Exhibit 10.1
 
SEPARATION AGREEMENT
 
This Separation Agreement (this “Agreement”) is entered into as of July 16,
2010, by and between SM Energy Company, a Delaware corporation (the “Company”),
and Milam Randolph Pharo (the “Executive”) (with the Company and Executive
collectively referred to herein as the “Parties” and individually at times as a
“Party”).
 
WHEREAS, Executive has been employed by the Company in various senior legal
officer and management positions for over fourteen years;
 
WHEREAS, Executive is a participant in various incentive compensation plans and
programs of the Company which comprise a significant portion of Executive’s
total compensation opportunities with the Company;
 
WHEREAS, Executive desires to retire from the Company pursuant to the terms and
conditions of this Agreement, and Executive’s employment with the Company will
thereby terminate by agreement of Executive and the Company (the “Separation”),
effective as of 11:59 P.M. on December 31, 2010 (the “Separation Date”); and
 
WHEREAS, the Parties desire to enter into this Agreement in order to set forth
the definitive rights and obligations of the Parties in connection with the
Separation.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which the Parties acknowledge, the Company and Executive agree as follows:
 
1. Separation Date.  Effective as of the Separation Date, Executive shall retire
from his position as Senior Vice President and General Counsel of the Company,
and any other offices which he holds at the Company or any of its subsidiaries,
and shall cease to be employed by the Company.  After the Separation Date,
Executive shall not represent himself as being an employee, officer, agent, or
representative of the Company for any purpose.
 
2. Payment Obligations.  The Parties acknowledge and agree that, provided,
except with regard to clause (a) below, this Agreement is signed and not revoked
by Executive pursuant to Section 16(d) of this Agreement, and so long as
Executive continues to comply with Section 5 of this Agreement, Executive shall
receive the following payments and benefits (in addition to payments and
benefits pursuant to Executive’s vested rights as of the Separation Date in
employee benefit plans and programs of the Company, which vested rights shall
not be affected by this Agreement):
 
(a) Base Salary and Accrued Vacation.  Executive shall receive his base salary
through the Separation Date in accordance with the Company’s normal payroll
practices, less (i) all applicable withholding taxes and (ii) other customary
payroll deductions authorized by Executive.  The Parties acknowledge and agree
that all of Executive’s accrued but unused vacation will be paid to Executive in
his final regular payroll check.
 
(b) Severance Payment.  The Company shall pay Executive a severance payment in
the amount of one million two hundred thousand dollars and no cents
($1,200,000.00) (the “Severance Payment”).  The Severance Payment shall be paid
on the Separation Date, unless payment on the Separation Date would result in a
failure to comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), in which event the Severance Payment shall be paid
pursuant to Section 15(b) of this Agreement.  The Severance Payment shall be
subject to any applicable withholding taxes.
 
(c) Health, Medical, and Dental Insurance.  Until the first to occur of the
expiration of twelve (12) months from the Separation Date or the date on which
Executive becomes employed or self-employed, provided that serving as a member
of a board of directors or consulting on a part-time basis shall not constitute
self-employment for such purposes (the “Benefits Termination Date”), the Company
shall reimburse Executive for the additional costs, including any additional tax
costs associated with such reimbursements, of obtaining health, medical, and
dental insurance benefits equivalent (e.g., for health, medical, and dental,
family coverage versus employee only) to the plans in which he currently
participates as follows: (i) the Company shall reimburse Executive for the
additional costs in continuing group health, medical, and dental benefits under
the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for a period of
twelve (12) months from the Separation Date (“COBRA Benefit Continuation
Period”).  Executive shall bear full responsibility for applying for COBRA
coverage under this Section 2(c), and nothing herein shall constitute a
guarantee of COBRA continuation coverage or benefits or a guarantee of
eligibility for health, medical, or dental insurance coverage.  Reimbursements
under this Section 2(c) shall be made on a monthly basis, but in no event later
than the last day of the calendar year following the year in which the expenses
were incurred.  Under no circumstances will Executive be entitled to a cash
payment or other benefit in lieu of reimbursements for the actual costs of
premiums for health, medical, or dental coverage hereunder.  The amount of
expenses eligible for reimbursement during any calendar year shall not be
affected by the amount of expenses eligible for reimbursement in any other
calendar year.  Executive shall provide the Company with notice of any
subsequent employment or self-employment under which equivalent health, medical,
or dental coverage becomes available within thirty (30) days of the commencement
of such employment.
 
