exv10w19





Exhibit 10.19

AMENDED AND RESTATED




EMPLOYMENT AGREEMENT




BETWEEN




TETON ENERGY CORPORATION




And




Karl F. Arleth

(Executive)




          THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of September 1, 2006 (the “Effective
Date”) is entered into by and between Teton Energy Corporation, a Delaware corporation (the
“Company”), and Karl F. Arleth, an individual with a physical address at 0467 Sage Creek Canyon
Drive, Silverthorne, CO 80498 and mailing address of P.O. Box 23507, Silverthorne, CO 80498, (the
“Executive”) (collectively, the “Parties,” individually, a “Party”).



W I T N E S S E T H:




          WHEREAS, Employee has substantial experience in the Corporation’s business and is currently
the Corporation’s President and Chief Executive Officer; and


  

          WHEREAS, the parties desire to clarify certain portions of this Agreement and to modify
certain of the benefits and obligations provided hereunder; 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) that portion of Executive’s Base Salary that was not
previously paid to the Executive from the last payment date through the Date of Termination, and
(2) an amount equal 24 months salary at the level of the Executive’s Base Salary then in effect,
and (3) all equity-based awards that vest pursuant to the terms of each plan under which they were
awarded.



          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 “Cash Bonus” shall mean the annual cash incentive awarded to Executive each year
and approved by the Compensation Committee as identified more fully in Section 3.2 herein.



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



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



          1.8 The term “Compensation Committee” shall mean the Compensation Committee of the Board of
Directors of the Company.



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



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



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



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



          1.13 The term “Severance Benefit” shall have the meaning set forth in Section 4.7(a)(i)
herein.



          1.14 The term “Target Cash Bonus” shall mean the targeted bonus for the Executive in a
specific or current fiscal year as identified more fully in Section 3.2 herein.



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



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



          2.2 Term. The Executive’s employment shall be for an initial term of three (3) years
(“Initial Term”), commencing on the Effective Date. The Executive’s employment shall be
automatically extended on the day after the second year anniversary of the Effective Date
(“Automatic Extension”), and on each anniversary date thereof, for additional two (2) year periods;
provided, however, that the outstanding term at any time shall never be greater than two (2) years.



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



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




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




     (b) fulfilling speaking engagements;




     (c) engaging in charitable and community activities;




     (d) managing his personal business and investments; and




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



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          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, nor will he knowingly bring any confidential information
or property of any other person, firm or entity; and




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



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ARTICLE THREE




COMPENSATION




     3. Compensation.



          3.1 Base Salary. Executive shall receive an initial annual base salary of Two Hundred
Fifty Thousand Dollars ($250,000.00), payable according to the Company’s normal payroll policies
and procedures as in effect from time to time (the “Base Salary”) and subject to all federal,
state, and municipal withholding requirements. The Base Salary shall be reviewed by the Board
annually for any increase.



          3.2 Cash Bonus. The Executive shall be eligible for a Cash Bonus equal to an amount
as determined by the Compensation Committee of the Board or by the independent directors (as that
term is defined by the stock exchange or market on which the Company’s shares may be the traded).
Each Cash Bonus shall be paid no later than the 75th day of the fiscal year next
following the fiscal year in respect of which Cash Bonus is awarded or earned, unless Executive
shall elect to defer the receipt of such Cash Bonus.



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




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




     (b) Upon a Change of Control, all equity-based compensation will be deemed to
have vested as of the Change of Control Effective Date (as defined Section 7.1
herein).



          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 by
such benefit plan.




     (c) Life Insurance. The Company will purchase life insurance on the
life of Executive in an amount not less than $3,000,000, the benefits of which will
be payable one-half to the Executive’s beneficiary and one-half to the Company. The
Executive’s “beneficiary” is the person or persons (who may be designated
concurrently, successively or contingently) designated by the Executive in his last
effective writing filed with the
Company prior to his death, or if the Executive shall have failed to make an
effective



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designation, the Executive’s beneficiary is his spouse, if the Executive
is married and his spouse is living at the time of each payment, and otherwise his
surviving children. The Executive shall assist the Company in procuring such
insurance by submitting to such examinations and by signing such applications and
other instruments as may be reasonable and as may be required by the insurance
carriers to which application is made for any such insurance. The Executive
represents that, to the best of his knowledge, he is currently insurable at standard
premium rates for life insurance policies.




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




     (e) Vacation.




