Exhibit 10.5


 


Teton Energy Corporation 2005 Long-Term Incentive Plan


 


2005 Performance Share Unit Award Agreement


 


You have been selected to be
a Participant in the Teton Energy Corporation 2005 Long-Term Incentive Plan
(the “Plan”), as specified below:


 


Participant:


 


Date of Award:                July     ,
2005


 


Target Number of Performance Share Units Awarded:            Base Units;             
Stretch Target Units


 


Performance Period:                              1 January 2005 to 31 December 2007


 


Performance Measure:                  Production
(MCF), Management Efficiency and Effectiveness (“Management E&E”), Reserves
(bcf), Finding and Development/Exploration Costs (“F&D/Exploration”), and
the price of the Company’s common stock (the “Performance Measures”).  The Performance Measures are consolidated
into a composite measure based on the relative weighting of each component as a
percentage of 100%.  Performance measures
are based on the attainment of one, two, and three year objectives.


 


THIS AWARD AGREEMENT,
effective as of the Date of Award set forth above, represents the award of Performance
Share Units by Teton Energy Corporation, a Delaware corporation (the “Company”),
to the Participant named above, pursuant to the provisions of the Plan, which
is attached as Exhibit A, and pursuant to the Plan Administration document
(the “Plan Administration”), which is attached as Exhibit B.


 


The Plan and the Plan
Administration provide a complete description of the terms and conditions
governing Performance Share Units.  If
there is any inconsistency between the terms of this Award Agreement and the
terms of the Plan, the Plan’s terms shall completely supersede and replace the
conflicting terms of this Award Agreement. 
All capitalized terms shall have the meanings ascribed to them in the
Plan, unless specifically set forth otherwise herein.  In consideration of the mutual promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereto agree as follows:


 


1.  Employment by the
Company.  The Performance Share Units granted hereunder
are awarded on the condition that the Participant remains employed by the
Company from the Date of Award through the end of the Performance Period, as
specified above.  However, neither such
condition nor the award of the Performance Share Units shall impose upon the
Company any obligation to retain the Participant in its employ for any given
period or upon any specific terms of employment.


 


2.  Earning Performance
Share Units.  Subject to the terms of the Plan and this
Award Agreement, the Participant shall be entitled to receive payment of the
number and value of Performance Share Units earned by the Participant over the
Performance Period, where the number of Performance Share Units is determined
as a function of the extent to which the corresponding performance goals have
been achieved.


 


3.  Performance Measures.  The
Performance Measures under this Award Agreement shall be based on a combination
of Production (MCF), Management Efficiency and Effectiveness (“Management
E&E”), Reserves (bcf), Finding and Development/Exploration Costs (“F&D/Exploration”),
and the price of the Company’s common stock. 
The Performance Measures are consolidated into a composite measure based
on the relative weighting of each component as a percentage of 100%.  Performance measures are based on the
attainment of one, two, and three year objectives.


 


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Achievement of the following
targets in 2005, 2006, and 2007 will entitle the Participant to payment of the
Target Number of Performance Share Units awarded as set forth above, subject to
other provisions of the Plan and this Award Agreement:


 


Base
Performance Targets


 


	
   

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Composite Measurement

  	
   

  	
  100.00

  	
   

  	
  271.31

  	
   

  	
  397.30

  	
   

  



 


Achievement of the following
targets in 2005, 2006, and 2007 shall entitle the Participant to payment of
200% of the Target Number of Performance Share Units awarded:


 


Stretch
Performance Targets


 


	
   

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Composite Measurement

  	
   

  	
  119.66

  	
   

  	
  410.42

  	
   

  	
  628.52

  	
   

  



 


Achievement of the following
targets in 2005, 2006, and 2007 shall entitle the Participant to payment of 50%
of the Target Number of Performance Share Units awarded:


 


Below
Base Performance Targets


 


	
   

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Composite Measurement

  	
   

  	
  84.17

  	
   

  	
  203.29

  	
   

  	
  292.98

  	
   

  



 


Achievement of less than the
aforementioned targets shall result in no payment of Performance Share Units to
the Participant under this Award Agreement.