3. Code Section 280G.
 
(a) If any payment or benefits received or to be received by Executive pursuant
to this Agreement are or are deemed to be in connection with a change in
ownership or control, within the meaning of Section 280G of the Code (or any
successor provision thereto), (such payments or benefits shall hereinafter be
referred to as the “Total Payments”) and would be subject to an excise tax as
provided for in Section 4999 of the Code (the “Excise Tax”), the Total Payments
shall be reduced to the greater of (i) the largest amount that would result in
no portion of the Total Payments being subject to the Excise Tax, or (ii) the
largest amount, up to the full amount of the Total Payments, after taking into
account all applicable federal, state, and local employment taxes, income taxes,
and the Excise Tax (all computed at the highest applicable marginal rate), that
results in Executive’s receipt, on an after-tax basis, of the greater amount of
payments notwithstanding that all or some portion of the Total Payments may be
subject to the Excise Tax.  The intent of the foregoing provision is to reduce
the Total Payments only in the event and to the extent that doing so will
maximize the net present value of the payments, on an after-tax basis, to be
received by Executive.  Unless Executive shall have given prior written notice
to the Company specifying a different order, the Company shall reduce or
eliminate the payments or benefits by first reducing or eliminating the portion
of the payments or benefits that are not payable in cash and then by reducing or
eliminating cash payments, in each case, in reverse chronological order,
starting with payments or benefits that are to be paid farthest in time from the
applicable determination of the Accounting Firm (as defined below).  Any written
notice given by Executive pursuant to the preceding sentence shall take
precedence over the provisions of any plan, agreement, or arrangement governing
Executive’s entitlement and rights to such payments or benefits.
 
(b) All determinations under this Section 3 shall be made by a nationally
recognized accounting firm selected by Executive (the “Accounting Firm”), and
the Company shall pay all costs and expenses of the Accounting Firm.  The
Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
 
4. Indemnification.  Notwithstanding anything herein to the contrary, the
Company will indemnify Executive (and his legal representative or other
successors) to the fullest extent permitted (including a payment of expenses in
advance of final disposition of a proceeding) by applicable law, as in effect at
the time of the subject act or omission, or by the Certificate of Incorporation
and By-Laws of the Company, as in effect at such time or on the date of this
Agreement, or by the terms of any indemnification agreement between the Company
and Executive, whichever affords or afforded the greatest protection to
Executive, and Executive shall be entitled to the protection of any insurance
policies the Company maintains generally for the benefit of its directors and
officers (and to the extent the Company maintains such an insurance policy or
policies, Executive shall be covered by such policy or policies, in accordance
with its or their terms to the maximum extent of the coverage available for any
Company director or officer), against all costs, charges, and expenses
whatsoever incurred or sustained by him or his legal representatives (including,
but not limited to, any judgment entered by a court of law) at the time such
costs, charges, and expenses are incurred or sustained, in connection with any
action, suit, or proceeding to which Executive (or his legal representatives or
other successors) may be made a party by reason of his employment with the
Company or by reason of his having been a director, officer, or employee of the
Company, or any subsidiary of the Company, or his having served any other
enterprise as a director, officer, or employee at the request of the
Company.  Executive’s rights under this Section 4 shall continue without time
limit for so long as he may be subject to any such liability.  For the avoidance
of doubt, except as set forth in Section 10, the Company will not indemnify
Executive in connection with any suit or proceeding by the Company against
Executive to enforce the terms of this Agreement.
 
