Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


BETWEEN


 


TETON ENERGY CORPORATION


 


And


 


Bill I.
Pennington


(Executive)


 


THIS
EMPLOYMENT AGREEMENT
(this “Agreement”), dated as of June 1, 2006, (the “Effective Date”) is entered
into by and between Teton Energy Corporation, a Delaware corporation (the “Company”),
and Bill I. Pennington, an individual with an address at 27 Brookhaven Trail,
Columbine Valley, CO 80123, (the “Executive”) (collectively, the “Parties,”
individually, a “Party”).


 


W I T N E S S E T H:


 


WHEREAS, the Board of Directors of the Company (the “Board”) has requested and the Executive has agreed
to serve the Company as Executive Vice President and Chief Financial Officer
pursuant to the terms and conditions herein; 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;


 

















 


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 12 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.


 

















 


ARTICLE TWO



POSITION & DUTIES


 


2.             Employment.


 


2.1           Title. The Executive shall serve as the Executive Vice President and Chief
Financial Officer of the Company and agrees to perform services for the Company
and such other affiliates of the Company, as described in Section 2 herein.


 


2.2           Term. The Executive’s employment shall be for an initial term of one (1)
year (“Initial Term”), commencing on the Effective Date. The Executive’s
employment shall be automatically extended on the day after the first year
anniversary of the Effective Date (“Automatic Extension”), and on each second
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 CEO 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 CEO. During
the term of this Agreement Executive shall, subject to the direction of the CEO
of the Company, oversee and direct the operations of the Company’s finance
organization, and shall perform such duties as are customarily performed by an
Executive Vice President and Chief Financial Officer of a company such as the
Company or as are otherwise delegated to him from time to time by the CEO or
such other matters and projects as may from time to time be reasonably assigned
to him by the CEO.


 


2.4           Performance of Duties. During the term of the Agreement, except as
otherwise approved by the CEO 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:


 


(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 except
that ownership of not more than two percent (2%) of the outstanding securities
of any class of any publicly held entity 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 entity.


 


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 One Hundred
Ninety Thousand Dollars ($190,000.00), 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 CEO, with input from the
Board, annually for any increase.


 


3.2           Cash Bonus. The Executive shall be eligible for a cash bonus equal to an amount
of up to sixty percent (60%) of his Base Salary in 2006 and up to one hundred
percent (100%) of his Base Salary for each fiscal year thereafter (annualized
for any fiscal year consisting of less than 12 full months or with respect to
which the Executive has been employed by the Company for less than twelve (12)
full months. Each Cash Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year in respect of which the
Cash Bonus is awarded, unless the Executive shall elect to defer the receipt of
such Cash Bonus that may be approved by the Board from time to time.


 


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. The Executive understands that as of
the date of this Agreement, the only equity-based plan offered by the Company
is the 2005 Long-term Incentive Plan.


 


Notwithstanding any other provision of this
Agreement, effective June 1, 2006, the Executive shall be entitled to a grant
of 20,000 restricted shares of Teton common stock, which shall vest over a
period of three years and be subject to a restricted stock agreement in a form
substantially similar to the form of agreement in Exhibit 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 Executive shall be entitled to life
insurance on terms consistent with that provided to other senior executives of
the Company as may be authorized by the Board from time to time.


 

















 


(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 the
Executive to accept such benefits if and when they are offered.


 


(e)           Vacation.


 


(i)            The Executive shall be entitled to four (4)
weeks of vacation per calendar year, which vacation level shall be reviewed by
the CEO 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 &
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
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 Executive’s travel, temporary living expenses, including housing,
whether hotel or apartment, and meals, during the period prior to Executive’s
move to the city in which the Company will be headquartered.


 


(b)           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 the 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
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 Chief Executive Officer of the Company, which
specifically identifies the manner in which the Board or the Chief Executive
Officer 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 Chief Executive Officer or
another senior officer 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;


 


(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 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 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) 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 12 months salary at the level of the
Executive’s Base Salary then in effect, (such 12 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 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 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


 


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 one (1) year 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 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 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 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 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.


 


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:


 


Bill I. Pennington


27 Brookhaven Trail


Columbine Valley, CO 80123


 


(b)           If to the Company:


 


Teton Energy Corporation


410 17th Street –
Suite 1850


Denver, CO 80202


Attn: CEO


 


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/ Karl F. Arleth

  	
   

  	
  By:

  	
  /s/ Bill I. Pennington 

  	
   

  
	
  Name:

  	
  Karl F. Arleth 

  	
  Name: Bill I. Pennington

  
	
  Title:

  	
  President & CEO

  	
   

  	
   

  
								



 

















 


Schedule
A


 


Outside
Activities


Bill I.
Pennington


 


	
  Company or

  Project Name

  	
   

  	
  Nature of

  Business

  	
   

  	
  Date Hired

  or

  Commenced

  Involvement

  	
   

  	
  Position

  	
   

  	
  Compensation

  	
   

  	
  Annual Time

  Commitment, (time

  away from office)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


	
  Dated: 

  	
  June 1, 2006

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Initials: Executive:

  	
  /s/ BIP

  	
   

  	
  Company:

  	
  /s/ KFA

  	
   

  
								



 


 


Executive
and Company agree that there are no outside activities


 

















 


Exhibit A


 


Indemnification Agreement


 

















 


INDEMNITY AGREEMENT


 


This INDEMNITY AGREEMENT (the “Agreement”) is dated as of June 1, 2006,
and is made by and between Teton Energy Corporation a Delaware corporation (the
“Company”), and Bill I. Pennington, an officer or director of the Company (the “Indemnitee”).