     (i) The Executive shall be entitled to take such vacations, with pay,
as are customary among other chief executive officers of organizations of
similar size and nature, which vacation level shall be reviewed by the
Compensation Committee from time to time. No more than 1.5 times (1.5x)
Executive’s authorized annual vacation allocation may be accrued, at any
given time. For purposes of calculating the vacation accrual, it shall be
assumed that Executive is entitled to six (6) weeks vacation, unless
otherwise adjusted higher by the Compensation Committee. 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 cannot be retroactively
reapplied.




     (ii) Pay will be provided for any unused, accrued paid vacation credit
at the time of Executive’s separation from the business by the Company.




     (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.




     (g) Reimbursement of Expenses. 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.



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




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




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



          3.6 Severance Benefit. In the event that Executive’s employment is terminated, other
than for Cause, Executive shall receive compensation pursuant to Section 4.7 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 as then in effect.



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.



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          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 Chairman of the Company, which specifically identifies the manner in
which the Board or the Chairman of the Company believes the Executive has not
substantially performed the Executive’s duties; or




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




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




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



          (b) Termination Without Cause.



          All terminations by the Company that are not for Cause, shall be considered Without
Cause.



          4.4 Termination by Executive. The Executive may terminate the Executive’s employment
hereunder at any time during the Employment Term for Good Reason (as defined below). For purposes
of this Agreement, “Good Reason” shall mean any of the following (without the Executive’s express
written consent):




     (a) The assignment to the Executive of any duties inconsistent in any respect
with the Executive’s position (including status, offices, titles and reporting
requirements), duties, functions, responsibilities or authority as contemplated by
Section 2.3 of this Agreement, or any other action by the Company that results in a
diminution in such position, duties, functions, responsibilities or authority,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;



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     (b) Any failure by the Company to comply with any of the provisions of Section
2.3 of this Agreement, other than an isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;




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




     (d) Any failure by the Company to provide Executive with the compensation
provided for in Article Three, which is not promptly remedied by the Company after
notice thereof given by Executive.




     (e) Any failure by the Company to comply with and satisfy Section 8.1 of this
Agreement; or




     (f) 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 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 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 (i) for Cause shall be given by the Company, or (ii) 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.



          4.6 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, and (d) 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



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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).



          4.7 Obligations of the Company upon Termination.




     (a) Change of Control. If, during the Employment Term, the Company (or
applicable affiliated company) shall terminate the Executive’s employment hereunder
in the event of a Change of Control:




     (i) the Company shall pay to the Executive in a lump sum the sum
of (A) Executive’s Base Salary, if any, which has been earned but not
paid through the Termination Date, (B) an amount equal to three times
(3x) Executive’s Base Salary, (C) an amount equal to the product of
(x) the greater of the Target Cash Bonus in the then current fiscal
year or the average Cash Bonus received for the prior three (3)
years; (provided, however, that if Executive has been employed by the
Company for fewer than three (3) years, then the average of the Cash
Bonus actually paid by the Company for prior period shall be used;
provided, further, that in the event the Executive has not received a
Cash Bonus then the Target Cash Bonus shall be used) times (y) three
(3), and (D) any accrued vacation or other pay pursuant to the
Company’s vacation policy, to the extent not previously paid or
taken; provided, further, that the benefit provided by this Section
4.7(a)(i) shall not be available to the Executive in the event of a
termination of employment other than in the event of a Change of
Control;




     (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 outstanding performance share units shall immediately
vest 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”).




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     (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 to the Other Benefits and (ii) treatment of all other
compensation under existing plans as provided by the terms and rules of those plans;
provided, that the Company and the Executive agree that Award Agreements issued
under the Company’s 2005 Long-term Incentive Plan shall continue to provide for
accelerated vesting upon a participant’s death or disability on the same terms that
those Award Agreements currently provide for such vesting for so long as this
Agreement remains in force.




     (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; provided, that the Company and the Executive agree that Award
Agreements issued under the Company’s 2005 Long-term Incentive Plan shall continue
to provide for accelerated vesting upon a participant’s death or disability on the
same terms that those Award Agreements currently provide for such vesting for so
long as this Agreement remains in force.




     (d) Good Reason; Other Than for Cause or Change of Control. If, during
the Employment Term, the Company (or applicable affiliated company) shall terminate
the Executive’s employment hereunder other than for Cause or as a consequence of a
Change of Control, 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.