5.  
Protection of Confidential Information; Protection of Intellectual Property;
Non-Disparagement and Cooperation; Non-Solicitation of Employees;
Acknowledgements; Modification By Court.

 
(a) Protection of Confidential Information.  Executive understands and
acknowledges that during Executive’s employment with the Company, Executive has
been and was making use of, acquiring, and/or adding to the Company’s
Confidential Information (as defined below).  In order to protect the
Confidential Information, Executive agrees that, subject to the provisions
below, he will not in any way utilize or disclose any of the Confidential
Information, whether for Executive’s own benefit or the benefit of any person or
entity except the Company.  The term “Confidential Information” shall mean any
information that is confidential and proprietary to the Company, or of others
that do business with the Company that the Company has received or may during
Executive’s tenure receive, including but not limited to the following general
categories: (i) trade secrets; (ii) lists, schedules, reports, and other
information about current and prospective oil and natural gas exploration,
exploitation, development, acquisition, and production projects; (iii) plans or
strategies for oil and natural gas exploration, exploitation, development,
production, acquisitions, divestitures, or other business development;
(iv) production, sales, and account records; (v) prices or pricing strategy or
information, including hedging information; (vi) current and proposed net asset
valuation methodologies; (vii) engineering and technical data related to oil and
natural gas reserves and resources; (viii) methods, systems, techniques,
procedures, designs, formulae, inventions, and know-how; (ix) personnel
information; (x) legal advice and strategies; and (xi) other information of a
similar nature not known or made available to the public (other than by breach
of this Agreement).  Confidential Information includes any such information that
Executive prepared or created during his employment or position with the
Company, as well as such information that has been or during Executive’s tenure
may be created or prepared by others.  This promise of confidentiality is in
addition to any common law or statutory rights of the Company to prevent
disclosure of its trade secrets and/or confidential information.  Confidential
Information shall not include information that is or becomes publicly known,
unless through a breach of this Agreement by Executive or Executive knows such
information became publicly known as a result of a breach by any other person or
entity of a confidentiality obligation.  In addition, Executive hereby agrees
that the background and negotiations of this Agreement are strictly
confidential, and Executive will not disclose, directly or indirectly, any
information concerning such matters to any third party, with the exception of
Executive’s spouse and financial and legal advisors, provided that each such
third party agrees to keep such information confidential and not disclose it to
others.  Notwithstanding anything to the contrary contained in the foregoing,
the provisions of this Section 5(a) shall not be deemed to be violated by
Executive as a result of making truthful disclosures in any legal proceeding or
as otherwise required by federal, state, or local law, and notwithstanding any
other provision of this Agreement, Executive shall be permitted to retain and
utilize for his own personal or business use, legal forms and related documents,
in whatever medium, prepared or developed by Executive during his tenure with
the Company, provided that any non-public Company or third-party specific
information contained in such forms and related documents shall be redacted and
not disclosed.
 
(b) Protection of Intellectual Property.  Executive agrees that any Confidential
Information, as well as any idea, invention, copyrightable (other than papers
previously prepared and publicly presented by Executive) or patentable work,
improvement, technique, design, method, development, product, service,
technology, writing, discovery, and the like, whether tangible or intangible,
directly or indirectly resulting or arising from, or created through, the
Company’s business, in which a property interest exists or may exist if asserted
under federal or state law (hereafter “Intellectual Property”), is the sole and
exclusive property of, and Executive hereby assigns all of his interest therein
to, the Company, with all copyrightable Intellectual Property to be deemed
“works for hire” under the federal Copyright Act.  To the extent that Executive
retains any interest in such Intellectual Property, Executive further agrees to,
at the Company’s request and expense, but without additional compensation to
Executive, assist the Company or its designee in obtaining patents and
copyrights therefor that are deemed suitable for United States patents or
copyrights and will execute all documents and do all things necessary to obtain
patents, copyrights, trademarks, and trade names, or to otherwise vest the
Company with full and exclusive title thereto.
 