 


RECITALS


 


A.            The Company is aware that competent and
experienced persons are increasingly reluctant to serve as directors or
officers of corporations unless they are protected by comprehensive liability
insurance and/or indemnification, due to increased exposure to litigation costs
and risks resulting from their service to such corporations, and due to the
fact that the exposure frequently bears no reasonable relationship to the
compensation of such directors and officers;


 


B.            The Board of Directors of the Company (the “Board”)
has concluded that, to retain and attract talented and experienced individuals
to serve as officers and directors of the Company and to encourage such
individuals to make the business decisions necessary or appropriate for the
success of the Company and its Subsidiaries (as defined in Section 1 below), it
is necessary for the Company contractually to indemnify its directors and
certain of its officers, and certain of the directors and officers of its
Subsidiaries, and to assume for itself maximum permissible liability for
Expenses, losses, liabilities and damages in connection with claims against
such officers and directors relating to their service in such capacities, and
has further concluded that the failure to provide such contractual
indemnification could result in significant harm to the Company and its
Subsidiaries and the Company’s stockholders;


 


C.            The statutes and judicial decisions regarding
the duties of directors and officers are often difficult to apply, ambiguous,
or conflicting, and therefore fail to provide such directors and officers with
adequate, reliable knowledge of legal risks to which they are exposed or
information regarding the proper course of action to take;


 


D.            Plaintiffs often seek damages in such large
amounts and the costs of litigation may be so great (whether or not the case is
meritorious), that the defense and/or settlement of such litigation may be
beyond the personal resources of directors and officers;


 


E.             Section 145 of the General Corporation Law of
Delaware, under which the Company is organized (the “Law”), empowers the
Company to indemnify by agreement its officers, directors, employees and
agents, and persons who serve, at the request of the Company, as directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by the Law is not
exclusive; further the provisions of the Amended Certificate of Incorporation
of the Company (the “Certificate of Incorporation”) specifically state that the
rights to indemnification and payment of expenses described therein are not
exclusive, and thereby contemplate that contracts with respect to
indemnification and payment of Expenses by the Company and similar obligations
of the Company may be entered into by and between the Company and persons
entitled to such rights described in the Certificate of Incorporation; and


 


F.             The Company desires and has requested the
Indemnitee to serve or continue to serve as a director or officer of the
Company. As an inducement to serve and in consideration for such service, the
Company has agreed to indemnify the Indemnitee for claims for damages arising
out of or related to the performance of such services to the Company in
accordance with the terms and conditions set forth in this Agreement.


 


NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:


 

















 


Definitions.


 


1.1.          Agent. For the purposes of this Agreement, “Agent”
of the Company means any person who is or at any time was a director or officer
of the Company or a subsidiary of the Company; or is or at any time was serving
at the request of, for the convenience of, or to represent the interest of the
Company or a subsidiary of the Company as a director or officer of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise or an affiliate of the Company; or was a director or officer of
another enterprise or affiliate of the Company at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
The term “enterprise” includes any employee benefit plan of the Company, its
subsidiaries, affiliates and predecessor corporations.


 


1.2.          Change in Control. “Change in Control” means a
change in control of the Company occurring after June 1, 2006, of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934 (the “Act”),
whether or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be
deemed to have occurred if after June 1, 2006, (i) any “person” (as such term
is used in Sections 13(d) and 14(d) of the Act) other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more
of the combined voting power of the Company’s then outstanding securities
without the prior approval of at least two-thirds of the members of the board
of directors of the Company in office immediately prior to such person
attaining such percentage interest; (ii) there occurs a proxy contest, or the
Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the board of directors of the Company then in office, as a
consequence of which members of the board of directors in office immediately
prior to such transaction or event constitute less than a majority of the board
of directors thereafter; or (iii) during any period of two consecutive years,
other than as a result of an event described in clause (ii) of this subsection
(c), individuals who at the beginning of such period constituted the board of
directors of the Company (including for this purpose any new director whose
election or nomination for election by the Company’s stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the board of directors.


 


1.3.          Company. As used herein the term “Company” includes
all successors and assigns to the Company, including, without limitation, any
corporation or other entity that is a successor to the Company by virtue of a
Change in Control.


 


1.4.          Controlled. “Controlled” means subject to the power
to exercise a controlling influence over the management or policies of a
corporation, partnership, joint venture, trust or other entity.


 


1.5.          Expenses. For purposes of this Agreement, “Expenses”
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, attorneys’ fees and related disbursements and
retainers, costs of travel, other out-of-pocket costs such as fees and
disbursements of expert witnesses, private investigators and professional
advisors, court costs, transcript costs, fees of experts, duplicating,
printing, and binding costs,


 

















 


telephone and
fax transmission charges, postage, delivery services, secretarial services
and other disbursements and expenses and reasonable compensation for time spent
by the Indemnitee for which he is not otherwise compensated by the Company or
any third party) actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification or advancement of expenses
under this Agreement, Section 145 of the Law or otherwise.