     (e) Cause; Other Than for Good Reason. 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 and any accrued vacation or
other pay pursuant to the Company’s vacation policy, in each case to the extent
theretofore unpaid or unused and to reimburse expenses pursuant to Section 3.4(g)
incurred prior to the Termination Date. If the Executive voluntarily terminates the
Executive’s employment during the Employment Term, excluding a termination either
for (i) Good Reason or (ii) a Change of Control, this Agreement shall terminate
without further compensation obligations to the Executive, other than for that
portion of 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, plus the amount of any compensation previously deferred by the
Executive, any accrued vacation or other pay pursuant to the Company’s vacation
policy, to the extent not previously paid, in each case to that extent theretofore
unpaid, to reimburse expenses pursuant to Section 3.4(g)



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incurred prior to the Termination Date, and the timely payment or provision of
the Other Benefits, as provided in any applicable plan, and the Executive shall have
no further obligations nor liability to the Company. In such case, any amounts owed
to the Executive shall be paid to the Executive in a lump sum in cash within 90 days
of the Date of Termination subject to applicable laws and regulations.



          4.8 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 from the date on which such
court makes such determination 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) the Company
maintains secret and confidential information, (c) during the course of Executive’s employment by
the Company such secret or confidential information may become known to Executive, and (d) full
protection of the Company’s business makes it essential that no employee appropriate for his or her
own use, or disclose such secret or confidential information, Executive agrees that during the time
of Executive’s employment and for a period of two (2) years following the termination of
Executive’s employment with the Company, Executive agrees to hold in strict confidence and shall
not, directly or indirectly, disclose or reveal to any person, or use for his own personal benefit
or for the benefit of anyone else, any trade secrets, confidential dealings, or other confidential
or proprietary information of any kind, nature, or



12









 







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 non-confidential 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. Notwithstanding the foregoing, this Section is not intended, nor shall be
construed, to prohibit Executive’s use of Executive’s general knowledge, skill, and experience nor
Executive’s inventive powers.



          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
Section 4.7 of 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, if Executive is paid a lump sum Severance Amount then it shall be deemed that Executive
is continuing to receive a Severance Benefit or Severance Amount for the number of months of
Executive’s Base Salary represented by the lump sum payment 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.



13









 





          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.



          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 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



14









 







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 or entity, 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 or entity and the
combined voting power of the then outstanding voting securities of such corporation
or entity 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 or entity, 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 entity or the combined
voting power of the then outstanding voting securities of such corporation or entity
entitled to vote generally in the election of directors, and (C) a majority of the
members of the board of directors of such corporation or entity 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



15









 







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



16









 







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:


Karl F. Arleth

0467 Sage Creek Canyon Drive

P.O. Box 23507

Silverthorne, CO 80498

970-468-7448





     (b) if to the Company:



17









 




Teton Energy Corporation

600 17th Street – Suite 1600 North

Denver, CO 80202

Attn: Chairman, Compensation Committee



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




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



          8.18 Non-Binding Mediation. Before commencing any legal proceeding in any court of
law, any controversy arising out of or relating to this Agreement, its enforcement or
interpretation, or because of an alleged breach, default, or misrepresentation in connection with
any of its provisions, or any other controversy arising out of Executive’s employment, including,
but not limited to, any state or federal statutory claims, shall first be submitted to non-binding
mediation in Denver, Colorado, before a sole mediator selected from Judicial Arbitration and
Mediation Services, Inc., Denver, Colorado, or its successor (“JAMS”), or if JAMS is no longer able
to supply the mediator, such mediator shall be selected from the American Arbitration Association,
provided, however, that provisional injunctive relief may, but need not, be sought by either party
to this Agreement in a court of law while mediation proceedings are pending



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



	 	 	 	 	 	 	 	 	 
	TETON ENERGY CORPORATION	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Robert F. Bailey	 	By:
	 	/s/ Karl F. Arleth	 	 
	 

	 	 
	 	 	 	 	 	 
	Name: Robert F. Bailey	 	Name: Karl F. Arleth	 	 
	Title: Director & Chairman,
Compensation Committee	 	 	 	 	 	 







18









 








Schedule A




Outside Activities

Karl F. Arleth




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Date Hired or	 	 	 	 	 	 
	Company or	 	 	 	Commenced	 	 	 	 	 	Annual Time
Commitment, 
	Project Name	 	Nature of Business	 	Involvement	 	Position	 	Compensation	 	(time away from office)
	 
	 	 	 	 	 	 	 	 	 	 





Dated:
September 1, 2006




Initials: Executive:
                  Company:           




 









 





Exhibit A




Indemnification Agreement