(c) Non-Disparagement and Cooperation.  Neither Executive nor any person acting
on his behalf shall disparage or cause to be disparaged, whether directly or
indirectly, the Company in any forum or through any medium of
communication.  Executive further agrees not to initiate any contact with or
respond to any inquiry by the press or other media regarding the Company.  In
addition, Executive shall continue to perform his normal duties for the Company
through the Separation Date at a level and in a manner reasonably requested by
the Company, and in connection therewith shall cooperate fully with the
Company’s reasonable requests relating to the completion of his pending work on
behalf of the Company and the orderly transition of such work to other employees
as the Company may designate.  No director or officer of the Company shall
disparage or cause to be disparaged, whether directly or indirectly, Executive
in any forum or through any medium of communication.
 
(d) Non-Solicitation of Employees.  Executive hereby agrees that for a period of
twelve (12) months following the Separation Date, he will not, directly or
indirectly, (i) solicit for hiring any employee of the Company or seek to
persuade any employee of the Company to discontinue or otherwise modify his or
her employment with the Company, or (ii) solicit or encourage any independent
contractor providing services to the Company to terminate or diminish its
relationship with the Company.  Executive further agrees not to assist any
person or entity, directly or indirectly, to engage in conduct prohibited by
this Section.
 
(e) Acknowledgements.  Executive acknowledges and agrees that the restrictions
set forth in this Section 5 are critical and necessary to protect the Company’s
legitimate business interests (including the protection of its Confidential
Information); are reasonably drawn to this end with respect to duration, scope,
and otherwise; are not unduly burdensome; are not injurious to the public
interest; and are supported by adequate consideration.  Executive and the
Company each acknowledges and agrees that, in the event that he or it breaches
any of the provisions in this Section 5, the Company or Executive, as
appropriate, shall be entitled to injunctive relief, in addition to any other
damages to which it or he may be entitled, as well as the costs and reasonable
attorneys’ fees it or he incurs in enforcing its or his rights under this
Section 5.  Executive further acknowledges that (i) any breach or claimed breach
of the provisions set forth in this Agreement by the Company will not be a
defense to the Company’s enforcement of the restrictions set forth in this
Section 5 and (ii) the Company’s obligations to make any payments or confer any
benefit created by operation of this Agreement, other than to pay for all
compensation and benefits accrued but unpaid up to the Separation Date, will
automatically and immediately terminate in the event that Executive breaches any
of the obligations in this Section 5.  Nothing in this Section shall be
construed to prevent Executive from bringing suit against the Company in the
event the Company exercises its right under the preceding sentence to cease
payments and benefits under this Agreement for an alleged breach by Executive of
any obligations in this Section 5.  The Parties agree that Executive will,
without posting any bond, be entitled to equitable relief in the form of
specific performance, temporary restraining orders, temporary or permanent
injunctions, or any other equitable remedy which may then be available for a
breach or threatened breach of Section 5(c) by any director or officer of the
Company.
 
(f) Modifications By Court.  If any covenant set forth in this Section 5 is
deemed invalid or unenforceable for any reason, it is the Parties’ intention
that such covenant be equitably reformed or modified only to the extent
necessary to render it valid and enforceable in all respects.  In the event that
the time period and/or scope referenced above is deemed unreasonable, overbroad,
or otherwise invalid, it is the Parties’ intention that the enforcing court
reduce or modify the time period and/or scope only to the extent necessary to
render such covenant reasonable, valid, and enforceable in all respects.
 
6. Material Inducement; Specific Performance.  Executive acknowledges and agrees
that the covenants entered into by Executive in Section 5 are essential elements
of the Parties’ agreement as expressed herein, are a material inducement for the
Company to enter into this Agreement, and the breach thereof would be a material
breach of this Agreement.  Executive further acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Section 5 would be inadequate and, in recognition of this fact,
Executive agrees that, in the event of such a breach or threatened breach, in
addition to any remedies at law, the Company, without posting any bond, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining orders, temporary or permanent injunctions, or any other
equitable remedy which may then be available.
 