 


1.6.          Proceeding. For the purposes of this Agreement, a “Proceeding”
means any threatened, pending, or completed action, suit, arbitration,
alternate dispute resolution process, investigation, administrative hearing,
appeal, inquiry or other proceeding, whether civil, criminal, administrative,
investigative or any other type whatsoever, whether formal or informal,
including a proceeding initiated by Indemnitee pursuant to Section 9 of this
Agreement to enforce Indemnitee’s rights hereunder.


 


1.7.          Subsidiary. For purposes of this Agreement, “Subsidiary”
means any corporation, partnership, limited liability company, trust, joint
venture, or other entity of which more than fifty percent (50%) of the
outstanding voting securities is owned directly or indirectly by the Company,
by the Company and one or more of its subsidiaries or by one or more of the
Company’s subsidiaries.


 


2.              Agreement to Serve. The Indemnitee
agrees to serve and/or continue to serve as an agent of the Company, at the
will of the Company (or under separate agreement, if such agreement exists), in
the capacity the Indemnitee currently serves as an agent of the Company,
faithfully and to the best of his ability, so long as he is duly appointed or
elected and qualified in accordance with the applicable provisions of the
charter documents of the Company or any Subsidiary of the Company; provided,
however, that the Indemnitee may at any time and for any reason resign from
such position (subject to any contractual obligation that the Indemnitee may
have assumed apart from this Agreement), and the Company or any Subsidiary
shall have no obligation under this Agreement to continue the Indemnitee in any
such position. For the avoidance of doubt, the Company and Indemnitee each
acknowledge and agree that the resignation or other termination of Indemnitee
as an agent of the Company under this paragraph 2 shall not impair any right
that Indemnitee may otherwise have to be indemnified under the terms of this
Agreement.


 


3.              Directors’ and
Officers’ Insurance. The Company shall, to the extent that the Board
determines it to be economically reasonable, maintain a policy of directors’
and officers’ liability insurance (“D&O Insurance”), on such terms and
conditions as may be approved by the Board.


 


4.              Mandatory
Indemnification. Subject to Section 9 below, the Company shall indemnify
and hold the Indemnitee harmless to the fullest extent permitted by the Law.
Without limiting the generality of the foregoing, the Company shall indemnify
and hold harmless the Indemnitee as follows:


 


4.1.          Third Party Actions. If the Indemnitee is a person
who was or is a party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the Company) by reason of the fact
that he is or at any time was an agent of the Company, or by reason of anything
done or not done by him in any such capacity, against any and all claims,
expenses and liabilities of any type whatsoever (including, but not limited to,
attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) actually and reasonably incurred by him in connection with
the investigation,
defense, settlement or appeal of


 

















 


such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and/or


 


4.2.          Derivative Actions. If the Indemnitee is a person
who was or is a party or is threatened to be made a party to any proceeding by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that he is or at any time was an agent of the Company, or by reason of
anything done or not done by him in any such capacity, against any and all
claims, expenses and liabilities, including without limitation attorneys’ fees,
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Company; except that no indemnification under this subsection shall be
made in respect of any claim, issue or matter as to which such person shall
have been finally adjudged, in a judgment not subject to appeal, to be liable
to the Company by a court of competent jurisdiction due to willful misconduct
of a culpable nature in the performance of his duty to the Company, unless and
only to the extent that the Court of Chancery in Delaware or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such amounts
which the Court of Chancery or such other court shall deem proper; and/or


 


4.3.          Exception for Amounts Covered by Insurance.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) to the extent such have been paid directly to the
Indemnitee by D&O Insurance.


 


5.              Partial
Indemnification and Contribution.


 


5.1.          Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of any expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) incurred by him in the
investigation, defense, settlement, or appeal of a proceeding but is not
entitled, however, to indemnification for all of the total amount thereof, then
the Company shall nevertheless indemnify the Indemnitee for such total amount
except as to the portion thereof to which the Indemnitee is not entitled to
indemnification.


 


5.2.          Contribution. If the Indemnitee is not entitled to
the indemnification provided in Section 4 for any reason other than the
statutory limitations set forth in the Law, then in respect of any threatened,
pending or completed proceeding in which the Company is jointly liable with the
Indemnitee (or would be if joined in such proceeding), the Company shall
contribute to the amount of Expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred and paid
or payable by the Indemnitee in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and the
Indemnitee on the other hand from the transaction from which such proceeding
arose and (ii) the relative fault of the Company on the one hand and of the
Indemnitee on the other hand in connection with the events which resulted in
such Expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of the Indemnitee on the other hand shall be determined by


 

















 


reference to,
among other things, the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting
in such Expenses, judgments, fines or settlement amounts. The Company agrees
that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation, which does not take account of the foregoing equitable
considerations.


 


6.              Mandatory Advancement
of Expenses.


 


6.1.          Advancement. Subject to Section 9 below, the
Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, participation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or at any time was an agent
of the Company or by reason of anything done or not done by him in any such
capacity. The Indemnitee hereby undertakes promptly to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified by the Company under the
provisions of this Agreement, the Certificate of Incorporation, or Bylaws of
the Company, the Law or otherwise. The advances to be made hereunder shall be
paid by the Company to the Indemnitee within thirty (30) days following
delivery of a written request therefor by the Indemnitee to the Company.