 


Achievement of results
between Performance Targets identified above shall entitle the Participant to
payment of the number of Performance Share Units interpolated according to a
performance achievement function defined by the foregoing achievement levels,
and as reflected on the graphs attached hereto. 
Such interpolation shall be made by the Committee in its sole discretion
and shall be binding.


 


In the event that the Base
Performance Targets for 2005 are achieved, 20% of the Target Performance Share
Units shall vest and be paid out to the Participant.  In the event that the Base Performance
Targets for 2006 are achieved, 30% of the Target Performance Share Units shall
vest and be paid out to the Participant. 
In the event that the Base Performance Targets for 2007 are achieved,
the balance or 50% of the Target Performance Shares Units shall vest and be
paid out to the Participant.  Stretch
targets, if achieved, will be paid out according to the same schedule.


 


4.  Form and
Timing of Payment of Performance Share Units.  Payment
of earned Performance Share Units shall be made as soon as practicable but
in no event after March 31 of the calendar year following the calendar
year of the close of the applicable Performance Period.  Subject to the Plan, the Committee, as that
term is defined in the Plan, has authorized that the future payment of any
earned Performance Share Units shall be made 100% in Shares.  The Company will withhold from any such
payout Shares having a value equivalent to the amount needed to satisfy the
minimum statutory tax withholding requirements of the Company or its Subsidiary
in the appropriate taxing jurisdiction.


 


5.  Voting Rights and
Dividends.  During the Performance Period and until the
date of payment of Performance Share Units as provided for in Section 4,
the Participant will not have voting rights with respect to the Performance
Share Units.  During the Performance
Period and until and including the date of payment of Performance Share Units
as provided in Section 4, the Participant shall receive all dividends,
dividend equivalents and other distributions paid with respect to the number of
shares of Common Stock of the Company equal to the number of Performance Share
Units granted under this Award.  Any such
payment of dividend, dividend equivalent or other distribution will be made on
one of the Participant’s next two regular paydays following the specified
record date.


 


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6.  Termination of
Employment Due to Death, Disability, or Retirement.  In
the event the employment of a Participant is terminated by reason of death,
Disability, or Retirement (as such terms are defined in the Plan) during the
Performance Period, the Participant or the Participant’s beneficiary or estate,
as the case may be, shall be entitled to receive a prorated payment of the Performance
Share Units.  The prorated payment shall
be determined by the Committee, in its discretion, based on the number of full
months of the Participant’s employment during the Performance Period, in
relation to the total number of months in the Performance Period, and shall
further be adjusted based on the achievement of the pre-established performance
goals set forth in Section 3.


 


Payment of Performance Share
Units shall be made at the time specified by the Committee in its discretion.  Notwithstanding the foregoing, with respect
to a Participant who retires during the Performance Period, payments shall be
made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period as set forth in Section 4.


 


7.  Termination of
Employment for Other Reasons.  In the event that the
Participant terminates employment with or Board membership of the Company for
any reason other than those reasons set forth in Section 6, or in the
event that the Company terminates the employment of the Participant with or
without cause, all Performance Share Units awarded to the Participant under
this Award Agreement shall be forfeited by the Participant to the Company;
provided, however, that in the event of a termination of the employment of the
Participant by the Company without cause, the Committee, in its discretion, may
waive such automatic forfeiture provision and pay out on a pro rata basis in
accordance with Section 6.


 


8.  Change in Control.  In
the event of a Change in Control as defined in the Plan, during the Performance
Period, the Target Number of Performance Share Units shall become payable in
full and such payment shall be made within twenty-five (25) calendar days
following the date of the Change in Control. 
The Committee, in its discretion, may make such payment of the Target
Number of Performance Share Units in the form of cash or in shares (or in a
combination thereof).  The number of
Shares to be issued, if any, shall be equal to the number of earned Performance
Share Units designated by the Committee to be paid in Shares.  The amount of cash to be paid if any shall be
equal to the Fair Market Value, as defined in the Plan, of a share of the
Common Stock of the Company as of the date of the Change in Control multiplied
by the number of Performance Share Units designated by the Committee to be paid
in cash.