7. Litigation Support; Cooperation.  Executive agrees that he will reasonably
assist and cooperate with the Company, at the Company’s sole cost and expense,
in a manner so as to not unreasonably interfere with any other employment
obligations of Executive, in connection with the defense or prosecution of any
claim that may be made against or by the Company or its affiliates, or in
connection with any ongoing or future investigation or dispute or claim of any
kind involving the Company or its affiliates, including any proceeding before
any arbitral, administrative, judicial, legislative, or other body or agency,
including testifying in any proceeding, to the extent such claims,
investigations, or proceedings relate to services performed by Executive,
pertinent knowledge possessed by Executive, or any act or omission by
Executive.  Executive further agrees that he will cooperate fully with Company’s
reasonable requests relating to the completion of his pending work on behalf of
the Company and the orderly transition of such work to such other employees as
the Company may designate.  Executive further agrees to perform all acts and to
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Section 7, at the Company’s sole cost and expense and in
a manner so as to not unreasonably interfere with any other employment
obligations of Executive.  If Executive determines in good faith that separate
counsel is necessary in connection with his compliance with this Section 7 as a
result of a bona fide claim filed against Executive or the Company, then the
Company shall pay all reasonable fees and expenses of such counsel retained by
Executive in connection herewith.  This covenant shall expire and be of no
further force or effect on December 31, 2012.
 
8. Return of Company Property.  Except as otherwise provided herein, Executive
agrees to return to the Company by the Separation Date, and not retain, all of
the Company’s property, including documents, data, and equipment (and any copies
thereof) of any nature and in whatever medium; provided, however, that Executive
shall be permitted to retain and utilize, for his own personal or business use,
legal forms and related documents, in whatever medium, prepared or developed by
Executive during his tenure with the Company, provided that any non-public
Company or third-party specific information contained in such forms and related
documents shall be redacted and not disclosed, and provided that the Company
shall continue to be able to utilize such legal forms and related documents.
 
9. Removal of Personal Property.  Prior to the Separation Date, Executive shall
have removed all personal items, including but not limited to, personally owned
office furniture and artwork, from the premises of the Company.
 
10. Legal Fees.  The Company will pay or reimburse Executive, as incurred, for
all legal fees and costs incurred by Executive in enforcing his rights under
this Agreement, unless Executive’s claim was frivolous or was brought or pursued
by Executive in bad faith.
 
11. Vested Rights in Other Compensation and Benefit Plans.  Executive’s vested
rights as of the Separation Date in employee benefit plans and programs of the
Company, including but not limited to the Company’s Equity Incentive
Compensation Plan, Employee Stock Purchase Plan, Net Profits Interest Bonus
Plan, Pension Plan, Supplemental Retirement Plan, and 401(k) Profit Sharing Plan
(collectively, the “Other Compensation and Benefit Plans”), shall not be
affected by this Agreement.
 
12. Receipt of Other Compensation and Participation in Other Compensation and
Benefit Plans.  Executive acknowledges and agrees that, other than as
specifically set forth in this Agreement, following the Separation Date
Executive will not be due compensation for unpaid salary, unpaid bonus,
severance, and accrued or unused vacation time or vacation pay from the Company
or any of its operating divisions, subsidiaries, or affiliates, and that
Executive’s participation in Other Compensation and Benefit Plans after the
Separation Date shall be limited to the receipt of compensation and benefits
pursuant to rights in Other Compensation and Benefit Plans vested as of the
Separation Date and subject to the terms and conditions of the Other
Compensation and Benefit Plans and any vested awards granted to Executive
thereunder.
 
The Company shall promptly reimburse Executive for any previously unreimbursed
business expenses incurred in the ordinary course of Executive’s employment on
or before the Separation Date, provided that the Company’s policies of
documentation and approval are satisfied.  Any such documentation must be
submitted to the Company by Executive no later than 60 days after the Separation
Date, and any such reimbursement shall be paid by the Company to Executive no
later than 30 days after the submittal of the required documentation by
Executive.
 