 


6.2.          Exception. Notwithstanding the foregoing provisions
of this Section 6, the Company shall not be obligated to advance any expenses
to the Indemnitee arising from a lawsuit filed directly by the Company against
the Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee’s request
to be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to “indemnification” being
deemed to refer to “advancement of expenses,” and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at
least fifteen (15) percentage points without advance Board approval.


 


7.              Notice and Other
Indemnification Procedures.


 


7.1.          Promptly after receipt by the Indemnitee of notice
of the commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with respect
thereto may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof.


 


7.2.          If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7.1 hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such D&O Insurance policies.


 

















 


7.3.          In the event the Company shall be obligated to
advance the expenses for any proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the Indemnitee (which approval shall not be unreasonably
withheld), upon the delivery to the Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that: (a) the Indemnitee shall have the right to employ
his own counsel in any such proceeding at the Indemnitee’s expense; (b) the
Indemnitee shall have the right to employ his own counsel in connection with
any such proceeding, at the expense of the Company, if such counsel serves in a
review, observer, advice, and counseling capacity and does not otherwise
materially control or participate in the defense of such proceeding; or (c) if
(i) the employment of counsel by the Indemnitee has been previously authorized
by the Company, (ii) the Indemnitee shall have reasonably concluded that there
may be a conflict of interest between the Company and the Indemnitee in the
conduct of any such defense or (iii) the Company shall not, in fact, have
employed counsel to assume the defense of such proceeding, then the fees and
expenses of the Indemnitee’s counsel shall be at the expense of the Company.


 


8.              Determination of Right
to Indemnification.


 


8.1.          To the extent the Indemnitee has been successful on
the merits or otherwise in defense of any proceeding referred to in Section 4.1
or 4.2 of this Agreement or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against expenses
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of such proceeding, or such claim, issue or matter, as the
case may be, including without limitation Indemnitee’s attorneys’ fees.


 


8.2.          In the event that Section 8.1 is inapplicable, or
does not apply to the entire proceeding, the Company shall nonetheless indemnify
the Indemnitee unless the Company shall prove by clear and convincing evidence
to a forum listed in

Section 8.3 below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.


 


8.3.          The Indemnitee shall be entitled to select the
forum in which the validity of the Company’s claim under Section 8.2 hereof
that the Indemnitee is not entitled to indemnification will be heard from among
the following:


 


(a)            a quorum of the Board
consisting of directors who are not parties to the proceeding for which
indemnification is being sought;


 


(b)            the stockholders of
the Company, provided however that the Indemnitee can select a forum consisting
of the stockholders of the Company only with the approval of the Company;


 


(c)            legal counsel mutually
agreed upon by the Indemnitee and the Board, which counsel shall make such
determination in a written opinion;


 


(d)            a panel of three
arbitrators, one of whom is selected by the Company, another of whom is
selected by the Indemnitee and the last of whom is selected by the first two
arbitrators so selected; or


 

















 


(e)            the Court of Chancery
of Delaware or other court having jurisdiction of subject matter and the
parties.


 


8.4.          As soon as practicable, and in no event later than
thirty (30) days after the forum has been selected pursuant to Section 8.3
above, the Company shall, at its own expense, submit to the selected forum its
claim that the Indemnitee is not entitled to indemnification, and the Company
shall act in the utmost good faith to assure the Indemnitee a complete
opportunity to defend against such claim.


 


8.5.          If the forum selected in accordance with Section
8.3 hereof is not a court, then after the final decision of such forum is
rendered, the Company or the Indemnitee shall have the right to apply to the
Court of Chancery of Delaware, the court in which the proceeding giving rise to
the Indemnitee’s claim for indemnification is or was pending or any other court
having jurisdiction of subject matter and the parties, for the purpose of
appealing the decision of such forum, provided that such right is executed
within sixty (60) days after the final decision of such forum is rendered. If
the forum selected in accordance with Section 8.3 hereof is a court, then the
rights of the Company or the Indemnitee to appeal any decision of such court
shall be governed by the applicable laws and rules governing appeals of the
decision of such court.


 


8.6.          Notwithstanding any other provision in this
Agreement to the contrary, the Company shall indemnify the Indemnitee against
all Expenses incurred by the Indemnitee in connection with any hearing or
proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless a court
of competent jurisdiction finds that each of the material claims and/or
defenses of the Indemnitee in any such proceeding was frivolous or not made in
good faith.


 


9.              Exceptions. Any other provision
herein to the contrary notwithstanding, the Company shall not be obligated
pursuant to the terms of this Agreement:


 


9.1.          Claims Initiated by Indemnitee. To indemnify or
advance expenses to the Indemnitee with respect to proceedings or claims
initiated or brought voluntarily by the Indemnitee and not by way of defense,
except with respect to proceedings specifically authorized by the Board or brought
to establish or enforce a right to indemnification and/or advancement of
Expenses arising under this Agreement, the charter documents of the Company or
any Subsidiary or any statute or law or otherwise, but such indemnification or
advancement of Expenses may be provided by the Company in specific cases if the
Board finds it to be appropriate; or


 


9.2.          Unauthorized Settlements. To indemnify the
Indemnitee hereunder for any amounts paid in settlement of a proceeding unless
the Company consents in advance in writing to such settlement, which consent
shall not be unreasonably withheld; or


 


9.3.          Securities Law Actions. To indemnify the Indemnitee
on account of any suit in which judgment is rendered against the Indemnitee for
an accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or


 


9.4.          Unlawful Indemnification. To indemnify the
Indemnitee if a final decision by a court having jurisdiction in the matter, in
a judgment not subject to appeal, shall


 

















 


determine that
such indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the
position that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication.