 


9.  Nontransferability.  Performance
Share Units may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution.  Further, except as
otherwise determined by the Committee and provided in this Award Agreement, a
Participant’s rights under the Plan shall be exercisable during the Participant’s
lifetime only by the Participant or the Participant’s legal representative.


 


10.  Adjustments in
Authorized Shares.  The Committee shall have the sole discretion
to adjust the number of Performance Share Units awarded pursuant to this Award
Agreement, in accordance with the Plan.


 


11.  Tax Withholding.  The
Company shall have the power and the right to deduct or withhold, or require
the Participant or beneficiary to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes, domestic or foreign, required by law
or regulation to be withheld with respect to any taxable event arising as a
result of this Award Agreement.  The
Company’s power and right to withhold includes the right to withhold Shares
with a value equivalent to the amount needed to satisfy the minimum statutory
tax withholding requirements of the Company, its Subsidiary, or affiliate in
the appropriate taxing jurisdiction.


 


12.  Share Withholding.  With
respect to withholding required upon any other taxable event arising as a
result of Awards granted hereunder, the Participant may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Performance Share Units having a Fair
Market Value on the date the tax is to be determined equal to the minimum
statutory total tax which could be withheld on the transaction.  All such elections shall be irrevocable, made


 


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in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.


 


13.  Covenant Not to
Compete.  Without the consent of the Company, the
Participant shall not, directly or indirectly, at any time during the
Participant’s employment with the Company or any of its Subsidiaries, and for a
period of eighteen (18) months following the termination of Participant’s
employment with the Company and its Subsidiaries for any reason, be associated
or in any way connected as an owner, investor, partner, director, officer,
employee, agent, or consultant with any business entity directly engaged in the
production and/or sale of products competitive with any material product,
offering or business of the Company or any of its Subsidiaries; provided,
however, that the Participant shall not be deemed to have breached this
undertaking if his sole relation with such entity consists of his holding,
directly or indirectly, an equity interest in such entity not greater than two
percent (2%) of such entity’s outstanding equity interest, and the class of
equity in which the Participant holds an interest is listed and traded on a
broadly recognized national or regional securities exchange; provided, further,
that in the event that Participant’s employment with the Company or any of its
Subsidiaries terminates for reasons related to a change in control, this
restriction shall not apply.  A Participant’s
investment in another business entity shall not be deemed to be directly competitive
with the Company’s operations or otherwise prohibited if: (a) it was known
to the independent directors at the time the Participant commenced work with
the Company; (b) reviewed and approved by disinterested independent
directors; or (c) of a passive, minority investment nature and the disinterested independent directors have determined
that the activities undertaken by such other business entity are not directly
in competition with the Company as there are no corporate opportunities that
are being taken from the Company by virtue of the Participant’s investment.


 


The Participant acknowledges
that: (a) the services to be performed by him for the Company are of a
special, unique, unusual, extraordinary, and intellectual character; (b) the
business of the Company and its subsidiaries is worldwide in scope and its business
opportunities are located throughout the world; (c) the Company and its Subsidiaries
and affiliates compete with other businesses that are or could be located in
any part of the world; and (d) the provisions of this Section 13 are
reasonable and necessary to protect the Company’s business.


 


If any covenant in this Section 13
is held to be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope, time, and geographic
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against the Participant.


 


The period of time
applicable to any covenant in this Section 13 will be extended by the
duration of any violation by the Participant of such covenant.


 


For so long as while the
covenants under this Section 13 are in effect, the Participant will give
notice to the Company of the identity of the Participant’s new employer, within
two business days after accepting any other employment.  The Company may notify such employer that the
Participant is bound by this Award Agreement and, at the Company’s election,
furnish such employer with a copy of this Award Agreement or relevant portions
thereof.