13. Death of Executive.  If Executive should die while any amount would still be
payable to Executive hereunder if Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the devisee(s), legatee(s), or other designee(s) of
Executive or, if there is no such designee(s), to the estate of Executive.
 
14. Executive’s Confirmation for Sarbanes-Oxley Act Certification.  On the
Separation Date, Executive agrees to execute a confirmation with respect to any
matters of which he is then aware, or that he is not aware of any such matters,
relating to the Company’s fiscal year ending December 31, 2010, that would be
required to be disclosed in, or that would require a qualification of, the
certifications of the principal executive officer and principal financial
officer of the Company required to be filed with the Securities and Exchange
Commission pursuant to (i) 18 U.S.C. §1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 and (ii) Section 302 of the Sarbanes-Oxley Act
of 2002; provided, however, that the Company will not file such confirmation
with the Securities and Exchange Commission, but will rely on such confirmation
in connection with its disclosure controls and procedures.
 
15. Code Section 409A.
 
(a) Parties’ Intent.  It is intended that any amounts payable under this
Agreement shall either be exempt from or comply with the requirements of
Section 409A(a)(2), (3), and (4) of the Code and all regulations, guidance, or
other interpretative authority thereunder (the “Section 409A Requirements”) and
shall be interpreted accordingly.  To the extent any of the payments or benefits
required under this Agreement are, or, in the opinion of counsel to the Company
or Executive, could be interpreted in the future to create, a nonqualified
deferred compensation plan that does not meet the Section 409A Requirements, the
Company and Executive hereby agree to execute any and all amendments to this
Agreement or otherwise reform this Agreement as deemed necessary by either of
such counsel, and prepared by counsel to the Company, to either cause such
payments or benefits not to be a nonqualified deferred compensation plan or to
meet the Section 409A Requirements.  In amending or reforming this Agreement for
such purposes, the Company shall maintain, to the maximum extent practicable,
the original intent and economic benefit of this Agreement without subjecting
Executive to additional tax or interest; provided further, however, that the
Company shall not be obligated to pay any additional material amount to
Executive as a result of such amendment.
 
(b) Delayed Distribution to Key Employee.  If the Company determines, in
accordance with Sections 409A and 416(i) of the Code and the regulations
promulgated thereunder, in the Company’s sole discretion, that Executive is a
Key Employee (as defined below) of the Company on the date his employment with
the Company terminates and that a delay in severance pay and benefits provided
under this Agreement is necessary for compliance with Section 409A(a)(2)(B)(i),
then any severance payments and any continuation of benefits or reimbursement of
benefit costs provided under this Agreement, and not otherwise exempt from
Section 409A (for example as a “short term payment” or as “involuntary
severance”), shall be delayed until the earlier of (i) the first day of the
seventh (7th) calendar month commencing after Executive’s termination of
employment, or (ii) Executive’s death, consistent with and to the extent
necessary to meet the requirements of Section 409A of the Code (the “409A Delay
Period”).  In such event, any such severance payments and the cost of any such
continuation of benefits provided under this Agreement that would otherwise be
due and payable to Executive during the 409A Delay Period shall be paid to
Executive in a lump sum cash amount on the first day of the seventh (7th) month
coinciding with or following the end of the 409A Delay Period.  Any amounts
delayed by reason of the prior sentence shall be credited with interest from the
scheduled payment date through the date of actual payment at the Wall Street
Journal Prime rate in effect as of the end of the applicable 409A Delay
Period.  For purposes of this Agreement, the term “Key Employee” shall mean an
employee who, on an Identification Date (the term “Identification Date” shall
mean each December 31) is a key employee as defined in Section 416(i) of the
Code without regard to paragraph (5) of that section.  If Executive is
identified as a Key Employee on an Identification Date, then Employee shall be
considered a Key Employee for purposes of this Agreement during the period
beginning on the first April 1 following the Identification Date and ending on
the following March 31.
 