 


10.            Non-Exclusivity.


 


THE PROVISIONS FOR
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES SET FORTH IN THIS AGREEMENT SHALL
NOT BE DEEMED EXCLUSIVE OF ANY OTHER RIGHTS WHICH THE INDEMNITEE MAY HAVE UNDER
ANY PROVISION OF LAW, THE COMPANY’S CERTIFICATE OF INCORPORATION OR BYLAWS, THE
VOTE OF THE COMPANY’S STOCKHOLDERS OR DISINTERESTED DIRECTORS, OTHER AGREEMENTS
OR OTHERWISE, BOTH AS TO ACTION IN THE INDEMNITEE’S OFFICIAL CAPACITY AND TO
ACTION IN ANOTHER CAPACITY WHILE OCCUPYING HIS POSITION AS AN AGENT OF THE
COMPANY, AND THE INDEMNITEE’S RIGHTS HEREUNDER SHALL CONTINUE AFTER THE
INDEMNITEE HAS CEASED ACTING AS AN AGENT OF THE COMPANY AND SHALL INURE TO THE
BENEFIT OF THE HEIRS, EXECUTORS AND ADMINISTRATORS OF THE INDEMNITEE.


 


11.            Burden of Proof. In making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement, and the Company
shall have the burden of proof to overcome that presumption in connection with
the making by any person, persons or entity of any determination contrary to
that presumption.


 


12.            Duration of Agreement.


 


This Agreement shall
continue until and terminate upon the later of: (a) 10 years after the date
that the Indemnitee shall have ceased to serve as a director and/or officer of
the Company or director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which the Indemnitee served at the request of the Company; or (b) one year
after the final, nonappealable termination of any Proceeding then pending in
respect of which the Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding commenced by the
Indemnitee pursuant to Section 10 of this Agreement relating thereto.


 


13.            General Provisions.


 


13.1.        Interpretation of Agreement. It is understood that
the parties hereto intend this Agreement to be interpreted and enforced so as
to provide indemnification and advancement of expenses to the Indemnitee to the
fullest extent now or hereafter permitted by law, except as expressly limited
herein.


 


13.2.        Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal, or unenforceable for any
reason whatsoever, then:


 


(a)            the validity, legality
and enforceability of the remaining provisions of this Agreement (including,
without limitation, all portions of any paragraphs of this Agreement containing
any such provision held to be invalid, illegal, or unenforceable that are not


 

















 


themselves invalid,
illegal, or unenforceable) shall not in any way be affected or impaired
thereby; and


 


(b)            to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13.1 hereof.


 


13.3.        Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.


 


13.4.        Subrogation. In the event of full payment under
this Agreement, the Company shall be subrogated to the extent of such payment
to all of the rights of recovery of the Indemnitee, who shall execute all
documents required and shall do all acts that may be necessary or desirable to
secure such rights and to enable the Company effectively to bring suit to
enforce such rights.


 


13.5.        Counterparts. This Agreement may be executed in one
or more counterparts and via facsimile, each of which shall constitute an
original, but all of which when taken together shall constitute a single
agreement.


 


13.6.        Successors and Assigns. The terms of this Agreement
shall bind, and shall inure to the benefit of, the successors and assigns of
the parties hereto.


 


13.7.        Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given: (a) if delivered by hand and signed for by the party addressee; or
(b) if mailed by certified or registered mail, with postage prepaid, on the
third business day after the mailing date. Addresses for notices to either
party are as shown on the signature page of this Agreement or as subsequently
modified by written notice.


 


13.8.        Gender.
The masculine, feminine or neuter pronouns used herein shall be interpreted
without regard to gender, and the use of the singular or plural shall be deemed
to include the other whenever the context so requires.


 


13.9.        Governing
Law. This Agreement shall be governed exclusively by and construed according to
the laws of the State of Delaware, as applied to contracts between Delaware
residents entered into and to be performed entirely within Delaware.


 


If
the General Corporation Law of the State of Delaware (the “Delaware Law”) or
any other applicable law is amended after the date hereof to permit the Company
to indemnify Indemnitee for Expenses or liabilities, or to indemnify Indemnitee
with respect to any action or Proceeding, not contemplated by this Agreement,
then this Agreement (without any further action be either party hereto) shall
automatically be deemed to be amended to require that the Company indemnify
Indemnitee to the fullest extent permitted by the Delaware Law.


 

















 


13.10.      Consent
to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent
to the jurisdiction of the courts of the State of Delaware for all purposes in
connection with any action or proceeding, which arises out of or relates to
this Agreement.


 


13.11.      Attorneys’
Fees. In the event Indemnitee is required to bring any action to enforce rights
under this Agreement (including, without limitation, the payment or
reimbursement of expenses of any proceeding described in Section 4), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing
and pursuing such action, unless a court of competent jurisdiction finds each
of the material claims of the Indemnitee in any such action was frivolous and
not made in good faith.