 


14.  Disclosure of
Confidential Information.  Without the consent of the Company, the
Participant shall not disclose to any other person Confidential Information, as
defined below, concerning the Company or any of its Subsidiaries or affiliates,
or the Company’s or any of its Subsidiaries’ trade secrets of which the
Participant has gained knowledge during his employment with the Company.  Any trade secrets of the Company or any of
its subsidiaries or related or affiliated companies or joint ventures will be
entitled to all of the protections and benefits under the Uniform Trade Secrets
Act (Article 74 of the Colorado Statutes), Section 18-4-408 of the
Colorado Statutes, and any other applicable law.  If any information that the Company deems to
be a trade secret is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Award Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this Award
Agreement.  The Participant hereby waives
any requirement that the Company submits proof of the economic value of any
trade secret or posts a bond or other security.


 


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None of the foregoing
obligations and restrictions apply to any part of the Confidential Information
that the Participant demonstrates was or became generally available to the
public other than as a result of a disclosure by the Participant.


 


For purposes of this Award
Agreement, Confidential Information shall include any and all information
concerning the business and affairs of the Company or any of its Subsidiaries or
affiliates which is not generally available to others, would be considered to
be information proprietary to the Company or any of its Subsidiaries, or that
is a trade secret within the meaning of the Uniform Trade Secrets Act (Article 74
of the Colorado Statutes), Section 18-4-408 of the Colorado Statutes, and
any other applicable law.


 


15.  Nonsolicitation.  Without
the written consent of the Company, the Participant shall not, at any time
during Employment and for a period of eighteen (18) months following the
termination of Participant’s employment with the Company and its Subsidiaries or
affiliates for any reason (a) employ or retain or arrange to have any
other person, firm, or other entity employ or retain or otherwise participate
in the employment or retention of any person who is an employee or consultant
of the Company or its Subsidiaries; or (b) solicit or arrange to have any
other person, firm, or other entity solicit or otherwise participate in the
solicitation of business from any entity that was a customer of the Company or any
of its Subsidiaries or affiliates during the time of the Participant’s
employment, whether or not the Participant had personal contact with such
person; provided, further, that in the event that Participant’s employment with
the Company or any of its Subsidiaries terminates for reasons related to a
change in control, this restriction shall not apply.


 


16.  Injunctive Relief
and Additional Remedy; Essential and Independent Covenants.


The Participant acknowledges
that the injury that would be suffered by the Company as a result of a breach
of the provisions of this Award Agreement (including any provision of Sections
13, 14, and 15) would be irreparable and that an award of monetary damages to
the Company for such a breach would be an inadequate remedy.  Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically
enforce any provision of this Award Agreement, and the Company will not be
obligated to post bond or other security in seeking such relief.  Without limiting the Company’s rights under
this Section 16 or any other remedies of the Company, if the Participant
breaches any of the provisions of Sections 13, 14, or 15, the Company will have
the right to cease making any payments otherwise due to the Participant under
this Award Agreement.


 


The covenants by the
Participant in Sections 13, 14, and 15 are essential elements of this Award
Agreement, and without the Participant’s agreement to comply with such
covenants, the Company would not have entered into this Award Agreement with
the Participant.  The Company and the
Participant have been afforded the opportunity to consult their respective
counsel and have been advised or had the opportunity to obtain advice, in all
respects concerning the reasonableness and propriety of such covenants
(including, without limitation, the time period of restriction and the
geographical area of restriction set forth in Section 13), with specific
regard to the nature of the business conducted by the Company and its Subsidiaries
and related or affiliated companies or joint ventures.  The Participant’s covenants in Sections 13,
14, and 15 are independent covenants and the existence of any claim by the
Participant against the Company under this Award Agreement or otherwise, will
not excuse the Participant’s breach of any covenant in Sections 13, 14, or 15.


 


If this Award Agreement or
the Participant’s employment with the Company and its Subsidiaries or
affiliates expires or is terminated, this Award Agreement will continue in full
force and effect as is necessary or appropriate to enforce the covenants and
agreements of the Participant in Sections 13, 14, 15, and 16.