(c) Separate Payments.  Each payment required under this Agreement shall be
considered a separate payment for purposes of determining the applicability of
or exemption from Section 409A of the Code.
 
16. General Release.
 
(a) Except with respect to Executive’s rights under this Agreement, including
but not limited to the rights under Sections 2, 3, 4, 10, and 11 hereof,
Executive and Executive’s representatives, successors, and assigns release and
forever discharge the Company and its successors, assigns, subsidiaries,
affiliates, directors, officers, executives, employees, attorneys, agents, and
trustees or administrators of any Company plan from any and all claims, demands,
debts, damages, injuries, actions, or rights of action of any nature whatsoever
(collectively “Executive’s Claims”), whether known or unknown, which Executive
had, now has, or may have (provided, however, that Executive’s Claims accruing
after the Separation Date shall not be released hereby) against the Company, its
successors, assigns, subsidiaries, affiliates, directors, officers, executives,
attorneys, agents, and trustees or administrators of any Company plan,
including, without limitation, Executive’s Claims relating to or arising out of
Executive’s employment with the Company, or for compensation for such
employment, including any claims for incentive compensation or severance
payments under any plan or practice maintained by the Company (the “General
Release”).  Executive represents that Executive has not filed any action,
complaint, charge, grievance, or arbitration against the Company or any of its
successors, assigns, subsidiaries, affiliates, directors, officers, executives,
attorneys, agents, and trustees or administrators of any Company plan.
 
(b) Executive covenants that neither Executive, nor any of Executive’s
respective heirs, representatives, successors, or assigns, will commence,
prosecute, or cause to be commenced or prosecuted against the Company or any of
its successors, assigns, subsidiaries, affiliates, directors, officers,
executives, attorneys, agents, and trustees or administrators of any Company
plan any action or other proceeding based upon any claims, demands, causes of
action, obligations, damages, or liabilities which are to be released by the
General Release, nor will Executive seek to challenge the validity of the
General Release, except that this covenant not to sue does not affect
Executive’s future right to enforce appropriately in a court of competent
jurisdiction the applicable terms of this Agreement and any other vested rights
or awards under the Other Compensation and Benefit Plans.
 
(c) By releasing the claims described in this Section 16, Executive does not
waive any claims that cannot be waived as a matter of law, including without
limitation any claims filed with the Equal Employment Opportunity Commission,
the U.S. Department of Labor, or claims under the Age Discrimination in
Employment Act that arise after the effective date of this Agreement.
 
(d) Executive acknowledges that (i) Executive has been advised to consult with
an attorney before executing this Agreement and that Executive has been advised
by an attorney or has knowingly waived Executive’s right to do so,
(ii) Executive has been offered a period of at least twenty-one (21) days to
consider the release of claims included in this Agreement, such period
commencing on July 16, 2010, the date this Agreement was delivered to Executive,
(iii) Executive has a period of seven (7) days from the date he executes this
Agreement within which to revoke it and that this Agreement will not become
effective or enforceable until the expiration of this seven (7) day revocation
period, (iv) Executive fully understands the terms and contents of this
Agreement and freely, voluntarily, knowingly, and without coercion enters into
this Agreement, and (v) the waiver or release by Executive of rights or claims
Executive may have under Title VII of the Civil Rights Act of 1964, the
Executive Separation Income Security Act of 1974, the Age Discrimination in
Employment Act of 1967, the Older Workers Benefit Protection Act, the Fair Labor
Standards Act, the Americans with Disabilities Act, the Rehabilitation Act, the
Worker Adjustment and Retraining Act (all as amended), and/or any other local,
state, or federal law dealing with employment or the termination thereof is
knowing and voluntary and, accordingly, that it shall be a breach of this
Agreement to institute any action or to recover any damages that would be in
conflict with or contrary to this acknowledgment or the releases Executive has
granted hereunder.  Executive understands and agrees that the Company’s
acknowledgment of this Agreement, payment of money and other benefits to
Executive, and Executive’s signing of this Agreement, does not in any way
indicate that Executive has any viable claims against the Company or that the
Company admits any liability whatsoever.
 