 


[Balance of the Page Intentionally Left Blank]


 

















 


IN WITNESS
WHEREOF, the parties hereto have entered into this Agreement effective as of
the date first written above.


 


 


	
  TETON ENERGY CORPORATION 

  	
  INDEMNITEE 

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Karl F. Arleth

  	
   

  	
  By:

  	
  /s/ Bill I. Pennington

  	
   

  
	
  Name: Karl F. Arleth 

  	
  Name: Bill I. Pennington

  
	
  Title: President & CEO

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  July 20, 2006

  	
   

  	
  Date:

  	
  July 20, 2006

  	
   

  
	
   

  	
   

  
	
  Address:

  	
  Teton Energy Corporation

  410 17th Street – Suite 1850

  Denver, CO 80202

  	
  Address:

  	
  27 Brookhaven Trail

  Columbine Valley, CO 80123

  
												



 

















 


Exhibit B


 


Form of Restricted Stock
Agreement


 

















 


TETON ENERGY CORPORATION


 


2005 Long Term Incentive Plan


 


RESTRICTED STOCK AWARD AGREEMENT


 


THIS AGREEMENT is made as of this 1st day of
April 2006, by and between Teton Energy Corporation, a Delaware corporation
(the “Company”), and                 
(“Participant”).


 


The Company, pursuant to its 2005 Long
Term Incentive Plan (the “Plan”),
hereby grants the following stock award to Participant, which award shall have
the terms and conditions set forth in this Agreement:


 


1.     Award


 


The
Company, effective as of the date of this Agreement, hereby grants to
Participant a restricted stock award of             
shares (the “Shares”) of common stock, par value $0.001 per share, of the
Company (the “Common Stock”), subject to the terms and conditions set forth
herein.


 


2.     Vesting


 


Subject
to the terms and conditions of this Agreement, the Shares shall vest in
Participant as follows: the Shares shall vest ratably over a three-year
period, with one-third of the Shares (        )
vesting on January 1, 2007; one-third of the Shares (        )
vesting on January 1, 2008, and the balance or (        )
of the Shares vesting on January 1, 2009, if, and only if, Participant remains
continuously employed by the Company from the date hereof until each respective
vesting date, and subject to the forfeiture provisions below.  Vesting of
the Shares shall be accelerated to an earlier date only under the following
conditions:


 


(a)   in the event of a Change in Control of
Company (as defined in the attached Exhibit A), and provided that Participant
remains continuously in the service of or employed the Company until the
effective date of such Change in Control, all unvested Shares granted under
this Agreement shall become immediately vested on the effective date of the
Change in Control;


 


(b)   in the event that Participant’s employment by
or service provision for the Company is terminated because Participant becomes
in the service of a new owner of any business of the Company pursuant to a Change
in Control event, and provided that Participant remains continuously employed
by or in the service of the Company until the date of closing of the Change in
Control event, all unvested Shares granted under this Agreement shall become
immediately vested as of the last date of Participant’s service to or
employment by the Company; or


 


(c)   in the event that Participant’s service to
the Company is involuntarily terminated by the Company without cause within one
year following a Change in Control Event, and provided that Participant remains
continuously in the service of the Company until the date of such involuntary
termination, all unvested Shares granted under this Agreement shall become
immediately vested as of the last date of Participant’s employment with or
service for the Company.


 


(d)   in the event that the Participant’s
employment with or service to the Company terminates because of death or
Disability or at the request of the Chief Executive Officer of the Company
(other than for Cause) or of a U.S. government agency, all


 

















 


the Shares issuable under
this award will vest on such termination. Except to the extent provided in the
preceding sentence or unless specifically provided in this Agreement or in a
side letter thereto, this award will not vest upon the Participant’s
retirement. On the Vesting Date (or promptly thereafter), the Company will
deliver to the Participant a certificate representing the Shares which have
vested on such date. For purposes of this Agreement, the term “Disability”
shall be defined as any condition which shall render the Participant incapable
of fulfilling his or her obligations hereunder because of injury or physical or
mental illness, and such incapacity shall exist or reasonably may be expected,
upon the competent medical opinion of a doctor chosen by the Company, for a
period exceeding 60 consecutive days or 120 nonconsecutive days within a
six-month period.


 


3.     Restriction on Transfer


 


Until
the Shares vest pursuant to Section 2 hereof, none of the Shares may be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of or encumbered, and
no attempt to transfer the Shares, whether voluntary or involuntary, by
operation of law or otherwise, shall vest the transferee with any interest or
right in or with respect to the Shares.


 


4.     Forfeiture


 


If
Participant ceases to be an employee of or otherwise providing services to the
Company or any majority-owned affiliate of the Company for any reason prior to
the vesting of the Shares pursuant to Section 2 hereof, Participant’s rights to
the unvested portion of the Shares shall be immediately and irrevocably
forfeited.


 


5.     Issuance and Custody of
Certificate


 


(a)   The Company shall cause to be issued one or
more stock certificates, registered in the name of Participant, evidencing the
Shares.  Each such certificate (except for certificates in respect of
shares to be sold for taxes) shall bear the following legend:


 


“The
shares of common stock represented by this certificate are subject to
forfeiture, and the transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and conditions
(including restrictions against transfer) contained in the 2005 Long
Term Incentive Plan (the “Plan”)
and a Restricted Stock Award Agreement (the “Agreement”) entered into between
Teton Energy Corporation and the registered owner of such shares.  Copies
of the Plan and the Agreement are on file in the office of the Secretary of
Teton Energy Corporation, 410 17th Street, Suite 1850, Denver,
Colorado 80202.”


