  The Company shall require any
successor, whether direct or indirect, to all or substantially all the business
and/or assets of the Company to expressly assume and agree to perform, by
instrument in a form reasonably satisfactory to Executive, this Agreement and
any other agreements between Executive and the Company or any of its
subsidiaries, in the same manner and to the same extent as the Company.

8.2                                 Governing Law.  This Agreement shall be
governed by, and construed in accordance with the laws of the State of Colorado
without resort to any principle of conflict of laws that would require
application of the laws of any other jurisdiction; provided, however, that
Delaware law shall govern with respect to the Executive’s rights under a Change
of Control under Article Seven herein.

8.3                                 Counterparts.  This Agreement may be
executed in counterparts and via facsimile, each of which shall be deemed to
constitute an original, but all of which together shall constitute one and the
same Agreement.  Each such counterpart shall become effective when one
counterpart has been signed by each Party thereto.

8.4                                 Headings.  The headings of the various
articles and sections of this Agreement are for convenience of reference only
and shall not be deemed a part of this Agreement or considered in construing the
provisions thereof.

8.5                                 Severability.  Any term or provision of this
Agreement that shall be prohibited or declared invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or declaration, without invalidating the remaining terms and
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction, and if any term or provision of this Agreement is
held by any court of competent jurisdiction to be void, voidable, invalid or
unenforceable in any given circumstance or situation, then all other terms and
provisions hereof, being severable, shall remain in full force and effect in
such circumstance or situation, and such term or provision shall remain valid
and in effect in any other circumstances or situation.

8.6                                 Construction.  Use of the masculine pronoun
herein shall be deemed to refer to the feminine and neuter genders and the use
of singular references shall be deemed to include the plural

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and vice versa, as appropriate.  No inference in favor of or against any Party
shall be drawn from the fact that such Party or such Party’s counsel has drafted
any portion of this Agreement.

8.7                                 Equitable Remedies.  The Parties hereto
agree that, in the event of a breach of this Agreement by either Party, the
other Party, if not then in breach of this Agreement, may be without an adequate
remedy at law owing to the unique nature of the contemplated relationship.  In
recognition thereof, in addition to (and not in lieu of) any remedies at law
that may be available to the non-breaching Party, the non-breaching Party shall
be entitled to obtain equitable relief, including the remedies of specific
performance and injunction, in the event of a breach of this Agreement, by the
Party in breach, and no attempt on the part of the non-breaching Party to obtain
such equitable relief shall be deemed to constitute an election of remedies by
the non-breaching Party that would preclude the non-breaching Party from
obtaining any remedies at law to which it would otherwise be entitled.

8.8                                 Attorney’s Fees.  If any Party hereto shall
bring an action at law or in equity to enforce its rights under this Agreement,
the prevailing Party in such action shall be entitled to recover from the Party
against whom enforcement is sought its costs and expenses incurred in connection
with such action (including fees, disbursements and expenses of attorneys and
costs of investigation). [In the event that Executive institutes any legal
action to enforce Executive’s legal rights hereunder, or to recover damages for
breach of this Agreement, Executive, if Executive prevails in whole or in part,
shall be entitled to recover from the Company reasonable attorneys’ fees and
disbursements incurred by Executive with respect to the claims or matters on
which Executive has prevailed.]

8.9                                 No Waiver.  No failure, delay or omission of
or by any Party in exercising any right, power or remedy upon any breach or
default of any other Party, or otherwise, shall impair any such rights, powers
or remedies of the Party not in breach or default, nor shall it be construed to
be a waiver of any such right, power or remedy, or an acquiescence in any
similar breach or default; nor shall any waiver of any single breach or default
be deemed a waiver of any other breach or default theretofore or thereafter
occurring.  Any waiver, permit, consent or approval of any kind or character on
the part of any Party of any provisions of this Agreement must be in writing and
be executed by the Parties and shall be effective only to the extent
specifically set forth in such writing.

8.10                           Remedies Cumulative.  All remedies provided in
this Agreement, by law or otherwise, shall be cumulative and not alternative.

8.11                           Amendment.  This Agreement may be amended only by
a writing signed by all of the Parties hereto.

8.12                           Entire Contract.  This Agreement and the
documents and instruments referred to herein constitute the entire contract
between the parties to this Agreement and supersede all other understandings,
written or oral, with respect to the subject matter of this Agreement.

8.13                           Survival.  This Agreement shall constitute a
binding obligation of the Company and any successor thereto.  Notwithstanding
any other provision in this Agreement, the obligations under Articles 5 and 6
shall survive termination of this Agreement.

8.14                           Savings Clause.  Notwithstanding any other
provision of this Agreement, if the indemnification provisions in Exhibit A
hereto or any portion thereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Company shall nevertheless indemnify Executive
as to Expenses, judgments, fines, penalties and amounts paid in settlement with
respect to any Proceeding to the full extent permitted by any applicable portion
of this Agreement that shall not have been invalidated and to the fullest extent
permitted by applicable law.

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8.15                           Modifications and Waivers.  Notwithstanding any
other provision of this Agreement, the indemnification provisions in Exhibit A
hereto and the Change of Control provisions Article Seven herein, may be amended
from time to time to reflect changes in Delaware law or for other reasons.

8.16                           Notices.  All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been given (i) when delivered by hand or (ii) if mailed by certified or
registered mail with postage prepaid, on the third day after the date on which
it is so mailed:

(a)                                  if to Executive:

Karl F. Arleth

P.O. Box 23507

Silverthorne, CO 80498

970-468-7448

(b)                                 if to the Company:

Teton Energy Corporation

410 17th Street – Suite 1850

Denver, CO  80202

Attn: Chairman, Compensation Committee

or to such other address as may have been furnished to Executive by the Company
or to the Company by Executive, as the case may be.

8.17                           No Limitation.  Notwithstanding any other
provision of this Agreement, for avoidance of doubt, the parties confirm that
the foregoing does not apply to or limit Executive’s rights under Delaware law
or the Company’s Corporate Documents.

IN WITNESS WHEREOF, the parties have set their hands and seals hereunto on the
date first above written.

 

TETON ENERGY CORPORATION

 

EXECUTIVE

 

 

 

By:

/s/ James J. Woodcock

 

 

By:

/s/ Karl F. Arleth

 

Name:

James J. Woodcock

 

Name:

Karl F. Arleth

Title:

Director & Chairman, Compensation
Committee

 

 

 

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Schedule A

Outside Activities
Karl F. Arleth

Company or
Project Name

 

Nature of
Business

 

Date Hired or
Commenced
Involvement

 

Position

 

Compensation

 

Annual Time
Commitment, (time away
from office)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:  September 1, 2006

Initials:         Executive:                        Company:         

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EXHIBIT A

Indemnification Agreement

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