17. General Provisions.
 
(a) Amendment and Waiver.  The terms of this Agreement may be modified, amended,
or waived only in a writing signed by both the Company and Executive.  The
failure of any Party to enforce any of the provisions of this Agreement shall in
no way be construed as a wavier of such provisions and shall not affect the
right of such Party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
 
(b) Governing Law.  This Agreement will be governed by the laws of the State of
Colorado, without regard to its conflict of laws rules.
 
(c) Survival; Entire Agreement.  All representations and warranties contained
herein shall survive the execution and delivery of this Agreement.  This
Agreement contains the complete agreement among the Parties hereto with respect
to the subject matter hereof, and supersedes any prior understandings,
agreements, or representations by or among the Parties hereto, written or oral,
that may have related to the subject matter hereof in any way.
 
(d) Severability.  If any provision or provisions of this Agreement shall be
held invalid, illegal, or unenforceable for any reason whatsoever, the validity,
legality, or enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired.
 
(e) Waiver of Jury Trial.  EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO.
 
(f) Arbitration.  The Parties agree to submit to binding arbitration before the
American Arbitration Association all claims arising out of or relating to this
Agreement.  This arbitration shall take place in Denver, Colorado, under the
then prevailing commercial rules of the American Arbitration Association.  If
the American Arbitration Association withholds its arbitration services for any
reason, then the arbitration will instead be conducted by a bona fide neutral
arbitration service provider reasonably acceptable to both Parties.  The
arbitrator’s fees shall be split equally between Company and Executive unless
the Parties agree otherwise.  Company and Executive shall each be responsible
for paying their own attorneys’ fees and all other costs they incur related to
any arbitration proceeding, subject however to the provisions of Section 10 of
this Agreement.  The arbitrator’s decision will be final and binding in
accordance with the Federal Arbitration Act.  The arbitrator will not have the
right to modify or change any of the terms of this Agreement.
 
(g) Successors; Binding Agreement.
 
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place.  Such assumption and agreement shall be obtained prior to the
effectiveness of any such succession.  As used in this Agreement, “Company”
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law or otherwise.
 
(ii) This Agreement shall inure to the benefit of and be binding upon personal
or legal representatives, executors, administrators, successors, permitted
assigns, heirs, distributees, devisees, and legatees of the undersigned.
 
(iii) The Company may assign this Agreement in whole or in part, including any
payment obligations hereunder, to any of its wholly-owned subsidiaries, provided
that no such assignment shall relieve the Company of any of its obligations
hereunder.  Executive may not assign this Agreement in whole or in part, without
the prior written consent of the Company.
 
(h) Notices.  Any notice, request, or other communication required or permitted
to be delivered under this Agreement must be in writing and will be considered
received as of the date delivered if delivered in person, on the next business
day if sent by a nationally recognized overnight courier service, and on the
second business day if mailed by registered mail, return receipt requested,
postage prepaid.  If to Executive, the notice, request, or other communication
must be addressed and sent to Executive at Executive’s address appearing in the
personnel records of the Company, or such other address as Executive furnishes
to the Company in accordance with this Section.  If to the Company, the notice,
request, or other communication must be addressed to SM Energy Company, 1775
Sherman Street, Suite 1200, Denver, CO 80203, Attn: Chief Executive Officer,
with a copy to the Vice President of Human Resources, or to such other address
as the Company furnishes to Executive in accordance with this Section.
 
(i) No Mitigation.  Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Section 2(c).
 
[Signature page follows]
 
 
 
 

IN WITNESS WHEREOF, the Parties hereto have executed this Separation Agreement
on the date first written above.
 

THE COMPANY:

SM ENERGY COMPANY,
a Delaware corporation

By:/s/ JOHN R.
MONARK                                                                           
Name:  John R. Monark
Title:  Vice President – Human Resources

EXECUTIVE:

/s/ MILAM RANDOLPH
PHARO                                                                                                
Milam Randolph Pharo