 


(b)   Participant shall execute stock powers
relating to the Shares and deliver the same to the Company.  Company shall
use such stock powers only for the purpose of canceling any unvested Shares
that are forfeited.


 


(c)   Each certificate issued pursuant to Section
5(a) hereof, together with the stock powers relating to the Shares, shall be
deposited by the Company with the Secretary of the Company or a custodian
designated by the Secretary.  The Secretary or such custodian shall issue
a receipt to Participant evidencing the certificate or certificates held which
are registered in the name of Participant.


 


(d)   After any Shares vest pursuant to Section 2
hereof, the Company shall promptly cause to be issued a certificate or
certificates evidencing such vested Shares, free of the legend provided in
section 5(a) hereof, and shall cause such certificate or


 

















 


certificates to be delivered
to Participant or Participant’s legal representatives, beneficiaries or heirs.


 


6.     Distributions and Adjustments


 


(a)   If all or any portion of the Shares vest in
Participant subsequent to any change in the number or character of Shares of
Common Stock (through stock dividend, recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Shares of Common Stock or other securities of the Company or other similar
corporate transaction or event affecting the Shares such that an adjustment is
determined by the Compensation Committee of the Board of Directors (the “Committee”)
to be appropriate in order to prevent dilution or enlargement of the interest
represented by the Shares), Participant shall then receive upon such vesting
the number and type of securities or other consideration which he would have
received if the Shares had vested prior to the event changing the number or
character of outstanding Shares of Common Stock.


 


(b)   Any additional Shares of Common Stock, any
other securities of the Company and any other property (except for cash
dividends) distributed with respect to the Shares prior to the date the Shares
vest shall be subject to the same restrictions, terms and conditions as the
Shares.  Any cash dividends payable with respect to the Shares shall be
distributed to Participant at the same time cash dividends are distributed to
shareholders of the Company generally.


 


(c)   Any additional Shares of Common Stock, any securities
and any other property (except for cash dividends) distributed with respect to
the Shares prior to the date such Shares vest shall be promptly deposited with
the Secretary or the custodian designated by the Secretary to be held in
custody in accordance with Section 5(c) hereof.


 


7.     Taxes


 


(a)   In order to provide the Company with the
opportunity to claim the benefit of any income tax deduction which may be
available to it in connection with this restricted stock award, and in order to
comply with all applicable federal or state tax laws or regulations, the
Company may take such action as it deems appropriate to assure that, if
necessary, all applicable federal or state income and social security taxes are
withheld or collected from Participant, including through means of grossing up
the grant to so provide for the collection of such taxes.


 


(b)   Participant may elect to satisfy his federal
and state income tax withholding obligations in connection with this restricted
stock award by (i) having the Company withhold a portion of the shares of
Common Stock otherwise to be delivered upon vesting of this restricted stock
award having a fair market value equal to the amount of federal and state
income taxes required to be withheld in connection with this restricted stock
award, in accordance with the rules of the Committee, or (ii) delivering to the
Company shares of Common Stock other than the shares to be delivered upon
vesting of this restricted stock award having a fair market value equal to such
taxes, in accordance with the rules of the Committee.


 


(c)   Notwithstanding clause 7(b) above, if
Participant elects, in accordance with Section 83(b) of the Internal
Revenue Code of 1986, as amended, to recognize


 

















 


ordinary income in the year
of acquisition of the Shares, the Company may require at the time of such
election an additional payment for withholding tax purposes based on the fair
market value of such Shares as of the date of the acquisition of such Shares by
Participant.


 


8.     Confidentiality, Non-Competition And Non-Solicitation


 


In
consideration of Participant’s receipt of this award, Participant agrees as
follows:


 


(a)   Participant will hold in a fiduciary capacity
for the benefit of the Company all information, knowledge or data relating to
the Company or any Subsidiaries and their respective businesses which the
Company or any Subsidiaries consider to be proprietary, trade secret or
confidential that Participant obtains or have previously obtained during its
service and that is not public knowledge (other than as a result of Participant’s
violation of this provision) (“Confidential Information”). Participant will not
directly or indirectly use any Confidential Information for any purpose not
associated with the activities of the Company or any Subsidiaries, or
communicate, divulge or disseminate Confidential Information to any person or
entity not authorized by the Company or any Subsidiaries to receive it at any
time during or after Participant’s service, except with the prior written
consent of the Company or as otherwise required by law or legal process.


 


(b)   For a period of two years after the
termination of Participant’s service, for any reason, voluntary or involuntary,
Participant will not, without the written consent of the Company, directly or indirectly,
engage or hold an interest in any company listed in Exhibit B, or any
subsidiary or affiliate of such company (the “Competing Businesses”), or
directly or indirectly have any interest in, own, manage, operate, control, be
connected with as a stockholder (other than as a holder of less than five
percent (5%) of any class of publicly traded securities of any such Competing
Business). Participant and the Company explicitly acknowledge that the
companies, entities, or interests identified in Exhibit C were owned by
Participant prior to his employment with the Company and are specifically
approved.