 


17.  Beneficiary
Designation.  The Participant may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under this Award Agreement is to be paid in
case of his or her death before he or she receives any or all of such benefit.
Each such designation shall revoke all prior designations by the Participant,
shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Secretary of the


 


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Company during the
Participant’s lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant’s death shall be paid to the Participant’s
estate.


 


Beneficiary
Designation (name, address, and relationship):


 


	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Relationship:

  	
   

  	
   

  	
   

  



 


18.  Administration.  This
Award Agreement and the rights of the Participant hereunder are subject to all
the terms and conditions of the Plan, as the same may be amended from time to
time, as well as to such rules and regulations as the Committee may adopt
for administration of the Plan.  It is
expressly understood that the Committee is authorized to administer, construe,
and make all determinations necessary or appropriate to the administration of
the Plan and this Award Agreement, all of which shall be binding upon the
Participant.  Any inconsistency between
the Award Agreement and the Plan shall be resolved in favor of the Plan.  Any inconsistency between the Award Agreement
and the administrative rules shall be resolved in favor of the
administrative rules.  Any inconsistency
between the administrative rules and the Plan shall be resolved in favor
of the Plan.


 


19.  Continuation of
Employment.  This Award Agreement is not an employment
agreement, it shall not confer upon the Participant any right to continuation
of employment by the Company, nor shall this Award Agreement interfere in any
way with the Company’s right to terminate his or her employment at any time.


 


20.  No Vested Right In
Future Awards.  Participant acknowledges and agrees (by
executing this Award Agreement) that the granting of Awards under this Award
Agreement are made on a fully discretionary basis by the Committee and that
this Award Agreement does not lead to a vested right to further Awards in the
future.  Further, the Awards set forth in
this Award Agreement constitute a non-recurrent benefit and the terms of Award
Agreement are only applicable to the Awards distributed pursuant to this Award
Agreement.


 


21.  Severability.  In
the event that any provision of this Award Agreement shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of this Award Agreement, and this Award Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.


 


22.  Miscellaneous.  With
the approval of the Board, the Committee may terminate, amend, or modify the
Plan; provided, however, that no such termination, amendment, or modification
of the Plan may in any way materially impairs the Participant’s rights under
this Award Agreement, without the Participant’s written approval.


 


This Award Agreement shall
be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.


 


All obligations of the
Company under the Plan and this Award Agreement, with respect to the Performance
Share Units granted hereunder, shall be binding (i) on the Company and on
any successor to the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation, or otherwise,
of all or substantially all of the business and/or assets of the Company; and (ii) on
the Participant and his or her heirs and legal representatives.


 


Each of the terms of this
Award Agreement is deemed severable in whole or in part, and if any term or
provision, or the application thereof, in any circumstance should be illegal,
invalid or unenforceable, the remaining terms and provisions will not be
affected thereby and will remain in full force and effect.


 


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To the extent not preempted
by federal law, this Award Agreement is deemed to have been made and entered
into in the State of Colorado and in all respects the rights and obligations of
the parties will be governed by, and construed and enforced in accordance with,
the laws of the State of Colorado without regard to the principles of conflict
of laws.  Any and all lawsuits, legal
actions or proceedings against either party arising out of this Award Agreement
will be brought in Denver County, Colorado or federal court of competent
jurisdiction sitting nearest to Denver, Colorado, and each party hereby submits
to and accepts the exclusive jurisdiction of such court for the purpose of such
suit, legal action or proceeding.  Each
party irrevocably waives any objection it may now have or hereinafter have to
this choice of venue of any suit, legal action or proceeding in any such court
and further waives any claim that any suit, legal action or proceeding brought
in any such court has been brought in an inappropriate forum.


 


IN WITNESS WHEREOF, the
parties have caused this Award Agreement to be executed effective as of             ,
2005.


 


	
   

  	
  Teton Energy Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Participant

  
						



 


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