 


(c)   For a period of one year after the
termination of Participant’s service, for any reason, Participant will not,
without the written consent of the Company, directly or indirectly solicit,
entice, persuade or induce any person to leave the employment of the Company or
any Subsidiaries (other than persons employed in a clerical, non-professional
or non-management position).


 


(d)   Participant understands and agrees that the
restrictions set forth above, including, without limitation, the duration, and
the business scope of such restrictions, are reasonable and necessary to
protect the legal interests of the Company. Participant further agrees that the
Company will be entitled to seek injunctive relief in the event of any actual
or threatened breach of such restrictions. In addition, Participant also agrees
that in the event it is found by a court of law to have violated the
confidentiality provisions of this Agreement, that an adequate remedy will
including, among other things, the immediate forfeit of all shares (whether or
not vested) and disgorgement of any profit associated with this grant. If any
provision of this Agreement is determined to be unenforceable by any court,
then such provision will be modified or omitted only to the extent necessary to
make the remaining provisions of this Agreement enforceable.


 

















 


9.     Miscellaneous


 


(a)   This Agreement is issued pursuant to the Plan
and is subject to its terms.  Participant hereby acknowledges receipt of a
copy of the Plan.  The Plan is also available for inspection during
business hours at the principal office of the Company.


 


(b)   This Agreement shall not confer on
Participant any right with respect to continuance of service of or employment
by the Company or any of its subsidiaries.


 


(c)   This award is governed by and subject to the
terms and conditions of the Plan, which contain important provisions of this
award and form a part of this Agreement. Copies of the Plan are being provided
to or have been provided to Participant, along with a summary of the Plan. If
there is any conflict between any provision of this Agreement and the Plan,
this Agreement will control, unless the provision is not permitted by the Plan,
in which case the provision of the Plan will apply. Participant’s rights and
obligations under this Agreement are also governed by and are subject to
applicable U.S. laws and foreign laws.


 


(d)   This Agreement may be executed via facsimile
and in counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same Agreement.


 


(e)   This Agreement shall be governed by and
construed under the internal laws of the State of Colorado, without regard for
conflicts of laws principles thereof.


 


IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed on the day and year first above written.


 


	
   

  	
  TETON
  ENERGY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Chairman

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PARTICIPANT

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					



 


	
  Grantee:

  	
   

  	
  No. of Shares:

  	
   

  	
  Grant Date:

  	
   

  	
  Vesting Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 

















 


Exhibit A


 


Change In
Control.


 


(i)            For purposes of this Agreement and this
Exhibit A, a Change in Control” of the Company shall mean:


 


(a)           a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), whether or not the Company is then
subject to such reporting requirement;


 


(b)           the public announcement (which, for purposes
of this definition, shall include, without limitation, a report filed pursuant
to Section 13(d) of the Exchange Act) by the Company or any “person” (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) that such person
has become the “beneficial owner” (as defined in Rule 13d-3 promulgated under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company’s then
outstanding securities, determined in accordance with Rule 13d-3, excluding,
however, any securities acquired directly from the Company (other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company);
however, that for purposes of this clause the term “person” shall not include
the Company, any subsidiary of the Company or any employee benefit plan of the
Company or of any subsidiary of the Company or any entity holding shares of
Common Stock organized, appointed or established for, or pursuant to the terms
of, any such plan;


 


(c)           the Continuing Directors cease to constitute
a majority of the Company’s Board of Directors;


 


(d)           consummation of a reorganization, merger or
consolidation of, or a sale or other disposition of all or substantially all of
the assets of, the Company (a “Business Combination”), in each case, unless,
following such Business Combination, (A) all or substantially all of the
persons who were the beneficial owners of the Company’s outstanding voting
securities immediately prior to such Business Combination beneficially own
voting securities of the corporation resulting from such Business Combination
having more than 50% of the combined voting power of the outstanding voting
securities of such resulting Corporation and (B) at least a majority of the
members of the Board of Directors of the corporation resulting from such
Business Combination were Continuing Directors at the time of the action of the
Board of Directors of the Company approving such Business Combination;


 


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


 


(f)            the majority of the Continuing Directors
determine in their sole and absolute discretion that there has been a change in
control of the Company.


 


(ii)           “Continuing Director” shall mean any person
who is a member of the Board of Directors of the Company, while such person is
a member of the Board of Directors, who is not an Acquiring Person (as defined
below) or an Affiliate or Associate (as defined below) of an


 

















 


Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate,
and who (x) was a member of the Board of Directors on the date of this
Agreement as first written above or (y) subsequently becomes a member of
the Board of Directors, if such person’s initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors.  For purposes of this subparagraph
(ii), “Acquiring Person” shall mean any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all
Affiliates and Associates of such person, is the “beneficial owner” (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company’s then outstanding securities, but shall not include the
Company, any subsidiary of the Company or any employee benefit plan of the
Company or of any subsidiary of the Company or any entity holding shares of
Common Stock organized, appointed or established for, or pursuant to the terms
of, any such plan; and “Affiliate” and “Associate” shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.


 

















 


Exhibit
B


 


Prohibited
Activities or Ownership Interests


 

















 


Exhibit
C


 


Permitted
Activities or Ownership Interests